Opinion No. 70.
ONE WHO BUYS ON CREDIT MUST KEEP HIS CREDIT GOOD.
Question.—A, in New York, has with B, a manufacturer, three separate contracts made in December, February and March, respectively, each contract specifying the grade and price of material, date of delivery and terms of payment. The deliveries called for in the December contract have been completed by A; the date for the first delivery of the February contract is due this month; but B is overdue 30 days on his payment on the first delivery of the December contract and payment on the delivery of balance of the December contract is now due. Because B has failed to comply on his part with the conditions of the first contract, must A deliver the material according to the terms of the second and third contracts, thereby unduly increasing the amount of credit extended to B beyond his general credit limit? From information obtained which would lead A to question the credit of B, such as his taking a contract at a loss (this occurring since the contracts were made) can A demand payment before delivery of the goods, although the contract specifies 30 days from certain dates? Can A cancel the two uncompleted contracts for any of the above reasons, viz., non-fulfillment of the condition of the first contract by B or doubt as to B’s credit? If cancelled by A would B have any legal redress such as buying the quantity and grade of material stipulated by the contracts in the open market and compelling A to pay the difference in price should the present market price be higher than the prices stipulated in the contracts?
Reply: When a man buys goods on credit it is always an implied condition of the contract that he shall “keep his credit good,” as the courts phrase it, till the time of delivery arrives. If he becomes insolvent before that time he cannot demand that the seller shall ship the goods. If the seller does ship them, and then learns of the insolvency, he may stop the goods before they reach the buyer and take them back into his own possession. A buyer on credit has no right to demand that the goods shall be delivered to him at a time when he is insolvent and when there is reason to believe, accordingly, that the goods may have to be sold to pay his other debts. That is the situation in the case our correspondent puts, and the seller is certainly not bound to deliver the merchandise. By insolvency, in a case of this kind, is not meant an actual assignment for creditors; neither does it mean that the buyer has gone into bankruptcy or made any other public acknowledgment of the fact that he is insolvent. It means that he has become unable to pay his debts as they fall due. The seller must be able to show that at least one debt has fallen due against the buyer and that he has not paid it promptly. Of course, it must be a debt the validity of which the buyer himself does not dispute upon any tenable or reasonable ground. The buyer in this case has failed to pay such a debt. The seller has ample proof of the fact because the debt was owing to him. The buyer has not “kept his credit good,” and he has no right to demand that goods sold to him on credit shall be delivered. If they are not delivered he will have no legal ground of complaint or cause of action against the seller. It is not the seller who is guilty of a breach of contract, but the buyer; he is guilty of a breach of the implied condition which enters into all such contracts—the condition that the buyer shall “keep his credit good.”
Opinion No. 71.
A SELLER IS BOUND BY HIS OWN MISTAKE UNLESS IT IS OBVIOUS.
Question.—We sent an inquiry for certain sizes of lumber to a mill asking for quotations. Our inquiry was delayed in the mails, and, as it did not reach the mill in time enough to quote we placed the order with the mill, but did not specify prices. The mill acknowledged our order, saying, “We have entered your order as per enclosed carbon,” and after each item they named a price. The lumber was shipped and an invoice sent us, but on two of the items a larger amount is charged than specified in the communication from the mill, saying our order had been entered. In remitting we deducted the difference between the prices mentioned in reply from the mill and the invoice, but the mill claims they made a clerical error and that we are bound to pay the invoice price. What is our position in the matter?
Reply: When a seller puts a price on his goods and the buyer accepts them at that price it is then too late for the seller to demand more except in the following case: If the buyer knew that a mistake had been made, or if the mistake was so gross and palpable that he ought to have known it to be a mistake, then it may be corrected. If a seller were to quote $1.25 when all buyers knew that $12.50 was about the market price, the buyer would not be allowed to claim the goods at the quotation without making special inquiry as to its accuracy; if the quotation was only slightly under the market, so that no suspicion attached to it, and if there was nothing else to show that a mistake had been made, and if the buyer had no actual knowledge of the fact, the seller is bound. Taking the whole class of sellers together, it would not be a safe rule to allow them to come around and collect more after a sale had been made and concluded upon the plea that they had not asked as much as they intended to ask.
Opinion No. 72.