American Fruit Product Co. v. Ward — 113 A.D. 319

Majority

p. 319

American Fruit Product Company, Appellant, v. John G. Ward, Respondent.

Third Department,

May 18, 1906.

Headnote

Guaranty—action on .breach of warranty as to assets of corporation—• failure to show breach of warranty—extra allowance sustained.

Action on an alleged breach of a guaranty .made by the owner of a majority of the stock in a business corporation which was sold to another corporation, that the inventories of the corporate property were true and that the purchaser should be saved harmless from all obligations existing against the corporation except as set forth. The purchasing company through its agent examined the books and accounts of the corporation.

Except as to one item of indebtedness which was omitted from the inventory, Held, that a finding that there had been no breach of warranty was proper;

That the breach of guaranty as to the said item did not require a new trial, but that the amount on the defendant’s consent could be deducted from his recovery of costs; '

That although there'were no difficult questions of law involved, an extra allowance to the defendant was proper, for difficult questions of fact may render a case difficult and extraordinary within the meaning of the statute;

That as the plaintiff had shown itself entitled to .recover less than fifty dollars the costs went to the defendant and furnished a basis for an extra allowance.

Cochrane, J., dissented.

Appeal by the plaintiff, the American Fruit Product Company, from a judgment of the Supreme Court in favor óf the. defendant, entered in the office of the clerk of the county of Albany on the 18th day of July, 1905, upon the report of a referee dismissing the complaint, and also from an order entered in said clerk’s office on the 18th day of July, 1905, granting the defendant an extra allowance.

The action is brought for damages for an alleged breach of guaranty. For many years prior to February, 1902, John G. Ward. & Sons, a corporation, was engaged in business at Bavena, Alban/ county, in the manufacture of cider and cider vinegar. The company owned the real estate upon and the buildings in which its business was carried on. The capital stock was $50,000, all of which was owned by the defendant and members of his family.

p. 320

On February 21, 1902, an agreement was entered into between Frank S. Upton,_ as agent, with John Gr. Ward, the-defendant, in 'which an option was given to Upton as agent to take over the entire Capital stock 'of the company for $60,000, such option to be exercised before the 1st day of June, 1902.' In the agreement the defendant covenanted to furnish-to Upton a full and true inventory' of all property and assets of. the corporation as - they stood on the first day of January of that-year, together with true and full-answers to the questions annexed to the contract in relation to the corporation, its property and business and its assets and liabilities.' The defendant further covenanted that he would procure from the corporation the privilege and opportunity for Upton or his assigns, or Some accountant named'by' him, of examining the books of ■ account of the corporation for-the five year's preceding January 1, ' 1902. In entering into such option agreement Upton acted as agent for this plaintiff, which had been acquiring Various properties, ' of like character in various parts of the country. After the making of the agreement Upton .had an accountant examine the books of the company and its plant, which examination was made after he had been furnished with an inventory made up. by the defendant and with "the answers to the questions propounded by Upton, who prior to the first day .of June.ad vised the defendant of his intention to exercise and take advantage of the option and take the stock according to the agreement. On May 27,-1902, however, the defendant and Upton met atrFochester for the purpose of completing the purchase of the stock and at that time a new agreement was made, by .the terms of which the purchase price Was reduced from $60,000 to $47,-500, and at that time the-stock was transferred and the amount agreed upon paid to the defendant therefor. - On the same day of the transfer, May 27, 1902, another paper was executed between / Upton and the defendant, in which the defendant agreed that the . statements theretofore furnished and annexed thereto were correct • and contained a full, true and complete inventory of' all property and assets, including accounts and bills receivable, and all contracts, ■ obligations and liabilities of J. Gr. Ward & Sons as they existed on the 1st day of May, 1902. In this, agreement Ward guaranteed the collection of all accounts and -bills, receivable set forth in the state.ment- and annexed to the statement was a guaranty of like, - tenor

p. 321

and effect and a further guaranty to save Upton and the American Fruit Product Company, to whom Upton had assigned the agreements, harmless from all obligations except such as are set forth in the statement.

The action is brought for an alleged'breach of these agreements and covenants on the part of the .defendant. In the complaint damages are claimed against the defendant in the sum of $48,200. Among other things it was. there alleged that there was a less quantity of vinegar on hand than shown by the inventory aggregating upwards of 80,000 gallonsthat there was an .overvaluation of the stock on hand amounting to upwards of. $37,000; that articles not transferred, including a horse called “ Stub,” amounted in value to over $800'; that accounts uncollectible amounted to upwards of $2,000, and that the plaintiff had been obliged to pay obligations or liabilities not stated in the inventory amounting to "$3,121.26, included in which was what was known as the Salmon account.

The answer was a denial. The case was referred to a referee to' hear and.determine.

The plaintiff furnished no proof with respect to a considerable portion of the claim made in its complaint. The referee found that the papers attached to the contracts and which are carried at length in his report “contained a true and-complete inventory of the property of said J. Gf. Ward & Sons and all the contracts, obligations and liabilities of said J. G-. Ward & Sons as of Hay 1st, 1902. * * * That the property belonging to said corporation; J. G-. Ward. & Sons, was on the first day of Hay, 1902, free and clear from all liens or incumbrances, except such as were expressly set forth and stated in the schedules or statements constituting a part of said contract. * * * That said papers * * * fairly showed the ‘financial condition of J. Gf. Ward.& Sons on the first day of Hay, 1902; *' * * (and) that the said defendant complied with all the terms of the said contract.”

The referee reported in favor of dismissing the complaint, with costs. From the judgment entered thereon and from an order granting to defendant an extra allowance of $500 costs the plaintiff has appealed.

p. 322

James Breck Perkins, for the appellant.

