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Armour and Co. v. Celic

September 6, 1961


Author: Steel

Before LUMBARD, Chief Judge, MOORE, Circuit Judge, and STEEL, District Judge.*fn*

STEEL, District Judge.

Plaintiff, Armour & Company, asserts that on February 1, 1956 it entered into a written contract with Suffolk Farmers Cooperative Association, Inc., of Jamesport, New York. The writing was designated at the top in large letters, "Contract of Limited Agency." It provided that plaintiff would consign to the Cooperative for sale, on commission and for the account of plaintiff, on prices and terms to be fixed by plaintiff, such quantities and brands of fertilizer as might be mutually agreed upon from time to time, that all fertilizer delivered to the Cooperative, until sold, and the cash received by it therefor, should remain the property of plaintiff, that the Cooperative would sell only for cash, and that all cash received by it would be remitted to plaintiff promptly upon demand.

On July 3, 1957 the Cooperative, being insolvent, made an assignment for the benefit of creditors. According to plaintiff, the Cooperative then owed plaintiff $46,687.67 which it should have been holding as plaintiff's property and for its account. The assets held by the Cooperative, however, were insufficient to enable it to meet this obligation. Plaintiff charges that the Cooperative converted its property (1) by using $19,777.67 which it received upon the sale of plaintiff's fertilizer for purposes other than payment to plaintiff, and (2) by exchanging $26,910 of fertilizer for produce (or in satisfaction of indebtedness incurred by the Cooperative in purchasing produce) instead of selling the fertilizer for cash as the contract required. Plaintiff brought an action against officers and directors of the Cooperative upon the ground that they were responsible for the conversion and are liable to plaintiff for the $46,687.67 which it lost.

The action was dismissed after a trial without a jury. The trial court held as the first ground of its decision that the agreement of consignment never became effective because it was not delivered to the Cooperative after it had been signed by plaintiff. According to the trial court, the fertilizer shipments created a debtor-creditor relationship with the result that the Cooperative held no property of the plaintiff which could be the subject of conversion.

The transaction had its inception on January 21, 1956 when representatives of the plaintiff met with the directors of the Cooperative and their counsel and discussed the prospective deal. A copy of the proposed consignment agreement was distributed to the directors and examined by their attorney. On January 27 it was signed by Zeh, the president of Cooperative, and sent to plaintiff for confirmatory execution. Paragraph 14 of the contract stated that it should not be binding upon the plaintiff "until confirmed in writing by one of our [plaintiff's] duly authorized division managers." On February 1, 1956, Post, plaintiff's division manager, signed it.

At pretrial the parties stipulated that the instrument was "executed" by plaintiff and the Cooperative under date of February 1, 1956. We should have supposed that this would have put at rest any question concerning the initial effectiveness of the contract. But the trial court was of a contrary view and held "execution" did not encompass delivery; and upon the basis of adequate evidence found that the instrument of February 1, 1956 was never sent to the Cooperative after Post signed it. Relying upon Ross v. Ross, 1931, 233 A.D. 626, 253, N.Y.S. 871; affirmed sub nom., Hutchison v. Ross, 262 N.Y. 381, 187 N.E. 65, 89 A.L.R. 1007, reargument denied, 1933, 262 N.Y. 643, 188 N.E. 102, 89 A.L.R. 1023, it held that the delivery of the agreement to the Cooperative, after its execution by Post, was a prerequisite to its validity. This was basic error.

In the absence of some requirement in the contract itself, we know of no principle of law which makes the validity of a contract contingent upon its delivery or the delivery of a copy to one or more of the parties to it. When parties reduce their understanding to writing, express their consent thereto by signing the writing, and the obligations contained in the writing are supported by adequate consideration and are not otherwise illegal, a binding and enforceable agreement results regardless of whether copies are delivered to each of the parties. Ross v. Ross, supra, and other cases which hold that delivery is essential to validity of a deed or trust instrument involve considerations which are without pertinence to ordinary commercial contracts.

