Court Opinion

ID: 3622381
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:03:55.127532+00
Date Added: 2024-06-11T14:18:06.115717
License: Public Domain

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The undertaking of Naylor  Co. extended, I think, to the quality of the article contracted for as well as the material and general description. The referee finds that the order for the frogs required that they should correspond in all respects with a sample theretofore delivered by Naylor  Co. to the railway company, except as to a slight change in the pattern agreed upon. The form of the transaction would seem to constitute Naylor  Co. agents to procure the manufacture of the frogs, but it has been assumed throughout that they were the principals, and intended to deal with the railway company as such. Regarding them in that light, by accepting the order, they became bound by its terms to procure and deliver to the railway company reversible frogs in all respects equal to the pattern. This includes equality in manufacture, material, description and quality, or fitness and durability for the use for which they were designed. It cannot be supposed that either party intended anything less. The referee finds, in substance, that they were not equal; that a large number of them were defective and brittle, but that this could not be discovered by examination and could only be ascertained by use, and that the failure of one created no presumption that others were defective. After they were manufactured in England, the frogs were ordered in four parcels, three by the company and one by the receiver, of about twenty-five each. Nearly all of them were put in *Page 364 
use from time to time, and many of them, it is claimed, on account of defects, failed. When they did fail, they were sold for scrap steel, and no notice of such defects was given to Naylor  Co., nor any offer made to return the frogs, or any of them.
The substance of the arrangement was that Naylor  Co. agreed to procure to be manufactured a quantity of frogs, to correspond with the pattern, and deliver the same to the railway company as desired; in other words, it was an executory contract for the manufacture and delivery of certain articles of personal property of a specified quality and description. It was not strictly a sale by sample. Such a sale contemplates that the goods are inesse, that the sample is taken from the bulk and that the latter is equal in quality to the sample. This is some times called an implied warranty (Story on Sales, § 375), but it is more properly an express warranty. It amounts to an affirmation that the specimen is a fair sample of the bulk of the commodity. (Id., § 376; 5 N.Y., 103.) The general rule is, when articles are sold upon an executory contract like the one in question, that the delivery and acceptance of the articles after examination, or an opportunity to examine them, is a consent or agreement that the articles correspond with the contract, and precludes a recovery for any defects which may exist. (53 N.Y., 515; 29 id., 358; 49 id., 321.) The vendee must immediately rescind the contract, and return or offer to return the goods. He cannot retain the property and afterward claim damages by action or recoupment for inferior quality. Such a transaction differs from a sale with warranty in that the stipulated quality is a part of the contract itself, and not collateral to it. In the latter case the vendee is not bound to return the property, but may retain it and sue upon the collateral agreement.
It is found that the defects could only be discovered by the use of the article. The vendee must have an opportunity to examine, and when, from the terms of the contract or the nature of the article, this can only be done by use, and such was therefore the mode of examination contemplated, the *Page 365 
vendee is not foreclosed until the test is made. But when made and the defects discovered, is it not the duty of the vendee then to take his ground and rescind the contract, and return or offer to return the property or be held to a waiver and acceptance? Upon principle, I can see no difference in this respect on account of the time or mode of examination. The agreement as to quality is as much a part of the contract of sale in the one case as in the other, and by retaining the article after discovering that it is not in accordance with the contract, the vendee should be deemed to consent to accept the inferior article, whether this discovery is made from inspection or use. But the case of Day
v. Pool (52 N.Y., 416) holds a different doctrine. In that case there was an executory contract for the sale of rock candy syrup, "that would not crystallize, or the sugar fall down" in its use, and this court held that the vendee was not bound to rescind the contract or return or offer to return the syrup upon discovering that it did not come up to the terms of the contract, but might keep the article, and rely upon the so-called "warranty." Although there were some peculiar circumstances in that case, yet the principle enunciated in the opinion which received the assent of a majority of the court, applied to the facts of this case, must, I think, determine this question in favor of the right of the vendee to retain the property and recoup the damages; and if that principle is to be adhered to, it is useless to review the grounds upon which the decision was based. I cannot concur with the grounds upon which the Special Term decided in favor of allowing the full price of the frogs, that the agreement did not relate to quality, or that the warranty was implied within the meaning of that term when applied to the obligation to rescind the contract upon discovering the inferior quality of the article, and the ground upon which the General Term affirmed this decision is in principle in conflict with Day v. Pool
(supra). If the railway company had the right to retain the property and recoup the damages, as there decided, it would follow that they could show that all the frogs, or a part of them, were defective. *Page 366 
Retaining the property was not a waiver of a right to compensation for defects in a single one of the articles delivered. That some were perfect would only lessen the amount of damages. If this is to be regarded, as it respects rescinding and returning the property, as a warranty upon a present sale of personal property, there is no force in the idea that the rights of the parties were changed, because only a part of the articles included in an order were defective, and therefore rejected, and the perfect ones continued in use. The question of a division of the contract does not arise. The only remaining question is, whether there was evidence to justify the finding of the referee, that the frogs in question were not equal to the pattern furnished, and in making the allowance of damages for defective frogs. We cannot say that there was no evidence to justify the conclusion of the referee upon these points, especially not if, as has been suggested, all the evidence given upon the special reference was not returned. The order of the General and Special Terms must be reversed and the report of the referee affirmed, with interest upon the amount reported due to Naylor  Co. from the date of the first report, the costs of the parties to be paid out of the fund.
