*1 TALCOTT, INC., A YORK, JAMES CORPORATION OF NEW INDUSTRIES, INC., AS ASSIGNEE OF REMCO PLAIN TIFF-RESPONDENT, COMPANY, H. CORENZWIT AND v. BODY, A CORPORATE DEFENDANT-APPELLANT.
Argued January 23, May 197 8 Decided 1978. *2 Mr. James M. Cutter argued the cause for appellant (Mr. (cid:127) Bloom, Cyrus attorney). I).
Mr. Alan Wiener argued cause for respondent Scheider, (Messrs. attorneys). Raff The opinion of the court was delivered by Schreiber, J. The Talcott, Inc., James plaintiff of a book account out of arising of toys by sales In- Remco dustries, Inc. (Remco) the defendant H. Co., Corenzwit & instituted action this $36,000. collect balance due of The factual and legal issues centered about a provision in *3 thе terms of the purchase effect that Remco guaranteed that there would no be in drop prices of the type of merchandise sold to the defendant for a period of months. Talcott, obtained the having inventory Remco a default in its borrowing sold arrangement, at toys prices below the Remco guarantee. The defendant asserted that these sales violated the purchase agreement and that breach of the guarantee entitled it ato set-off against the balance due on the account receivable. Holding purchase agreement required Remco to reimburse the "for .defendant total gross purchases retroactive to time of pur- first [its] chase” the 12-month during period prior the date of viola- tion, trial court found that the total gross sales period $36,000 exceeded the and entered for judgment defendant. The Appellate Division reversed. It reasoned that the drop-in-price provision was triggered because the plaintiff Talcott had contractual relationship with the de- it, fendant and Talcott, not Remco, sold the merchandise. We certification. 75 N. J. granted 19 (1977).
At the trial the parties stipulated that the amount of the $36,000, account receivable was the indebtedness arose out of the sales of sold and toys delivered by Remco to the terms pre- were tbe governed all sales
defendant, and that order. purchase the defendant’s scribed distributors five defendant, largest toy one of the Remco, States, been purchasing toys had United pur- 1966. The manufacturer, least defendant’s a since toy both accepted by were used and forms chase order following pertinent contained the The orders order. for' each : provisions acceptance Shipment certi- this order Vendor’s resulting prices, in- terms discounts
fication that granted voice, invoices, covering same that are are the sale оr quantity, same classification for the of similar other customer grade like make, type, quality circum- merchandise under stances. price order, agreed price will it is that Vendor’s is omitted If prevailing price is the order and in no event market lowest charged quoted prices previously higher than last
to' be filled at - n consent. Purchaser’s written with< lit against drop guarantees for cost of merchandise Vendor purchaser agrees shipment. to reimburse from date of He months purchase gross purchases for retroactive to time first total at once. decrease (cid:127) business, de- of tbe toy Because of the volatile nature a toy fendant itself as dis- deemed it essential protect tributor a at the wholesale level. Such against prices drop believed, assured provision, saleability the defendant safety of its as a device with inventory respect acted had as- comparable defendant’s customers who received *4 surance on their from defendant. purchases had February February 1974,
