Report from superior court, Essex county; Charles S. Lilley, Judge.

Action by Cordelia A. Silsbee against Parker J. Webber. A verdict was directed for plaintiff, and case reported, on request of the parties, for determination of the supreme judicial court. Verdict set aside.

[171 Mass. 379]J.H. Sisk, for plaintiff.

W.H. Niles & Geo. J. Carr, for defendant.

Field, C.J., and Knowlton and Lathrop, JJ., dissenting.

HOLMES, J.

This is an action to recover money alleged to have been got from the plaintiff by duress. In the court below, a verdict was directed for the defendant, and the case was reported. The plaintiff's son had been in the defendant's employ, had been

[50 N.E. 556]

accused by him of stealing the defendant's money, had signed a confession (whether freely or under duress is not material), and had agreed to give security for $1,500. There was a meeting between the plaintiff and the defendant, in the course of which, as the plaintiff testified, the defendant said he should have to tell the young man's father, the plaintiff's husband. At that time, according to her, her husband had trouble in his head, was melancholy, very irritable, and unable to sleep, so that she feared that, if he were told, the knowledge would make him insane. The plaintiff further testified that she previously had talked with the defendant about her husband's condition, and that she begged him not to tell her husband, and told him that he knew what her husband's condition was; but that he twice threatened to do it in the course of his inquiries as to what property she had, and that, to prevent his doing so, she, the next day, went, by agreement, to the office of the defendant's lawyer, and executed an assignment of her share in her father's estate. Her son was present, and, as he says, protested that this was extortion and blood money. It is under this assignment that the money sued for was collected. In the opinion of a majority of the court, if the evidence above stated was believed, we cannot say that the jury would not have been warranted in finding that the defendant obtained and knew that he was obtaining the assignment from the plaintiff solely by inspiring the plaintiff with fear of what he threatened to do; that the ground for her fear was, and was known to be, her expectation of serious effects upon her husband's health if the defendant did as he threatened; that the fear was reasonable, and a sufficiently powerful motive naturally to overcome self-interest; and, therefore, that the plaintiff had a right to avoid her act. [171 Mass. 380]Harris v. Carmody, 131 Mass. 51, 53, 54;Morse v. Woodworth, 155 Mass. 233, 250, 27 N.E. 1010, and 29 N.E. 525.

It is true that it has been said that the duress must be such as would overcome a person of ordinary courage. We need not consider whether, if the plaintiff reasonably entertained her alleged belief, the well-grounded apprehension of a husband's insanity is something which a wife ought to endure, rather than to part with any money, since we are of opinion that the dictum referred to is taken literally in an attempt to apply an external standard of conduct in the wrong place. If a party obtains a contract by creating a motive from which the other party ought to be free, and which, in fact, is, and is known to be, sufficient to produce the result, it does not matter that the motive would not have prevailed with a differently constituted person, whether the motive be a fraudulently created belief or an unlawfully created fear. Even in torts,-the especial sphere of external standards,-if it is shown that in fact the defendant, by reason of superior insight, contemplated a result which the man of ordinary prudence would not have foreseen, he is answerable for it; and, in dealing with contributory negligence, the personal limitations of the plaintiff, as a child, a blind man, or a foreigner unused to our ways, always are taken into account. Late American writers repudiate the notion of a general external measure for duress, and we agree with them. Clark, Cont. 357; Bish.Cont. (Ed. 1887) § 719. See James v. Roberts, 18 Ohio, 548, 562;Eadie v. Slimmon, 26 N.Y. 9, 12.

The strongest objection to holding the defendant's alleged action illegal duress is that, if he had done what he threatened, it would not have been an actionable wrong. In general, duress going to motives consists in the threat of illegal acts. Ordinarily, what you may do without liability you may threaten to do without liability. See Vegelahn v. Guntner, 167 Mass. 92, 107, 44 N.E. 1077; Allen v. Flood [1898] App.Cas. 1, 129, 165. But this is not a question of liability for threats as a cause of action; and we may leave undecided the question whether, apart from special justification, deliberately and with foresight of the consequences, to tell a man what you believe will drive him mad, is actionable if it has the expected effect. Spade v. Railroad, 168 Mass. 285, 290, 47 N.E. 88;White v. Sander, 168 Mass. 296, 47 N.E. 90. If it [171 Mass. 381]should be held not to be, contrary to the intimations in the cases cited, it would be only on the ground that a different rule was unsafe in the practical administration of justice. If the law were an ideally perfect instrument, it would give damages for such a case as readily as for a battery. When it comes to the collateral question of obtaining a contract by threats, it does not follow that, because you cannot be made to answer for the act, you may use the threat. In the case of the threat, there are no difficulties of proof, and the relation of cause and effect is as easily shown as when the threat is of an assault. If a contract is extorted by brutal and wicked means, and a means which derives its immunity, if it have immunity, solely from the law's distrust of its own powers of investigation, in our opinion the contract may be avoided by the party to whom the undue influence has been applied. Some of the cases go further, and allow to be avoided contracts obtained by the threat of unquestionably lawful acts. Morse v. Woodworth, 155 Mass. 233, 251, 27 N.E. 1010, and 29 N.E. 525;Adams v. Bank, 116 N.Y. 606, 23 N.E. 7; Williams v. Bayley, L.R., 1 H.L. 200, 210.

In the case at bar there are strong grounds for arguing that the plaintiff was not led to make the assignment by the duress alleged. They are to be found in the fact that the plaintiff sought the defendant; in her testimony that when she made the assignment she wanted the defendant to have full security for all her son owed him; and in the plaintiff's later conduct; but we are considering whether there was a case of duress for the jury.

[50 N.E. 557]

The assignment was on October 10, 1894. Before March 12, 1895, the plaintiff had joined with her sisters in employing a lawyer to secure her share in her father's estate, intending it to be paid over to the defendant. On March 12, 1895, to the same end, she signed a petition for distribution, setting forth the assignment, and afterwards took some further steps, and never made any claim that the assignment was not valid until December 19, 1895, before which time it had come to the knowledge of her husband. Apart from the weight which these facts may give to the argument that the plaintiff did not act under duress, they found an independent one,-that, if she did act under duress, she has ratified her act. The assignment was formally valid. The only objection to it, if any, was the motive for it. [171 Mass. 382]Fairbanks v. Snow, 145 Mass. 153, 154, 13 N.E. 596. Therefore it might be ratified by the plaintiff when she was free. But the acts relied on were done in connection with a member of the bar, who had been the defendant's lawyer before he undertook to act for the plaintiff, and who plainly appeared to be acting for the plaintiff only in the defendant's interest. We cannot say that the jury might not find that the later acts of the plaintiff, if not done under the active influence of her supposed original fear, at least were done before the plaintiff had gained an independent foothold, or realized her independence or her rights. We are of opinion that the case should have been left to the jury. Adams v. Bank, 116 N.Y. 606, 614, 615, 23 N.E. 7.

Verdict set aside. Case to stand for trial.

KNOWLTON, J. (dissenting).

The report shows no evidence which seems to me to warrant a finding for the plaintiff. It is not contended that she can prevail in this action on the ground that the parties agreed to compound a felony. The defendant had detected his trusted clerk in embezzling from him. He could not certainly know how long the embezzlement had been going on, or how much money had been taken; but very likely he thought that it had been for a long time, and that the amount was large. The clerk had been in his employment for six years, as chief salesman. It was proper that the defendant should obtain reimbursement if he could. On account of what her son said, the plaintiff visited the defendant at his home. She testified that she wanted him to have full security for all her son owed him, and for anything he had stolen, and that her son had agreed to give security for the $1,500 which he admitted that he had stolen. In all the defendant's dealings with the plaintiff there is not a suggestion that he made a threat, unless it be called a threat to say, when she proposed to give him a chamber set as security, “I do not think that will do. I will have to tell his father;” and to say again, once or twice before the interview ended, that he would tell her husband about the matter. Ordinarily, it would be right and proper for the defendant, if not his duty, to tell the young man's father what had happened.

[171 Mass. 383]In 2 Greenl.Ev. § 301, is this clause: “By duress, in its more extended sense, is meant that degree of severity, either threatened and impending or actually inflicted, which is sufficient to overcome the mind and will of a person of ordinary firmness. *** Duress per minas is restricted to fear of loss of life or mayhem or loss of limb; or, in other words, to remediless harm to the person. If, therefore, duress per minas is pleaded in bar to an action upon a debt, the plea must state a threat of death or mayhem or loss of limb. *** A fear of mere battery or of destruction of property is not technically duress, and, therefore, is not pleadable in bar.” Bishop, in his work on Contracts, at section 715, defines “duress” as “any physical force, applied or threatened to the person of the party, or of the party's husband, wife, parent, or child, through constraint of which he, in form, consents to what he otherwise would not.” While the law in regard to duress per minas in some of the late cases is less strict than that stated by Greenleaf, in none of them, so far as I am aware, is this ground of avoiding a contract changed in its general character, or in the principles on which it is founded. The distinction still remains between threats of grievous injury and legitimate arguments founded on disclosed intentions of the party using the argument as to his lawful conduct affecting the other party. The word “threat” implies intentional detriment. The fundamental reason for depriving one of the benefits of his contract in such cases is that he was guilty of a wrong in obtaining it, and that his wrong was injurious to the other party in inducing the making of it. No contract can be set aside on the ground of duress per minas without the concurrence of these conditions. It is not enough to set aside a contract that the maker of it yielded to motives founded on legitimate arguments, even though the inducements rested in part upon statements by the other party of what would be done if the contract should not be made. It must be shown that the will is overcome by an improper and wrongful influence, producing fear which he has not sufficient strength to withstand. If the other party to the contract is innocent, his defense cannot prevail. Fairbanks v. Snow, 145 Mass. 153, 13 N.E. 596. The cases in which it is held, in this jurisdiction and elsewhere, that one [171 Mass. 384]whose will is overcome, and who is induced to execute a contract by threats of prosecution and imprisonment for a crime, made by one who reasonably believes him to be guilty of the crime, may avoid the contract on the ground of duress, rest upon the principle that it is an abuse of process, and a misuse of the machinery of the law, which the law

[50 N.E. 558]

will not permit, to extort the collection of a private debt, or to procure any other private benefit by proceedings intended only to impose punishment in the interest of the public. It is equally a wrong and an injury to accomplish the same result through threats of such an abuse of process. Morse v. Woodworth, 155 Mass. 233-250,27 N.E. 1010, and 29 N.E. 525.

The burden of proof is on the plaintiff to show that the defendant obtained the contract by threatening to inflict injury upon her husband. A fair interpretation of the evidence indicates that the defendant's reference to her husband was in no sense a threat, but merely a natural statement, when the plaintiff offered inadequate security, that he should see whether the young man's father, who was an owner of houses and lands, was willing to furnish the security which his son had promised. If it was more than that, and was also a legitimate appeal to a motive which the plaintiff might have had to save her husband from the grief and sorrow that knowledge of the facts would be likely to bring to him, or to save herself from additional pain by sharing her husband's trouble, it would hardly be contended that the contracts would thereby be rendered voidable. A party endeavoring to obtain a contract from another may legitimately appeal to all proper motives which will induce the other to agree to his terms.