The claim of Jeremiah S. Black depends upon the construction to be given to the language of the order appointing the receiver. The receiver was directed to pay out of the net earnings, among other things, debts "owing to the laborers and employes of the said consolidated corporation, defendants, for labor and service actually done in connection with that company's railways." The claimant's demand is for professional services as counsel in important litigations connected with the road. The referee finds the claim "to be reasonable in amount and due from the company." It is manifest that literally and lexically the claimant was an employe of the company: that is, he was employed by and rendered important service for them. So the service rendered was in a sense in connection with the company's railways, that is, the services related to the railway and its interests and business. But it is said that it was only those who had stated and regular *Page 367 
employment in running the railway, that were intended to be provided for, and we were referred to several cases in this State which are supposed to be decisive. In Ericsson v. Brown (38 Barb., 390) the charter of a mail steamship company made the stockholders liable for debts due and owing to "their laborers and operatives," and it was held that a consulting engineer was not included. So in Aikin v. Wasson (24 N.Y., 482) it was held that a contractor was not included within the words "laborers and servants," used in the general railroad act. InCoffin v. Reynolds (37 N.Y., 640) it was held that the secretary of a manufacturing corporation was not included in the general statute which made stockholders liable for debts owing to "their laborers, servants and apprentices." It will be observed, in the first place, that the word "employe," used in the order, is not found in any of the statutes involved in these cases. This is a word of more comprehensive signification than laborers and operatives, and that a contractor is in no proper sense a servant, but in many respects an independent party, and that a secretary is not a servant within the ordinary meaning of that word, but is an officer, recognized by law as such, seems manifest and plain enough. Yet, in 24 Barbour, 99, it was held that an officer was a servant if he had no distinctive appellation, and in 43 Barbour, 163, it was held that a secretary was a servant within the meaning of the statute, but this may be regarded as overruled by 37 New York (supra). Aside from the difference of words, there is, I think, a distinction between the above cases and this, in the rules of construction, which should be applied. In those cases there was a statute liability created against stockholders, and such statutes are always strictly construed. Again, the courts held that it was the policy of the legislature to protect those only who are the least able to protect themselves and who earn their living by manual labor for a small compensation, and not by professional services, and this supposed legislative policy exerted a controlling influence upon the courts. In this case it was entirely different. There was no question of policy. It was a scramble *Page 368 
for payment of debts against a defaulting corporation, and the terms of the order were fixed by negotiation and agreement between interested parties. The mortgage creditors were anxious for the appointment of a receiver. The common creditors, including the claimant, were interested in delaying it. It required the action of courts in three States which could not be obtained in several months, except by consent. The counsel for the plaintiff and other mortgage creditors testified that in order to facilitate the appointment of a receiver, he "was willing at that juncture to make concessions to the company, I might not have made at other times." These concessions were in favor of common creditors, like the claimant, who desired protection. They were agreed upon by a committee, one of whom had a claim similar to this. The counsel also testified that the word "employes" was not used in any particular or strict sense, but according to its general meaning, including attorney's compensation as well as others employed by the company. If this evidence is to be considered, there can be no question as to the meaning of the parties who agreed to the terms of this order, and that it was designed to include the debt of the claimant. Aside from this, it is not pretended that the claimant is absolutely excluded by the terms of the order. The decision rests upon the supposed intent. It is quite as rational to believe that the intent was to include as to exclude the debt of the claimant. Debts for materials and supplies were protected, and why may we not suppose that the claimant's demand was regarded to be as just and equitable as those, especially under the circumstances referred to? The mortgage creditors received what they regarded a great benefit by making these concessions, in the immediate appointment of a receiver, and the order should be liberally construed in favor of the creditors, who are presumed to have assented to them and relied upon them for the payment of their debts.
The order rejecting the claimant's demand must be reversed and an order entered allowing it, and directing its payment according to the terms of the order. *Page 369