Court Opinion

ID: 3595292
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:42:53.993851+00
Date Added: 2024-06-11T07:45:32.766394
License: Public Domain

The defendant's obligations under its contracts must be measured by the terms of the contracts themselves. I agree that the affidavits presented upon this motion conclusively show that the defendant did not make full or timely performance of these obligations. Question still remains whether the affidavits show conclusively that because of the defendant's breach the plaintiffs may avail themselves of this default, rescind the contract and recover the consideration paid. The contracts were made in May and June, 1920; performance was required within a reasonable time thereafter. The plaintiffs had the right to rescind for defendant's failure to perform within a reasonable time, though notice to perform within a stated time was not previously given. (Trainor Co. v. Amsinck  Co., 236 N.Y. 392. ) The plaintiffs did not avail themselves of this right till March, 1921, many months after reasonable time for performance was over. They say that until about that time they did not know that defendant was in default. That may be true, but they must have known that the time for performance by defendant was long past and yet apparently they neither inquired whether performance was made, nor sought to avail themselves of assumed performance by defendant by using the credits which should have been established. If rescission must be made within a reasonable time, it seems clear that there is at least a question of fact whether it was so made in this case.
My conclusion that in the present case the affidavits still leave open a question of fact as to whether the attempted rescission by the plaintiff is effectual is not based upon any difference of opinion as to the general rules of law which must govern attempted election to rescind. I concur in the statement of the general rules of law in the prevailing opinion. I do not agree with the application made of these rules to the particular facts in this case.
Although the plaintiffs have received no benefit from *Page 360 
performance by the defendant, yet the defendant has not repudiated the contract nor wholly failed to perform. On the contrary, the defendant has notified the Warsaw bank, though perhaps tardily, to transfer credits or pay over money in accordance with defendant's agreement. Both parties understood that performance of the contract after such notification must be made by the Warsaw bank. The defendant was responsible for non-performance by the Warsaw bank, but the relation between the defendant and that bank was not simply that of principal and agent. The defendant was a creditor of that bank and the contracts contemplated transfer or payment of its credit or part thereof to the plaintiffs. When defendant notified the Warsaw bank to make such transfers and payment, it parted with its control of the moneys it had in the bank. It assumed that the Warsaw bank would carry out instructions. The plaintiffs made no inquiry. So far as the record shows, they too assumed that the credits or moneys had been paid or transferred. They learned thereafter that the Warsaw bank had not followed defendant's instructions. It does not appear that until that time non-performance by the defendant had caused any change in the plaintiff's position. They seem to have proceeded in all respects upon the assumption that the transfers were made. Non-performance by the defendant did not, so far as it appears, prevent the plaintiffs from using the foreign moneys for their intended purpose. The effect upon them of non-performance was that at the time of discovery they had 4,000,000 marks less in their bank account than they expected. Transfer of 4,000,000 marks at that time would have put them in the same position they would have been in if the transfer had been made at the stipulated time. If they are permitted to rescind the contract now they profit by the defendant's breach, for they could purchase performance now at one-quarter of the amount paid originally.
On the other hand, by such rescission the defendant *Page 361 
would find itself again in control of the moneys or credit which it had attempted to transfer and which it is still willing to transfer. It may not do so but by this judgment is compelled to pay back the amount it has received, though that amount is four times as much as the foreign money or credit is now worth. Of that it may not complain if the plaintiffs' gain and the defendant's loss are due solely to defendant's fault. Instances are not infrequent where in a falling market a buyer is permitted to refuse goods because they have not been tendered in compliance with the contract, though the buyer gains by the seller's breach. The buyer has the right to insist upon performance, or in the alternative restitution of the consideration paid for the promise to perform. If, however, he waives the default, if by his own actions the buyer causes the seller to change his position in justified reliance upon indicated intention on the part of the buyer to accept belated performance, then the buyer may not thereafter change his attitude to the consequent damage of the seller. Failure to make prompt election to rescind may in some cases create an estoppel.
Whether or not the plaintiffs' failure to rescind the contracts promptly after reasonable time for performance had passed bars right to rescind thereafter depends upon two questions: First,
were the plaintiffs under any duty to the defendant to give notice to it that they would not accept belated performance?Second, did the defendant change its position because of failure to receive such notice? As I have already stated, we are not dealing now with a case where the defendant had done nothing in performance of its promise; where in effect the defendant had disregarded its contracts. Here, though belatedly, it had notified the Warsaw bank of its assignment of part of its deposits to the plaintiffs, and it had directed the Warsaw bank to make the transfer effective. Failure on the part of the plaintiffs to notify the defendant after reasonable time for performance had passed *Page 362 
that it would not accept belated performance, caused the defendant to relinquish control of its bank credit until after the credit had lost most of its value; and at the same time it placed the plaintiffs in the position where they could have demanded of the Warsaw bank that the transfer of credit should be completed. Concededly the value of these credits was fluctuating rapidly. If the plaintiffs' failure to notify the defendant of election to rescind and not to accept belated performance had been due to an intention to speculate at defendant's risk and with knowledge that performance by the defendant at that time was not complete, though directions for performance had been given or were about to be given, it would seem clear that the plaintiffs would have been guilty of bad faith and by their own actions would have misled the defendant. I ascribe no such intention, or even knowledge of non-performance, to the plaintiffs. On the contrary, the evidence seems undisputed that the plaintiffs did not have knowledge of defendant's nonperformance at that time and made no inquiries about it. I point out merely that if plaintiffs' failure to demand restitution when time for performance had passed had been deliberate and due to intention to postpone election of whether to stand upon the contract or to disregard it until they could decide which would be the more profitable course, then they would have lost the right to a remedy which is based upon equitable considerations. If election to disregard the contract need not in all cases be made promptly after breach, at least it may not be postponed beyond the time when there was duty to speak and silence has naturally and reasonably led the other party to a change of position which causes additional loss. The contract may not be kept alive and thereafter disregarded for breach that was waived.