The only element in this case, as it seems to me, on which a doubt in regard to the proper decision of it can arise, is the testimony as to the condition of the plaintiff's husband. The plaintiff's testimony on this point was as follows: “He was suffering with a mental trouble, which made him very irritable. He suffered pain continually in the head, was melancholy, and unable to sleep. *** He was attending to his business at the time of the trouble with Webber. He had various estates about town, and was collecting rents and looking after his business every day.” There was testimony from other members of the plaintiff's family in regard to the husband's condition, but none more [171 Mass. 385]favorable to her than this. They all agreed that he was collecting his rents, taking charge of repairs, and attending to his business generally, at the time when the contracts were made. She testified that she believed that knowledge of the charges against her son would make her husband insane; but there is not a word of testimony to show that the defendant knew of this belief if she entertained it. She testified that she had previously talked with the defendant about her husband's condition; but this must mean that she spoke about his condition as it was, and not about her belief that this information would make him insane, which, so far as appears, was never disclosed until the trial. In connection with the making of the contracts, there was no conversation about her husband's condition except a reference to it when the plaintiff said, in answer to the defendant's statement that he should have to tell him: “Don't do that; you know what his condition is.”

It is a familiar rule of law that fraud or wrong of any kind is never to be presumed. It cannot be inferred from evidence which is as consistent with right as with wrong. I can see nothing in the evidence that tends to show that the defendant was guilty of any wrong towards the plaintiff. What he proposed could do no direct harm to the person or property of the plaintiff or of her husband. At most, there was merely a possibility or a probability of suffering and harm from reflection upon facts for whose existence the defendant was not responsible, and which the husband would be likely to learn at some time from others if the defendant did not tell him. But this probability, viewed from the defendant's knowledge and information, was no greater than would be expected in the case of any man who was irritable, melancholy, and unable to sleep from trouble in his head, yet whose ailments were not so severe as to prevent him from managing a somewhat extensive and important business. Reading the testimony without favor or prejudice, I do not see how an implication against the defendant of an improper purpose in saying to the plaintiff that he should have to tell her husband can be founded on anything more than conjecture. The presumptions are in favor of honesty and fair dealing, and the testimony is to be interpreted accordingly. Moreover, there is nothing to show a belief on the part of the [171 Mass. 386]defendant that the statement that he should tell her husband would overcome the plaintiff's will. Upon his understanding of the facts, such a suggestion would not be expected to overcome the will of a person of ordinary firmness; and there is no evidence that she was supposed by him to be, or that she was in fact, less firm than other women. Whether the rule so often stated in the books-that, to avoid a contract on the ground of duress by threats, a threat must be such as would overcome the will of a person of ordinary firmness-be of universal application or not, it undoubtedly furnishes a correct guide in cases in which there is nothing to show that the party who seeks to avoid the contract was not of ordinary courage and firmness. Upon an extended examination of the authorities, I have found no case in which a contract has been set aside on the ground of duress on such evidence as appears in this case. I think that the ruling of the superior court was correct.

FIELD, C.J., and LATHROP, J., concur in this dissent.

Alvin A. Simon and Joseph Sachter for appellant.

Herbert L. Ortner and Joel Salon for respondent.

Judges BURKE, SCILEPPI and GIBSON concur with Chief Judge FULD; Judge BERGAN dissents and votes to affirm in a separate opinion in which Judges BREITEL and JASEN concur.

Chief Judge FULD.

The defendant, Loral Corporation, seeks to recover payment for goods delivered under a contract which it had with plaintiff Austin Instrument, Inc., on the ground that the evidence establishes, as a matter of law, that it was forced to agree to an increase in price on the items in question under circumstances amounting to economic duress.

In July of 1965, Loral was awarded a $6,000,000 contract by the Navy for the production of radar sets. The contract contained a schedule of deliveries, a liquidated damages clause applying to late deliveries and a cancellation clause in case of default by Loral. The latter thereupon solicited bids for some 40 precision gear components needed to produce the radar sets, and awarded Austin a subcontract to supply 23 such parts. That party commenced delivery in early 1966.

In May, 1966, Loral was awarded a second Navy contract for the production of more radar sets and again went about soliciting bids. Austin bid on all 40 gear components but, on July 15, a representative from Loral informed Austin's president, Mr. Krauss, that his company would be awarded the subcontract only for those items on which it was low bidder. The Austin officer refused to accept an order for less than all 40 of the gear parts and on the next day he told Loral that Austin would cease deliveries of the parts due under the existing subcontract unless Loral consented to substantial increases in the prices provided for by that agreement — both retroactively for parts already delivered and prospectively on those not yet shipped — and placed with Austin the order for all 40 parts needed under Loral's second Navy contract. Shortly thereafter, Austin did, indeed, stop delivery. After contacting 10 manufacturers of precision gears and finding none who could produce the parts in time to meet its commitments to the Navy,^[1] Loral acceded to Austin's demands; in a letter dated July 22, Loral wrote to Austin that "We have feverishly surveyed other sources of supply and find that because of the prevailing military exigencies, were they to start from scratch as would have to be the case, they could not even remotely begin to deliver on time to meet the delivery requirements established by the Government. * * * Accordingly, we are left with no choice or alternative but to meet your conditions."

Loral thereupon consented to the price increases insisted upon by Austin under the first subcontract and the latter was awarded a second subcontract making it the supplier of all 40 gear parts for Loral's second contract with the Navy.^[2] Although Austin was granted until September to resume deliveries, Loral did, in fact, receive parts in August and was able to produce the radar sets in time to meet its commitments to the Navy on both contracts. After Austin's last delivery under the second subcontract in July, 1967, Loral notified it of its intention to seek recovery of the price increases.

On September 15, 1967, Austin instituted this action against Loral to recover an amount in excess of $17,750 which was still due on the second subcontract. On the same day, Loral commenced an action against Austin claiming damages of some $22,250 — the aggregate of the price increases under the first subcontract — on the ground of economic duress. The two actions were consolidated and, following a trial, Austin was awarded the sum it requested and Loral's complaint against Austin was dismissed on the ground that it was not shown that "it could not have obtained the items in question from other sources in time to meet its commitment to the Navy under the first contract." A closely divided Appellate Division affirmed (35 A D 2d 387). There was no material disagreement concerning the facts; as Justice STEUER stated in the course of his dissent below, "[t]he facts are virtually undisputed, nor is there any serious question of law. The difficulty lies in the application of the law to these facts." (35 A D 2d 392.)

The applicable law is clear and, indeed, is not disputed by the parties. A contract is voidable on the ground of duress when it is established that the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free will. (See Allstate Med. Labs. v. Blaivas, 20 N Y 2d 654; Kazaras v. Manufacturers Trust Co., 4 N Y 2d 930; Adams v. Irving Nat. Bank, 116 N.Y. 606, 611; see, also, 13 Williston, Contracts [3d ed., 1970], § 1603, p. 658.) The existence of economic duress or business compulsion is demonstrated by proof that "immediate possession of needful goods is threatened" (Mercury Mach. Importing Corp. v. City of New York, 3 N Y 2d 418, 425) or, more particularly, in cases such as the one before us, by proof that one party to a contract has threatened to breach the agreement by withholding goods unless the other party agrees to some further demand. (See, e.g., du Pont de Nemours & Co. v. Hass Co., 303 N.Y. 785; Gallagher Switchboard Corp. v. Heckler Elec. Co., 36 Misc 2d 225; see, also, 13 Williston, Contracts [3d ed., 1970], § 1617, p. 705.) However, a mere threat by one party to breach the contract by not delivering the required items, though wrongful, does not in itself constitute economic duress. It must also appear that the threatened party could not obtain the goods from another source of supply^[3] and that the ordinary remedy of an action for breach of contract would not be adequate.^[4]

We find without any support in the record the conclusion reached by the courts below that Loral failed to establish that it was the victim of economic duress. On the contrary, the evidence makes out a classic case, as a matter of law, of such duress.^[5]

It is manifest that Austin's threat — to stop deliveries unless the prices were increased — deprived Loral of its free will. As bearing on this, Loral's relationship with the Government is most significant. As mentioned above, its contract called for staggered monthly deliveries of the radar sets, with clauses calling for liquidated damages and possible cancellation on default. Because of its production schedule, Loral was, in July, 1966, concerned with meeting its delivery requirements in September, October and November, and it was for the sets to be delivered in those months that the withheld gears were needed. Loral had to plan ahead, and the substantial liquidated damages for which it would be liable, plus the threat of default, were genuine possibilities. Moreover, Loral did a substantial portion of its business with the Government, and it feared that a failure to deliver as agreed upon would jeopardize its chances for future contracts. These genuine concerns do not merit the label "`self-imposed, undisclosed and subjective'" which the Appellate Division majority placed upon them. It was perfectly reasonable for Loral, or any other party similarly placed, to consider itself in an emergency, duress situation.

Austin, however, claims that the fact that Loral extended its time to resume deliveries until September negates its alleged dire need for the parts. A Loral official testified on this point that Austin's president told him he could deliver some parts in August and that the extension of deliveries was a formality. In any event, the parts necessary for production of the radar sets to be delivered in September were delivered to Loral on September 1, and the parts needed for the October schedule were delivered in late August and early September. Even so, Loral had to "work * * * around the clock" to meet its commitments. Considering that the best offer Loral received from the other vendors it contacted was commencement of delivery sometime in October, which, as the record shows, would have made it late in its deliveries to the Navy in both September and October, Loral's claim that it had no choice but to accede to Austin's demands is conclusively demonstrated.

We find unconvincing Austin's contention that Loral, in order to meet its burden, should have contacted the Government and asked for an extension of its delivery dates so as to enable it to purchase the parts from another vendor. Aside from the consideration that Loral was anxious to perform well in the Government's eyes, it could not be sure when it would obtain enough parts from a substitute vendor to meet its commitments. The only promise which it received from the companies it contacted was for commencement of deliveries, not full supply, and, with vendor delay common in this field, it would have been nearly impossible to know the length of the extension it should request. It must be remembered that Loral was producing a needed item of military hardware. Moreover, there is authority for Loral's position that nonperformance by a subcontractor is not an excuse for default in the main contract. (See, e.g., McBride & Wachtel, Government Contracts, § 35.10, [11].) In light of all this, Loral's claim should not be held insufficiently supported because it did not request an extension from the Government.

Loral, as indicated above, also had the burden of demonstrating that it could not obtain the parts elsewhere within a reasonable time, and there can be no doubt that it met this burden. The 10 manufacturers whom Loral contacted comprised its entire list of "approved vendors" for precision gears, and none was able to commence delivery soon enough.^[6] As Loral was producing a highly sophisticated item of military machinery requiring parts made to the strictest engineering standards, it would be unreasonable to hold that Loral should have gone to other vendors, with whom it was either unfamiliar or dissatisfied, to procure the needed parts. As Justice STEUER noted in his dissent, Loral "contacted all the manufacturers whom it believed capable of making these parts" (35 A D 2d, at p. 393), and this was all the law requires.

It is hardly necessary to add that Loral's normal legal remedy of accepting Austin's breach of the contract and then suing for damages would have been inadequate under the circumstances, as Loral would still have had to obtain the gears elsewhere with all the concomitant consequences mentioned above. In other words, Loral actually had no choice, when the prices were raised by Austin, except to take the gears at the "coerced" prices and then sue to get the excess back.

