
    James Lawlor, Respondent, v. Magnolia Metal Company, Appellant.
    
      Contract — effect of a provision that in case of its breach a previous contract should be revived — in case of a breach damages under the previous contract charged against money advanced under the later one.
    
    In an action brought to recover money advanced by the plaintiff under a contract, which was never completely carried out, the defendant alleged a breach of the contract by the plaintiff, and set up certain counterclaims arising therefrom, and on the trial it appeared that under an agreement of 1894 the defendant was to furnish the plaintiff with certain magnolia metal, to be taken within a time specified in the agreement, which further provided that if for any reason, the plaintiff should fail in -carrying out the contract, any portion of the amount of metal therein stipulated and ordered should not apply under a previous contract of March-25, 1891, but that if the plaintiff should fail to accept delivery or to make due payment therefor, the agreement should be terminated and the contract of March 25, 1891, be then considered as still in existence, and delivery of metal, as therein required, considered to be due from March 1, 1894. _
    
      Meld, that, the plaintiff having been guilty of a breach of the agreement of 1894, ■ the defendant was entitled to take advantage of the provision of that agreement, under which, upon a failure of the plaintiff to comply with such agreement, the contract of 1891 should be revived;
    That the advance payment received by the defendant under the agreement of 1894 was subject to deduction in defendant’s favor to the extent of the damages suffered by the defendant by reason of the failure of the plaintiff to carry out the contract of-1891; the propér measure of which damages would be the . difference between the contract price of the metal during the period of the 1891 contract and the cost of its production to the defendant;
    
      That the fact that one of the members of the plaintiff’s firm was not a member thereof in 1891, was immaterial, for the reason that, by the agreement of 1894, the firm, as then constituted, agreed, in the event of its failure to accept metal ordered pursuant to the agreement of 1894, to consider metal due from March 1, 1894, according to the terms of the 1891 contract;
    That a counterclaim, based upon the failure of the plaintiff to receive metal under the agreement of 1894, was not maintainable, for the reason that the defendant, having elected to revive the contract of 1891, must look to the damages arising thereunder, and could not have damages under both contracts.
    Appeal by the defendant, the Magnolia Metal Company, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 9 th day .of March, 1898, upon the report of a referee.
    
      Alexander S. Bacon, for the appellant.
    
      L. A. Gould, for the respondent.
   O’Brien, J.:

. The plaintiff, assignee of an English firm known as the “ Magnolia AntirFriction Metal Company of Great Britain,” brought this action to recover money advanced by said firm to the Magnolia Metal Company, defendant, in payment for metal which was to be delivered to the English firm under a contract entered into between them in 1894, which contract was never completely carried out. The answer of the defendant alleged breach of the contract by the English firm and made counterclaim arising from such breach.

The referee held that, although the English firm broke the contract referred to, the defendant had elected to waive such breach, and that thereafter, without further default of the English firm, and after their offer to carry out the contract, the defendant refused to recognize the contract as still existing, and thereby become liable for the return of certain advance payments made by the English firm in pursuance of the contract. The counterclaims were dismissed upon the merits.

On the trial the following facts' appeared: The defendant and the English firm had made a contract consisting of an agreement dated February 16, 1894, modified by letters dated March 2T, 28 and 29, 1894, which provided that the defendant was to furnish the English firm with 3,000,000 pounds of Magnolia metal at ten cents a pound, to be taken within one year from March 1, 1894, or else within two years provided the English firm paid four cents a pound at the end of the first year for metal mot then taken ; the balance -of metal to be taken and paid for completely in quarterly installments. The English firm elected to take the metal in two years, made $35,710.40 advance payments, and received metal up to the second quarterly installments of. the second year, leaving 900,000 pounds undelivered. The contract thus entered into provided further that if for any reason the English firm should fail in carrying out the contract, any portion of the amount of metal therein, stipulated and ordered should not apply under a previous contract of March 25, 1891, but also that if the English firm should fail to accept delivery or to ‘make due payment therefor the contract should be terminated and the contract of March 25, 1891, must then be considered as still.in existence,-and delivery of metal as therein required considered to be due from March 1, 1894.

