
    Oswego Falls Pulp and Paper Company, Respondent, v. Stecher Lithographic Company, Appellant.
    Fourth Department,
    July 11, 1911.
    Contract — damages — manufacture and sale of goods — interested wit-, ness — question for jury — modification of agreement — evidence — good faith — cancellation of contract.
    Where in an action to recover for breach of contract it appears that defendant agreed to buy of plaintiff certain paper board which plaintiff was to manufacture according to specifications tó be furnished by defendant and that after part of the goods had been received and paid for defendant refused to furnish specifications for, or to receive any more upon the ground that those already furnished were of inferior grade, the measure of plaintiff’s damages is the difference between the cost of manufacturing the goods still to be made and the contract price for the same.
    Where the only testimony as to the cost of manufacture is given by an interested witness such cost beconies a question of fact for the jury. If, as claimed by the defendant, the presidents of the parties met after the dispute as to the quality of the paper board and the plaintiff’s president" then agreed for a sufficient consideration that the rest of the goods furnished would be satisfactory to defendant’s president, this amounted to a modification of the original contract; so that the goods subsequently furnished had to be satisfactory to the‘defendant.
    But this modification did not give defendant aright capriciously or unreasonably to. reject goods subsequently furnished or to cancel the contract.
    It is, however, reversible error to exclude evidence offered by defendant to show the bad quality of the goods subsequently furnished, for it was competent and relevant on the question of whether the refusal to receive them was unreasonable or not.
    Evidence examined, and held, to present a question of fact as to whether or not defendant had canceled the contract under the alleged modification thereof;
    That a direction of a verdict in plaintiff’s favor was error.
    Appeal by the defendant, the Stecher Lithographic Company, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Oswego on the 7th day of April, 1910, upon the verdict of a jury rendered by direction of the court; also from an order entered in said clerk’s office on the 31st day of March, 1910, denying the defendant’s motion for a new trial made upon the minutes, and also from an order entered on the 7th day of April, 1910, . amending the plaintiff’s complaint.
    
      Werner & Harris and John Desmond, for the appellant.
    
      Charles W. Tooke and D. Raymond Cobb, for the respondent.
   Kruse, J. :

The plaintiff, a paper manufacturer, agreed to manufacture and sell to the' defendant fifty-two- twenty-ton carloads of paper board, known as bleached manilla lined chip, to be delivered one carload a week commencing January 1, 1908, at ' forty-two dollars per ton, delivered F. O. B. Rochester, 1ST. Y., to be of the same grade as was furnished by the plaintiff to the defendant prior to October, 1906; and it was contemplated that it was to be made according to specifications furnished by' the defendant. - There were .pther matters involved in the contract, but they are not material to the controversy here.

The plaintiff delivered eleven of the fifty-two cars and offered to furnish the remainder, but the defendant refused to receive the same. The defendant paid for all the material which it received ahd kept. A controversy arose between the parties as to whether the paper board furnished was up to grade and in accordance with the specifications, and it finally resulted in the plaintiff taking back some of the paper board, and, as the defendant claims, in the modification of the contract in the particular-to which I will call attention presently,'

The action is brought to recover the damages for the refusal to receive the remaining forty-one cars. There are two principal questions on this appeal. • One relates to the damages arid the other whether the evidence. was sufficient to show that the contract had been modified." The trial judge directed.a verdict for the plaintiff, holding that, the evidence was insufficient to show a modification of the contract and that there was no question of fact as to the amount of damages'.

I think the case should have been submitted to the jury upon both questions. ' The rule .of damages as finally adopted was the difference between the cost of manufacturing the product and the contract price. I think the correct rule was applied. (Parsons v. Loucks, 48 N. Y. 17; Haddam, Granite Co. v. Brooklyn Heights R. R. Co., 186 id. 247.) But the cost of manufacture was proven by an interested witness, and I think the circumstances' were such as to make the question of the cost of manufacturing and supplying the paper board a question of fact.

