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MARTIN v. ALCO-DEREE CO.

United States District Court, Northern District of Illinois, E.D


April 10, 1963

BERNARD MARTIN AND ALVIN E. SHULMAN, CO-PARTNERS, DOING BUSINESS AS MARTIN ENTERPRISES, PLAINTIFFS,
v.
ALCO-DEREE CO., A CORPORATION, AND WILLIAM S. DEREE, DEFENDANTS.

The opinion of the court was delivered by: Robson, District Judge.

Plaintiffs, by complaint filed November 8, 1960, seek to recover $17,828.69*fn1 which they allege to be still owing them as a result of the sale of steel to defendants*fn2 in November and December, 1959.*fn3 The parties, on stipulation, have submitted the cause for the Court's determination on the pleadings, interrogatories and answers, and the briefs filed on the defendants' Motion for Summary Judgment.*fn4

The defendants plead an accord and satisfaction.*fn5 Plaintiffs challenge the validity of the accord, asserting fraud and false representations by the defendants that the steel was defective, which representations the plaintiffs relied on in executing the accord.*fn6 The plaintiffs claim that on May 20, 1960,*fn7 subsequent to the accord,*fn8 they learned that the rejected steel was not defective, but wholly acceptable according to Western European standards and could be deemed defective only under United States' standards, and that it was not until the price of steel dropped from $10.75 to $3 per hundred weight and defendants' account was six months delinquent that defendants saw fit to complain.

While the bases for a fact conclusion in this cause are not as plentiful as could be desired, the Court is convinced that the parties intended that the steel sold should be according to American standards, not Western European standards, and therefore defendant corporation perpetrated no fraud when it advised plaintiffs the steel was defective. For that reason, plaintiffs may not now maintain that the accord is vitiated by fraud.

The defendant corporation's Purchase Order No. 8659, dated November 10, 1959, states as a "condition":

    "5. Material must be as specified, prime domestic
  and free from all defects or full refund including
  freight and handling charges will be effected."
  (Emphasis supplied.)

Plaintiffs claim, however, that the typed portion of the order supersedes this fine print condition, as well as the fact that plaintiffs informed defendant corporation the steel was foreign steel.

Plaintiffs' own invoice No. 7423, dated November 30, 1959, describes the material purchased as "Open Hearth Hot Rolled Rounds AISI C-1035." (Emphasis supplied.) Defendants point out that AISI stands for American Iron and Steel Industries Standards.

Defendant corporation's Debit Memo No. 1011,*fn9 dated December 31, 1959, states:

    "This material has carbon content ranging from .55
  through .74 which was discovered by our customers

  production engineering process laboratory after
  delivery. Therefore is not as represented and
  purchased AISI C-1035.*fn10 Material being held in
  Chicago for your disposition." (Emphasis supplied.)

In support of the motion for summary judgment defendants also append correspondence and reports between the parties in respect to the defective steel bars. Defendants point out that as early as December 31, 1959, they rejected an entire shipment of 39,320# because of defective carbon content. Defendants forwarded to plaintiffs, on March 28, 1960, the findings made by the Pittsburgh Testing Laboratories,*fn11 stating defendants' rejection*fn12 of the material and requesting instruction for disposition of the steel. A letter of June 8, 1960,*fn13 to plaintiffs from defendants sets out the terms of the parties' accord agreement in the controversy, and a return letter of June 20, 1960, from plaintiffs to defendants, accepting the check for the agreed balance, states:

    "We regret that you found this material not to be
  within the applicable standard tolerances * *."*fn14

As defendants point out:

    "The transactions and dealings between the parties
  covered the period from November 10, 1959 through
  June 8, 1960 when they settled their disputes.
  Plaintiffs who are steel brokers had more than ample
  time and opportunity during this extended period to
  make known to the defendants their `foreign' position
  * * *. The parties dealt at arms length. There was no
  fraud, misstatement, intentional concealment,
  overreaching, or a mutual mistake of fact. Courts
  favor compromises of disputes and where a settlement
  is once shown, every presumption is indulged in its
  favor."*fn15

Plaintiffs complain defendants' statement that "the designation AISI C-1035 on plaintiffs' confirmation of their purchase order indicates that this was intended to be a purchase of domestic steel and that AISI stands for American Iron and Steel Institute Standards" is not supported by any affidavit or other competent proof.*fn16

Defendants' answers to plaintiffs' September 11, 1961, interrogatories reveal that its customer, General Motors, rejected the steel because "chemical analysis of this material*fn17 showed carbon content range from .55 through .74."

The affidavit of plaintiff, Bernard Martin, states that on personal knowledge, he informed defendant corporation that the steel was of foreign origin, which steel it accepted at the New Orleans' port. He further states that none of the steel was ever in plaintiffs' possession or handled by it; much of it was resold by defendant corporation to others — 312,075# of it had been resold up to June, 1960, when the price dropped from $10.75 to the $3 per hundred pounds. At that time defendant corporation had 313,055 pounds on hand in its warehouse. He goes on to say that on June 8, 1960, defendant corporation's president represented that the remaining steel was

  "out of round, defective, substandard and not within
  the standard acceptable tolerances for such 9/16"
  rounds. On said date, defendant's account was six
  months delinquent, and plaintiffs had not yet seen
  said steel. Also * * * defendant informed plaintiffs
  it would not pay the $35,720.09 balance of the
  purchase price * * * and demanded that plaintiffs
  accept return thereof and credit defendant's account
  for their value."