Austin's final argument is that Loral, even if it did enter into the contract under duress, lost any rights it had to a refund of money by waiting until July, 1967, long after the termination date of the contract, to disaffirm it. It is true that one who would recover moneys allegedly paid under duress must act promptly to make his claim known. (See Oregon Pacific R. R. Co. v. Forrest, 128 N.Y. 83, 93; Port Chester Elec. Constr. Corp. v. Hastings Terraces, 284 App. Div. 966, 967.) In this case, Loral delayed making its demand for a refund until three days after Austin's last delivery on the second subcontract. Loral's reason — for waiting until that time — is that it feared another stoppage of deliveries which would again put it in an untenable situation. Considering Austin's conduct in the past, this was perfectly reasonable, as the possibility of an application by Austin of further business compulsion still existed until all of the parts were delivered.

In sum, the record before us demonstrates that Loral agreed to the price increases in consequence of the economic duress employed by Austin. Accordingly, the matter should be remanded to the trial court for a computation of its damages.

The order appealed from should be modified, with costs, by reversing so much thereof as affirms the dismissal of defendant Loral Corporation's claim and, except as so modified, affirmed.

BERGAN, J. (dissenting).

Whether acts charged as constituting economic duress produce or do not produce the damaging effect attributed to them is normally a routine type of factual issue.

Here the fact question was resolved against Loral both by the Special Term and by the affirmance at the Appellate Division. It should not be open for different resolution here.

In summarizing the Special Term's decision and its own, the Appellate Division decided that "the conclusion that Loral acted deliberately and voluntarily, without being under immediate pressure of incurring severe business reverses, precludes a recovery on the theory of economic duress" (35 A D 2d 387, 391).

When the testimony of the witnesses who actually took part in the negotiations for the two disputing parties is examined, sharp conflicts of fact emerge. Under Austin's version the request for a renegotiation of the existing contract was based on Austin's contention that Loral had failed to carry out an understanding as to the items to be furnished under that contract and this was the source of dissatisfaction which led both to a revision of the existing agreement and to entering into a new one.

This is not necessarily and as a matter of law to be held economic duress. On this appeal it is needful to look at the facts resolved in favor of Austin most favorably to that party. Austin's version of events was that a threat was not made but rather a request to accommodate the closing of its plant for a customary vacation period in accordance with the general understanding of the parties.

Moreover, critical to the issue of economic duress was the availability of alternative suppliers to the purchaser Loral. The demonstration is replete in the direct testimony of Austin's witnesses and on cross-examination of Loral's principal and purchasing agent that the availability of practical alternatives was a highly controverted issue of fact. On that issue of fact the explicit findings made by the Special Referee were affirmed by the Appellate Division. Nor is the issue of fact made the less so by assertion that the facts are undisputed and that only the application of equally undisputed rules of law is involved.

Austin asserted and Loral admitted on cross-examination that there were many suppliers listed in a trade registry but that Loral chose to rely only on those who had in the past come to them for orders and with whom they were familiar. It was, therefore, at least a fair issue of fact whether under the circumstances such conduct was reasonable and made what might otherwise have been a commercially understandable renegotiation an exercise of duress.

The order should be affirmed.

Ordered accordingly.

[1] The best reply Loral received was from a vendor who stated he could commence deliveries sometime in October.

[2] Loral makes no claim in this action on the second subcontract.

[3] See, e.g., du Pont de Nemours & Co. v. Hass Co., 303 N.Y. 785, supra; Gallagher Switchboard Corp. v. Heckler Elec. Co., 36 Misc 2d 225, 226, supra; 30 East End v. World Steel Prods. Corp., 110 N. Y. S. 2d 754, 757.

[4] See, e.g., Kohn v. Kenton Assoc., 27 A D 2d 709; Colonie Constr. Corp. v. De Lollo, 25 A D 2d 464, 465; Halperin v. Wolosoff, 282 App. Div. 876; J. R. Constr. Corp. v. Berkely Apts., 259 App. Div. 830; Boss v. Hutchinson, 182 App. Div. 88, 92.

[5] The suggestion advanced that we are precluded from reaching this determination because the trial court's findings of fact have been affirmed by the Appellate Division ignores the question to be decided. That question, undoubtedly one of law (see Cohen and Karger, Powers of the New York Court of Appeals [1952], § 115, p. 492), is, accepting the facts found, did the courts below properly apply the law to them.

[6] Loral, as do many manufacturers, maintains a list of "approved vendors," that is, vendors whose products, facilities, techniques and performance have been inspected and found satisfactory.

45 Mich. 569

CHAS. H. HACKLEY AND JAS. MCGORDON
v.
JOHN HEADLEY.

[569] Logging contract—Scale—Expense of sealing—Usage—Duress.

Where a lumberman, in contracting with his jobber for getting out logs, agrees to divide the expense of scaling them and the scaler stipulates that the jobber shall board him, the cost of boarding him is an item of the expense to be divided, and the lumberman is liable for half of it and cannot show that it is the custom of jobbers to board their scalers at their own expense. But if the scaler does not stipulate for his board the lumberman is not liable, and the transaction is between the jobber and scaler alone.

A contract for getting out logs to be scaled "in accordance with the standard rules or scales in general use" on the stream, is governed by the scale in use at the time of scaling.

Duress exists where one is induced, by another's unlawful act, to make a contract or perform some act under circumstances which prevent his [570] exercising free will. It is either of the person or the goods of the party constrained.

Duress of the person is by imprisonment, threats or an exhibition of apparently irresistible force.

Duress of goods may exist when one is compelled to submit to an illegal exaction in order to obtain them from one who has them but refuses to surrender them unless the exaction is endured.

There is no duress where the act threatened is nothing which the party has not a legal right to perform.

Refusal, on demand, to pay a debt that is due, thereby forcing the creditor to receipt in full for only a partial payment, does not constitute duress if the debtor has done nothing unlawful to cause the financial embarassment which compelled him to submit to the extortion.

A receipt obtained by improper means and assuming to discharge any indebtedness not honestly in dispute between the parties and known by the debtor to be owing, is to that extent without consideration and ineffectual.

Error to Kent. Submitted Jan. 26. Decided April 13.

ASSUMPSIT. Defendant brings error. Reversed.

Smith, Nims, Hoyt & Erwin for plaintiffs in error.

Duress is that degree of constraint that is sufficient to overcome the mind and will of a person of ordinary firmness: Brown v. Pierce 7 Wal. 214; as a defense it must be made in good faith and seasonably: Lyon v. Waldo 36 Mich. 356, DeArmand v. Phillips Wal. Ch. 199; a payment is not compulsory unless made to emancipate the person or property from an actual and existing duress imposed upon it by the party to whom it is made: Radich v. Hutchins 95 U. S. 213; it is not ordinarily duress to refuse to pay without litigation: Mayhew v. Phoenix Ins. Co. 23 Mich. 105.

John C. FitzGerald for defendant in error. Procuring a settlement of a debt by taking advantage of the creditor's financial embarassments is duress of goods; Moses v. Macferlan 2 Burr. 1005; Irving v. Wilson 4 D. & E. 485; there is no consideration for a receipt obtained by taking such advantage, to the extent to which it releases the debt: Ryan [571] v. Ward 48 N. Y. 206; Harrison v. Close 2 Johns. 448; Seymour v. Minturn 17 Johns. 170; Mech. Bank v. Hazard 9 Johns. 393; Hendrickson v. Beers 6 Bosw. 639; contracts must be carried into effect according to the intention of the parties at the time of making them: Heald v. Cooper 8 Me. 32; a logging contract providing for scaling by the rule in general use means in use at the time: Williams v. Gilman 3 Me. 276; Homer v. Dorr 10 Mass. 26; Robinson v. Fiske 25 Me. 405; Dawson v. Kittle 4 Hill 108; Thomas v. Wiggers 41 Ill. 470; Karmuller v. Krotz 18 Ia. 352; Rindskoff v. Barrett 14 Ia. 101; 1 Chitty Cont. 135, n 3.

COOLEY, J. Headley sued Hackley & McGordon to recover compensation for cutting, hauling and delivering in the Muskegon river a quantity of logs. The performance of the labor was not disputed, but the parties were not agreed as to the construction of the contract in some important particulars, and the amount to which Headley was entitled depended largely upon the determination of these differences. The defendants also claimed to have had a full and complete settlement with Headley, and produced his receipt in evidence thereof. Headley admitted the receipt, but insisted that it was given by him under duress, and the verdict which he obtained in the circuit court was in accordance with this claim.

I.

The questions in dispute respecting the construction of the contract concerned the scaling of the logs. The contract was in writing, and bore date August 20, 1874. Headley agreed thereby to cut on specified lands and deliver in the main Muskegon river the next spring 8,000,000 feet of logs. The logs were to be measured or scaled by a competent person to be selected by Headley & McGordon, "and in accordance with the standard rules or scales in general use on Muskegon lake and river," and the expense of scaling was to be mutually borne by the parties.

The dispute respecting the expense of scaling related only to the board of the scaler. Headley boarded him and claimed to recover one-half what it was worth. Defendants offered [572] evidence that it was customary on the Muskegon river for jobbers to board the scalers, at their own expense, but we are of opinion that this was inadmissible. If under the contract with the scaler he was to be furnished his board, then the cost of the board was a part of the expense of scaling, and by the express terms of the contract was to be shared by the parties. If that was not the agreement with him, Headley could only look to the scaler himself for his pay.

This is a small matter; but the question what scale was to be the standard is one of considerable importance. The evidence tended to show that at the time the contract was entered into, scaling upon the river and lake was in accordance with the "Scribner rule," so-called; but that the "Doyle rule" was in general use when the logs were cut and delivered, and Hackley & McGordon had the logs scaled by that. By the new rule the quantity would be so much less than by the one in prior use that the amount Headley would be entitled to receive would be less by some $2000; and it was earnestly contended on behalf of Headley that the scale intended, as the one in general use, was the one in general use when the contract was entered into.

We are of opinion, however, that this is not the proper construction. The contract was for the performance of labor in the future, and as the scaling was to be done by third persons, and presumptively by those who were trained to the business, it would be expected they would perform their duties under such rules and according to such standards as were generally accepted at the time their services were called for. Indeed such contracts might contemplate performance at times when it would scarcely be expected that scalers would be familiar with scales in use when they were made. It is true the time that was to elapse between the making of this contract and its performance would be but short, but if it had been many years the question of construction would have been the same; and if we could not suppose under such circumstances that the parties contemplated the scalers should govern their measurements by obsolete and perhaps now unknown rules, neither can we here. It is fair to infer that [573] the existing scale was well known to the parties, and that if they intended to be governed by it at a time when it might have ceased to be used, they would have said so in explicit terms. In the absence of an agreement to that effect, we must suppose they intended their logs to be scaled as the logs of others would be at the place and time of scaling.

II.

The question of duress on the part of Hackley & McGordon, in obtaining the discharge, remains. The paper reads as follows:

                                                                                                                 "MUSKEGON, MICH., August 3, 1875.

Received from Hackley & McGordon their note for four thousand dollars, payable in thirty days, at First National Bank, Grand Rapids, which is in full for all claims of every kind and nature which I have against said Hackley & McGordon.

Witness: THOMAS HUME.                                                                                 JOHN HEADLEY."

