114 A.D.2d 12 | N.Y. App. Div. | 1985
Lead Opinion
OPINION OF THE COURT
The common issue for appellate review in these three appeals is whether Federal antitrust policies bar indirect purchasers from obtaining, in an action to recover damages for a breach of contract or for money had and received, so much of a direct purchaser’s recovery fund in a Federal antitrust action as represents illegal overcharges that had been passed on to the indirect purchasers pursuant to cost-plus pricing provisions in their requirements contracts with the direct purchaser.
Defendant Dairylea Cooperative, Inc. operates a milk pasteurizing plant in Queens County where it pasteurizes and packages milk and milk by-products for itself and other dealers. The plaintiffs are licensed milk dealers, who sell milk at wholesale in various counties in the metropolitan area.
Tip Top Farms, Inc. (Tip Top), the plaintiff in action No. 1, alleges that defendant processed all its requirements for milk and milk products in 1973 and 1974 pursuant to an oral agreement which the parties entered into in October 1973. According to Tip Top, defendant agreed to supply it with all its requirements for packaged milk and milk products in exchange for a price that was based on three components: (1) the monthly price for raw milk established by the Federal Milk Market Administrator; (2) a charge for processing the raw milk, generally negotiated in the spring and fall of each year; and (3) defendant’s cost for fiberboard milk cartons plus 1% as an allowance for plant loss. The parties allegedly agreed that defendant’s profit was to be solely derived from the cost of processing the raw milk. Pursuant to said agreement, defendant issued monthly announcements notifying Tip Top of all increases or decreases in the cost of milk, the cost of
Plaintiffs in action No. 2, Park Lane Dairies, Inc. (Park Lane) and Park Dale Dairies, Inc. (Park Dale) allege that they entered into a similar oral contract with defendant in 1969, and, pursuant to said agreement, they purchased all their requirements for packaged milk and milk products from defendant in the years 1971 through 1974. Plaintiff in action No. 3, Jerome Dairy Co., Inc. (Jerome Dairy) also alleges that it entered into a similar oral agreement with defendant in December 1967, and that it purchased all its requirements for packaged milk and by-products from defendant during 1971 and 1974 in accordance with said agreement.
In approximately 1976, a Federal antitrust action was commenced against several manufacturers of fiberboard products. In violation of the Clayton Act (15 USC § 15), said manufacturers had allegedly conspired to fix prices and to allocate customers, resulting in illegal overcharges for their products, such as milk cartons, during the years 1960 to 1974. The United States District Court for the Northern District of Illinois certified a class which included direct purchasers from the manufacturer but excluded indirect purchasers further down in the chain of distribution (see, In re Folding Carton Antitrust Litigation, 75 FRD 727). In 1979, the antitrust action was settled. The manufacturers, without admitting any liability, agreed to contribute to a settlement fund exceeding $200,000,000. Since Dairylea was a direct purchaser, it was included as a member of the plaintiff class in the antitrust action, and was notified in 1979 that it could submit a claim indicating its total purchases of fiberboard products from the defendant manufacturer during any four years between 1960 and 1974. Dairylea filed a claim based on its purchases of fiberboard products from defendant manufacturers during the years 1971 through 1974. Dairylea’s claim was approved to the extent of $20,606,000. In April 1980, Dairylea received its proportionate share of the settlement fund in the form of $1,165,981.52 in cash, $29,100 in noninterest bearing promissory notes and a stock warrant entitling it to purchase 291 shares of Federal Paper Board Company, Inc.
Thereafter, plaintiffs commenced the instant actions in an
Special Term granted those branches of defendant’s motions which requested summary judgment dismissing the causes of action in plaintiffs’ respective complaints which sought to recover, on either a breach of contract or money had and received theory, the proceeds defendant received in settlement of the antitrust litigation on the ground that recovery would undermine overriding Federal antitrust policies. We agree with Special Term.
ILLINOIS BRICK RULE AND POLICY CONSIDERATIONS
Clayton Act § 4 (15 USC § 15) provides that any person "who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor * * * and shall recover threefold the damages by him sustained”. In Illinois Brick Co. v Illinois (431 US 720, reh denied 434 US 881), the United States Supreme Court held that, aside from two narrow exceptions, an indirect purchaser had no cause of action against the manufacturer under Clayton Act § 4 to recover treble damages for an illegal overcharge on the theory that the overcharge had been passed on to the indirect purchaser by the direct purchaser in the distribution chain.
