FROST VENEER SEATING CO., Inc., v. ATLANTIC CABINET CO., Inc. (Supreme Court, Appellate Term, First Department. January 15, 1919.) 1. SALES 82(2)—ContraCT-TIME OF PAYMENT.

Where a sale of goods was made upon orders stating no time of pay. ment, payment became due upon delivery.

2. SALES 174-BREACH BY SELLER-EFFECT OF BREACH BY BUYER.

A buyer, not having made payments in accordance with terms of sale contract, cannot recover for seller's breach in failing to continue deliveries.

3. SALES 150(3)-DELIVERY REASONABLE TIME.

Where buyer ordered deliveries discontinued in the fall, and knew seller did not have the manufactured goods on hand January 3d, and ordered shipment on January 19th, deliveries on February 3d and 28th must be considered within reasonable time, in the absence of a contrary showing.

4. SALES 89-SUBSTITUTION OF NEW CONTRACT.

Facts held to show that a new sale contract in consideration of increased price had been substituted by seller and buyer's assignee for the original contract, except as to terms retained.

5. SALES 174-BREACH OF CONTRACT-PAYMENT.

Where part of goods for manufacturing purposes had been delivered under a sale contract, which was merged into a new contract providing for payments of money due seller, buyer, having failed to meet, payments through having shut down its factory, cannot recover for seller's failure to deliver.

Appeal from City Court of New York, Trial Term.

Action by the Frost Veneer Seating Company, Incorporated, against the Atlantic Cabinet Company, Incorporated. From a judgment of the City Court, dismissing the complaint and granting judgment upon defendant's counterclaim, the plaintiff appeals. Judgment reversed, and new trial ordered.

Argued November term, 1918, before GUY, WEEKS, and MULLAN, JJ.

Edward D. Brown, of New York City (J. Edward Schwerin, of New York City, of counsel), for appellant.

O'Gorman, Battle & Vandiver, of New York City (Almuth C. Vandiver, Lanman Crosby, and Cornelius J. Smyth, all of New York City, of counsel), for respondent.

WEEKS, J. [1] On May 17, 1916, the Atlantic Fixture Company, the predecessor in business of the defendant, gave to the plaintiff three orders, each dated on that day, for the delivery to it of 62,000 pieces of veneered wood to be manufactured by plaintiff. The prices were fixed therein, and the orders were numbered 818, 819, and 820, respectively, and were accepted by the plaintiff. Order No. 818 called for the shipment of 7,000 pieces, to be sent with the first installment of order No. 819; order No. 819 called for the shipment of 44,000 pieces, the first installment to be sent within six weeks; and order No. 820 called for the shipment of 11,000 pieces, but was silent as to the time of shipment. No time of payment was stated in the orders, and therefore payment became due upon delivery.

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In July, 1916, the defendant took over all the assets of the Atlantic Fixture Company and assumed all its contracts. This action was commenced in September, 1917. The complaint set up a cause of action for a balance due on goods sold and delivered, and claimed such. balance to be the sum of $1,480.27, with interest on several items from different dates.

The answer was in substance a general denial, except that it admitted the making of the contracts between the plaintiff and the Atlantic Fixture Company, and set up a counterclaim, alleging the making of the "agreements" set forth in the complaint, the assignment of the contracts to defendant with the consent of plaintiff, and that the plaintiff had failed to carry out the terms of the contract, and had failed to make deliveries of the material as therein provided, thereby forcing the defendant to purchase similar goods elsewhere, and claimed damage to the extent of $1,078.

At the opening of the trial a lengthy discussion took place as to whether the complaint set out a cause of action for goods sold and delivered, or for a breach of contract. At the close of the plaintiff's case the defendant's counsel moved for a dismissal of the complaint, which motion was granted, and the defendant proceeded to offer testimony in support of his alleged counterclaim.

The nature of this counterclaim may be stated in the words of defendant's brief:

"While the Atlantic Fixture Company was in the hands of a receiver, the defendant managed the business. On or about February 3, 1917, the defendant being in need of veneered woods, and the plaintiff not having made any shipments, as requested by the defendant in its letter of January 19, 1917, the defendant went out into the open market and bought 1,000 sets of veneers of the Grand Rapids Veneer Works at a price $1,198.88 in excess of the price at which the plaintiff was under contract to deliver the same material."