The affidavit of plaintiff Martin further recites:

    "Relying on defendant's statements and
  representations * * * [plaintiffs] accepted the
  return of said steel and credited defendant's account
  * * * [which] left a balance of $8,340.19 * * *.

    "Shortly after accepting the return of said bars, *
  * * [plaintiffs] sought to return the same to
  plaintiffs' supplier as defective steel and
  discovered, for the first time, on or about July 18,
  1960, that said steel was not defective, substandard
  or beyond the standard acceptable tolerances for such
  steel, but that the same was completely in
  conformance with the usual and customary standards
  recognized and accepted for foreign steel in the
  steel industry."

The affidavit further states that:

  "* * * [T]he steel in question was rolled with a
  normal rolling tolerance for round bars of 0.5 mm.,
  as adopted by rolling mills in Western Europe; that
  this is the acceptable tolerance for foreign bars
  between 5 and 25 mm. diameter (which includes 9/16"
  Rounds, H.R. bars C 1035) as stipulated in `General
  Export Extra Book' of 1956, published in Belgium,
  page B-4.

  "* * * [T]he carbon content of said steel was in
  conformance with the specification C 1035."

Plaintiffs maintain defendant corporation knowingly purchased steel measuring up only to Western European standards. Defendants, on the other hand, assert that the documentary proof is that defendant corporation believed it was purchasing steel which conformed to American standards. Therefore the steel it received was defective under the contract and there was no fraud assertable to avoid the accord and satisfaction.

Plaintiffs assert that "about July 18, 1960, when plaintiffs sought to return said steel to their European supplier, they learned for the first time that it was not defective but that it was wholly in conformance with customary standards, tolerance and carbon content recognized and accepted for foreign steel in the steel industry.

There is little dispute on the law of the case. An accord and satisfaction may be set aside for fraud. Thus it is said in Corbin on Contracts, § 1292, Vol. 6, p. 178:*fn18

    "Just as in the case of other contracts, an accord
  can be set aside, or reformed and enforced, on the
  ground of fraud * * * or mistake."

And in American Jurisprudence 2d, Accord and Satisfaction, § 24, it is said:

    "As in the case of other contracts, a contract of
  accord and satisfaction may be rescinded by the
  parties. * * * To be valid, a contract of accord and
  satisfaction must have been consummated fairly and
  honestly; if procured by fraud, misrepresentation,
  duress, imposition, overreaching, * * * it is
  voidable at the option and instance of the aggrieved
  party, and may be rescinded upon discovery of the
  facts, provided the aggrieved party acts promptly. *
  * * An accord and satisfaction may be set aside in a
  court of equity on the ground that the parties were
  mutually mistaken as to the material facts * * *.
  However, equity will not relieve against an accord
  and satisfaction entered into in ignorance of the
  facts surrounding the transaction, where such facts
  could have been ascertained by the use of due
  diligence."

It was held in Hefter v. Cahn, 73 Ill. 296, 300 (1874), that:

    "Good faith requires of the debtor, before he shall
  be permitted to profit by a composition agreement,
  that he shall make a full and fair statement of his
  effects, or that no concealment, deception or fraud
  should be practiced.

    "[A] fraudulent contract will not support an
  action, neither can it be made the foundation for a
  defense."

The Court said further in that case, at p. 303:

    "If the composition agreement was fraudulent, that
  rendered it void, and appellees had the right to sue
  on their original account."

In Barnett v. Noble, 155 Ill. App. 129 (1910), it was held that:

    "A compromise settlement or accord and satisfaction
  does not cease to be effective as such merely because
  a party making the same does not understand the
  effect thereof provided there is no issue of fraud."

The rule is stated in Illinois Law and Practice, Accord and Satisfaction, § 52:

    "In the absence of a showing that an accord and
  satisfaction was procured by fraud or duress or was
  entered into and executed through mutual mistake, the
  courts will not go behind it and reopen the
  controversy which preceded it.

    "On the other hand, an accord and satisfaction may
  be avoided, rescinded, or set aside for fraud in
  inducing or procuring it. * * *

  "* * * If a settlement has been perfected and acted
  on, in the absence of fraud the creditor will not be
  permitted to say that he did not understand the
  agreement as a settlement."

The Court concludes that there is sufficient evidence in the documents presented by the defendants to support their contention that the steel the defendant corporation purchased was to conform to the American standard, that it did not conform to that standard, that the steel was defective under the contract and properly rejected, and that there was no fraud practiced by the defendants which might vitiate the accord and satisfaction for fraud. The Court is loath to upset the parties' accord and satisfaction where the evidence of fraud or mutual mistake is so nebulous. Consequently, the Court finds the issues for the defendants and concludes that the Complaint should be dismissed.


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