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RITE FABRICS, INC. v. STAFFORD-HIGGINS CO.

September 25, 1973;

RITE FABRICS, INC., Plaintiff,
v.
STAFFORD-HIGGINS CO., INC., Defendant. STAFFORD-HIGGINS INDUSTRIES, INC., Plaintiff, v. GAYTONE FABRICS, INC., Defendant


Levet, District Judge.


The opinion of the court was delivered by: LEVET

OPINIONS, FINDINGS OF FACT and CONCLUSIONS OF LAW

LEVET, District Judge.

 This action was brought by plaintiff for an amount due on a contract for the sale of fabric which was sold, delivered and then subsequently used by defendant. Defendant has counterclaimed for the amount of damages it has sustained due to an alleged breach of warranty of merchantability and fitness for a particular use. Defendant has also impleaded a third-party defendant which defendant alleges is also liable for the breach.

 This case was tried to the court without a jury. Substantial issues of fact and law were involved in this action. The court has carefully examined the proof submitted and after extensive consideration has decided the issues of law as hereinafter enunciated.

 After hearing the testimony of the parties, examining the exhibits and the Proposed Findings of Fact and Conclusions of Law submitted by counsel, this court makes the following Findings of Fact and Conclusions of Law:

 FINDINGS OF FACT

 1. This court has jurisdiction over the subject matter and parties of this action. 28 U.S.C.A. § 1332.

 2. Plaintiff, Rite Fabrics, Inc. ("Rite Fabrics"), is, and at the time of the commencement of this action was, a corporation organized under the laws of the State of New York, maintaining its principal place of business at 135 West 37 Street, New York, New York. Plaintiff is engaged in the business of converting and jobbing textiles; as such it contracts with dyers and printers of textiles to change cloth material from a greige state to a finished state and subsequently sells the finished fabric to manufacturers of garments. (Plaintiff's post-trial proposed findings of fact No. 1.)

 3. Defendant, Stafford-Higgins Industries, Inc. ("Stafford-Higgins"), is, and at all times relevant to this action was, a Connecticut corporation having its principal place of business and office at Willard Road, Norwalk, Connecticut. Stafford-Higgins has manufactured only women's swimwear since 1949. (120, 121.) *fn1"

 4. Third-party defendant, Gaytone Fabrics, Inc., is a New York corporation with its office and principal place of business at the time of this action at 135 West 37 Street, New York, New York.

 5. Leo Levine, Inc. ("Levine") is a selling agent for Stafford-Higgins and sold textiles for Stafford-Higgins at all times relevant to this action. (22.) Levine also has advised Stafford-Higgins with respect to goods and styles which Stafford-Higgins may use in its production of women's swimwear, and did so at all times relevant to this action. (23.)

 6. At or about late June or early July 1967, Levine, as agent for Stafford-Higgins placed an order with Rite Fabrics for a sample purchase of ten yards of an acetate and rayon tricot fabric which had an "animal print" on it. (24, 26, 27; Ex. NN.) This order was placed through a salesman for Rite Fabrics named Harry Feinberg ("Feinberg"). (24.) Levine also ordered five yards of a voile fabric as a sample to be used in conjunction with the acetate and rayon tricot to make three-piece women's swim suit sets. (27.)

 7. Feinberg was acquainted with Stafford-Higgins as a manufacturer of women's swimwear and had dealt with it on prior occasions. (26.) Feinberg also knew that Stafford-Higgins was then designing a woman's swim suit set with the sample fabric which Levine had ordered and received from Rite Fabrics. (27.)

 8. The aforesaid sample fabric ordered by Levine from Rite Fabrics through Feinberg was subsequently delivered to Stafford-Higgins and was received by Clifford Holcomb, the purchasing agent for Stafford-Higgins, in Norwalk, Connecticut. (46, 49, 54; Exs. NN, OO.) This sample fabric was subsequently cut and sample women's swimwear garments were made out of it in and around July 1967. (55.)

 9. Holcomb, acting for Stafford-Higgins, subsequently ordered another sample of the heretofore-mentioned fabric (Finding of Fact 8) from Rite Fabrics. That order was received by Stafford-Higgins at or about the end of July 1967 in Norwalk, Connecticut. (66; Ex. PP. Stafford-Higgins made this fabric into sample women's swimwear at or about early August 1967. (67.)