In so holding, the Supreme Court echoed the policy considerations it had expressed nine years earlier in Hanover Shoe v United Shoe Mach. (392 US 481), when it ruled that an antitrust defendant could not assert as a defense to a claim for treble damages under Clayton Act § 4, that the plaintiff, a direct purchaser, had "passed on” the overcharge to a buyer further down in the chain of distribution, and, thus, had not sustained real economic injury.
Lastly, in Illinois Brick (supra), the Supreme Court noted that if passing on were allowed offensively, but not defensively, antitrust defendants would face a serious risk of multiple liability. For example, if an indirect purchaser recovered treble damages for the percentage of the overcharge that had been passed on to him, the direct purchaser could still recover treble damages for the full amount of the overcharge because the defendant under the Hanover Shoe doctrine would not be allowed to assert pass-on of the overcharge as a defense. Consequently, unequal application of the pass-on concept would substantially increase the possibility of subjecting a
PLAINTIFFS DO NOT FALL WITHIN EXCEPTIONS TO ILLINOIS BRICK
RULE
In the instant case, unless plaintiffs fall within one of the circumscribed exceptions to the Illinois Brick rule, they cannot directly sue the manufacturers of fiberboard cartons to recover the overcharge which Dairylea had passed on to them pursuant to the cost-plus provision of their oral requirements contracts. Nor can plaintiffs recover said amount by suing Dairylea for a violation of the antitrust law merely because Dairylea has passed on the illegal overcharge, unless plaintiffs can show a conspiracy between the manufacturers and Dairy-lea to fix wholsesale prices (see, Reiter v Sonotone Corp., 486 F Supp 115; Albrecht v Herald Co., 390 US 145, reh denied 390 US 1018; Dr. Miles Med. Co. v Park & Sons Co., 220 US 373; see also, State of New York v Dairylea Coop., 570 F Supp 1213, 1215-1216; Dunfee, Privity in Antitrust: Illinois Brick v Illinois, 16 Am Bus LJ 107, 115, n 42). We note that the complaints do not allege such a conspiracy.
The two potential exceptions to the Illinois Brick holding are based on the elimination of the evidentiary complexities and uncertainties which arise in tracing the interaction of market forces in order to prove the amount of the overcharge that had been passed on through the distribution chain.
One exception permits an indirect purchaser to sue for treble damages when there is a "pre-existing, fixed-quantity, cost-plus contract” between the direct purchaser and the indirect purchaser (Mid-West Paper Prods. Co. v Continental Group, 596 F2d 573, 577, supra), because the "effect of the overcharge is essentially determined in advance, without reference to the interaction of supply and demand that complicates the determination in the general case” (Illinois Brick Co. v Illinois, 431 US 720, 736, supra). In a market where demand is perfectly inelastic (unresponsive to changes in price) the indirect purchaser absorbs the entire overcharge; where demand is perfectly elastic (responsive to changes in price) the direct purchaser absorbs it. In all intermediate cases, the overcharge is apportioned between them (see generally, Comment, A Legal and Economic Analysis of the Cost-Plus Contract Exception in Hanover Shoe and Illinois Brick, 47 U Chi L Rev 743, 746; Schaefer, Passing-On Theory in
The clear dictate of Illinois Brick (supra) is that the cost-plus contract exception is to be narrowly construed (see, Mid-West Paper Prods. Co. v Continental Group, supra, at p 577, n 9; Lefrak v Arabian Am. Oil Co., supra, at p 818). A primary feature of the cost-plus contract which led the Supreme Court to cite this as a possible exception to Illinois Brick is a "commitment for a fixed quantity, precluding evidentiary complexities due to considerations of decreasing sales” (International Assn. of Machinists & Aerospace Workers v Organization of Petroleum Exporting Countries, 477 F Supp 553, 562, affd 649 F2d 1354, cert denied 454 US 1163). Consequently, an