Headley's account of the circumstances under which this receipt was given is in substance as follows: On August 3, 1875, he went to Muskegon, the place of business of Hackley & McGordon, from his home in Kent county, for the purpose of collecting the balance which he claimed was due him under the contract. The amount he claimed was upwards of $6200, estimating the logs by the Scribner scale. He had an interview with Hackley in the morning, who insisted that the estimate should be according to the Doyle scale, and who also claimed that he had made payments to others amounting to some $1400 which Headley should allow. Headley did not admit these payments, and denied his liability for them if they had been made. Hackley told Headley to come in again in the afternoon, and when he did so Hackley said to him: "My figures show there is 4260 and odd dollars in round numbers your due, and I will just give you $4000. I will give you our note for $4000." To this Headley replied: "I cannot take that; it is not right, and you know it. There is over $2000 besides that belongs to me, and you know it." Hackley replied: "That is the best I will do with you." Headley said: "I cannot take that, Mr. Hackley," and Hackley replied, "You do the next best thing you are a mind to. [574] You can sue me if you please." Headley then said: "I cannot afford to sue you, because I have got to have the money, and I cannot wait for it. If I fail to get the money to-day, I shall probably be ruined financially, because I have made no other arrangement to get the money only on this particular matter." Finally he took the note and gave the receipt, because at the time he could do nothing better, and in the belief that he would be financially ruined unless he had immediately the money that was offered him, or paper by means of which the money might be obtained.

If this statement is correct, the defendants not only took a most unjust advantage of Headley, but they obtained a receipt which, to the extent that it assumed to discharge anything not honestly in dispute between the parties, and known by them to be owing to Headley beyond the sum received, was without consideration and ineffectual. But was it a receipt obtained by duress? That is the question which the record presents. The circuit judge was of opinion that if the jury believed the statement of Headley they would be justified in finding that duress existed; basing his opinion largely upon the opinion of this Court in Vyne v. Glenn 41 Mich. 112.

Duress exists when one by the unlawful act of another is induced to make a contract or perform some act under circumstances which deprive him of the exercise of free will. It is commonly said to be of either the person or the goods of the party. Duress of the person is either by imprisonment, or by threats, or by an exhibition of force which apparently cannot be resisted. It is not pretended that duress of the person existed in this case; it is if anything duress of goods, or at least of that nature, and properly enough classed with duress of goods. Duress of goods may exist when one is compelled to submit to an illegal exaction in order to obtain them from one who has them in possession but refuses to surrender them unless the exaction is submitted to.

The leading case involving duress of goods is Astley v. Reynolds 2 Strange, 915. The plaintiff had pledged goods for £20, and when he offered to redeem them, the pawnbroker [575] refused to surrender them unless he was paid £10 for interest. The plaintiff submitted to the exaction, but was held entitled to recover back all that had been unlawfully demanded and taken. This, say the court,

"is a payment by compulsion: the plaintiff might have such an immediate want of his goods that an action of trover would not do his business: where the rule volenti non fit injuria is applied, it must be when the party had his freedom of exercising his will, which this man had not: we must take it he paid the money relying on his legal remedy to get it back again."

The principle of this case was approved in Smith v. Bromley Doug. 696, and also in Ashmole v. Wainwright 2 Q. B. 837. The latter was a suit to recover back excessive charges paid to common carriers who refused until payment was made to deliver the goods for the carriage of which the charges were made. There has never been any doubt but recovery could be had under such circumstances. Harmony v. Bingham 12 N. Y. 99. The case is like it of one having securities in his hands which he refuses to surrender until illegal commissions are paid. Scholey v. Mumford 60 N. Y. 498. So if illegal tolls are demanded, for passing a raft of lumber, and the owner pays them to liberate his raft, he may recover back what he pays. Chase v. Dwinal 7 Me. 134. Other cases in support of the same principle are Sham v. Woodcock 7 B. & C. 73; Nelson v. Suddarth 1 H. & Munf. 350; White v. Heylman 34 Penn. St. 142; Sasportas v. Jennings 1 Bay, 470; Collins v. Westbury 2 Bay 211; Crawford v. Cato 22 Ga. 594. So one may recover back money which he pays to release his goods from an attachment which is sued out with knowledge on the part of the plaintiff that he has no cause of action. Chandler v. Sanger 114 Mass. 364. See Spaids v. Barrett 57 Ill. 289. Nor is the principle confined to payments made to recover goods: it applies equally well when money is extorted as a condition to the exercise by the party of any other legal right; for example when a corporation refuses to suffer a lawful transfer of stock till the exaction is submitted to: Bates v. Insurance Co. 3 Johns. Cas. 238; or [576] a creditor witholds his certificate from a bankrupt. Smith v. Bromley Doug. 696. And the mere threat to employ colorable legal authority to compel payment of an unfounded claim is such duress as will support an action to recover back what is paid under it. Beckwith v. Frisbie 32 Vt. 559; Adams v. Reeves 68 N. C. 134; Briggs v. Lewiston 29 Me. 472; Grim v. School District 57 Penn. St. 433; First Nat. Bank v. Watkins 21 Mich. 483.

But where the party threatens nothing which he has not a legal right to perform, there is no duress. Skeate v. Beale 11 Ad. & El. 983; Preston v. Boston 12 Pick. 14. When therefore a judgment creditor threatens to levy his execution on the debtor's goods, and under fear of the levy the debtor executes and delivers a note for the amount, with sureties, the note cannot be avoided for duress. Wilcox v. Howland 23 Pick. 167. Many other cases might be cited, but it is wholly unnecessary. We have examined all to which our attention has been directed, and none are more favorable to the plaintiff's case than those above referred to. Some of them are much less so; notably Atlee v. Backhouse 3 M. & W. 633; Hall v. Schultz 4 Johns. 240; Silliman v. United States 101 U.S. 465.

In what did the alleged duress consist in the present case? Merely in this: that the debtors refused to pay on demand a debt already due, though the plaintiff was in great need of the money and might be financially ruined in case he failed to obtain it. It is not pretended that Hackley & McGordon had done anything to bring Headley to the condition which made this money so important to him at this very time, or that they were in any manner responsible for his pecuniary embarrassment except as they failed to pay this demand. The duress, then, is to be found exclusively in their failure to meet promptly their pecuniary obligation. But this, according to the plaintiffs claim, would have constituted no duress whatever if he had not happened to be in pecuniary straits; and the validity of negotiations, according to this claim, must be determined, not by the defendants' conduct, [577] but by the plaintiff's necessities. The same contract which would be valid if made with a man easy in his circumstances, becomes invalid when the contracting party is pressed with the necessity of immediately meeting his bank paper. But this would be a most dangerous, as well as a most unequal doctrine; and if accepted, no one could well know when he would be safe in dealing on the ordinary terms of negotiation with a party who professed to be in great need.

The case of Vyne v. Glenn 41 Mich. 112, differs essentially from this. There was not a simple withholding of moneys in that case. The decision was made upon facts found by referees who reported that the settlement upon which the defendant relied was made at Chicago, which was a long distance from plaintiff's home and place of business; that the defendant forced the plaintiff into the settlement against his will, by taking advantage of his pecuniary necessities, by informing plaintiff that he had taken steps to stop the payment of money due to the plaintiff from other parties, and that he had stopped the payment of a part of such moneys; that defendant knew the necessities and financial embarrassments in which the plaintiff was involved, and knew that if he failed to get the money so due to him he would be ruined financially; that plaintiff consented to such settlement only in order to get the money due to him, as aforesaid, and the payment of which was stopped by defendant, and which he must have to save him from financial ruin. The report, therefore, showed the same financial embarrassment and the same great need of money which is claimed existed in this case, and the same withholding of moneys lawfully due, but it showed over and above all that an unlawful interference by defendant between the plaintiff and other debtors, by means of which he had stopped the payment to plaintiff of sums due to him from such other debtors. It was this keeping of other moneys from the plaintiff's hands, and not the refusal by defendant to pay his own debt, which was the ruling fact in that case, and which was equivalent, in our opinion, to duress of goods.

[578] These views render a reversal of the judgment necessary, and the case will be remanded for a new trial with costs to the plaintiffs in error.

The other Justices concurred.

[364] Mr. Bernard Chazen argued the cause for plaintiffs (Mr. Carmen C. Rusignola, attorney; Messrs. Baker, Garber & Chazen, of counsel; Mr. Martin Itzikman, on the brief).

Mr. Samuel Weitzman argued the cause for defendant Bloomfield Motors, Inc. (Messrs. Parsonnet, Weitzman & Oransky, attorneys).

Mr. Sidney M. Schreiber argued the cause for defendant Chrysler Corporation (Messrs. Schreiber, Lancaster & Demos, attorneys; Mr. Roger F. Lancaster, of counsel).

The opinion of the court was delivered by FRANCIS, J.

Plaintiff Claus H. Henningsen purchased a Plymouth automobile, manufactured by defendant Chrysler Corporation, from defendant Bloomfield Motors, Inc. His wife, plaintiff Helen Henningsen, was injured while driving it and instituted suit against both defendants to recover damages on account of her injuries. Her husband joined in the action seeking compensation for his consequential [365] losses. The complaint was predicated upon breach of express and implied warranties and upon negligence. At the trial the negligence counts were dismissed by the court and the cause was submitted to the jury for determination solely on the issues of implied warranty of merchantability. Verdicts were returned against both defendants and in favor of the plaintiffs. Defendants appealed and plaintiffs cross-appealed from the dismissal of their negligence claim. The matter was certified by this court prior to consideration in the Appellate Division.

The facts are not complicated, but a general outline of them is necessary to an understanding of the case.

On May 7, 1955 Mr. and Mrs. Henningsen visited the place of business of Bloomfield Motors, Inc., an authorized De Soto and Plymouth dealer, to look at a Plymouth. They wanted to buy a car and were considering a Ford or a Chevrolet as well as a Plymouth. They were shown a Plymouth which appealed to them and the purchase followed. The record indicates that Mr. Henningsen intended the car as a Mother's Day gift to his wife. He said the intention was communicated to the dealer. When the purchase order or contract was prepared and presented, the husband executed it alone. His wife did not join as a party.

The purchase order was a printed form of one page. On the front it contained blanks to be filled in with a description of the automobile to be sold, the various accessories to be included, and the details of the financing. The particular car selected was described as a 1955 Plymouth, Plaza "6," Club Sedan. The type used in the printed parts of the form became smaller in size, different in style, and less readable toward the bottom where the line for the purchaser's signature was placed. The smallest type on the page appears in the two paragraphs, one of two and one-quarter lines and the second of one and one-half lines, on which great stress is laid by the defense in the case. These two paragraphs are the least legible and the most difficult to read in the instrument, but they are most important in [366] the evaluation of the rights of the contesting parties. They do not attract attention and there is nothing about the format which would draw the reader's eye to them. In fact, a studied and concentrated effort would have to be made to read them. De-emphasis seems the motif rather than emphasis. More particularly, most of the printing in the body of the order appears to be 12 point block type, and easy to read. In the short paragraphs under discussion, however, the type appears to be six point script and the print is solid, that is, the lines are very close together.

The two paragraphs are:

"The front and back of this Order comprise the entire agreement affecting this purchase and no other agreement or understanding of any nature concerning same has been made or entered into, or will be recognized. I hereby certify that no credit has been extended to me for the purchase of this motor vehicle except as appears in writing on the face of this agreement.

I have read the matter printed on the back hereof and agree to it as a part of this order the same as if it were printed above my signature. I certify that I am 21 years of age, or older, and hereby acknowledge receipt of a copy of this order."

On the right side of the form, immediately below these clauses and immediately above the signature line, and in 12 point block type, the following appears:

"CASH OR CERTIFIED CHECK ONLY ON DELIVERY."

