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Reno Sales Co. v. Pritchard Industries Inc.

December 9, 1949


Author: Duffy

Before KERNER, DUFFY and FINNEGAN, Circuit Judges.

DUFFY, Circuit Judge.

Plaintiff brought this action to recover $12,050.56, the alleged unpaid balance of the purchase price of a quantity of waste baskets sold to defendant. In its answer defendant admitted receipt of the baskets, but denied liability for the unpaid purchase price, claiming that the baskets did not conform to sample and were of inferior quality and workmanship, and that it had offered to return all of said baskets to plaintiff. Defendant also interposed a counterclaim demanding $25,833.56, the amount which it had paid on its account for said baskets, plus $1,374.86 freight charges, again alleging that the waste baskets shipped by the plaintiff were of poor workmanship and were not merchantable, and that it had offered to return all of said baskets to plaintiff.

The cause was tried to a jury. At the close of defendant's case, the trial court granted plaintiff's motion for a directed verdict. A formal verdict was not signed by either the members of the jury or the foreman thereof. The court dismissed the counterclaim and entered judgment for the plaintiff, from which judgment this appeal is taken.

Although the order dismissing the counterclaim of plaintiff recites, "Ordered that said counterclaim be and it is hereby dismissed and that judgment be entered on the pleadings * * *," it is apparent from another part of said order and from the colloquy between the trial judge and counsel for plaintiff that a judgment on the verdict was contemplated. The order also recites, "* * * and the Court having heard the evidence adduced and the arguments of counsel and considered the pleadings filed herein directs a verdict for the plaintiff-counterdefendant on the counterclaim herein."

On July 18, 1946, at Chicago, Illinois, defendant gave plaintiff a written purchase order for between 21,000 and 22,000 waste baskets, "as sample submitted," for $1.90 each. It was agreed that the baskets were to be shipped in individual sealed cartons to the defendant at Chicago for resale to defendant's customers. From July 22, 1946, to August 15, 1946, plaintiff shipped, delivered, and invoiced to defendant six shipments totaling 8,799 baskets for which defendant paid a total price of $16,718.10. From August 20 to October 24, 1946, an additional six shipments were made, totaling 11,134 baskets for a total price of $21,154.60. Up to November 29, 1946, defendant had paid to plaintiff a total of $9,115.46 on account; in addition eight post-dated checks, each for $1,500, had been given by defendant to plaintiff, but payment thereon was stopped. In December, 1946, defendant offered to return the waste baskets, but made no attempt or effort to do so, and continued to sell them up to the date of the trial in April, 1948. In all, about 3,000 baskets were sold which defendant obviously was in no position subsequently to return.

Upon a motion for a directed verdict, the evidence must be viewed in the light most favorable to the party against whom the verdict is directed, and all conflicts must be resolved in his favor. Storck v. Northwestern Nat. Casualty Co., 7 Cir., 115 F.2d 889; Aetna Casualty and Surety Co. v. Yeatts, 4 Cir., 122 F.2d 350. The question here presented is: At the conclusion of its evidence had defendant established a prima facie case in support of its answer and counterclaim?

Defendant's answer, as amended, was based upon Sec. 69(4) of the Uniform Sales Act in force in Illinois.*fn1 Defendant's counterclaim invoked the remedy under Sec. 69(1)(d) of the Uniform Sales Act.*fn2

Both parties seem to agree that, in order to establish a prima facie case, it was incumbent upon defendant to prove four necessary elements: (1) that the contract of sale was by sample; (2) that there was a breach of warranty; (3) that the rescission was made within a reasonable time; and (4) that defendant had a right to rescind the contract in part and affirm it in part. Plaintiff contends that the defendant was unable to rescind in toto, and had waived any right it might have had to rescind.

The first element was not in dispute, and the district court held that the sale was by sample. As to the second element, the trial court found: "* * * The evidence indicates that, so far as the defendant-counterclaimant has made any inspection of the merchandise, it does not conform to sample and is therefore a violation of one of the implied warranties under sec. 16 of the Uniform Sales Act, * * *"

This conclusion is supported by the testimony of the expert witness, Elmendorf, and must be accepted by this court.

The parties are in dispute over whether the attempted rescission was timely. What constitutes a reasonable time must be determined after considering all of the attendant circumstances. Defendant was a wholesaler and retailer of office equipment. The baskets shipped to it in large quantity were in individual sealed cartons. Plaintiff knew that such baskets were to be resold and reshipped in said cartons to customers of defendant. In order to detect the latent defects, the cartons had to be opened and the baskets separated at the ends. Defendant offered evidence to show that instead of plywood panel ends being evenly machined and glued in the recesses, as in the sample, metal fasteners had been used, which, being driven across the grain of the center ply, had a tendency to split it thus causing the baskets to be split at the end. Although sometime in October, 1946, defendant had received a complaint about one or more baskets shipped to a customer, it concluded that the damage had occurred in shipment because the carton itself was damaged. It was not until December 3, 1946, that defendant had actual knowledge of the latent defects of the baskets. Immediately defendant checked other baskets in stock and finding some that were unsatisfactory consulted its attorney. The reasonable time in which a purchaser of chattels must rescind the contract runs only from the time the purchaser had knowledge of or is chargeable with knowledge of the breach of warranty. See Anno., 72 A.L.R. 740. We conclude that the attempted rescission by defendant was timely.

We must now focus our attention on the conflicting contentions pertaining to the fourth element. Under the circumstances of this case, is a partial rescission of the contract permissible? The trial court said: "* * * and by selling several thousand of the wastebaskets, (defendant) has exercised a right of ownership inconsistent with that of the seller and cannot restore the seller to the status quo by a return of the goods. Rescission cannot be partial. * * *"

Defendant contends that at the time of the trial, it had on hand 16,750 baskets; that it had the right to return not only the six separate shipments sued on by plaintiff which totaled 11,134 baskets, but also the shipments of August 2nd, 9th and 15th, 1946, which totaled 5,179 baskets. Stated differently, defendant insists that, having 16,750 baskets in its possession, it had the right to rescind the nine shipments from August 2 to October ...

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