To demonstrate that the subject requirements contracts are not the functional equivalent of the cost-plus contract contemplated by this exception to Illinois Brick (supra), it bears repeating that the direct purchaser will be able to shift a larger share of any overcharge imposed on him onto the indirect purchaser in a market where demand is more inelastic and the supply is more elastic. Conversely, the more elastic the demand and the more inelastic the supply, the greater the share of an overcharge the direct purchaser must bear himself (Comment, A Legal and Economic Analysis of the Cost-Plus Contract Exception in Hanover Shoe and Illinois Brick, 47 U Chi L Rev 743, 746). Because Dairy lea’s product, packaged milk, is perishable, the supply is highly inelastic. Since there are some acceptable substitutes for packaged milk products and plaintiffs are not obligated to purchase a fixed amount from Dairylea, the plaintiffs’ (wholesalers’), the retailers’, and the ultimate consumers’ demand for Dairylea’s product is, to some extent, elastic. Consequently, in the usual market, the overcharge for milk cartons will be partially borne by both Dairylea and plaintiffs. How much of the overcharge Dairylea shifted onto plaintiffs and how much it absorbed, as evidenced by a loss in actual or potential sales volume or by adjustments in its charge for pasteurization, depended on the relative elasticities of supply and demand. Accordingly, any attempt to fit the subject requirements contract into the Illinois Brick cost-plus contract exception is misplaced because allocating the amount of the illegal overcharge for milk cartons which Dairylea passed on to plaintiffs cannot be ascertained without reference to complex market interactions of supply and der mand.
A second exception to the Illinois Brick rule is a situation where "market forces have been superseded” because "the
The principle that plaintiffs " 'may not alter a remedy which exists solely by virtue of a statute is * * * too well settled to require citation of authority’ ” (see, Russo & Dubin v Allied Maintenance Corp., 95 Misc 2d 344, 348, quoting from Sun Theatre Corp. v RKO Radio Pictures, 213 F2d 284, 287). Here, plaintiffs seek to recover indirectly what they cannot recover directly. Since plaintiffs were barred in a Federal antitrust action against the manufacturers from recovering treble the amount of the illegal overcharge for milk cartons that had been passed on to them, they now seek, in the guise of an action to recover damages for breach of contract and for money had and received, to recover the same damages in State court from a direct purchaser, who was allowed to recover the overcharge at issue in the Federal action. While such a suit would not expose the defendant manufacturers in the Federal antitrust action to multiple liability, to allow the indirect purchaser to recover from the direct purchaser the amount of the illegal overcharges that had been passed on to it, pursuant to a cost-plus requirements contract that did not fall within an exception to the Illinois Brick rule, would severely impair the private enforcement of the Federal antitrust laws.
EFFECT OF THIS SUIT ON ENFORCEMENT OF FEDERAL ANTITRUST
LAWS
A major policy consideration in concentrating the full recovery for an illegal overcharge in the direct purchaser, rather
Private antitrust enforcement has two objectives: to compensate victims of antitrust violations (e.g., Brunswick Corp. v Pueblo Bowl-O-Mat, 429 US 477, 485-486) and to deter the commission of such violations (see, Hanover Shoe v United Shoe Mach., 392 US 481, 494, supra; Sun Theatre Corp. v RKO Radio Pictures, 213 F2d 284, 287, supra; Illinois Brick Co. v Illinois, supra). In elevating direct purchasers to a preferred position as private Attorneys General, the United States Supreme Court was aware that the Illinois Brick rule would, on occasion, create a windfall for the direct purchaser, who was able to recoup his economic loss in the marketplace by passing on the overcharge to its customers in the form of increased prices, and would fail to compensate those indirect purchasers who may have been actually injured by antitrust violations. Nevertheless, in the Illinois Brick court’s view, in order to ensure effective enforcement of the antitrust laws, deterrence was the preferred objective.
The most important consideration from the standpoint of deterrence is not who receives the proceeds of any judgment levied against the antitrust violator (see, Illinois Brick Co. v Illinois, supra, at p 760 [Brennan, J.’s dissent]), but that there exists adequate incentives to bring an antitrust suit and prosecute it to judgment (see also, Landes & Posner, Should Indirect Purchasers Have Standing to Sue Under the Antitrust Laws? An Economic Analysis of the Rule of Illinois Brick, 46 U Chi L Rev 602, 608). The Illinois Brick rule was purposely designed to give the direct purchaser the maximum incentive to sue by allowing direct purchasers to recover treble the entire overcharge without subtracting the amount of that overcharge passed on to more remote purchasers.