Between 1973 and defendant of At $65,842 worth merchandise from Remco. purchased some that decided to out of point period go Remco during its located in the Remco inventory business. sell Attempts Harrison, in New at 60 the manu- Jersey, of percent Building sold cost, inventory facturer’s failed. The was subsequently Wilner, auctioneer, by 1974 A. J. an on behalf February resulted inventory in the Its interest Talcott. of plaintiff Remco. made previously financial arrangements from a security Remco obtained funds to Talcott had advanced in- and in Remco’s receivable accounts interest Remco’s be- default, Talcott Harrison, Jersey. Upon New ventory by owing $36,000 accounts receivable came of the assignee sold. As we be inventory and caused the the defendant lower than at prices occurred observed, these sales previously As orders. of June purchase those fixed in the defendant’s $15,150 goods. of those hаd on 11, 1974 the defendant hand 'sharp drop These had been saleable because of not Remco distress sale. occasioned by prices was clause Plaintiff contends that this We do not agree. type. not to distress applicable sale that guarantee outright The contractual language for 12 months will in price of merchandise not drop cost Remco no intimation There is shipment. date assignee if some agent, be relieved of this obligation would distributor made the sale its place. third person cut irrespec a wholesale price was seeking protection against Uncontradicted toys. of the of the identity tive seller one was vice-president testimony defendant’s is to pro order purchase “reason we put [the clause] he had business, in case” went out though us Remco tect Remco sale of The distress that occurrence. expected and under defendant’s agreement violated the inventоry with Remco. standing as Talcott as next whether plaintiff
We turn to subjected receivable of the accounts should signee arisen after claim, set-off the claim having defendant’s Both receivable became effective. accounts assignment are and duties their respective rights parties agree has Code the Uniform Commercial Code. The governed law view that an of a chose continued the common action, receivable, stands in the shoes оf the 12A:1-103; Restate N. A. 12A :9—318(1); J. S. assignor. Williston, Contracts, Con- ment (2) 167(1) (1932); *5 310
tracts, 181-186 1960). Generally speaking, 432 at ed. (3d the subject at common law was to the equities assignee defenses which the debtor could have asserted against account Falkenstern v. Her In the assignor prior assignment. Co., man aff’d Kussy 1947), 25 N. J. Misc. Ct. (Sup. (E. 1948), 137 N. J. L. & A. the court wrote: assignee assignor had, sub An of a what chose action takes ject has, set-offs, not all debtor which the discounts defenses assignor only against assignee against before noticе but also assignee assignment, not does [citation omitted] but assignor. the-reby, more, [Id. liabilities of the without assume the (quoting 448)] N. Misc. at from 25 in the This Code.1 incorporated has proposition N. J. 9-318 provides S. A. 12A:9-318. Section under the subject arising of an are to claims rights assignee account -debtor. It and the contract between the assignor reads, in pertinent part: * ** subject rights assignee (a) all the terms of of an are assignor debtor and de- contract between account * * [12A:9-318(1) (a)] arising *.
fеnse claim therefrom It clear then is rights account receivable are to contract subject defenses or claims of the account debtor virtue of the arising terms out of which the receivable Gilmore, was created. 8ee “The of Contract Precarious Assignee Rights Security,” His 74 Yale L. J. 230 (1964). whether
It immaterial the contract defenses or claims arose before or after notice of the This assignment. situa tion is to be differentiated from the in which one the account debtor’s defenses are not predicated the contract terms. J.N. A. 2A:25-1. Where so, S. defenses Cf. noted, however, 2:210(4) that N. A. 1It should be J. S. reverses expressed Falhenstern, presumption, assignment that an rights delegation does include duties. *6 are limited to those which accrue before the account debtor is of N. J. A. the S. assignment. 12A:9-318(1) (b). notified
The New 12A:9- Jersey Comment to N. S. A. Study out: 318(1) (b) points rights [W]hen the of be- the account arise tae contract debtor assignor tween the debtor and it no whеther the makes difference rights rights may those accrued or after notification such before against against assignee. Where, however,
