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Hunter-Wilson Distilling Co. v. Foust Distilling Co.

filed.: April 21, 1950.


Author: Mclaughlin

Before McLAUGHLIN, KALODNER and HASTIE, Circuit Judges.

McLAUGHLIN, Circuit Judge.

Appellant's contract action, tried to the Court alone, resulted in favor of the defendant-appellee on the main issue involved, and on the counterclaim. It is these two items with which we are concerned in this appeal. The facts, as justifiably found by the District Judge, are that, in March 1940, appellee sold to Wilson Company 2535 barrels of rye whiskey then on storage in its warehouse. Proper warehouse receipts were issued. As part of the transaction, appellee gave Wilson Company an admitted warranty covering excess outage.*fn1 This reads: "We also wish to advise that we will guarantee any excess outage on the above lot in accordance with the statutory allowance given by the Government. It is further understood, that when the allowance is to be allowed, it will be determined on a regauge basis as of the time taxpayments or shipments are made, which will be made at Foust Distilling Co., Inc., Glen Rock, Pa."

In December 1940, Wilson Company sold and assigned to appellant all its assets except shares of its stock and that of others. No notice was given appellee of the change in ownership of the whiskey in question.The warehouse receipts for it were apparently endorsed in blank by the president of Wilson Company. Though they contained no reference to the warranty, and though there was no specific reference to the warranty in the agreement of sale of the Wilson assets, nevertheless it clearly appears that the warranty was included in the assignment of assets. On October 29, 1942, while the whiskey was still in appellee's warehouse, 25 of the barrels were regauged. They showed an excess outage of 438.3 gallons. Appellant thereafter sued appellee for breach of the warranty. The action was in the District Court because of diversity of citizenship.

Appellant urges that the warranty here, dealing as it does with quantity alone, and with the original seller retaining possession of the whiskey, is enforceable by a subpurchaser to whom the warranty has been assigned by the first purchaser. The whiskey seems to have been contracted for in Pennsylvania and the law of that state would govern the substantive rights of the parties. Newspaper Readers Service v. Cannonsburg Pottery Co., 3 Cir., 146 F.2d 963, 965. Unfortunately Pennsylvania has no reported law on the precise point at issue. However, that state does show indications that the old sacrosanct common law doctrine of privity between the original seller and the subpurchaser would not be followed under the particular facts of the present situation. Cf. Mannsz v. Macwhyte Co., 3 Cir., 155 F.2d 445, 449, 450. In line with this is the comment of the then Judge Cardozo for the New York Court of Appeals, "The assault upon the citadel of privity is proceeding in these days apace."*fn2 Writers of law review articles and notes have long championed the broadening of liability of warranty. 19 No. Carolina L. Rev. 551; 15 N.Y.U. L. Quarterly Rev. 292; 9 N.Y.U. S. Quarterly Rev. 360; 37 Col.L.Rev. 77; 33 Col.L.Rev. 868; 29 Mich.L.Rev. 906. And see, Coolidge v. Burnes, 25 Ark. 241; Ranney v. Meisenheimer, 61 Mo.App. 434; Showen v. J. L. Owen Co., 158 Mich. 321, 121 N.W. 640, 133 Am.St.Rep. 376; Walrus Mfg. Co. v. McMehen, 39 Okl. 667, 136 P. 772, 51 L.R.A.,N.S., 1111.

Professor Williston says that there seems to be no reason why a warranty sounding in contract should not be assignable as a right in contract.His restriction of that thought, as he states it, would seem to be confined to warranties of title and quality, not to quantity.*fn3

Strong support is given the assignability of the warranty in the instance before us by Restatement: Contracts, Section 151 which reads:

"A right may be the subject of effective assignment unless,

"(a) the substitution of a right of the assignee for the right of the assignor would vary materially the duty of the obligor, or increase materially the burden or risk imposed upon him by his contract, or impair materially his chance of obtaining return performance, or

"(b) the assignment is forbidden by statute or by the policy of the common law, or

"(c) the assignment is prohibited by the contract creating the right."

The assignment is not forbidden by statute. Pennsylvania decisions do not touch the point at bar nor have we seen any English opinion covering the present facts. Therefore, we are not concerned with (b) or (c) of the above, and, under the instant facts, (a) does not apply because enforcement of the warranty in favor of the appellant does not vary materially the distiller-warehouseman's duty or increase materially the burden or risk imposed upon Foust by the sales and warehouse contracts or impair materially Foust's chance of obtaining return performance. Having in mind that both custody and possession of the whiskey were in the sellerdistiller-warehouseman during the whole period of the warranty, it is obvious that the assignment of the warranty to appellant has not increased appellee's responsibility or liability arising out of it. Appellee said in effect that it would be responsible for excessive outage while the whiskey remained in its possession and under its control. Enforcement of that engagement is all that is asked. The cry of no privity cannot be fairly raised to avoid appellee's commitment. No case was cited below or before us holding that a quantity warranty in the instant circumstances is unassignable. Decisions cited by appellee are not in any real conflict with out construction of the warranty in this matter.It would serve no purpose to set out a list of them. We think appellee assumed the duty of making good exess outage during its retention of the whiskey. If restriction of that responsibility to the original purchaser had been desired, it could assumed the duty of making good excess is illogical to contend that Foust was making merely a personal promise to its vendee when the indicia of ownership of the spirits, the warehouse receipt, contained language showing that it might be assigned and that it was salable.

On the question of custom and usage in the whiskey trade, which called for the excess outage warranty to go with the barrel, the Court below found, from the testimony, "* * * there was no such custom." The record contains evidence to support that finding.

Appellant suggests that the transfer of assets from the first purchaser to it was not a sale but merger. The point is disposed of by the finding of the Court below that, "So far as the testimony showed, Old Wilson ...

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