In establishing standing rules which favored direct purchasers over indirect purchasers, the Illinois Brick court acknowledged that "direct purchasers sometimes may refrain from bringing a treble-damages suit for fear of disrupting relations with their suppliers” (Illinois Brick Co. v Illinois, supra, at p 746). Several other courts and commentators have also recognized that a direct purchaser may not be hurt very much as a result of passing on an overcharge and, thus, may not wish to risk the breach of a long-standing supplier relationship for the
Furthermore, where a multitiered distribution system exists, as in this case, we note that indirect purchasers (plaintiffs, the milk wholesalers), like the direct purchaser (Dairylea, the pasteurizer), will often be able to pass on much of the cost of an unlawful price increase (illegal overcharge for milk cartons) to their customers (the retailers), who, in turn, will pass it on to the ultimate consumer. Thus, allowing indirect purchasers (plaintiffs, the wholesalers) to recover from the direct purchaser the amount of the overcharge passed on to them may not substantially further the compensatory objective of the Federal antitrust laws (see, Landes & Posner, Should Indirect Purchasers Have Standing to Sue Under the Antitrust Laws? An Economic Analysis óf the Rule of Illinois Brick, 46 U Chi L Rev 602, 608), whereas it may substantially impair the deterrence objective by reducing the recovery fund of the direct purchaser and correspondingly the latter’s incentive to act as a private Attorney General.
In the instant case, plaintiffs, under the Illinois Brick rule, had no legal or equitable interest in the Federal antitrust settlement fund. Plaintiffs concede that Dairylea never specifically agreed to reimburse them for any illegal overcharge in the cost of milk cartons that had been passed along to them in the event Dairylea recovered the overcharges in a Federal antitrust action against the milk carton manufacturers. A contrary allegation is belied by the fact that the parties’ requirements agreements were made years before a class action on behalf of direct purchasers to recover treble damages under the Clayton Act § 4 was commenced against several manufacturers of fiberboard products and years before Dairylea filed a claim as a member of the class. Moreover, when defendant received its share of the settlement fund, plaintiff Jerome Dairy had ceased doing business. Therefore, this is not a situation involving a contract where the parties specifically agreed to distribute the proceeds of a contemplated antitrust judgment. In the latter case, the direct purchaser, in entering into such an agreement, would arguably have received some form of consideration to furnish it with the requisite incentive to file an antitrust claim, even if it took the form of an increase in the direct purchaser’s good will. Here, based merely on the nature of a cost-plus pricing provision, plaintiffs plead an implied promise by Dairylea to
To reiterate, allowing plaintiffs to bring an action either for breach of contract or for money had and received against Dairylea for the purpose of recovering the amount of an illegal overcharge Dairylea passed on to them because their respective requirements contracts contained a cost-plus pricing provision, when said remedy is foreclosed by direct suit against the antitrust violator, would undermine effective enforcement of the Federal antitrust laws by substantially impairing the direct purchaser’s incentive to act as private Attorney General. Accordingly, to the extent the cost-plus pricing provision in the subject requirements contracts could be construed as an implied promise by Dairylea to remit to plaintiffs any portion of its antitrust settlement fund, as a purported reduction in the cost of milk cartons, it is violative of Federal antitrust policy. Consequently, Special Term correctly granted defendant’s motion for summary judgment, dismissing plaintiff Tip Top’s complaint, insofar as it seeks to recover the proceeds Dairylea received in settlement of the antitrust litigation, and dismissing the other plaintiffs’ complaints in their entirety.
Two other issues must be briefly addressed. First, plaintiff Tip Top’s complaint pleads an additional cause of action not alleged in the other plaintiffs’ complaints. Tip Top alleges that from 1978 to 1980, Dairylea received discounts from the manufacturers of fiberboard cartons based on the volume of its purchases. Tip Top asserts that Dairylea breached the cost-plus provision of their agreement by failing to pass along the volume discounts received by Dairylea for the milk cartons Dairylea sold to Tip Top. With respect to this claim, Special Term correctly denied summary judgment because a factual issue exists as to the meaning of the cost-plus provision, i.e., whether defendant was to sell milk cartons to Tip Top at its current or its final cost. Second, defendant’s motion to amend its answers to assert the Statute of Frauds defense was properly denied for reasons stated in the opinion of our learned brother Justice Lazer. As noted by Justice Lazer, Uniform Commercial Code § 2-201 (1) is inapplicable because the milk cartons had already been delivered, accepted and paid for pursuant to the parties’ oral agreements and
Accordingly, the orders appealed from should be affirmed.