 10. At or about late August or early September 1967, Holcomb for Stafford-Higgins placed an order with plaintiff, Rite Fabrics, for 2,675 yards of the voile and 2,400 years of the acetate which Stafford-Higgins used to make sample swimwear. These orders were placed by Holcomb for Stafford-Higgins by telephone to Rite Fabrics. (58, 68, 689, 690) and were subsequently confirmed by Stafford-Higgins in writing. (Ex. A3.) The form of that order contained the following conspicuous wording in large capital letters: "THESE GOODS TO BE USED FOR SWIMWEAR. ALL COLORS, PRINTS AND BONDING PROCESSES MUST MEET SWIMWEAR SPECIFICATIONS." (Ex. A3; Appendix A.)

 On the reverse side of that order form were the following paragraphs:

 
"Merchandise will conform to accepted samples or to Stafford-Higgins Co., Inc. specifications, whichever the case may be or both.
 
"If terms on this order do not appear on or agree with Seller's invoice as rendered, Seller agrees that Stafford-Higgins Co., Inc. may change invoice to conform to this order and make payment accordingly."

 Plaintiff never objected to any of these terms either orally, in writing or otherwise.

 11. In and about October 1967, Feinberg, Rite Fabrics' salesman, telephoned Holcomb and suggested another acetate to be used by Stafford-Higgins to replace the acetate Stafford-Higgins had been buying up to that date. (77; Exs. A3, B.) That new fabric was made of a heavier weight and thus could be used for the bikini bottom of the three-piece outfit, eliminating the necessity of attaching a fabric lining. Holcomb inquired of Feinberg as to whether the superknit would meet the swimwear specifications as stated on the Stafford-Higgins' order form. (Ex. A3.) Feinberg thereupon assured Holcomb that the superknit would meet the swimwear specifications as stated on defendant Stafford-Higgins' order form. (83.) Holcomb subsequently received a sample of the new superknit which he found to be as Feinberg had previously described. (78, 83, 84, 85; Exs. RR, SS.)

 12. Stafford-Higgins subsequently placed eleven more orders with Rite Fabrics during the period October 1967 and April 1968. Each of these Stafford-Higgins' order forms stated thereon "3411 AS HAD" (Exs. A3-L), thus incorporating by reference the Stafford-Higgins' order form of Exhibit A3. *fn2"

 The invoices issued by Rite Fabrics delivered with the goods stated in nonconspicuous small print: *fn3" "No refunds after 5 days. Check goods before cutting." (Exs. 2-13; Appendix B.) There was no reference to warranties or disclaimer of fitness for use on any part of the Rite-Fabric invoice, either directly or by incorporation by reference.

 Rite Fabrics and Stafford-Higgins both stipulated to the purchase and delivery of the goods mentioned above. (5, 87, 88.)

 13. On or about and between August 14, 1967 and April 22, 1968 Rite Fabrics sold and delivered to Stafford-Higgins 2,404 yards of bonded acetate jersey; 21,458 yards of superknit acetate jersey and 55,760 yards of dacron-cotton-voile, all in Rite Fabrics' animal print pattern, style 3411. The total price for this material was $60,822.70, of which Stafford-Higgins paid $17,314.35, leaving a balance due in the amount of $43,508.35. (3-5; Exs. 2-13.) This fabric so delivered was made up in different job or dye lots. (Court Ex. 1.) *fn4"

 14. Stafford-Higgins subsequently manufactured 3,525 11/12 dozen three-piece women's swim outfits at a cost of $48.66 per dozen from the said material ordered and delivered from Rite Fabrics. (Exs. 39, 40, GGG.) Of the 3,515 11/12 suits manufactured, Stafford-Higgins sold and delivered to its customers 2,835 11/12 dozen three-piece women's swim outfits. (Exs. BBB, CCC, GGG.) 680 1/2 dozen swim outfits were unsaleable. Stafford-Higgins subsequently issued $34,921.86 in credits to its customers for returned bathing suits. (Exs. FFF, DDD, GGG.) Stafford-Higgins expended $33,113.13 in the production of the 680 1/2 dozen unsold swimsuits. (542; Ex. UU.)

 15. Stafford-Higgins notified Rite Fabrics on May 4, 1968 that it had received a substantial number of complaints with respect to the colorfastness quality of the aforementioned bathing suits sold.