On the left side, just opposite and in the same style type as the two quoted clauses, but in eight point size, this statement is set out:

"This agreement shall not become binding upon the Dealer until approved by an officer of the company."

The two latter statements are in the interest of the dealer and obviously an effort is made to draw attention to them.

The testimony of Claus Henningsen justifies the conclusion that he did not read the two fine print paragraphs referring [367] to the back of the purchase contract. And it is uncontradicted that no one made any reference to them, or called them to his attention. With respect to the matter appearing on the back, it is likewise uncontradicted that he did not read it and that no one called it to his attention.

The reverse side of the contract contains 8 1/2 inches of fine print. It is not as small, however, as the two critical paragraphs described above. The page is headed "Conditions" and contains ten separate paragraphs consisting of 65 lines in all. The paragraphs do not have headnotes or margin notes denoting their particular subject, as in the case of the "Owner Service Certificate" to be referred to later. In the seventh paragraph, about two-thirds of the way down the page, the warranty, which is the focal point of the case, is set forth. It is as follows:

"7. It is expressly agreed that there are no warranties, express or implied, made by either the dealer or the manufacturer on the motor vehicle, chassis, or parts furnished hereunder except as follows:

"The manufacturer warrants each new motor vehicle (including original equipment placed thereon by the manufacturer except tires), chassis or parts manufactured by it to be free from defects in material or workmanship under normal use and service. Its obligation under this warranty being limited to making good at its factory any part or parts thereof which shall, within ninety (90) days after delivery of such vehicle to the original purchaser or before such vehicle has been driven 4,000 miles, whichever event shall first occur, be returned to it with transportation charges prepaid and which its examination shall disclose to its satisfaction to have been thus defective; this warranty being expressly in lieu of all other warranties expressed or implied, and all other obligations or liabilities on its part, and it neither assumes nor authorizes any other person to assume for it any other liability in connection with the sale of its vehicles. * * *.'" (Emphasis ours)

After the contract had been executed, plaintiffs were told the car had to be serviced and that it would be ready in two days. According to the dealer's president, a number of cars were on hand at the time; they had come in from the factory about three or four weeks earlier and at least [368] some of them, including the one selected by the Henningsens, were kept in the back of the shop for display purposes. When sold, plaintiffs' vehicle was not "a serviced car, ready to go." The testimony shows that Chrysler Corporation sends from the factory to the dealer a "New Car Preparation Service Guide" with each new automobile. The guide contains detailed instructions as to what has to be done to prepare the car for delivery. The dealer is told to "Use this form as a guide to inspect and prepare this new Plymouth for delivery." It specifies 66 separate items to be checked, tested, tightened or adjusted in the course of the servicing, but dismantling the vehicle or checking all of its internal parts is not prescribed. The guide also calls for delivery of the Owner Service Certificate with the car.

This Certificate, which at least by inference is authorized by Chrysler, was in the car when released to Claus Henningsen on May 9, 1955. It was not made part of the purchase contract, nor was it shown to him prior to the consummation of that agreement. The only reference to it therein is that the dealer "agrees to promptly perform and fulfill all terms and conditions of the owner service policy." The Certificate contains a warranty entitled "Automobile Manufacturers Association Uniform Warranty." The provisions thereof are the same as those set forth on the reverse side of the purchase order, except that an additional paragraph is added by which the dealer extends that warranty to the purchaser in the same manner as if the word "Dealer" appeared instead of the word "Manufacturer."

The new Plymouth was turned over to the Henningsens on May 9, 1955. No proof was adduced by the dealer to show precisely what was done in the way of mechanical or road testing beyond testimony that the manufacturer's instructions were probably followed. Mr. Henningsen drove it from the dealer's place of business in Bloomfield to their home in Keansburg. On the trip nothing unusual appeared in the way in which it operated. Thereafter, it was used for short trips on paved streets about the town. It had [369] no servicing and no mishaps of any kind before the event of May 19. That day, Mrs. Henningsen drove to Asbury Park. On the way down and in returning the car performed in normal fashion until the accident occurred. She was proceeding north on Route 36 in Highlands, New Jersey, at 20-22 miles per hour. The highway was paved and smooth, and contained two lanes for northbound travel. She was riding in the right-hand lane. Suddenly she heard a loud noise "from the bottom, by the hood." It "felt as if something cracked." The steering wheel spun in her hands; the car veered sharply to the right and crashed into a highway sign and a brick wall. No other vehicle was in any way involved. A bus operator driving in the left-hand lane testified that he observed plaintiffs' car approaching in normal fashion in the opposite direction; "all of a sudden [it] veered at 90 degrees * * * and right into this wall." As a result of the impact, the front of the car was so badly damaged that it was impossible to determine if any of the parts of the steering wheel mechanism or workmanship or assembly were defective or improper prior to the accident. The condition was such that the collision insurance carrier, after inspection, declared the vehicle a total loss. It had 468 miles on the speedometer at the time.

The insurance carrier's inspector and appraiser of damaged cars, with 11 years of experience, advanced the opinion, based on the history and his examination, that something definitely went "wrong from the steering wheel down to the front wheels" and that the untoward happening must have been due to mechanical defect or failure; "something down there had to drop off or break loose to cause the car" to act in the manner described.

As has been indicated, the trial court felt that the proof was not sufficient to make out a prima facie case as to the negligence of either the manufacturer or the dealer. The case was given to the jury, therefore, solely on the warranty theory, with results favorable to the plaintiffs against both defendants.

[370] I.

THE CLAIM OF IMPLIED WARRANTY AGAINST THE MANUFACTURER.

In the ordinary case of sale of goods by description an implied warranty of merchantability is an integral part of the transaction. R.S. 46:30-20. If the buyer, expressly or by implication, makes known to the seller the particular purpose for which the article is required and it appears that he has relied on the seller's skill or judgment, an implied warranty arises of reasonable fitness for that purpose. R.S. 46:30-21(1). The former type of warranty simply means that the thing sold is reasonably fit for the general purpose for which it is manufactured and sold. Giant Mfg. Co. v. Yates-American Mach. Co., 111 F.2d 360 (8 Cir. 1940); Dunbar Bros. Co. v. Consolidated Iron-Steel Mfg. Co., 23 F.2d 416, 419 (2 Cir. 1928); Simmons v. Rhodes & Jamieson, Ltd., 46 Cal.2d 190, 293 P.2d 26 (Sup. Ct. 1956); Mead v. Coca Cola Bottling Co., 329 Mass. 440, 108 N.E.2d 757 (Sup. Jud. Ct. 1952); Ryan v. Progressive Grocery Stores, 255 N.Y. 388, 175 N.E. 105, 74 A.L.R. 339 (Ct. App. 1931); 1 Williston on Sales, § 243 (Rev. ed. 1948). As Judge (later Justice) Cardozo remarked in Ryan, supra, the distinction between a warranty of fitness for a particular purpose and of merchantability in many instances is practically meaningless. In the particular case he was concerned with food for human consumption in a sealed container. Perhaps no more apt illustration of the notion can be thought of than the instance of the ordinary purchaser who informs the automobile dealer that he desires a car for the purpose of business and pleasure driving on the public highway.

In this connection, it is appropriate to note that sale of an article by a trade name does not negate the warranty of merchantability. Adams v. Peter Tramontin Motor Sales, 42 N.J. Super. 313 (App. Div. 1956); Ryan v. Progressive [371] Grocery Stores, supra; Frigidinners, Inc. v. Branchtown Gun Club, 176 Pa. Super. 643, 109 A.2d 202 (Super. Ct. 1954); 2 Harper & James, Law of Torts, § 28.20, p. 1082 (1956). An informative statement of the rule (said to be supported by overwhelming authority) was made by the Supreme Court of Pennsylvania in Frantz Equipment Co. v. Leo Butler Co., 370 Pa. 459, 88 A.2d 702, 706 (Sup. Ct. 1952):

"It is perfectly clear, then, that even if the sale be under a trade name there is implied an obligation on the part of the seller that the article delivered will be of the same quality, material, workmanship, and availability for use as articles generally sold under such name. It would be wholly unreasonable to hold that, if one were to purchase, for example, an automobile under the trade name of `Ford' or `Buick' or `Cadillac' or the like, no implied warranty of merchantable quality could be asserted by the purchaser even though the particular car delivered was in such bad condition, so gravely defective in materials and construction, that it could not be operated at all and was wholly useless for the ordinary purpose which an automobile is designed to serve."

Of course such sales, whether oral or written, may be accompanied by an express warranty. Under the broad terms of the Uniform Sale of Goods Law any affirmation of fact relating to the goods is an express warranty if the natural tendency of the statement is to induce the buyer to make the purchase. R.S. 46:30-18. And over the years since the almost universal adoption of the act, a growing awareness of the tremendous development of modern business methods has prompted the courts to administer that provision with a liberal hand. Vold, Law of Sales, § 86, p. 429 (2d ed. 1959). Solicitude toward the buyer plainly harmonizes with the intention of the Legislature. That fact is manifested further by the later section of the act which preserves and continues any permissible implied warranty, despite an express warranty, unless the two are inconsistent. R.S. 46:30-21(6).

The uniform act codified, extended and liberalized the common law of sales. The motivation in part was to [372] ameliorate the harsh doctrine of caveat emptor, and in some measure to impose a reciprocal obligation on the seller to beware. The transcendent value of the legislation, particularly with respect to implied warranties, rests in the fact that obligations on the part of the seller were imposed by operation of law, and did not depend for their existence upon express agreement of the parties. And of tremendous significance in a rapidly expanding commercial society was the recognition of the right to recover damages on account of personal injuries arising from a breach of warranty. R.S. 46:30-75, 76; Simon v. Graham Bakery, 31 N.J. Super. 117 (App. Div. 1954), reversed on other grounds 17 N.J. 525 (1955); Marko v. Sears, Roebuck and Co., 24 N.J. Super. 295, 303 (App. Div. 1953); Ryan v. Progressive Grocery Stores, supra; Stonebrink v. Highland Motors, 171 Or. 415, 137 P.2d 986 (Sup. Ct. 1953); Wells v. Oldsmobile Co., 147 Or. 687, 35 P.2d 232 (Sup. Ct. 1934); Ebbert v. Philadelphia Electric Co., 126 Pa. Super. 351, 191 A. 384 (Super. Ct. 1937), affirmed 330 Pa. 257, 198 A. 323 (Sup. Ct. 1938); 77 C.J.S., Sales, § 383; Prosser, Law of Torts, p. 493 (1955). The particular importance of this advance resides in the fact that under such circumstances strict liability is imposed upon the maker or seller of the product. Recovery of damages does not depend upon proof of negligence or knowledge of the defect. Simon v. Graham Bakery, supra; Tomlinson v. Armour & Co., 75 N.J.L. 748, 754 (E. & A. 1907); Frank R. Jelleff, Inc. v. Braden, 98 U.S. App. D.C. 180, 233 F.2d 671, 63 A.L.R.2d 400 (D.C. App. 1956); 2 Harper & James, supra, § 28.15; Prosser, supra, 494, 506, 523.