A similar analysis applies when supply is either perfectly elastic or perfectly inelastic, except that perfect inelasticity results in the direct purchaser absorbing the entire overcharge, while perfect elasticity places the overcharge on the indirect purchaser (see, Schaefer, Passing-On Theory in Antitrust Treble Damage Actions: An Economic and Legal Analysis, 16 Wm & Mary L Rev 883, 887-897).
Concurrence in Part
(concurring in part and dissenting in part). I disagree with my colleagues’ view that the dispositive issue on this appeal is whether the contract alleged by the plaintiffs falls within one of the exceptions to the rule in Illinois Brick Co. v Illinois (431 US 720). The issue is much broader, for it concerns the relationship between Federal antitrust policies and access to the State courts for the purpose of common-law actions. More specifically, however, we must determine whether the policies enunciated in Illinois Brick preclude an indirect purchaser of goods from bringing a State common-law action against the direct purchaser to recover damages for breach of contract or moneys had and received when the purpose of the action is recovery of a portion of the sums the direct purchaser received as a result of an antitrust suit against the manufacturer. Because I believe that Illinois Brick does not preclude State courts from adjudicating common-law contract disputes, I dissent insofar as I would modify the orders of Special Term by denying those branches of defendant’s motions which were for summary judgment dismissing plaintiffs’ claims to a share of defendant’s antitrust settlement. I agree, however, that Special Term’s denial of leave to amend defendant’s answers and plaintiffs’ cross motions for partial summary judgment should be affirmed.
I
In Illinois Brick Co. v Illinois (supra), the Supreme Court held that with certain limited exceptions an indirect purchaser of goods is not an injured person within the scope of the Clayton Act § 4 (15 USC § 15) and thus cannot sue the manufacturer of those goods for Federal antitrust violations. The principal reason enunciated by the court for its decision to so narrowly construe the Federal statute was its fear that a contrary decision "would transform treble-damages actions into massive efforts to apportion the recovery among all potential plaintiffs that could have absorbed part of the overcharge—from direct purchasers to middlemen to ultimate consumers” (Illinois Brick Co. v Illinois, supra, at p 737). This, the Supreme Court believed, would "add whole new dimensions of complexity to treble-damages suits and seriously
Clearly, Congress has not preempted the field of antitrust law by passage of the Federal antitrust statutes (see, Jones v Rath Packing Co., 430 US 519, reh denied 431 US 925; Cloverleaf Co. v Patterson, 315 US 148). A State remains free to regulate in the area of antitrust despite the existence of the Federal antitrust provisions, so long as the State statutes do not conflict with the Federal law. Several States have antitrust laws that provide a remedy for indirect purchasers (see, e.g., Ala Code § 6-5-60 [a]; Cal Business and Professions Code § 16750; Hawaii Rev Stats § 480-14 [c]; Ill Ann Stats, ch 38, § 60-7 [2]; Miss Code Ann § 75-21-9; Wis Stats Ann § 133.18 [1]), but the validity of these statutes remains a matter of debate (compare, State of California v California & Hawaiian Sugar Co., 588 F2d 1270, 1273, cert denied 441 US 932, with Russo & Dubin v Allied Maintenance Corp., 95 Misc 2d 344, 347, and In re Wiring Device Antitrust Litigation, 498 F Supp 79; see, Note, State Indirect Purchaser Statutes: The Preemptive Power of Illinois Brick, 62 B U L Rev 1241; Note, Indirect Purchaser Suits Under State Laws: A Detour Around the Illinois Brick Wall, 34 Stan L Rev 203; Cavanagh, The Illinois Brick Dilemma: Is There a Legislative Solution?, 48 Alb L Rev 273, 309-310). That debate is not before us, however, because plaintiffs’ claims are not derived from a right created by statute. Plaintiffs are purchasers pursuant to oral contracts of sale for cost plus 1%, who seek to recover from their seller in common-law actions to recover damages for breach of contract and for money had and received, amounts subsequently received by the seller which reduced the seller’s cost for the goods.