The contract of March 25, 1891, referred to had been entered into between a New York corporation, assignor of defendant,-and two members of the English firm. It created an English agency for twenty-one years and provided for the monthly delivery during four years, beginning March 25, 1891, of ten tons of metal at thirteen cents' a pound, and for the delivery thereafter of metal at twelve cents a pound unless otherwise requested by the English agents. This contract gave the American company power, -in the. event of the English agents failing to order metal as agreed for any three months, to give the agents three months’ notice to terminate the contract and to take possession of the English business.

The second installment of metal of the second year being due and ready- for delivery under the contract of 1894, the English firm notified the defendant by cablegram, dated September 12, 1895, that it refused to accept delivery or to make payment- therefor unless defendant would pay certain expenses of patent litigation. It appears that the defendant had agreed to defend suits, and at' this time was in controversy with its English attorneys as to the exact amount due for professional services. The American company was clearly liable on the evidence to pay such Charges; but it is conceded that it was plainly a breach of contract of the English firm to demand that payment as a precedent to accepting'delivery of metal.under the'contract. The defendant replied to this cablegram of the English firm, that the second installment of metal had been, stored to the account and at the risk of the English firm and sight draft made for payment. The English firm replied by refusing to pay all drafts or to have any further dealings with the defendant, except on conditions mentioned. This position the English firm steadfastly maintained, and in every instance coupled its orders with such conditions, down to its unconditional offer of November ly, 1895, to continue- the contract. In the meantime, on October 4 and October 5, 1895, by cable and letter, the defendant notified the English firm that, as they had failed to take and pay for metal on the first of September, as required by the contract of 1894, an order subsequently received, designated as the Genoa ” order, would be shipped under the contract of March 25, 1891, and that-the English firm was required to immediately take and pay for balance of metal from March 1, 1894, under that contract, or else the defendant,would enforce its rights under that contract by taking possession of the business. This new attitude taken by the defendant was affirmed by its letter of October twenty-ninth, also previous-to the English firm’s unconditional offer of November nineteenth,, by which the English firm was duly notified that, under the terms of the contract dated March 25, 1891, three months’ notice was-given to terminate said contract, and demand was made for the immediate payment to defendant of $81,000 damage for the non-fulfillment of said contract. The English firm replied to this letter, claiming that the defendant, by so holding the contract of 1891 to be in force, had made further breach of the 1894 contract. There was no change in the position of the parties until the English firm, by its attorney, wrote to the defendant, on November 19, 1895, offering to carry out the 1894 contract without condition. To this offer the defendant, by attorney, replied on November twenty-first, reviewing its position taken on October fifth; and declaring that the English firm were held by the terms of the 1891 contract. The English firm in reply insisted that the 1891 contract had been superseded and could in no way be revived. On February 21, 1896, the defendant notified the English company that, they having failed to perform the contract of March 25, 1891, and three months’ notice, as required, having been duly given, the defendant took possession of the-English business. By letter of February twenty-fourth the English firm contended, on the other hand, that the American company had forfeited its right to the English business. The English firm, however, on February twenty-eighth, made a formal, unconditional offer to carry out the 1894-contract, to which the defendant replied that the offer came too late.

The defendant makes" three counterclaims, as follows : The first counterclaim includes $15,000 damage for non-acceptance of 900,000 pounds of metal, called for by the contract of 1894, and'$40,000 damage for non-accepitance of 230 tons of metal, called for by the contract of 1891 and the contract of 1894 for metal due March 1, 1894. The second counterclaim is for $760.70 advanced to a patent expert sent to America by the English attorneys, and alleged by the defendant to have been agent for the English firm. The third counterclaim is for $1,534.60 unpaid by the English firm for metal received, which sum the English firm had paid to the English attorneys. The evidence on the trial clearly showed that the defendant was liable for the' amount set forth in the second and third counterclaims.