As the Sales Act and its liberal interpretation by the courts threw this protective cloak about the buyer, the decisions in various jurisdictions revealed beyond doubt that many manufacturers took steps to avoid these ever increasing warranty obligations. Realizing that the act governed the relationship of buyer and seller, they undertook to withdraw from actual and direct contractual contact with the [373] buyer. They ceased selling products to the consuming public through their own employees and making contracts of sale in their own names. Instead, a system of independent dealers was established; their products were sold to dealers who in turn dealt with the buying public, ostensibly solely in their own personal capacity as sellers. In the past in many instances, manufacturers were able to transfer to the dealers burdens imposed by the act and thus achieved a large measure of immunity for themselves. But, as will be noted in more detail hereafter, such marketing practices, coupled with the advent of large scale advertising by manufacturers to promote the purchase of these goods from dealers by members of the public, provided a basis upon which the existence of express or implied warranties was predicated, even though the manufacturer was not a party to the contract of sale.

The general observations that have been made are important largely for purposes of perspective. They are helpful in achieving a point from which to evaluate the situation now presented for solution. Primarily, they reveal a trend and a design in legislative and judicial thinking toward providing protection for the buyer. It must be noted, however, that the sections of the Sales Act, to which reference has been made, do not impose warranties in terms of unalterable absolutes. R.S. 46:30-3 provides in general terms that an applicable warranty may be negatived or varied by express agreement. As to disclaimers or limitations of the obligations that normally attend a sale, it seems sufficient at this juncture to say they are not favored, and that they are strictly construed against the seller. 2 Harper & James, supra, § 28.25; Vold, supra, p. 459; "Warranties of Kind & Quality," 57 Yale L.J. 1388, 1400-1401 (1948).

With these considerations in mind, we come to a study of the express warranty on the reverse side of the purchase order signed by Claus Henningsen. At the outset we take notice that it was made only by the manufacturer and that by its terms it runs directly to Claus Henningsen. [374] On the facts detailed above, it was to be extended to him by the dealer as the agent of Chrysler Corporation. The consideration for this warranty is the purchase of the manufacturer's product from the dealer by the ultimate buyer. Studebaker Corp. v. Nail, 82 Ga. App. 779, 62 S.E.2d 198 (Ct. App. 1950).

Although the franchise agreement between the defendants recites that the relationship of principal and agent is not created, in particular transactions involving third persons the law will look at their conduct and not to their intent or their words as between themselves but to their factual relation. Restatement (Second), Agency § 27 (1958). The normal pattern that the manufacturer-dealer relationship follows relegates the position of the dealer to the status of a way station along the car's route from maker to consumer. This is indicated by the language of the warranty. Obviously the parties knew and so intended that the dealer would not use the automobile for 90 days or drive it 4,000 miles. And the words "original purchaser," taken in their context, signify the purchasing member of the public. Columbia Motors Co. v. Williams, 209 Ala. 640, 96 So. 900 (Sup. Ct. 1923); Miller Rubber Co. v. Blewster-Stephens Service Station, 171 Ark. 1179, 287 S.W. 577, 59 A.L.R. 1237 (Sup. Ct. 1926). Moreover, the language of this warranty is that of the uniform warranty of the Automobile Manufacturers Association, of which Chrysler is a member. See Automotive Facts & Figures, 1958 Edition, published by Automotive Manufacturers Association, p. 69; Automotive News 1959 Almanac (Slocum Publishing Co., Inc., Detroit) p. 25. And it is the form appearing in the Plymouth Owner Service Certificate mentioned in the servicing instruction guide sent with the new car from the factory. The evidence is overwhelming that the dealer acted for Chrysler in including the warranty in the purchase contract. And see, Studebaker Corp. v. Nail, supra; Advance Rumley Thresher Co. v. Briggs Hardware Co., 202 Mo. App. 603, 206 S.W. 587 (Ct. App. 1918); New Way Motor [375] Co. v. Farmers' Electro-Lighting Co., 48 S.D. 4, 201 N.W. 1000 (Sup. Ct. 1925); Pelletier v. Brown Bros. Chevrolet & Oldsmobile, 164 (N.Y.S.2d 249 (Sup. Ct. 1956); Fetzer v. Haralson, 147 S.W. 290 (Tex. Civ. App. 1912); cf. General Motors Corporation v. Dodson, ___ Tenn. ___, ___ S.W.2d ___ (Jan. 15, 1960).

The terms of the warranty are a sad commentary upon the automobile manufacturers' marketing practices. Warranties developed in the law in the interest of and to protect the ordinary consumer who cannot be expected to have the knowledge or capacity or even the opportunity to make adequate inspection of mechanical instrumentalities, like automobiles, and to decide for himself whether they are reasonably fit for the designed purpose. Greenland Develop. Corp. v. Allied Heat. Prod. Co., 184 Va. 588, 35 S.E.2d 801, 164 A.L.R. 1312 (Sup. Ct. App. 1945); 1 Williston, supra, pp. 625, 626. But the ingenuity of the Automobile Manufacturers Association, by means of its standardized form, has metamorphosed the warranty into a device to limit the maker's liability. To call it an "equivocal" agreement, as the Minnesota Supreme Court did, is the least that can be said in criticism of it. Federal Motor Truck Sales Corporation v. Shanus, 190 Minn. 5, 250 N.W. 713, 714 (Sup. Ct. 1933).

The manufacturer agrees to replace defective parts for 90 days after the sale or until the car has been driven 4,000 miles, whichever is first to occur, if the part is sent to the factory, transportation charges prepaid, and if examination discloses to its satisfaction that the part is defective. It is difficult to imagine a greater burden on the consumer, or less satisfactory remedy. Aside from imposing on the buyer the trouble of removing and shipping the part, the maker has sought to retain the uncontrolled discretion to decide the issue of defectiveness. Some courts have removed much of the force of that reservation by declaring that the purchaser is not bound by the manufacturer's decision. Mills v. Maxwell Motor Sales Corporation, 105 Neb. 105, Neb. 465, 181 N.W. [376] 152, 22 A.L.R. 130 (Sup. Ct. 1920); Cannon v. Pulliam Motor Company, 230 S.C. 131, 94 S.E.2d 397 (Sup. Ct. 1956). In the Mills case, the court said:

"It would nevertheless be repugnant to every conception of justice to hold that, if the parts thus returned for examination were, in point of fact, so defective as to constitute a breach of warranty, the appellee's right of action could be defeated by the appellant's arbitrary refusal to recognize that fact. Such an interpretation would substitute the appellant for the courts in passing upon the question of fact, and would be unreasonable." Supra, 181 N.W., at page 154.

Also suppose, as in this case, a defective part or parts caused an accident and that the car was so damaged as to render it impossible to discover the precise part or parts responsible, although the circumstances clearly pointed to such fact as the cause of the mishap. Can it be said that the impossibility of performance deprived the buyer of the benefit of the warranty?

Moreover, the guaranty is against defective workmanship. That condition may arise from good parts improperly assembled. There being no defective parts to return to the maker, is all remedy to be denied? One court met that type of problem by holding that where the purchaser does not know the precise cause of inoperability, calling a car a "vibrator" would be sufficient to state a claim for relief. It said that such a car is not an uncommon one in the industry. The general cause of the vibration is not known. Some part or parts have been either defectively manufactured or improperly assembled in the construction and manufacture of the automobile. In the operation of the car, these parts give rise to vibrations. The difficulty lies in locating the precise spot and cause. Allen v. Brown, 181 Kan. 301, 310 P.2d 923 (Sup. Ct. 1957). But the warranty does not specify what the purchaser must do to obtain relief in such case, if a remedy is intended to be provided. Must the purchaser return the car, transportation charges prepaid, over a great distance to the factory? It may be said that in the usual [377] case the dealer also gives the same warranty and that as a matter of expediency the purchaser should turn to him. But under the law the buyer is entitled to proceed against the manufacturer. Further, dealers' franchises are precarious (see, Automobile Franchise Agreements, Hewitt (1956)). For example, Bloomfield Motors' franchise may be cancelled by Chrysler on 90 days' notice. And obviously dealers' facilities and capacity, financial and otherwise, are not as sufficient as those of the primarily responsible manufacturer in his distant factory.

The matters referred to represent only a small part of the illusory character of the security presented by the warranty. Thus far the analysis has dealt only with the remedy provided in the case of a defective part. What relief is provided when the breach of the warranty results in personal injury to the buyer? (Injury to third persons using the car in the purchaser's right will be treated hereafter.) As we have said above, the law is clear that such damages are recoverable under an ordinary warranty. The right exists whether the warranty sued on is express or implied. See, e.g., Ryan v. Progressive Grocery Stores, supra. And, of course, it has long since been settled that where the buyer or a member of his family driving with his permission suffers injuries because of negligent manufacture or construction of the vehicle, the manufacturer's liability exists. Prosser, supra, §§ 83, 84. But in this instance, after reciting that defective parts will be replaced at the factory, the alleged agreement relied upon by Chrysler provides that the manufacturer's "obligation under this warranty" is limited to that undertaking; further, that such remedy is "in lieu of all other warranties, express or implied, and all other obligations or liabilities on its part." The contention has been raised that such language bars any claim for personal injuries which may emanate from a breach of the warranty. Although not urged in this case, it has been successfully maintained that the exclusion "of all other obligations and liabilities on its part" precludes [378] a cause of action for injuries based on negligence. Shafer v. Reo Motors, 205 F.2d 685 (3 Cir. 1953). Another Federal Circuit Court of Appeals holds to the contrary. Doughnut Mach. Corporation v. Bibbey, 65 F.2d 634 (1 Cir. 1933). There can be little doubt that justice is served only by the latter ruling.

Putting aside for the time being the problem of the efficacy of the disclaimer provisions contained in the express warranty, a question of first importance to be decided is whether an implied warranty of merchantability by Chrysler Corporation accompanied the sale of the automobile to Claus Henningsen.

Preliminarily, it may be said that the express warranty against defective parts and workmanship is not inconsistent with an implied warranty of merchantability. Such warranty cannot be excluded for that reason. Knapp v. Willys-Ardmore, Inc., 174 Pa. Super. 90, 100 A.2d 105 (1953). And see, Hambrick v. Peoples Mercantile & Implement Co., 228 Ark. 1021, 311 S.W.2d 785 (Sup. Ct. 1958); Hardy v. General Motors Acceptance Corporation, 38 Ga. App. 463, 144 S.E. 327 (Ct. App. 1928); Bekkevold v. Potts, 173 Minn. 87, 216 N.W. 790, 59 A.L.R. 1164 (Sup. Ct. 1927); Hooven & Allison Co. v. Wirtz, 15 N.D. 477, 107 N.W. 1078 (Sup. Ct. 1906); Frigidinners, Inc. v. Branchtown Gun Club, supra.

Chrysler points out that an implied warranty of merchantability is an incident of a contract of sale. It concedes, of course, the making of the original sale to Bloomfield Motors, Inc., but maintains that this transaction marked the terminal point of its contractual connection with the car. Then Chrysler urges that since it was not a party to the sale by the dealer to Henningsen, there is no privity of contract between it and the plaintiffs, and the absence of this privity eliminates any such implied warranty.