I do not believe that the common-law claims of an indirect
In Illinois Brick (supra), the Supreme Court was concerned solely with the proper interpretation and application of the Federal antitrust laws and the effect of that interpretation on the Federal courts, including the right of access to those courts to vindicate the rights of indirect purchasers. The court evinced no intention to preempt substantive State laws governing contracts or the traditional common-law remedies for enforcing valid contracts. That an indirect purchaser may not sue a manufacturer for Federal antitrust violations for reasons that relate to access to the Federal courts and diligent enforcement of a specific antitrust statute does not mean that a direct purchaser, who is entitled to bring such a suit, cannot agree to pass on the benefits of that suit to its customers. Illinois Brick spoke to the question of who can bring a Federal antitrust claim; it has no bearing on the validity of a contract for the subsequent disposition of the proceeds of such an action.
For the same reasons, Illinois Brick (supra) cannot be viewed as establishing a public policy which would prohibit enforcement of the contracts plaintiffs allege. Of course, " '[a] contract which binds one of the parties to do that which is contrary to the policy of the state or nation is void’ ” (Matter of Rhinelander, 290 NY 31, 39, quoting from Matter of Hughes, 225 App Div 29, 31, affd 251 NY 529), and if Dairy-lea’s alleged promises to remit part or all of the antitrust settlements to plaintiffs are violative of the public policy of the United States, the contracts are illegal and cannot be enforced (see, Silvera v Safra, 79 Misc 2d 919; Klein v Comenzó Co., 207 NYS2d 739; Kaiser-Frazer Corp. v Otis & Co., 195 F2d 838, cert denied 344 US 856). Although the term
The successful plaintiff in an antitrust action is naturally entitled to put the amount recovered to any lawful purpose it wishes. Patently, it is free to remit all or part of the amount recovered to its customers should it elect to do so, for example, to further good customer relations. I see no reason why it should not similarly be allowed, prior to commencing an antitrust suit that only it is authorized to bring, to contractually bind itself to remit all or part of the proceeds of such a suit to its customers. If plaintiffs’ interpretation of the alleged oral agreements is correct, that is in effect what Dairylea has agreed to do. Such a contract is not violative of any preemptive public policy established in Illinois Brick (431 US 720, supra) Moreover, a State common-law action to enforce such an agreement can in no way serve to unduly complicate a prior Federal antitrust action for the simple reason that it is not a part of that Federal action. In short, to the extent there may exist contracts requiring Dairylea to remit to plaintiffs any portion of the antitrust settlement which constitutes a reduction in the cost of the milk cartons, Federal antitrust policy does not bar an action to recover that amount. Illinois Brick simply dealt with the application of the Federal antitrust laws in Federal courts; in no way does it limit or impair contractual rights enforceable by traditional State common-
For the same reasons, Illinois Brick (supra) would not bar an action for moneys had and received as an alternative to recovery upon the contract (see, Darmsteadter v Tandberg of Am., 104 AD2d 355). Although considered an action at law, a suit for moneys had and received is based upon equitable principles of unjust enrichment (see, Federal Ins. Co. v Grove-land State Bank, 37 NY2d 252, 258; Friar v Vanguard Holding Corp., 78 AD2d 83, 89). The essential elements of such an action are threefold: the defendant must have received moneys properly belonging to the plaintiff; the defendant must have been benefited thereby; and considerations of justice and good conscience preclude allowing the defendant to retain the moneys (see generally, Schank v Schuchman, 212 NY 352, 358-359; 22 NY Jur 2d, Contracts, § 451). Contrary to Dairylea’s contention, it is not necessary that the defendant’s initial possession of the moneys be wrongful (Friar v Vanguard Holding Corp., supra, at p 89; see, Simonds v Simonds, 45 NY2d 233, 242; Baratta v Kozlowski, 94 AD2d 454, 464). In the instant cases, plaintiffs have alleged all the necessary elements of such actions and Dairylea has not met its burden of showing that plaintiffs cannot make out their cases. Accordingly, Dairylea is not entitled to summary judgment dismissing those claims.