be asserted
the
claims
the
assignor
independently
contract,
is
sub-
the
arise
of
the
the
ject
assignment,
assignee
takes
of those claims which
the
free
subsequent
assign-
arise
to
debtor of
notification
the account
assignee.2
ment to the
America,
Accord Ertel v. Radio
261 Ind.
Corporation of
573,
with Remco a “term of clearly was the contract” and since of Remco’s below those liquidation inventory at prices term, fixed orders constituted a breach of purchase that plaintiff Talcott’s claim was subject claim arising out of that breach. comparable 2The Uniform Commercial state Code Comment has a
ment : (1) change prior 1. Subsection makes substantial law. traditionally subject assignee An has or set- defenses existing assignment. offs an account debtor is notified before assigned account, When the debtor’s on an account defenses chattel paper right or a him arise the contract between assignor giving it makes no difference whether the breach rise to is the defense occurs before or after the account debtor assignment (subsection (1) (a)). notified of the The account may against assignor in- debtor dependently also have claims which arise contract; subject all such before, and claims which accrue all those accrue free * n * after, (subsection (1) (b)). account debtor is notified *. 9-318, [U. 1] C. comment O. that Eemco to reim- order purchase provided agreed “for burse the defendant total retroactive gross purchases Since the time at once.” of first for such decrease purchase period for a 12-month was drop guarantee against 1974, the de- in February and the distress sales occurred $65,842, fendant is entitled to set-off asserts that it 1973 and February amount of its between purchases a construc- 1974. The contends February plaintiff all had sold because the defendant tion inequitable $15,150. toys except from a con intention
We ascertain parties’ must Atlantic sideration of all circumstances. surrounding Schwimmer, Airlines, v. N. J. 293 (1953). Northern Inc. from the would receive buyer Did the intend *7 for a purchases seller an amount the total equal gross of the unsold amount in the 12-month period irrespective If and sold all its buyer hands? had buyer’s bought later within a month and 11 months purchases seller violated the did the intend drop-in-price provision, parties recover an amount that the would be entitled to buyer equal We believe not. Such a re to the total gross purchases? a discordant with sult constitute penalty plaintiff’s would Sons, Barr & Inc. price.3 due to in v. drop actual loss part general thаt assertion Corenzwit 3The dissent relies in drop-in-price exposure clause in a had similar because of the same However, or did not claim its contracts with Corenzwit retailers. that, result, losses. establish as a it had in fact suffered approval a sanc in effect constitutes dissent’s of the clause The reasonably provision tioning liquidated damage a which is not Kameny, Country v. 82 Club to actual loss. See Westmount related provision Super. (App. 1964), “[a] held that J. N. 200 Div. ** * provides is the full in а contract — par a absent evidence that in the event of breach recoverable just compensation a forecast of amount as reasonable ties fixed the incapable harm is and that for the caused breach harm n very rela bears no reasonable difficult accurate estimation or liquidated damages dam cannot be considered actual tion 12A:2-718(1). ages.” N. J. S. A. 207]. See [id. at
313 Center, Inc., Div. N. J. Super. Hill 90 358 (App. Cherry of the plaintiff’s interpretation We consider 1966). refers purchases” “total namely gross agreement, with the be consonant unsold gross purchases, total “most Such construction true parties’ understanding. un- unfair or one [party] “will not equitable” give Williston, Con- other.” reasonable over the 9 advantage tracts, 1945). 65 ed. omitted) 46 at (footnote (Rev. Co., v. N. J. 212 Inc. 8 Washington Construction Spinella, Grosner, N. v. J. Tessmar Justice in (1951). Oliphant manner: the following stated (1957), principle obscure, fair and most the intention doubtful Even where hardship сonstruction, imputing the least on either reasonable adopted, Signal contracting parties, should be International Co. America, Eq. 1918), Telegraph (Ch. 89 N. J. v. Marconi Co. 1919), Eq. (E. will have & so neither affirmed 90 N. A. advantage 201] [Id. over or unreasonable the other. an unfair entry and cause remanded is modified judgment $20,850 sum of favor of the plaintiff of judgment interest costs. plus J., complete I am
Clifford, While part. dissenting lucid opinion Justice Schreiber’s accord with so much of to de- subject the book account as holds claim on plaintiff’s a breach fendant’s out of set-off arising Court’s for the Remeo, justification I see measure of what to be an perceives equitable substitution it *8 dam- touching where the contractual damages language is clear unmistakably so. ages be, The clause in that should there within question provides from the of an shipment, 12 months drop price date Corenzwit, item latter becomes by purchased thereupon certainly reasonably аnticipated buyer would could have period goods as to within the before suffer loss sold 12-month goods buyer’s breach, had, turn, been cus- sold tomers. 314 entitled to once” for the “total reimbursement “at gross * *
purchases Defendant made “total gross purchases” $65,842 Remco in the on beginning amount Febru- ary 27, 1973; 1973 and 11, hence ending September time ran from contractually-protected 27, period February 26, Remco, 1974. Plaintiff, as February activated the when, 11, drop-in-price clause on February 1974, it sold Remeo’s inventory prices substantially be- low those at which Corenzwit had its purchased goods. specific guarantee against such reduction having breached, Corenzwit became thereupon entitled to reimburse- gross purchases February 27, 1973, for its total ment back to $65,842. Despite language, could scarcely clearer on the damage qxiestion, the Court chooses to intrude notion of its into a equity sensitive area of commercial prac tiсe, thereby limiting $15,150. defendant’s set-off to Assum as the ing, majority does, apparently that this represents the purchase price only those toys bought by Corenzwit from Remco within the protected time period which un remained sold at the commencement of the litigation, Court has thus substituted for the plain unmistakable contract language “total gross purchases” something different, quite “total namely, unsold gross purchases.” thereby It trespasses on the fundamental proposition that а court will not re write a contract in order to create an more its — one liking which while perhaps “better” than the con tract the parties themselves have execute, seen fit never its theless varies terms in an important E. Brower respect. g., Co., v. Glen Wild Lake N. Super. 346 (App. Div.), den., certif. 44 N. J. 399 (1965).