It is clear from the history of the transactions between the parties, both before and after the letter referred to, that there was no ground for upholding the counterclaim.

[2] In June and July plaintiff made shipments, which were paid for in July and August, and between August 16th and September 13th additional shipments were made, amounting to $3,155.49 net. In the meantime creditors of the Atlantic Fixture Company had attacked the transfer of its assets to the defendant herein, and on September 14, 1916, a receiver was appointed of the assets and contracts of that corporation, and also of any of its property or contracts which had come into the possession of the defendant herein, and this defendant was restrained from interfering with any property transferred to it by the Fixture Company, and the receiver was authorized to complete the contracts of the Fixture Company.

This receivership continued until April 18, 1917, and in October, 1916, upon defendant's promise to pay $500 per week on account of the indebtedness, the plaintiff made an additional shipment to the defendant, amounting to $1,061.16, and on February 5 and February 28, 1917, plaintiff shipped to the receiver material amounting to $1,290.89, the receipt of which this defendant admits.

No payments were made by the receiver, and no payments were

made by the defendant after the appointment of the receiver, until December 6, 1916, when defendant paid $500 on account. On January 3, 1917, plaintiff wrote, advising defendant that it had a large quantity of material manufactured and ready for shipment, and requesting shipping instructions for the same for account of the receiver, and to be paid for by him, and requesting payment by defendant on the old account, and again wrote on January 9th, calling defendant's attention to its failure to keep promises made in regard to payments, and on January 12th the defendant made an additional payment of $500, leaving a balance of nearly $4,500 due to plaintiff.

The letter of January 19th, referred to by defendant's counsel, so far as material, is as follows:

"We wish you would arrange to ship 400 sets on order 819 and 100 sets on order 820 immediately, and follow with the same number each two weeks, until the entire order is completed. These shipments will be paid for promptly, and will not be delayed in any way on account of the old matter. Please let us know when you can make this first shipment, as we will be in need of it in a very few days."

There is nothing in the record to indicate that the defendant was authorized to request this shipment on behalf of the receiver, and to obligate the receiver for the payment thereof, and although the parties by their conduct had waived the strict performance of the contract as to deliveries and as to the time of payment, the defendant was in no position to claim damages for plaintiff's failure to continue to make deliveries. As this court said in De Vivo v. Gallerani, 174 N. Y. Supp. 13 (Appellate Term, November, 1918, not yet officially reported):

"A party to a contract, who seeks to recover damages from the other party for the latter's breach, must show himself free from fault in respect to a condition precedent."

[3] Moreover, even if the right to further deliveries without payment of the past indebtedness existed in either the receiver or the defendant, no claim was made or suggested upon the trial that the deliveries made to the receiver on February 3, 1917, and February 28, 1917, which the defendant concededly received, were not made within a reasonable time after the letter of January 19, 1917, and the record shows that, although defendant had asked plaintiff to discontinue shipments in the fall of 1916, and that work had been discontinued on the order since October, 1916, and although defendant knew from plaintiff's letter of January 3, 1917, that plaintiff did not have on hand and fully manufactured all the sizes necessary to make complete sets, the defendant called for immediate delivery of 400 complete sets on order No. 819 and 100 complete sets on order No. 820. It also appears that the deliveries subsequently made to the receiver made 500 complete sets under order No. 819, and more than 5,000 additional pieces of the material specified in that order.

[4, 5] There is also a further reason why the defendant is precluded from recovery upon his counterclaim. Early in April, 1917, at a meeting between the presidents of the two corporations, when the defendant was endeavoring to secure the discharge of the receiv

174 N.Y.S.-2

er, the plaintiff refused to agree not to interfere unless it received a written statement as to how the defendant proposed to pay for the past-due invoices, and the plaintiff also insisted upon an increased price for the goods not yet delivered.

As a result of this interview the defendant wrote to plaintiff, under date of April 10, 1917, as follows:

"In regard to our account with you, we propose as follows: We will pay you five hundred dollars ($500) per week until our account is paid in full. The one thousand dollars ($1,000) which was deposited with you as security on the contract will be allowed to remain with you as provided for in the contract. The balance of the material to be shipped unsanded, and on account of the increased cost of materials we will agree to pay you one-half cent per foot in excess of contract prices on all panels still to be made up. The first payment of five hundred dollars ($500) to be made as soon as the receiver of the Atlantic Fixture Company is released and discharged."