It is here that we find the question of fact which in my opinion can be decided only after a trial. Concededly the plaintiffs have given no notice that they regarded *Page 363 
the contract as breached or demanded return of the consideration paid, until long after time for performance had passed. Prompt notice would have put the defendant in control of foreign moneys or credit which it could presumably have disposed of at the then prevailing rate of exchange or value. Delay has to that extent caused loss to defendant and placed the plaintiffs in a position where they can obtain a similar contract for correspondingly smaller consideration. If there was duty upon the plaintiffs to give notice promptly that they would not accept belated performance thereafter, and if the defendant had the right without inquiry to remain quiescent thereafter, then the plaintiffs may not profit by their wrong. Whether such duty rested on the plaintiffs and whether the defendant could rely upon the plaintiffs performing that duty, depends on all the circumstances of the case, and especially upon the usual course and practice of this kind of business. Ordinarily when a contract is made for foreign exchange the so-called buyer intends to use it for a particular purpose, the so-called seller anticipates that the transfer will be made by the foreign bank in accordance with directions given to it. If the foreign money or credit is not available when the buyer attempts to use it, ordinarily the seller will expect to be called to account for non-performance. It is said that by custom the duty is placed upon the buyer to inquire whether the transfer is made. Perhaps similar duty is laid upon the seller; yet if such custom exists we cannot say that the defendant could not reasonably under all the circumstances of the case and the conditions existing in Warsaw at the time, rely upon the plaintiffs notifying it that because of its non-performance they would regard the contract as terminated. We cannot say that the plaintiffs in failing to inquire did not assume the risk that performance had not been made fully, if at all, or that the defendant was not under the circumstances justified in proceeding upon the assumption either that performance *Page 364 
had been completed and accepted or if not completed, that belated performance would be accepted.
It is said that even a custom which placed upon the plaintiffs duty of inquiry whether transfer was made at the bank cannot avail the defendant since the defendant was likewise under duty of inquiry and indeed knew that it had not itself promptly complied with the contract and had no reason to assume that the plaintiffs would accept belated performance. It does not seem to me that this conclusion follows as matter of law from undisputed facts. The determining factor in regard to the plaintiffs' right to rescind, more than six months after the time has expired for performance by the defendant, in strict accord with its contractual obligation, is not whether the plaintiffs' firm or the defendant has been guilty of negligence for which either should be penalized but whether the plaintiffs' conduct in failing to notify the defendant of intention to rescind was calculated to and did mislead the defendant to its injury. It is true that the defendant not only should have known but in fact must have known that at the time when the contracts or at least some of them should have been performed, it had failed to take steps to carry them out. Notice by the plaintiffs of failure to perform when the defendant knew that it had not performed would serve no purpose. Notice by the plaintiffs that because of failure to perform by the defendant they would not accept performance thereafter may well have resulted in defendant giving the bank subsequent directions to make the transfer and in parting with control of its moneys in the bank. If the defendant had the right to assume from plaintiffs' failure to give notice of rescission that the plaintiffs would accept performance thereafter, even if incomplete at the time and it acted upon that assumption to its loss, then I think that the plaintiffs may not thereafter insist upon the breach as a ground of rescission. By their silence they may have extended the time for performance *Page 365 
if they remained silent when under a duty to speak. Whether in spite of extension of time to perform they might still recover damages for failure to perform at the stipulated time is not a question which we may decide in this action. Such right to recover damages may depend upon whether the plaintiffs waived proven default not merely as ground for rescission but as ground for damages; whether in other words they merely waived default or whether they extended the stipulated time. I point out merely that in the case of Richard v. American Union Bank (241 N.Y. 163) the circumstances were not analogous. There the plaintiffs who are also the plaintiffs here, apparently failed as in this case to notify the seller of foreign credit that transfer had not been made until long after time for performance of the contract had passed and the foreign money had declined to a fraction of its value at the time the contract was made, but so far as shown, the defendant had not been misled or injured by this failure. It did not change its position in any way, to its detriment. It attempted performance only when it could do so at a large profit.
Here the defendant was apparently misled to its detriment by the plaintiffs' silence; it did part with control of its moneys in the Warsaw bank. It did make some attempt at performance before decline in value of the money. If the plaintiffs by failure to act gave the defendant the right to assume that subsequent performance would be accepted as compliance with contract obligation, then the plaintiffs may not now rescind. That is the ultimate question presented here and the affidavits presented upon the motion are insufficient in my opinion to justify its answer without a trial.
The court cannot take judicial notice of customs of the business in foreign exchange. It cannot weigh the effect of action or non-action of the parties nor determine the relative duties of the parties without proof of such customs and of all the conditions surrounding the transaction. *Page 366 
The obligations of the defendant under its contracts are in general clearly and unambiguously expressed; the question of whether breach of those obligations was waived, and whether the right to restitution because of that breach was lost, depends on equitable considerations outside of the contract. There may in fact be difference in regard to the separate contracts, but these are matters which must await trial. Regardless of whether the burden rests upon the plaintiffs to show that rescission was prompt or upon the defendant to show that there was unjustified delay which placed an undue burden and loss upon it, the affidavits before us show that defendant is under the rule entitled to defend.
The orders should be reversed, with costs, and the motion denied.
HISCOCK, Ch. J., POUND and CRANE, JJ., concur with CARDOZO, J.; LEHMAN, J., writes dissenting opinion, in which ANDREWS, J., concurs; McLAUGHLIN, J., absent.
Judgment affirmed.