As a where general proposition, the contractual language is facially it seems to me unambiguous, court should be most hesitant to reach beyond that language’s plain fоr further meaning evidence of the intention. parties’ See, Wrinkle, Co., e. New g., Inc. v. & Armitage 2d 753, F. Cir. (3d 1956) New 4 Willis- (applying Jersey law); *9 ton majority, 1961). Contracts ed. (3d at Airlines, Inc. v. Northern however, Atlantic implies Schwimmer, 12 N. J. 293 authorizes excursion (1953), ascer- contract order to of the beyond the language plain Schwimmer is Reliance on tain parties. the intent the aof interpretation the That case involved misplaced. which, seman- although broadly-worded contract provision the unclear in its to tically application became unambiguous, court of Schwimmer of the the Consequently, facts case. of the had beyond meaning to look the necessity plain however, Here, intentions. ascertain the language parties’ semantically drop-in-price only unambiguous clause but is before the tailored factual situation narrowly con- look beyond Court. Hence there is no need to anything “look” to majority tractual Nor does the language. — simply it rewrites the document. outside factors bear- Even were other it to examine appropriate ing parties, majority suggests intent of the upon here,' it to me the contract necessary language seems intention of who aptly expresses likely signed those it. was to pro- The obvious of the clause purpose drop-in-price tect which would against consequences disastrous visited distributor should the manufacturer make a reduced other distributors product available at be customers of this turn, retailers who might they, this of those customers. Although distributor or competitors view that the plain language alone purpose supports further parties, support intent the clause reflects the Corenzwit liability from the faced may derived potential he the con- specifically, More buyers. to its “downstream” protective drop-in- contain the same buyers tracts those In in the instant case. light as is involved price clause would which Cоrenzwit face as result potential liability of the items time question, of Remco’s “dumping” the contract these commercial experienced execution of clause should intended clearly total gross purchases. guarantee *10 concludes, however, majority regardless that intention Corenzwit to recover permit in equal amount to the as total the clause gross purchases, It herein an unenforceable terpreted penalty. constitutes that а amount equal reasons Corenzwit set-off awarding sanctioning “in a total effect constitutes gross purchases re of a which is liquidated reasonably damage provision the very But case lated to actual loss.” Ante n. 3 at 312. relied from which it and extracts majority by view that the significant quotation supports clause is not an Westmount Country unenforceable penalty. Club v. Kameny, 82 N. J. 207 Div. 1964), Super. (App. ** * instructs us that a contract provision “[a] provides the full that in the recoverable —- еvent of a absent breach evidence that the parties fixed the amount as a reasonable just compensation forecast of for the harm caused a breach by and that such harm is incapable or very accurate estimation bears no reason difficult of able relation as to actual cannot be considered damages A. N. S. See damages.” [Emphasis liquidated added]. law view New Jer by the 12A:2-718(1) (common adopted sey codification of Unifоrm Commercial The em Code). into phasized portion quote fits this case. snugly estimation of from any drop- breach of damages resulting unreasonable, can viewed in-price clause hardly par as as ticularly when examined of the time the contract between executed; Remco and Corenzwit was accurate estima time, of the actual made at damages tion could be that nature and extent of given speculative any liability be incurred. might D. look no further than H. M. Industries v.