 16. The print on the aforesaid fabric ordered by Stafford-Higgins from Rite-Fabrics had been placed on the fabric by Rite Fabrics by a process called "pigment printing." Pigment is a powder combined with a resin which is attached to the surface of the fabric by heat curing, thereby causing the pigment to bind to the surface of the fabric. (635, 636.)

 17. A random sample of new and used bikini parts of the three-piece swim outfit was tested for colorfastness. (Exs. ZZ, AAA.) These suits were subject to A.A.T.C.C. colorfastness tests, which were compared to the minimum performance requirements as promulgated by the American National Standards Institute. (178, 632; Exs. ZZ, AAA, 46.) A significant degree of varying percentages of the tested garments were found to be defective in that they failed to meet the minimum performance standards for colorfastness. (Exs. ZZ, AAA; 178, 632.) The irregular colorfastness was due to defective printing of the fabric. Additional curing of some of the garments improved their colorfastness. There was no practical method of determining which of the unsold or returned merchandise could be separated into satisfactory and unsatisfactory goods. (Ex. ZZ.) 18. Defendant Stafford-Higgins has sustained damages in the net amount of $24,526.64, computed as follows: Credits issued to customers (including profits lost and costs of production for returns and allowances (Finding of Fact 14) $34,921.86 Cost of production of 680 1/2 dozen un- salesable swim suits (Finding of Fact 14) $33,113.13 Gross damages sustained by Stafford- Higgins from defective fabric $68,034.99 LESS amount due on contract price of fabric received and retained by Staf- ford-Higgins used in manufacturing swimwear (Finding of Fact 13) $43,508.35 Net amount of damages sustained by Stafford-Higgins $24,526.64

 DISCUSSION

 OFFER AND ACCEPTANCE

 Plaintiff argues that its invoice and shipment of the goods ordered by defendant Stafford-Higgins was both an acceptance to sell goods to Stafford-Higgins and a counteroffer to sell the goods to Stafford-Higgins; *fn5" that Stafford-Higgins accepted and under this theory is entitled to recover the contract price. The plaintiff bases its argument upon Section 2-207 of the Uniform Commercial Code *fn6" and upon Roto-Lith, Ltd. v. F.P. Bartlett Co., 297 F.2d 497 (1st Cir. 1962), one of the first cases interpreting Section 2-207 of the U.C.C. (Plaintiff's post-trial brief, p. 21.)

 Hence, the initial determination I must make is what posture the invoice and shipment of the goods takes, that is, whether such shipment was an acceptance with additional terms or a counter offer which Stafford-Higgins accepted by the cutting of the fabric and subsequent manufacturing of the women's swimwear in light of Section 2-207 and the interpreting case law.

 An invoice, in and of itself, is only a detail statement of the nature, quantity and the cost or price of the goods included in the invoice. This was the law in New York prior to the adoption of the U.C.C. and is still the law in New York. Tanenbaum Textile Co. v. Schlanger, 287 N.Y. 400, 40 N.E.2d 225 (1942); Flamingo Lingerie v. Camay Fabrics, N.Y.L.J. Friday, March 22, 1968, p. 16, col. 6.

 Under common law rule, if the terms of a purported acceptance varies the terms of the offer, even as to trivial detail, it operates as a counter offer and thereby a rejection of the offer. "Because the common law rule requiring offering and acceptance to match precisely was frequently applied with strictness, making even apparently insignificant variations between offer and acceptance sufficient to negate the existence of a contract, business arrangements which both parties had assumed to be binding were vulnerable to avoidance with impunity." 76 Harv.L.Rev. 1481, 1482 (1963).

 However, Section 2-207 of the U.C.C. substantially changes the common law rule. Section 2-207 of the U.C.C. states:

 
"(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
 
"(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
 
"(a) the offer expressly limits acceptance to the terms of the offer;
 
"(b) they materially alter it;
 
"(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
 
"(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale, although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provision of this Act." (Emphasis supplied.)

 Section 2-207 is an indication of intent of the draftsmen of the code to modify the unrealistic technical rules of the common law of sales and resolve the "battle of the forms," by substituting a set of rules and legal principles conforming to the practices and expectations of modern businessmen. Practice Commentary to Section 2-207 U.C.C. (McKinney's 1964).

 One of the first cases which attempted to interpret Section 2-207 was Roto-Lith, supra, upon which plaintiff relies.