Lewis E. Carr, for the respondent.

It is conceded by counsel on both sides- that the trial presented only questions of fact for determination. After a careful examination of the evidence and the briefs of counsel I am satisfied that witli one exception the referee’s findings are sustained by sufficient evidence. The exception relates to the item of thirty-five dollars ' for services of one Aschman as a chemist, rendered to said J. Gr. Ward & Sons, before the transfer and which was not stated in the liabilities of. the corporation. The defendant guaranteed to protect the plaintiff from all obligations not stated. That amount, which was paid by the plaintiff July 23, 1902, should have been allowed to the plaintiff, •

The plaintiff also claimed to recover $150,. the value of a horse which was not turned over to it. It appears that this horse was bought by J. Gr. Ward & Sons in 1901 or 1902 for the sum of $150. It was bought for Ward’s daughter and used by his family, although on a few occasions it was used about the factory. The horse was not mentioned in the inventory furnished by Ward .and there is no proof that on May i, 1902, the horse belonged to' J. Gr. Ward & Sons, nor any proof of its value on that date. The burden was on the plaintiff to show these facts to entitle it to' recover , its value. All of the stock of the company was owned by Ward and his family at the time the horse was purchased by the company and no .reason is apparent why the company under such' circumstances could not purchase it for the daughter,

■ The plaintiff also claimed that the defendant did not include in its list of liabilities the sum of $5,000 for vinegar which had been paid for in advance'by Salmon & Co., and which Ward & Sons were required to furnish to such firm. It is true that in the financial statement of liabilities furnished by Ward this amount was not included, but in answer to the question: “ 7. What contracts have you outstanding?” it was said, “ According to answer. No. 7 we herewith. append the following contracts, all due May 17th, 1902, except as specified.” Among them was the following: “ Date,. March 24, 1902, H. H. Salmon & Co., New York City, 2,000 Bbls.

p. 323

45 grain Cider Vinegar at lO^c. F. O. B. New York City, Bbls. free, to be taken by Aug, 1, 1902. (Original selling price 11c., ' but in consideration of advancing $5,000.00, a- deduction of -|c. is allowed March 24, 1902.) ” The referee apparently found that that was a statement of a liability. I do not think Upton could have been misled by this statement, for it showed that there was a contract outstanding with Salmon & Co. for the sale and delivery to them of 2,000 barrels of vinegar to be delivered by August 1,1902, and that in consideration of advancing $5,000 there was a reduction made of one-half cent per gallon, and the fair meaning of the language is that the advance was made March 24, 1902. The obligation here was. not to pay money, but to deliver vinegar, and, therefore, it was not essential to state the amount of the liability in the financial statement. There is no proof that Upton was in any way misled by the information furnished, or that it was in any way untrue. If he did not know about this liability when he made the contract, the plaintiff should at least have shown that fact upon the trial, and that it was injured thereby. The books of the company had been examined, by Ryan, the accountant, who Upton sent to review and examine them. There was an account with the New York office, and in that account that office was credited with $5,055.88 on March 26,1902, and plaintiff’s witness Neville says that credit was the payment by Salmon & Co. The referee had a-right to assume from all this evidence that Upton had full arid accurate information as to the Salmon & Co. contract, and as to the obligation of the Ward Company to furnish the .vinegar in question to them, and, therefore, that there was no breach as a matter of fact of the defendant’s guaranty in respect thereto.

With respect to the claim for shortage of vinegar there was a clear conflict of testimony, and the referee was fully justified under the evidence in finding as he did, that there was no breach of the guaranty in respect thereto.

The other elements of the plaintiff’s claim, so far as it furnished evidence in relation to them, seem too plain in favor of the defendant’s contention to require any discussion.

At any rate, all the claims of the plaintiff eoneededly presented only questions of fact for determination, and with the exception of the thirty-five-dollar item above mentioned, where there is no evidence

p. 324

to dispute the plaintiff’s contention, I do not think we should say • that the referee’s determination is not' supported by sufficient evidence.' The judgment dismissing,the complaint need not", however, be reversed to correct the error with, respect to the thirty-fiv'e-dollar item, for we may modify the judgment in defendant’s favor for costs by deducting the amount therefrom if his attorneys, who are entitled' to such costs; so stipulate.

The plaintiff also complains of the extra.allowance of $500 costs . granted by the court to the defendant. Its counsel'urges that there, were no difficult questions of law involved, in the case.. That is ' clearly so, but an allowance does not depend upon, whether difficult questions of-law have been litigated, .but -upon the question whether the case is a difficult and extraordinary one. (Code Civ, Proe. § 3253.) It may be difficult and extraordinary'because of the questions of fact involved, as well as for any other reason. . To my mind this was a .difficult and extraordinary case for that reason, and, therefore, we should not interfere with the discretion of the Special Term in granting the allowance. The amount sued'for. was $48,2.00, 'and the complaint was dismissed. The. right to have made this allowance to the defendant would not have been affected if the referee had awarded the plaintiff judgment for the - $35, as we' think he -should have done, for that would stil-l have left the defendant untitled:to. full costs,-, and consequently to the right to ask for an extra allowance. ' (United Press v. New York Press Co., 164 N. Y. 406 .)

All concurred, except Parker, P. J.,.not voting, and Cochrane, ' J., dissenting.

Judgment modified by deducting froth the judgment in favor of . the defendant for costs the sum of thirty-five dollars and interest thereon from July .23, 1902, upon defendant’s attorneys stipulating, to such deduction, and as so' modified judgment and order affirmed,, with costs to the respondent.

Cases cited

United Press v. New York Press Co. 164 N. Y. 406 N.Y. 1900-11-16 p. 324