It’is conceded that by the letter of the London firm refusing to accept the drafts drawn by the defendant for the second installment of the metal,' payable tinder the contract, the London firm was guilty of a breach of the contract. It further appears that this position was not only adhered to, but emphasized by the subsequent conduct of the London firm in refusing to perform any part of the contract, and neglecting to pay after notice that the metal had been stored for their-account and a draft drawn for the purchase price. These repeated breaches left it optional with the defendant, the American company, either to rescind the contract on its part or to elect to treat it as subsisting, and enforce its rights against the London company under the contract. The real question, therefore, to be determined is : Did the defendant, the-American company, make an election, and, if so, what election ? And was the attitude which it thus assumed consistently adhered to down to the time when, as claimed, the London firm receded from its original position and wrote expressing its willingness to go oh with the contract, to receive the metal and to pay for it %

The law governing the rights of the parties is well settled. -Upon a breach by one party to a contract the other party thereto has an election, but the authorities agree in holding that such election must be made immediately. The London firm being guilty of a breach, and. of repeated breaches, which gave the American company the right to elect, we may concede that legally such election accrued, not only upon' the original breach, but also at the subsequent breaches.

It is insisted that the position assumed by the American company, of treating the contract as subsisting under its election, was consistently adhered to down to the time the London firm changed its position and gave notice that it was willing to go on with the contract. If the evidence supports this view, then it is clear that, under the doctrine of election and waiver, the London firm. had' the right legally to recede from its first position and accede to the demands made by the American company, that they should comply with and carry out the terms of the agreement.

There can be no question as to the attitude of the American company in adhering to its position; that the contract of 1894 was, a subsisting one down to October 4, 1895, when, by a cablegram which was followed by a letter of October fifth, the American company changed its position in one aspect, by taking advantage of another provision in.the -1894 contract, that upon a failure of the London company to comply with the contract of 1894, then the contract of 1891 should be revived, and that thereafter it would apply orders of the London company for metal under the contract of 1891. With respect to the right to resort to the contract of 1891, while the “ provisional contract ” of 1894 permitted it, our attention, is called to the letter of the London company of March 27, 1894, bearing upon this question, which provides “.that if for any reason we (the London Co.) fail in carrying out the above given order, any portion of it we may have given shall not apply under contract of March, 1891.” To this, however, we have the subsequent reply of the American company dated March 28, 1894, that in the event of the failure of the London company to carry out the terms of the 1894 contract, the contract of 1891 must be considered as still in existence, under which deliveries should be due. This the London company assented to by saying that they accepted the terms as proposed, which would seemingly dispose of the contention that the American company had not the right to resort to the contract of 1891.

The contention of the American company, therefore, that it adhered to the contract of 1894, is based upon their construction of its terms which, as claimed, permitted them to elect to apply portions of the order for metal pursuant to the 1891 contract. In this connection, attention should be called to the notice of October 29,1895, of the American company’s• election to terminate the contract of 189.1,. which included a demand for $31,000 damages for non-fulfillment.

To summarize,, therefore, it appears that - the London firm first broke the contract, and the defendant upon such breach elected to regard the contract as a subsisting one, and proceeded to enforce its terms by storing the metal and drawing a draft. The London firm having consistently refused either to receive the metal or to pay the draft, the defendant subséqnently availed itself of- a' provision in the 1894 contract which gave it the right, upon the non-fulfillment by the London company, to bring into life again the contract of 1891. This right to revive the contract of 1891 was denied by the London firm, and it was coupled with such denial that thereafter the London firm offered to carry out the contract of 1894. We think that this offer of the London company, was too late, and that the defendant had the right, after having endeavored unsuccessfully to enforce the contract of. 1894, to resort to the provision therein which permitted the revival of the contract of 1891.

The legal question which thus arises is, whether the advance ■payment received by the defendant on the 1894 contract was subject to deduction for the damages suffered by the defendant company by reason of the failure of the London firm to carry out the 1891 contract and accept delivery of the metal thereunder.

The claim for* $15,000 set tip in the first counterclaim for failure to receive the metal under .the 1894 contract, falls for the reason that the defendant, having elected to revive the contract of 1891, must look to the damages arising thereunder, and. cannot have damages under both contracts.