There is no doubt that under early common-law concepts of contractual liability only those persons who were parties to the bargain could sue for a breach of it. In more recent [379] times a noticeable disposition has appeared in a number of jurisdictions to break through the narrow barrier of privity when dealing with sales of goods in order to give realistic recognition to a universally accepted fact. The fact is that the dealer and the ordinary buyer do not, and are not expected to, buy goods, whether they be foodstuffs or automobiles, exclusively for their own consumption or use. Makers and manufacturers know this and advertise and market their products on that assumption; witness, the "family" car, the baby foods, etc. The limitations of privity in contracts for the sale of goods developed their place in the law when marketing conditions were simple, when maker and buyer frequently met face to face on an equal bargaining plane and when many of the products were relatively uncomplicated and conducive to inspection by a buyer competent to evaluate their quality. See, Freezer, "Manufacturer's Liability for Injuries Caused by His Products," 37 Mich. L. Rev. 1 (1938). With the advent of mass marketing, the manufacturer became remote from the purchaser, sales were accomplished through intermediaries, and the demand for the product was created by advertising media. In such an economy it became obvious that the consumer was the person being cultivated. Manifestly, the connotation of "consumer" was broader than that of "buyer." He signified such a person who, in the reasonable contemplation of the parties to the sale, might be expected to use the product. Thus, where the commodities sold are such that if defectively manufactured they will be dangerous to life or limb, then society's interests can only be protected by eliminating the requirement of privity between the maker and his dealers and the reasonably expected ultimate consumer. In that way the burden of losses consequent upon use of defective articles is borne by those who are in a position to either control the danger or make an equitable distribution of the losses when they do occur. As Harper & James put it, "The interest in consumer protection calls for warranties by the maker that do run with the goods, to reach all who are [380] likely to be hurt by the use of the unfit commodity for a purpose ordinarily to be expected." 2 Harper & James, supra, 1571, 1572; also see, 1535; Prosser, supra, 506-511. As far back as 1932, in the well known case of Baxter v. Ford Motor Co., 168 Wash. 456, 12 P.2d 409 (Sup. Ct. 1932), affirmed 15 P.2d 1118, 88 A.L.R. 521 (Sup. Ct. 1932), the Supreme Court of Washington gave recognition to the impact of then existing commercial practices on the strait jacket of privity, saying:

"It would be unjust to recognize a rule that would permit manufacturers of goods to create a demand for their products by representing that they possess qualities which they, in fact, do not possess, and then, because there is no privity of contract existing between the consumer and the manufacturer, deny the consumer the right to recover if damages result from the absence of those qualities, when such absence is not readily noticeable." 12 P.2d, at page 412.

The concept was expressed in a practical way by the Supreme Court of Texas in Jacob E. Decker & Sons, Inc. v. Capps, 139 Tex. 609, 164 S.W.2d 828, 833, 142 A.L.R. 1479 (1942):

"In fact, the manufacturer's interest in the product is not terminated when he has sold it to the wholesaler. He must get it off the wholesaler's shelves before the wholesaler will buy a new supply. The same is not only true of the retailer, but of the house wife, for the house wife will not buy more until the family has consumed that which she has in her pantry. Thus the manufacturer or other vendor intends that this appearance of suitability of the article for human consumption should continue and be effective until some one is induced thereby to consume the goods. It would be but to acknowledge a weakness in the law to say that he could thus create a demand for his products by inducing a belief that they are suitable for human consumption, when, as a matter of fact, they are not, and reap the benefits of the public confidence thus created, and then avoid liability for the injuries caused thereby merely because there was no privity of contract between him and the one whom he induced to consume the food. * * *"

Although only a minority of jurisdictions have thus far departed from the requirement of privity, the movement in that direction is most certainly gathering momentum. Liability [381] to the ultimate consumer in the absence of direct contractual connection has been predicated upon a variety of theories. Some courts hold that the warranty runs with the article like a covenant running with land; others recognize a third-party beneficiary thesis; still others rest their decision on the ground that public policy requires recognition of a warranty made directly to the consumer. Welter v. Bowman Dairy Co., 318 Ill. App. 305, 47 N.E.2d 739 (App. Ct. 1943); Bahlman v. Hudson Motor Car Co., 290 Mich. 683, 288 N.W. 309 (Sup. Ct. 1939); Worley v. Procter & Gamble Mfg. Co., 241 Mo. App. 1114, 253 S.W.2d 532 (Ct. App. 1953); Markovich v. McKesson and Robbins, Inc., 106 Ohio App. 265, 149 N.E.2d 181 (Ct. App. 1958); 2 Harper & James, supra, 1573; Prosser, supra, 507; Jeanblanc, "Manufacturers' Liability to Persons other than their Immediate Vendees," 24 Va. L. Rev. 134, 156 (1937).

Further reference to Decker, supra, is enlightening:

"There certainly is justification for indulging a presumption of a warranty that runs with the article in the sale of food products. A party who processes a product and gives it the appearance of being suitable for human consumption, and places it in the channels of commerce, expects some one to consume the food in reliance on its appearance that it is suitable for human consumption. He expects the appearance of suitableness to continue with the product until some one is induced to consume it as food. But a modern manufacturer or vendor does even more than this under modern practices. He not only processes the food and dresses it up so as to make it appear appetizing, but he uses the newspapers, magazines, bill-boards, and the radio to build up the psychology to buy and consume his products. The invitation extended by him is not only to the house wife to buy and serve his product, but to the members of the family and guest to eat it. * * * The mere fact that a manufacturer or other vendor may thus induce the public to consume unwholesome food evidences the soundness of the rule which imposes a warranty, as a matter of public policy on the sale of food or other products intended for human consumption." 164 S.W.2d, at pages 832, 833. (Emphasis added)

In Patargias v. Coca-Cola Bottling Co. of Chicago, 332 Ill. App. 117, 74 N.E.2d 162 (App. Ct. 1947), involving the sale of a bottle of coca-cola by a dealer, the court said:

[382] "We are impelled to hold that, where an article of food or drink is sold in a sealed container for human consumption, public policy demands that an implied warranty be imposed upon the manufacturer thereof that such article is wholesome and fit for use, that said warranty runs with the sale of the article for the benefit of the consumer thereof * * *." 74 N.E.2d, at page 169. (Emphasis added)

And in Worley v. Procter & Gamble Mfg. Co., supra, it was said that:

"In the case of food products sold in original packages, and other articles dangerous to life [here a box of soap powder], if defective, the manufacturer, who alone is in a position to inspect and control their preparation, should be held as a warrantor, whether he purveys his products by his own hand, or through a network of independent distributing agencies. In either case, the essence of the situation is the same — the placing of goods in the channels of trade, representations directed to the ultimate consumer, and damaging reliance by the latter on those representations. Such representations, being inducements to the buyers making the purchase, should be regarded as warranties imposed by law, independent of the vendors' contractual intentions. The liability thus imposed springs from representations directed to the ultimate consumer, and not from the breach of any contractual undertaking on the part of the vendor. This is in accord with the original theory of the action * * *." 253 S.W.2d at page 537. (Insertion ours)

See to the same effect: Davis v. Van Camp Packing Co., 189 Iowa 775, 176 N.W. 382, 17 A.L.R. 649 (Sup. Ct. 1920); Nichols v. Nold, 174 Kan. 613, 258 P.2d 317, 38 A.L.R.2d 887 (Sup. Ct. 1953); Parks v. G.C. Yost Pie Co., 93 Kan. 334, 144 P. 202, L.R.A. 1915C, 179 (Sup. Ct. 1914); Madouros v. Kansas City Coca-Cola Bottling Co., 230 Mo. App. 275, 90 S.W.2d 445 (Ct. App. 1936); Ward v. Morehead City Sea Food Co., 171 N.C. 33, 87 S.E. 958 (Sup. Ct. 1916).

Most of the cases where lack of privity has not been permitted to interfere with recovery have involved food and drugs. Haut v. Kleene, 320 Ill. App. 273, 50 N.E.2d 855 (App. Ct. 1943); Welter v. Bowman Dairy Co., supra; Davis v. Van Camp Packing Co., supra; Madouros v. Kansas [383] City Coca-Cola Bottling Co., supra; Greenberg v. Lorenz, 12 Misc.2d 883, 178 N.Y.S.2d 407 (Sup. Ct. 1958); Ryan v. Progressive Grocery Stores, Inc., supra; Jacob E. Decker & Sons, Inc. v. Capps, supra; La Hue v. Coca-Cola Bottling, 50 Wash.2d 645, 314 P.2d 421 (Sup. Ct. 1957). In fact, the rule as to such products has been characterized as an exception to the general doctrine. But more recently courts, sensing the inequity of such limitation, have moved into broader fields: home permanent wave set, Markovich v. McKesson and Robbins, Inc., supra; Rogers v. Toni Home Permanent Co., 167 Ohio St. 244, 147 N.E.2d 612 (Sup. Ct. 1958); soap detergent, Worley v. Procter & Gamble Mfg. Co., supra; inflammable cowboy suit (by clear implication), Blessington v. McCrory Stores Corp., 305 N.Y. 140, 111 N.E.2d 421, 37 A.L.R.2d 698 (Ct. App. 1953); exploding bottle, Mahoney v. Shaker Square Beverages, 46 Ohio Op. 250, 102 N.E.2d 281 (C.P. 1951); defective emery wheel, DiVello v. Gardner Machine Co., 46 Ohio Op. 161, 102 N.E.2d 289 (C.P. 1951); defective wire rope, Mannsz v. Macwhyte Co., 155 F.2d 445 (3 Cir. 1946); defective cinder blocks, Spence v. Three Rivers Builders & Masonry Supply, 353 Mich. 120, 90 N.W.2d 873 (Sup. Ct. 1958).

We see no rational doctrinal basis for differentiating between a fly in a bottle of beverage and a defective automobile. The unwholesome beverage may bring illness to one person, the defective car, with its great potentiality for harm to the driver, occupants, and others, demands even less adherence to the narrow barrier of privity. 2 Harper & James, supra, 1572; 1 Williston, supra, § 244a, p. 648; Note, 46 Harv. L. Rev. 161 (1932). In Mannsz v. Macwhyte Co., supra, Chief Judge Biggs, speaking for the Third Circuit Court of Appeals, said:

"We think it is clear that whether the approach to the problem be by way of warranty or under the doctrine of negligence, the requirement of privity between the injured party and the manufacturer [384] of the article which has injured him has been obliterated from the Pennsylvania law. The abolition of the doctrine occurred first in the food cases, next in the beverage decisions and now it has been extended to those cases in which the article manufactured, not dangerous or even beneficial if properly made, injured a person because it was manufactured improperly." 155 F.2d, at pages 449-450.

Under modern conditions the ordinary layman, on responding to the importuning of colorful advertising, has neither the opportunity nor the capacity to inspect or to determine the fitness of an automobile for use; he must rely on the manufacturer who has control of its construction, and to some degree on the dealer who, to the limited extent called for by the manufacturer's instructions, inspects and services it before delivery. In such a marketing milieu his remedies and those of persons who properly claim through him should not depend "upon the intricacies of the law of sales. The obligation of the manufacturer should not be based alone on privity of contract. It should rest, as was once said, upon `the demands of social justice.'" Mazetti v. Armour & Co., 75 Wash. 622, 135 P. 633, 48 L.R.A., N.S., 213 (Sup. Ct. 1913). "If privity of contract is required," then, under the circumstances of modern merchandising, "privity of contract exists in the consciousness and understanding of all right-thinking persons." Madouros v. Kansas City Coca-Cola Bottling Co., supra, 90 S.W.2d, at page 450.

Accordingly, we hold that under modern marketing conditions, when a manufacturer puts a new automobile in the stream of trade and promotes its purchase by the public, an implied warranty that it is reasonably suitable for use as such accompanies it into the hands of the ultimate purchaser. Absence of agency between the manufacturer and the dealer who makes the ultimate sale is immaterial.

[385] II.

