178 F.2d 182, 189 (2d Cir. 1949)
In December 1942 the Albert Company, referred to as the Seller, contracted with the Armstrong Company, referred to as the Buyer, by an exchange of letters for the sale of four Refiners designed to recondition old rubber.1 The Seller delivered the first two Refiners in August 1943 and the remaining two on either August 31 or September 8, 1945.2
Although the Buyer suggested cancellation in the spring of 1943, it later pressed for delivery, accepted the first two machines without protest, and on February 23, 1945 requested immediate shipment of the remaining pair while stating that payment would be due thirty days after complete delivery.3 On March 28, 1945 the Buyer reiterated its demand for the two remaining Refiners and confirmed that nothing was due until thirty days after delivery of the complete order.4 The Seller did not ship the second pair until five months later.5 In October 1945 the Buyer refused to accept any of the four machines.6
On October 11, 1945 the Buyer wrote the Seller asking confirmation of a claim for the full purchase price of $25,500 as of September 30, 1945.7 It had previously written a similar letter in October 1944 regarding the first two machines.8 Four months after the October 1945 rejection, on February 20, 1946, the Buyer placed into use a 300 horse-power motor and accessories that had accompanied the Refiners.9 The Buyer had written off depreciation on the machines for tax purposes and had disposed of all its scrap rubber in April and May 1945.10 It never suggested until filing its counterclaim in May 1947 that the Seller’s delay caused the collapse of its reclaim department.11
The Seller sued to recover the contract price.12 The Buyer counterclaimed for breach, seeking its entire investment of $118,478 in the reclaim department, $27,555.63 for rubber scrap, and $3,000 for the foundation laid for the Refiners.13 The district court dismissed both the complaint and the counterclaim but entered judgment for the Seller for the fair market value of the motor and accessories, found to be $4,590, without interest.14 Both parties appealed to the Second Circuit.15
Whether the Seller’s delivery of the second two Refiners was too late?16
In mercantile contracts time is ordinarily of the essence, so a buyer may reject goods when delivery occurs beyond a reasonable time after demand, especially where market conditions have materially changed to the buyer’s detriment.17
Yes. The Buyer demanded immediate shipment of the remaining Refiners on March 28, 1945, yet the Seller did not deliver until five months later at the end of August or beginning of September 1945.18 After that demand the fighting war ended, the prospect of future rubber availability changed, and market conditions for second-hand rubber machinery shifted from acute shortage to oversupply.19 The district court found that the great demand for low-grade reclaimed rubber at the time the contract was made was temporary and could not compete once other rubber appeared in sufficient quantities.20
Because the Seller’s unexcused delay prevented prompt delivery on the final demand, the five-month postponement was too late and justified the Buyer’s rejection of all four machines in October 1945.21
The Seller’s delivery of the second two Refiners was too late and justified the Buyer’s rejection of the entire order.22
Whether the Buyer accepted the Refiners through intimation in correspondence, an act inconsistent with the Seller’s ownership, or retention for more than a reasonable time?23
Under the Uniform Sales Act a buyer accepts goods by (1) intimating acceptance to the seller, (2) doing an act inconsistent with the seller’s ownership, or (3) retaining the goods for more than a reasonable time without intimating rejection.24
No. The October 11, 1945 letter asking confirmation of a $25,500 claim was identical in form to the October 24, 1944 letter that the Buyer had already explained was merely a bookkeeping entry and not an acceptance; the Seller therefore had no warrant to treat it as an intimation of acceptance.25 The Buyer’s write-off of depreciation on its tax books was an internal accounting entry that did not interfere with the Seller’s ownership or constitute dominion over the machines.26 The Buyer rejected the Refiners within one month of delivery, and the Seller failed to prove that this interval prejudiced it once the prime market for the machines had already disappeared.27 Consequently none of the three statutory grounds for acceptance was established.28
The Buyer did not accept the Refiners by intimation, inconsistent act, or unreasonable retention.29
Whether the Buyer’s use of the motor after rejection entitled the Seller to recover its value with interest?30
A buyer who uses goods after an unequivocal rejection may be held liable in quasi-contract for conversion. Connecticut law awards interest when the value of converted goods can be ascertained with reasonable certainty as of a definite date.31
Yes. Four months after rejecting the Refiners the Buyer placed the 300 horse-power motor and accessories into use on February 20, 1946, thereby converting the Seller’s property.32 The district court found the fair market value of that equipment to be $4,590, an amount ascertainable with reasonable certainty as of the date of appropriation.33 Under Connecticut precedent interest must therefore run from February 20, 1946.34
Although the Buyer’s use occurred after rejection, the conversion still entitled the Seller to the value plus interest.35
The Buyer’s use of the motor after rejection entitled the Seller to recover the motor’s value together with interest from the date of appropriation.36
Whether the Buyer proved that its investment in the reclaim department and scrap rubber costs resulted from the Seller’s delay?37
A promisee seeking reliance damages must prove that the promisor’s breach caused the claimed expenditures. Speculation that the Seller’s delay caused the lack of production is insufficient when the delay was only one of multiple factors.38
No. The Buyer sought $118,478 for its entire reclaim department investment and $27,555.63 for rubber scrap, yet the district court found that the lack of production was only one of multiple factors and that the evidence did not establish causation by the Seller’s delay.39 The Buyer disposed of all its scrap rubber in April and May 1945 and never suggested until filing its May 1947 counterclaim that the Seller’s delay caused the department’s collapse.40 The record therefore does not show that these expenditures resulted from the breach.41
The Buyer failed to prove that its reclaim department investment and scrap rubber costs were caused by the Seller’s delay.42
Whether the Buyer may recover the cost of the foundation built for the Refiners as reliance damages, subject to the Seller’s opportunity to prove the Buyer would have lost money on the contract?43
A promisee may recover expenses incurred in necessary preparation for performance. The promisor may reduce or eliminate that recovery by proving that the promisee would have suffered a net loss had the contract been performed.44
Yes. The $3,000 spent on the foundation was an expense incurred in reasonable reliance on the Seller’s promise to deliver the Refiners.45 The Buyer is therefore entitled to recover that sum, together with interest from October 1945, subject to the Seller’s privilege to prove at a further hearing that the Buyer would have lost money on the contract even if the Refiners had been delivered on time.46 Placing the burden on the Seller to show the venture would have been unprofitable is the just allocation when the Seller’s breach made the profitability issue relevant.47
The Buyer may recover the $3,000 foundation cost as reliance damages, subject to the Seller’s opportunity to prove the Buyer would have lost money had the contract been performed.48