The- amount advanced by the London firm, and for which this suit is brought, can, however, I think, be properly offset by the damages due to the breach of the 1891 contract by the plaintiff’s assignor. This claim, by the terms of the letters modifying the provisional contract, is for metal to be delivered from March 1,1894. On October 29, 1895, the defendant -gave the plaintiff’s assignor three months’ notice to terminate the contract of 1891, which would make the contract expire on January 29, 1896. By the terms of the contract of 1891, ten tons of metal a month, at thirteen cents a pound, would need to be delivered up to March 25, 1895, and thereafter at twelve cents a pound, -unless due notice to terminate the contract should be given by the English parties.

It thus appears that under the contract of 1891 the plaintiff’s assignor was to take delivery from March 1,1894, to March 25,1895, a period of one year and twenty-four days, or 12.8 months, at the rate of 10 tons a month, making 128 tons at 13 cents a pound, amounting to $37,273.60; and from March 25,1895, to January 29, 1896, a period of ten months' and four days, or 10.133 months, making 101.33^- tons at 12 cents a pound, amounting to $27,238.32 or a total amount, according to the contract, of $64,511.92.

The evidence of the cost of production of the metal during this period is found in the testimony of E. C. Miller, vice-president of the American company, viz. July 1, 1895, to March 1, 1896, cost 4.15 cents per pound; the year preceding September 1, 1895, 4.40 cents per pound; July 1, 1895, to October 1, 1895, 4.36 cents per pound. The defendant’s claim of average cost for the period covered by the 1891 contract is 4.30 cents per pound; a total cost on the 229.33-|- tons of $22,093.69.

A proper measure of damages would be the difference between ' the contract price of metal during that period and the cost of production to the defendant; and accepting the above calculation gathered from the testimony, the damages thus ascertained would amount to $42,418.23. This sum is the basis of the second item of $40,000 damages set up in the defendant’s first counterclaim;

The suggestion that such damages would not be a proper counterclaim because one of the members of the present London firm was not a member of the firm in 1891, I dó not regard as sound, for -the reason that by the 1894 contract the London firm, as then constituted, in the event of failure to accept metal ordered pursuant to the contract of 1894, agreed to consider metal due from March 1, Í894, according to the terms' of the 1891 contract.

The two counterclaims for services were correctly disposed of by the referee. He did not, however, consider or determine the damages under the 1891 contract, for the reason that he concluded that the rights of the parties were fixed under the contract of 1894. The conclusion reached by the referee, as shown by his opinion, was materially affected by some expressions in the opinion of this court in Sugden v. Magnolia Metal Co. (8 App. Div. 288). That was an appeal from an order denying a motion to continue a preliminary injunction to restrain the defendant, pending the suit, from interfering with the plaintiffs’ business. The plaintiffs there were the English firm, the assignors of this plaintiff. The-order refusing the injunction was affirmed .for the reason that the English firm had assigned the $3-6,000 to this plaintiff, who had brought this action, which was then pending. It was therein held that the effect of such assignment to. Lawlor ivas a binding election ' on the part of the English firm to regard the contract as rescinded; and with reference to the attitude of the American company, it was therein said : It is said, however, that the defendant did not •elect to rescind the contract when the breach occurred, but, on the contrary, chose to keep it alive. That seems to be true. Th® action of the defendant in retaining the $36,000 of'advances, which it had received under the contract, but for which it had given no ■ equivalent, is not consistent with an intention to disaffirm.” The referee said that this court so held " on substantially'the same facts that are presented here,”' It must be remembered, however,, that the questions were then presented in a very different form, and the point involved was entirely different and distinct. That was an appeal from an order where the right to a preliminary injunction was determined upon affidavits; and the question as to the right of the American company, to resort to the provision in the contract of 1894 which entitled them to revive the contract of 1891 was neither considered nor passed upon.

The judgment must be, therefore, reversed and a new trial had before another referee, the costs of appeal to appellant to abide event.

Van Brunt, P. J., Patterson, Ingraham and McLaughlin, JJ., concurred.

Judgment 'reversed, new trial ordered- before another referee, with costs to appellant to abide event.  