On the same day the plaintiff sent a reply to this letter, the material part of which is as follows:

"We are in receipt of yours of April 10th relative to our account, and wish to say that we will accept settlement of our account in accordance with your proposal. We wish it to be understood, however, that there is to be no allowance made in the contract price on the goods for the materials which we are to ship you unsanded, for the reason that the 1⁄2 cent additional which you are to pay us, on account of the increased cost of materials, has been allowed from the actual increased cost."

The effect of these letters was to substitute for the old contract a new agreement between the parties, merging therein all previous. agreements, except such portions of the old contract as were specially retained in the new. This new agreement was founded upon a valid consideration; the defendant agreeing to pay an increased price upon future deliveries, and the plaintiff agreeing not to interfere with the discharge of the receiver, and to accept payment of defendant's indebtedness in weekly installments. Whatever sum was then due to the plaintiff was known to the defendant, and its payment was provided for in the new agreement. When the defendant defaulted in making the payments as specified therein, the amount remaining unpaid immediately became due, and of course could be. characterized as being a balance due for goods sold and delivered. Up to this time no claim of breach of contract had been made or suggested by the defendant, and after this time no such claim could be based upon the former contract, nor was it shown that after this date the defendant had ever called upon the plaintiff to deliver any goods, but, on the contrary, in September, 1917, defendant explained its inability to make payments as agreed by stating that its factory had been shut down for three months, due to the failure of its principal customer.

In pursuance of this last agreement the defendant made six payments of $500 each, the last payment, so far as the testimony shows having been made on June 28, 1917, and the balance unpaid of $1,480.27 was the sum for the recovery of which the action was brought. It is clear that the amount of $1,000 mentioned in the letter of April 10, 1917, as having been deposited by the Atlantic Fixture Com

pany, was so deposited as security for the complete performance of the original contract, and that said sum. was to be retained for the same purpose under the new agreement.

At the close of plaintiff's case it had made out a complete cause of action for a balance due for goods sold and delivered under the original contract, and it was error to dismiss the complaint, and equally erroneous to direct judgment upon the counterclaim.

Judgment reversed, and new trial ordered, with costs to appellant to abide the event. All concur.

(186 App. Div. 48)

In re WATSON'S ESTATE.

(Supreme Court, Appellate Division, First Department. January 10, 1919.) 1. TAXATION 856-TRANSFER TAX-NATURE.

Penalty of Tax Law, § 221b, levying additional tax on transfer of investments in certain cases, held not intended to be imposed as a direct tax, but as a transfer tax.

2. TAXATION 859(1)-TRANSFER TAX-PENALTY-CONSTITUTIONALITY. Tax Law, § 221b, levying additional tax on transfer of investments in certain cases, and imposing penalty as a transfer tax, held unconstitutional, as arbitrary, having no relation to inheritance or principles of inheritance taxation.

3. TAXATION 856-"TRANSFER TAX"-NATURE.

A "transfer tax" is a succession tax on the right of devolution of property of a decedent; the fact of transfer or succession being essential and fundamental, and such tax necessarily having a true relation to right of succession.

[Ed. Note. For other definitions, see Words and Phrases, Second Series, Transfer Tax.]

4. TAXATION 856-TRANSFER TAX-POWER OF LEGISLATURE.

The Legislature has the right to enact that property shall not pass by inheritance until it has yielded its contribution to the state, provided the statute be of general application and free from arbitrary discrimination and inequalities.

5. CONSTITUTIONAL LAW 283-DUE PROCESS-TRANSFER TAX.

Tax Law, § 221b, levying additional tax on transfer of investments in certain cases, and penalizing certain transfers, held violative of constitutional guaranties of due process of law.

6. CONSTITUTIONAL LAW 229(1)—EQUAL PROTECTION OF LAWS-TRANSFER

TAX.

Tax Law, § 221b, levying additional tax on transfer of investments in certain cases, and penalizing certain transfers, held violative of constitutional guaranty of equal protection of laws.

Appeal from Surrogate's Court, New York County.

In the matter of the transfer tax on the estate of Charles W. Watson. From an order of the Surrogate's Court (172 N. Y. Supp. 29), wherein the appraiser had fixed a tax imposed by Tax Law, § 221b, the Comptroller appeals. Affirmed.

Argued before CLARKE, P. J., and LAUGHLIN, SMITH, SHEARN, and MERRELL, JJ.

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