 In Roto-Lith, supra, the buyer requested the seller to ship certain goods. The seller subsequently shipped the goods with an acknowledgement of the order and a shipping invoice, both of which had wording specifically excluding all warranties as to fitness for use with respect to the goods ordered and delivered. The buyer was aware of such wording on the acknowledgement and invoice.

 The First Circuit determined that the additional terms on the acknowledgement and invoice were so materially different from the purchase order that the shipment was a counter offer and not an acceptance with additional terms. The acknowledgements and invoices stated:

 
"All goods sold without warranties, express or implied, and subject to the terms on reverse side.
 
"1. Due to the variable conditions under which these goods may be transported, stored, handled or used, Seller hereby expressly excludes any and all warranties, guaranties, or representations whatsoever. Buyer assumes risk for results obtained from use of these goods, whether used alone or in combination with other products. Seller's liability hereunder shall be limited to the replacement of any goods that materially differ from Seller's sample order on the basis of which the order for such goods was made.
 
"2. This acknowledgement contains all of the terms of this purchase and sale. No one except a duly authorized officer of Seller may execute or modify contracts. Payment may be made only at offices of the Seller. If these terms are not acceptable, Buyer must so notify Seller at once." (At 499 of 297 F.2d.)

 The First Circuit in its discussion of Section 2-207 in Roto-Lith, supra, noted that such exculpatory statements made on the acknowledgement and invoice "Materially Altered" *fn7" the agreement. The court went on to note that while Section 2-207 did contemplate additional terms, including those that materially altered an agreement, the argument proposed by the plaintiff-buyer "exaggerates the freedom which this section affords an offeror to ignore a reply from an offeree that does not in terms coincide with the original offer." (At 499.) The court further commented that because the terms of the acknowledgement and invoice were of such a nature that there could be no other way to interpret them except to state, in a paraphrase of section 2-207, that there could only be an "acceptance * * * expressly * * * conditional on assent to the additional * * * terms." (At 500 (Section 2-207(1) U.C.C.).)

 The First Circuit's decision in Roto-Lith has been widely criticized.

 The most forceful factor in controverting the court's construction of Section 2-207 lies in the very language of the provision. Section 2-207 states that a "definite and seasonable expression of acceptance" operates as an acceptance even though it includes different or additional terms which at common law would have given rise to a counter offer and thus operate as a rejection. (Commentary to U.C.C. Section 2-207; see also Contracts, Calimari and Perrillo, West, 1970.) The Code requires, however, an "express" declaration that the acceptance is conditional upon the offeror's assent to the new terms. (Section 2-207 U.C.C.)

 In Roto-Lith, supra, however, the court found that there was no definite and seasonable expression of acceptance. Instead, the First Circuit determined that the delivery of the goods with the acknowledgement and invoice was not an acceptance with additional terms but a counter offer which the offeror was in a position to accept or reject. Since the purchaser knew of the terms of the agreement and invoices, there being no subsequent rejection, "it became bound." (At 500.)

 What constitutes a "definite and seasonable expression of acceptance" is somewhat cloudy under the Code, and whether the acknowledgement form of the seller in Roto-Lith would otherwise have qualified cannot be learned from the decision. In general, it may be concluded that if the face of an acknowledged form repeats (Mathew-Bender 1966).

 The First Circuit did not discuss in Roto-Lith subdivision (3) of Section 2-207, what would have generated a conclusion that the purchaser should have prevailed.

 Under subdivision 3, when the contract arises through the conduct of the parties, the terms of the contract are the terms of the exchanged writings to the extent they are consistent, "together with any supplementary terms incorporated under any other provision of this act." Section 2-207(3) U.C.C. (McKinney's 1964). Therefore, in Roto-Lith, since there was a conflict as to the warranty provision, the warranty provision of the Code which would favor the purchaser should have become part of the contract. Comment 6, Section 2-207 U.C.C. (McKinney's 1964).

 To be noted at this point is the fact that on the back side of defendant's order form in the present case there was a clause which provided for the changing of any terms presented by plaintiff-seller on its acknowledgement or invoice, to which plaintiff-seller never objected. (Finding of Fact 10.)

 In a recent district court decision, Greenspun v. American Adhesives, Inc., 320 F. Supp. 442 (E.D.Pa.1970), the court denied a motion for summary judgment for the defendant-manufacturer in a breach of warranty action. In that case defendant delivered to plaintiff drums ...


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