II
Defendant’s further argument is that regardless of Illinois Brick (supra), the underlying contracts are void because they are not evidenced by sufficient writings to satisfy the requirements of the Statute of Frauds. As noted, Special Term denied those branches of Dairylea’s motions which were for leave to amend its answers not because the delay in asserting the affirmative defense of Statute of Frauds had prejudiced plaintiffs (see, CPLR 3025 [b]; Surlak v Surlak, 95 AD2d 371; Siegel, Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, CPLR C3025:6, p 477), but rather because it found the defense to be without merit. Dairylea has raised no objection to Special Term’s decision to consider the merits of the proposed amendments on its applications for leave to amend. Indeed, in its brief, Dairylea has urged us to consider the merits of the defense. Moreover, since the applications for leave to amend were combined with applications for summary
The oral agreements concededly provide for the sale of packaged milk and milk products by Dairylea to plaintiffs. In dispute is the proper interpretation of that portion of the contracts which required Dairylea to charge its costs plus 1% for the milk cartons it provided to plaintiffs. It is plaintiffs’ position that these contractual provisions refer to Dairylea’s final cost as reduced by the antitrust proceeds and rebates, whereas Dairylea maintains that these terms are limited to its costs as they appeared to be at the time of delivery. Dairylea contends that if these provisions are interpreted so as to require Dairylea to reimburse plaintiffs for amounts subsequently received by Dairylea which serve to reduce the cost of the cartons, the agreements are violative of both the Statute of Frauds provisions contained in Uniform Commercial Code article 2 (UCC 2-201 [1]) and that of General Obligations Law § 5-701 (a) (1). The Statute of Frauds contained in the Uniform Commercial Code is patently inapplicable to these oral agreements. UCC 2-201 (3) (c) specifically provides that the statute does not serve as a bar to claims concerning goods that have already been delivered and accepted or paid for pursuant to an oral agreement, and the plaintiffs here seek to recover a purported overpayment for goods that have been both delivered and accepted and paid for. Hence, this section cannot bar plaintiffs’ claims (see, L. Fatato, Inc. v Decrescente Distrib. Co., 86 AD2d 600).
No such ameliorative provision limits the applicability of General Obligations Law § 5-701 (a) (1), the relevant part of which provides that absent sufficient written memoranda an oral agreement is void if it cannot be performed within one year from the making of the contract. Although complete performance by both parties will take a contract out of this statute (i.e., Dodge v Crandall, 30 NY 294; 56 NY Jur, Statute of Frauds, §§ 304-305), it is well settled in New York that neither partial performance by both parties nor complete performance by only one party will save an agreement that cannot be performed within a year (see, e.g., Meyers v Waverly
The criteria for determining whether a contract is within the statute turn not on whether the contract is actually performed within the year, but rather on whether by its express terms or by necessary implication the agreement is one which cannot be performed within a year (see, e.g., North Shore Bottling Co. v Schmidt & Sons, 22 NY2d 171, 175-176; Trustees of First Baptist Church v Brooklyn Fire Ins. Co., 19 NY 305, 307; 2 Corbin, Contracts § 444 [1950]; 3 Williston, Contracts § 495 [3d ed]). The statute, moreover, is to be interpreted narrowly and applies only to those contracts "which by their very terms have absolutely no possibility in fact and law of full performance within one year” (D & N Boening v Kirsch Beverages, 63 NY2d 449, 454). Thus, if there exists any possibility, however remote, that the contract could be performed within a year, it is not within the statute and may be enforced if otherwise valid (see, Freedman v Chemical Constr. Corp., 43 NY2d 260, 265; Warner v Texas & Pac. Ry., 164 US 418, 434). Nor, if the contract can in some manner be performed within a year, is it relevant that it may also "be capable of an indefinite continuance” (Trustees of First Baptist Church v Brooklyn Fire Ins. Co., supra, at p 307).
