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SPINNERIN YARN CO. v. APPAREL RETAIL CORP.

August 8, 1985

SPINNERIN YARN CO., INC., Plaintiff,
v.
APPAREL RETAIL CORPORATION, Defendant



The opinion of the court was delivered by: POLLACK

DECISION AND OPINION

Pollack, Senior District Judge

 This is a diversity action by plaintiff, Spinnerin Yarn Company, against defendant, Apparel Retail Corporation, for the price of yarn ordered by and delivered to a manufacturer of finished goods, viz., Stoll Industries, pursuant to a credit line made available by defendant to Stoll's yarn suppliers. Defendant counterclaims against Spinnerin for monies it allegedly paid by mistake for Stoll's account

 The case tried to the Court at a Bench trial. Based on an evaluation of the proofs presented, including a resolution of all issues of credibility, the Court finds and concludes that the plaintiff failed to sustain its burden of proof on the complaint and the defendant failed to sustain its burden of proof on the counterclaim.

 No Proof or a Contract

 Spinnerin is a supplier of yarn to garment manufacturers. Apparel is a retail "off-price" buyer of garments. Stoll Industries is a knitter of garments for numerous purchasers, and is also the collective name for East Side Clothing Metropolis Knitting, and Stoll Industries.

 Spinnerin claims that Apparel breached an oral contract to pay for yarn order by Stoll to be fabricated into goods for Apparel. Spinnerin asserts that it delivered yarn to Stoll, at Apparel's request, and sent the purchase orders to Apparel, which repeatedly promised to sign them. Apparel has refused to pay for the yarn delivered on the purchase orders which it did not sign, claiming that the understanding of the parties, at the outset, was that it would accept only those of Stoll's orders which it has signed in advance Spinnerin replies that Apparel's "agent", Stoll, assented to the contracts and that Apparel waived any requirement of written assent through its course of conduct.

 The evidence clearly establishes that Apparel never agreed to be liable generally for the yarn purchased by Stoll. Apparel was simply one of Stoll's customers, purchasing finished garments from Stoll. There is no credible proof that Stoll ever acted as Apparel's agent or manufactured goods with yarn purchased on Apparel's account. Spinnerin's repeated attempts to find an agency between Apparel and Stoll and contracts between Apparel and Spinnerin, where none exist, have added to the confusion surrounding this relatively simple case.

 The credible testimony at trial was that sometime prior to 1983, Apparel had established a $500,000 line of credit to permit Stoll to purchase material from various suppliers, e.g., Deering Milliken and others. Apparel's Chairman had extended the credit line to Stoll, which was having some financial difficulties, as a personal accommodation to Stoll's principal. If a supplier to Stoll wanted to avail itself of the Apparel-Stoll credit line, it submitted orders to Shelly Karp, Director of Manufacturing of Apparel Buying, a division of defendant, for credit approval. As Apparel approved each extension of credit to any one of Stoll's several suppliers, it reduced Stoll's available credit line accordingly.

 In early 1983, Spinnerin's sales agent telephoned Karp and told him that Stoll had said that Apparel was providing credit for Stoll. The sales agent had negotiated an order with Stoll and wanted to sell it yarn, guaranteed by the Apparel credit line. Karp told Spinnerin's sales agent to submit the order for signature so that Karp could determine whether to accept and extend credit to Stoll to enable it to the purchase yarn from Spinnerin. Both Karp and Spinnerin's sales agent testified that Apparel expressly conditioned any agreement to extend credit on Apparel's prior written acceptance and signature.

 On March 9, 1983, shortly after Spinnerin discussed with Apparel the possibility of providing credit to Stoll, plaintiff's factor, Midlantic, wrote Apparel to verify the relationship between Stoll and Apparel: "Spinnerin has been calling in orders on your account for Metropolis and you have agreed to be responsible for the payment of the invoices." On March 11, 1983, Karp responded to Midlantic: "Please be advised that we will be responsible only for Purchase Orders that, myself, or an authorized representative of Apparel Buying, has signed, as we have done with all the Spinnerin orders."

 The parties followed a routine procedure for securing Apparel's acceptance of each order. Stoll's executives Rossi or Kuhl would execute a purchase order with Spinnerin's sales agent; the sales agent would then forward the purchase order and contract the Karp for possible acceptance and signature and would notify Midlantic of the potential sale. (The parties also refer to these contracts as purchase orders.) Karp would then consult Apparel's Controller, Daniel Harper, to determine whether Stoll was within the contemplated credit limit; Karp's only concern in deciding whether to accept the order was whether Stoll has exceeded its credit line. If Stoll had not exceeded its credit limit, Karp would sign the contract and forward the documents to Stoll; Stoll would then verify the amount, price, color, and style of the yarn specified in the contract. If Karp did not approve the credit, the documents were also sent to Stoll, unsigned. Karp and Spinnerin's sales agent both testified that none of the documents, signed or unsigned, were ever returned directly to spinnerin from Apparel. Spinnerin's sales agent went to Stoll to pick up the signed contracts.

 All the purchase orders accompanying the contracts had the "Metropolis" name on them and had been signed by Peter Rossi of metropolis. Four of the contracts identified the buyer as "Metropolis Ktg c/o Apparel Buying Corp." Although the remaining contracts were on a printed form which denominated Apparel as "Buyer," Karp testified that: 1) he did not notice that the designation on the printed form was not appropriate for a guarantor of a credit line as distinct from a purchaser of yarn; 2) he did not pay attention to the printed designation on the documents when Harper brought them to him; and, 3) he was concerned only with the bottom line dollar amount. The contracts, which had been prepared by Spinnerin, did not have a line for "credit approval"; Karp signed on the line marked "Buyers Signature" to signify his approval of credit for Stoll. Indeed, Spinnerin's sales agent never testified that Apparel was the user of lending its credit line in the Stoll transactions. It is also worth nothing that subsequent change of orders, prepared by Spinnerin and Stoll to alter Stoll's order, identified "Metropolis" (not Apparel) as the "customer."

 Karp testified that on several occasions, plaintiff's sales agent called him to explain what Stoll was ordering. Karp told the sales agent that he did not care what merchandise Stoll was purchasing, but that if Stoll wanted Apparel's credit guarantee, Stoll should sent the order and Karp would decide whether to sign it or not, depending on the open-to-buy credit line, and would sent it back to Stoll.

 In late summer 1983, Stoll apparently closed up shop. Meanwhile, Apparel was receiving late notices form Midlantic, requesting payment for yarn delivered to Stoll. Apparel refused to pay for the yarn on unsigned order. On August 12, 1983, Midlantic wrote Spinnerin, advising plaintiff of Apparel's limited obligation to it:

 
"We have placed the following invoices at your risk as the customer [Apparel] advises that they did not order the goods and do not have ...

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