Upon the other question it appeared that the president of the plaintiff met the president of the defendant at Eochester on May 18, 1908, when an attempt was made to adjust the differences between the parties over the kind and quality of paper board furnished. The latter testifies" that he then told the president of the plaintiff that they would not continue with the contract; that they would cancel the contract and not go ahead with it any further, and that the plaintiff’s president asked for another chance and said that he would show that he could make satisfactory board, whereupon the defendant’s president told him that if it went on it must be* with the understanding it must be satisfactory to them and if it was not they would stop just as soon as the plaintiff would send something that was not satisfactory; to which the ^plaintiff’s president replied that- would be satisfactory to him and would be all right. The plaintiff challenges this testimony by testimony and circumstances to the contrary.

I think, if this interview actually took place, it amounted to a modification of the contract, so that the paperboard furnished must be satisfactory to the defendant. Not that the defendant could capriciously or unreasonably cancel the contract (Duplex Safety Boiler Co. v. Garden, 101 N. Y. 387; Russell v. Allerton, 108 id. 288; Crawford v. Mail & Express Publishing Co., 163 id. 404, 409; Gearty v. Mayor, etc., 171 id. 61, 72); and defendant does not claim it could. . But as bearing upon its good faith in that regard, it offered to show the bad quality of the stock, which was excluded, improperly, as I think, and to which ruling I will again call attention a little later.

The more serious question is as to whether the defendant ever availed itself of the right it had to terminate the contract if the paper board was not satisfactory (if - in fact the contract was so modified), until after the time had expired within which the contract was to be "performed. Three of the eleven carloads were paid for before the conversation took place, and eight afterward, and of the eight cars paid for afterward three were delivered after the conversation.

There was some correspondence between the parties, after the interview, relating to modification of the price and quality of the paper board furnished. The next day after the interview the president of the plaintiff offered to reduce the price to forty dollars per ton upon certain terms which need not be stated. Further correspondence was had regarding the rejected stock and on May twenty-fifth the defendant wrote the plaintiff asking it to hold any orders it had until further notice. On the twenty-ninth day of May the plaintiff by letter called the defendánt’s attention to the fact that it was considerably behind in giving. specifications; that instead of giving orders to ship four carloads per week (month) it had not. averaged much over one car per week since the first of the year, and asking it to send additional specifications for June 'delivery. On the next day the plaintiff again called the attention of the defendant to the fact that the rejected stock was out of the way and asking it to give it at once specifications for six or eight cars. A few days thereafter the defendant replied that it regretted that they could not furnish shipping instructions, for-reasons given over the phone that morning. On the sixth of June the defendant by letter to the plaintiff called attention to the fact that the price of stock had dropped and argued that it was for the interest of both that the plaintiff’s price to it should be reduced. The "plaintiff continued to call for specifications and. the defendant kept putting it off, writing again July ninth that it was impossible to secure business at the prices which the plaintiff insisted upon the defendant paying for the paper board. Orders for three carloads were given by the defendant, but no more.

Along in August a controversy again arose between the parties as to the quality of the paper board, the defendant sending sample of boxes printed from the stock which had. been shipped and complaining of the stock, stating that such things were very annoying, to the defendant. The plaintiff replied, contending in substance that the stock was all right when it left the plaintiff’s factory' and suggesting that it must have been injured afterward, which the defendant denied. No further orders were thereafter given.

In September the plaintiff asked for orders and the defendant replied that it was not in a position to send orders. That seems to have been the last of the .correspondence, until the following January, when the plaintiff made claim- for damages, and the defendant then stated that it had had so much trouble with the quality of the stock and the size of the rolls that they were not able to give any further orders.

■While I think the evidence is quite unsatisfactory as showing that the defendant actually canceled the contract, or undertook to do so under the modified contract (if it ever was modified at all until after the expiration of the year), yet I am inclined to think that there was enough to take that question to the jury.

I think that the defendant should have been permitted to show that quality of the stock, as bearing upon the question whether its refusal to receive further shipments after August was really because it was not satisfactory, or whether its refusal was unreasonable and capricious, and because the market price of paper board went down, or for other reasons than the unsatisfactory condition of the stock.

It is true that the defendant accepted the stock and paid for it, but the evidence was not offered for the purpose of establishing a claim for damages. No such claim was made in the answer or on the trial. I think, however, it was competent and proper upon the other question, and was improperly excluded.

The judgment and orders should be reversed and a new trial granted, with costs to the appellant to abide the event.

All concurred.

Judgment and orders reversed and new trial granted, with costs to appellant to abide event.'  