One need Inc., Warehouses, N. J. Central Port Super. (App. N. b.,o. J. 548 Div. aff’d 1973), (1974), proposi herein clause as does not interpreted represent tion question an unenforceable There the was penalty. presented in a security whether a deposit provision commercial large to serve as liquidated lease was intended damages event aof breach the tenant. The Division Appellate looked to (1) the intent whether the parties, (2) ex tent of would evaluate if a breach were be difficult to damages found occurred, have “whether amount (3) posted as security represented faith effort to estimate ad good vance the foreseeable loss probable ensue might from a breach.” 127 N. J. at 503. In Super. concluding clause question constituted an enforceable liquidated claim, damage the court pointed out that tendency [t]he modern of the courts has to look favor upon provisions agreements specified which fix amounts dam ages breach, preferring liqui in the event of a consider them as penalties. damage 2d, dated 22 Am. *11 clauses rather than Jur. Dam ages, Contracts, 214, p. (1965); illiston, 3d ed. § 214. As W States, 407, in & Sons v. indicated Priebe United 332 U. S. 68 S. 123, (1947) L. Ct. Ed. Cl. 870 109 Ct. Today upon “liquidated the law does not look with disfavor dam- they provisions ages” in fair and contracts. When are reasonable attempts just anticipated compensation by fix to for loss caused enforced, They contraсt, they (citations omitted) breach of are particularly damages a useful function when are uncertain serve many unmeasurable, in nature or amount or are as is the case contracts, government (citations omitted) the And the fact ' damages damages are shown to be less than con- the suffered provisions judged not are to as tracted is These be fatal. of contract, making (at pp. 411-412, the time 68 S. Ct. at of 126). Super, [127 N. J. at 503-04 added).] (emphasis restraint under The cautiоning disregarding, reasons selected of carefully language guise equity, forth Wachen- by a were set Justice to aptly parties still They apply. feld twenty years ago. majority “Hard bad cases make law.” Nevertheless the refuses to
uphold grants the contract as written and the relief it thinks is equitable circumstances, creating plaintiff under the thus for the foreign agreed by parties. new contract to the one to upheld written, If written contracts are not to be as then cоn- rights obligations tractual and will never be stabilized and certain Every party and business and financial world will face chaos. proves subsequently who makes to econom- judicial ieally hope receive relief can undesirable still development theory unexpected the contem- was not within plation signing agreement. parties solemnity contract, our com- the cornerstone a written partially destroyed. law, thereby jeopardized and mercial beyоnd majority has, my view, grounds of “inter- ventured pretation” into the of “creation” or “construction” realm “substitution.” Feiler, Corp. v. 28 N. [Crewe (Wachenfeld, (1958) 316, 330-31 dissenting).] J., a con- be accorded ought from the Apart sanctity reasons at, there are other freely persuasive arrived tract First, with this against meddling agreement. counseling Remeo) us assignor, before (including plaintiff’s woods. babes the commercial are but quite plainly anything unaware them any The record indication was gives need for of what it was nor there discernible doing, innocent some indulgence court’s towards protection already has transactions. And as unwary to these party has out, selling while Corenzwit succeeded pointed goods cent of the purchased approximately eighty per Remeo, claims retail customers subject it remains its on the same clause in based its contracts them, yet and the statute of has applicable limitations discloses, far So record рotential run these claims. the toy one not uncommon in the drop-in-price provision is or, matter, for that enterprises business other manufacturing *12 distributors seek to discourage competitors’ where manufacturers undercutting slashing prohibiting the market. entry
I would reverse remand to the and trial for court defendant. there of judgment J., in this opinion. C. joins Hughes, and For remandment —Justices Sullivan, modification Coneoed —5. Judge Pashman, Handler Schkeiber Hughes For reversal remandment —Chief Justice ¡ Justice Clifford —2.