It may be assumed that the Cooperative was entitled to notice that the contract had been confirmed by plaintiff before the Cooperative could be held to its terms. The evidence, in its entirety, makes it abundantly clear that Cooperative must have understood that plaintiff had done so. Shortly after the contract was confirmed by plaintiff it began to ship fertilizer to the Cooperative. These shipments continued for a year and a half and aggregated in excess of $100,000. The invoices which plaintiff sent to the Cooperative referred to "Agent's Contract" under the designation "Terms." No other "Agent's Contract" except that executed by Post on February 1, 1956 had been entered into by the parties or indeed been discussed by them. On March 2, 1956 the Cooperative distributed a circular saying that Armour & Company had been chosen as its source of supply of fertilizer. All of this justifies the inference that the Cooperative must have known that the contract had been signed on behalf of plaintiff and that the parties were operating under it. Initially, at least, the "Contract of Limited Agency" effectively created a relationship between plaintiff and the Cooperative of principal and agent or consignor and consignee, and definitively set forth the obligations of each.

The trial court held, however, that if the February 1, 1956 agreement was initially valid, the parties failed to treat it as a contract of consignment, but acted as if it were a contract of purchase and sale in accordance with a custom which prevailed in the community. Hence the court held that title to the fertilizer passed to the Cooperative upon delivery, and since after delivery plaintiff no longer had a property interest in it, neither the fertilizer nor the cash realized upon its sale could be the subject of conversion. While the court does not say in so many words that the contract of consignment was discharged or abandoned with the mutual consent of the parties in favor of an agreement of purchase and sale, this is what the holding amounts to. The defendants likewise assert in their brief, "The written agreement was abandoned and a new relationship established by the parties."

It is axiomatic that the rescission of a contract by abandonment requires mutual assent of the parties. Re Huxley, 1945, 294 N.Y. 146, 61 N.E.2d 419, 169 A.L.R. 194; City of Del Rio v. Ulen Contracting Corp., 5 Cir., 1938, 94 F.2d 701, 704; 6 Corbin, Contracts § 1293 at 147 (1951). The abandonment of a contract can, of course, be inferred from attendant circumstances and conduct of the parties. Brockhurst v. Ryan, 1955, 2 Misc.2d 747, 146 N.Y.S.2d 386, 390 (Sup.Ct.1955); In re Schanzer's Easte, 1959, 7 A.D.2d 275, 182 N.Y.S.2d 475, 479; Restatement, Contracts § 406, comment b (1932). Where conduct is relied upon to establish the abandonment, the acts of the parties must be positive, unequivocal and inconsistent with an intent to be further bound by the contract. City of Del Rio v. Ulen Contracting Corp., supra, 94 F.2d at page 704; Sauder v. Dittmar, 10 Cir., 1941, 118 F.2d 524, 530. The termination of a contract is not presumed, and the burden of establishing it rests upon the party who asserts it. See Arzani v. People, Sup.1956, 149 N.Y.S.2d 38.

It is in the light of these principles that the evidence must be examined to ascertain whether the parties by their actions manifested an intention to abandon their rights under the consignment contract. It seems abundantly clear that they did not.

Substantially every invoice which plaintiff sent to the Cooperative contained an express reference to "Agent's Contract." The only "Agent's Contract" known to either party was that of February 1, 1956. No objection to this invoice reference was ever voiced by the Cooperative. These circumstances are scarcely consistent with the intention on the part of either party to abandon the consignment contract.

Furthermore, in February 1957 when the Cooperative was faced with serious financial difficulties, Albrecht, its credit manager, told two of the directors, Zeh and Reeve, that the Cooperative should set up a special fertilizer account and not commingle the proceeds of the fertilizer sales with its general funds, for otherwise the time might come when the plaintiff could not be paid. Such a "special fertilizer" account was opened on February 25, 1957, the day after Albrecht told Zeh that the Cooperative was approaching insolvency. Thereafter, monies received from the sale of plaintiff's fertilizer and that of two other fertilizer manufacturers were put in the fertilizer account. This fact was known to many of the directors. Thereafter plaintiff was paid by check marked "Fertilizer Account." Although monies were withdrawn from the account from time to time to meet payrolls and pay creditors, efforts were later ...

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