The contracts at issue here were contracts of indefinite duration which did not provide for termination at some specific time or upon the occurrence of a particular event. Thus, unless they were terminable without a breach and within a year by either party, or at least by Dairylea (see, North Shore Bottling Co. v Schmidt & Sons, supra, at p 177, n 3), the law would regard them as incapable of performance within a year and therefore within the Statute of Frauds (D & N Boening v Kirsch Beverages, supra, at pp 456-458; Zupan v Blumberg, 2 NY2d 547). Plaintiffs, however, have provided affidavits by participants to the oral agreements originally entered into by
Somewhat more persuasive at first perusal is Dairylea’s remaining contention that, even assuming the parties were otherwise free to terminate the contracts at will, if plaintiffs’ interpretation of the contracts is correct, Dairylea could never completely perform the contracts because it would always be under a continuing obligation to remit to plaintiffs any amount it might receive at some later date which would reduce the cost of the cartons it had previously sold to plaintiffs. This argument is flawed, however, because it turns the applicable criteria upside down. The test for determining whether a particular contract is within or without the statute is not whether some future event may occur which will render performance impossible within the year, but rather whether the contract by its own terms renders performance within a year impossible. If plaintiffs’ interpretation is correct, the contracts at issue simply required Dairylea to charge plaintiffs its cost for the milk cartons, plus 1%. There is nothing inherently impossible in determining the cost of goods within a year. As it happened—if plaintiffs’ view of the contracts ultimately prevails—the cost of the milk cartons involved in these cases was subsequently reduced. This was not a necessary result of the terms of the contracts, however, but rather of the unanticipated antitrust recovery.
The contracts did not require Dairylea to purchase the milk cartons under conditions that would render it unable to determine their final cost for several years. Certainly, Dairy-lea was under an obligation to act in good faith and was required to purchase the goods in a reasonable manner for a fair price (see, 22 NY Jur 2d, Contracts, § 258; see generally, Clark v Fleischmann Vehicle Co., 187 NYS 807). The obligations imposed by such a contract were discussed by the First Department in Title Guar. & Trust Co. v Pam (192 App Div
We emphasize that these contracts did not subject Dairylea to a continuing negative covenant which it would never be able to completely perform (see, Meyers v Waverly Fabrics, 65 NY2d 75, supra; Polykoff Adv. v Houbigant, Inc., 43 NY2d 921). Instead, Dairylea’s obligation was terminable as soon as it delivered the goods and accurately determined its cost. Nor are these contracts analogous to those requiring an employer to pay an employee commissions on all sales to customers originally obtained by the employee even with respect to sales made after the employment relationship terminates, for in those cases the employer is not free to simply refuse to accept such future sale orders, and thus the termination of. its obligations is subject to the whims of third parties (see, Zupan v Blumberg, 2 NY2d 547, 552, n, supra; Nat Nal Serv. Stas. v Wolf, 304 NY 332). In the instant cases, if plaintiffs’ interpretation of the agreements is accepted, Dairylea was unable to completely perform within the year only because it voluntarily brought an antitrust claim and thus purportedly became unable to determine its costs until it received the antitrust
Since the oral agreements at issue here were susceptible of performance within a year, they are not subject to General Obligations Law § 5-701 (a) (1). Accordingly, Special Term acted properly in denying Dairylea’s applications for leave to amend its answers to include the affirmative defense of the Statute of Frauds. Because the contract actions are not barred by Federal antitrust policy, however, Special Term erred in granting Dairylea summary judgment dismissing plaintiffs’ claims to a part of the antitrust settlement.
Ill
Finally, I conclude that plaintiffs are not entitled to partial summary judgment on any of their causes of action. Although the parties agree that they entered into contracts under which Dairylea was to provide the plaintiffs with milk cartons at cost plus 1%, they disagree sharply as to whether the term "cost” referred to Dairylea’s "cost” at the time of sale or whether it required Dairylea to ascertain its final "cost” by deducting any amounts subsequently received by Dairylea and which were attributable to the purchase of the cartons it sold to plaintiffs. Nowhere in their affidavits in support of their cross motions for partial summary judgments do the affiants declare that the question of reimbursement for subsequent reductions in cost was specifically discussed during the contract negotiations or expressly provided for in the agreements. Rather, it is plaintiffs’ position that such an interpretation is implicit in the agreements and is sustained by the custom and usage of the industry. Therefore, a plenary trial will be necessary to determine whether in fact the interpretation is implicit, whether there existed such a custom and usage in the industry when these contracts were negotiated, and, with respect to the claims to a portion of the antitrust settlement, whether that custom and usage is broad enough to encompass so unusual an event as a subsequent antitrust recovery. Thus, plaintiffs’ cross motions were properly denied.
Three orders of the Supreme Court, Queens County, each dated March 12, 1983, affirmed, without costs or disbursements.