THE EFFECT OF THE DISCLAIMER AND LIMITATION OF LIABILITY CLAUSES ON THE IMPLIED WARRANTY OF MERCHANTABILITY.

Judicial notice may be taken of the fact that automobile manufacturers, including Chrysler Corporation, undertake large scale advertising programs over television, radio, in newspapers, magazines and all media of communication in order to persuade the public to buy their products. As has been observed above, a number of jurisdictions, conscious of modern marketing practices, have declared that when a manufacturer engages in advertising in order to bring his goods and their quality to the attention of the public and thus to create consumer demand, the representations made constitute an express warranty running directly to a buyer who purchases in reliance thereon. The fact that the sale is consummated with an independent dealer does not obviate that warranty. Mannsz v. Macwhyte Co., supra; Bahlman v. Hudson Motor Car Co., supra; Rogers v. Toni Home Permanent Co., supra; Meyer v. Packard Cleveland Motor Co., 106 Ohio St. 328, 140 N.E. 118, 28 A.L.R. 986 (1922); Baxter v. Ford Motor Co., supra; 1 Williston, Sales, supra, § 244a.

In view of the cases in various jurisdictions suggesting the conclusion which we have now reached with respect to the implied warranty of merchantability, it becomes apparent that manufacturers who enter into promotional activities to stimulate consumer buying may incur warranty obligations of either or both the express or implied character. These developments in the law inevitably suggest the inference that the form of express warranty made part of the Henningsen purchase contract was devised for general use in the automobile industry as a possible means of avoiding the consequences of the growing judicial acceptance of the thesis that the described express or implied warranties run directly to the consumer.

[386] In the light of these matters, what effect should be given to the express warranty in question which seeks to limit the manufacturer's liability to replacement of defective parts, and which disclaims all other warranties, express or implied? In assessing its significance we must keep in mind the general principle that, in the absence of fraud, one who does not choose to read a contract before signing it, cannot later relieve himself of its burdens. Fivey v. Pennsylvania R.R. Co., 67 N.J.L. 627 (E. & A. 1902). And in applying that principle, the basic tenet of freedom of competent parties to contract is a factor of importance. But in the framework of modern commercial life and business practices, such rules cannot be applied on a strict, doctrinal basis. The conflicting interests of the buyer and seller must be evaluated realistically and justly, giving due weight to the social policy evinced by the Uniform Sales Act, the progressive decisions of the courts engaged in administering it, the mass production methods of manufacture and distribution to the public, and the bargaining position occupied by the ordinary consumer in such an economy. The history of the law shows that legal doctrines, as first expounded, often prove to be inadequate under the impact of later experience. In such case, the need for justice has stimulated the necessary qualifications or adjustments. Perkins v. Endicott Johnson Corporation, 128 F.2d 208, 217 (2 Cir. 1942), affirmed 317 U.S. 501, 63 S.Ct. 339, 87 L.Ed. 424 (1943); Greenberg v. Lorenz, supra.

In these times, an automobile is almost as much a servant of convenience for the ordinary person as a household utensil. For a multitude of other persons it is a necessity. Crowded highways and filled parking lots are a commonplace of our existence. There is no need to look any farther than the daily newspaper to be convinced that when an automobile is defective, it has great potentiality for harm.

No one spoke more graphically on this subject than Justice Cardozo in the landmark case of MacPherson v. Buick Motor [387] Co., 217 N.Y. 382, 111 N.E. 1050, 1053, L.R.A. 1916 F, 696 (Ct. App. 1916):

"Beyond all question, the nature of an automobile gives warning of probable danger if its construction is defective. This automobile was designed to go 50 miles per hour. Unless its wheels were sound and strong, injury was almost certain. It was as much a thing of danger as a defective engine for a railroad. * * * The dealer was indeed the one person of whom it might be said with some approach to certainty that by him the car would not be used. * * * Precedents drawn from the days of travel by stagecoach do not fit the conditions of travel to-day. The principle that the danger must be imminent does not change, but the things subject to the principle do change. They are whatever the needs of life in a developing civilization require them to be."

In the 44 years that have intervened since that utterance, the average car has been constructed for almost double the speed mentioned; 60 miles per hour is permitted on our parkways. The number of automobiles in use has multiplied many times and the hazard to the user and the public has increased proportionately. The Legislature has intervened in the public interest, not only to regulate the manner of operation on the highway but also to require periodic inspection of motor vehicles and to impose a duty on manufacturers to adopt certain safety devices and methods in their construction. R.S. 39:3-43 et seq. It is apparent that the public has an interest not only in the safe manufacture of automobiles, but also, as shown by the Sales Act, in protecting the rights and remedies of purchasers, so far as it can be accomplished consistently with our system of free enterprise. In a society such as ours, where the automobile is a common and necessary adjunct of daily life, and where its use is so fraught with danger to the driver, passengers and the public, the manufacturer is under a special obligation in connection with the construction, promotion and sale of his cars. Consequently, the courts must examine purchase agreements closely to see if consumer and public interests are treated fairly.

[388] What influence should these circumstances have on the restrictive effect of Chrysler's express warranty in the framework of the purchase contract? As we have said, warranties originated in the law to safeguard the buyer and not to limit the liability of the seller or manufacturer. It seems obvious in this instance that the motive was to avoid the warranty obligations which are normally incidental to such sales. The language gave little and withdrew much. In return for the delusive remedy of replacement of defective parts at the factory, the buyer is said to have accepted the exclusion of the maker's liability for personal injuries arising from the breach of the warranty, and to have agreed to the elimination of any other express or implied warranty. An instinctively felt sense of justice cries out against such a sharp bargain. But does the doctrine that a person is bound by his signed agreement, in the absence of fraud, stand in the way of any relief?

In the modern consideration of problems such as this, Corbin suggests that practically all judges are "chancellors" and cannot fail to be influenced by any equitable doctrines that are available. And he opines that "there is sufficient flexibility in the concepts of fraud, duress, misrepresentation and undue influence, not to mention differences in economic bargaining power" to enable the courts to avoid enforcement of unconscionable provisions in long printed standardized contracts. 1 Corbin on Contracts (1950) § 128, p. 188. Freedom of contract is not such an immutable doctrine as to admit of no qualification in the area in which we are concerned. As Chief Justice Hughes said in his dissent in Morehead v. People of State of New York ex rel. Tipaldo, 298 U.S. 587, 627, 56 S.Ct. 918, 80 L.Ed. 1347, 1364 (1936):

"We have had frequent occasion to consider the limitations on liberty of contract. While it is highly important to preserve that liberty from arbitrary and capricious interference, it is also necessary to prevent its abuse, as otherwise it could be used to override all public interests and thus in the end destroy the very freedom of opportunity which it is designed to safeguard." [389] That sentiment was echoed by Justice Frankfurter in his dissent in United States v. Bethlehem Steel Corp., 315 U.S. 289, 326, 62 S.Ct. 581, 86 L.Ed. 855, 876 (1942):

"It is said that familiar principles would be outraged if Bethlehem were denied recovery on these contracts. But is there any principle which is more familiar or more firmly embedded in the history of Anglo-American law than the basic doctrine that the courts will not permit themselves to be used as instruments of inequity and injustice? Does any principle in our law have more universal application than the doctrine that courts will not enforce transactions in which the relative positions of the parties are such that one has unconscionably taken advantage of the necessities of the other?

These principles are not foreign to the law of contracts. Fraud and physical duress are not the only grounds upon which courts refuse to enforce contracts. The law is not so primitive that it sanctions every injustice except brute force and downright fraud. More specifically, the courts generally refuse to lend themselves to the enforcement of a `bargain' in which one party has unjustly taken advantage of the economic necessities of the other. * * *"

The traditional contract is the result of free bargaining of parties who are brought together by the play of the market, and who meet each other on a footing of approximate economic equality. In such a society there is no danger that freedom of contract will be a threat to the social order as a whole. But in present-day commercial life the standardized mass contract has appeared. It is used primarily by enterprises with strong bargaining power and position. "The weaker party, in need of the goods or services, is frequently not in a position to shop around for better terms, either because the author of the standard contract has a monopoly (natural or artificial) or because all competitors use the same clauses. His contractual intention is but a subjection more or less voluntary to terms dictated by the stronger party, terms whose consequences are often understood in a vague way, if at all." Kessler, "Contracts of Adhesion — Some Thoughts About Freedom of Contract," 43 Colum. L. Rev. 629, 632 (1943); Ehrenzweig, "Adhesion Contracts in the Conflict of Laws," 53 Colum. L. Rev. 1072, 1075, 1089 (1953). Such standardized contracts have been [390] described as those in which one predominant party will dictate its law to an undetermined multiple rather than to an individual. They are said to resemble a law rather than a meeting of the minds. Siegelman v. Cunard White Star, 221 F.2d 189, 206 (2 Cir. 1955).

Vold, in the recent revision of his Law of Sales (2d ed. 1959), at page 447, wrote of this type of contract and its effect upon the ordinary buyer:

"In recent times the marketing process has been getting more highly organized than ever before. Business units have been expanding on a scale never before known. The standardized contract with its broad disclaimer clauses is drawn by legal advisers of sellers widely organized in trade associations. It is encountered on every hand. Extreme inequality of bargaining between buyer and seller in this respect is now often conspicuous. Many buyers no longer have any real choice in the matter. They must often accept what they can get though accompanied by broad disclaimers. The terms of these disclaimers deprive them of all substantial protection with regard to the quality of the goods. In effect, this is by force of contract between very unequal parties. It throws the risk of defective articles on the most dependent party. He has the least individual power to avoid the presence of defects. He also has the least individual ability to bear their disastrous consequences."

The warranty before us is a standardized form designed for mass use. It is imposed upon the automobile consumer. He takes it or leaves it, and he must take it to buy an automobile. No bargaining is engaged in with respect to it. In fact, the dealer through whom it comes to the buyer is without authority to alter it; his function is ministerial — simply to deliver it. The form warranty is not only standard with Chrysler but, as mentioned above, it is the uniform warranty of the Automobile Manufacturers Association. Members of the Association are: General Motors, Inc., Ford, Chrysler, Studebaker-Packard, American Motors (Rambler), Willys Motors, Checker Motors Corp., and International Harvester Company. Automobile Facts and Figures (1958 Ed., Automobile Manufacturers Association) 69. Of these companies, the "Big Three" (General Motors, Ford, and Chrysler) represented 93.5% of the passenger-car production for 1958 [391] and the independents 6.5%. Standard & Poor (Industrial Surveys, Autos, Basic Analysis, June 25, 1959) 4109. And for the same year the "Big Three" had 86.72% of the total passenger vehicle registrations. Automotive News, 1959 Almanac (Slocum Publishing Co., Inc.) p. 25.

The gross inequality of bargaining position occupied by the consumer in the automobile industry is thus apparent. There is no competition among the car makers in the area of the express warranty. Where can the buyer go to negotiate for better protection? Such control and limitation of his remedies are inimical to the public welfare and, at the very least, call for great care by the courts to avoid injustice through application of strict common-law principles of freedom of contract. Because there is no competition among the motor vehicle manufacturers with respect to the scope of protection guaranteed to the buyer, there is no incentive on their part to stimulate good will in that field of public relations. Thus, there is lacking a factor existing in more competitive fields, one which tends to guarantee the safe construction of the article sold. Since all competitors operate in the same way, the urge to be careful is not so pressing. See "Warranties of Kind and Quality," 57 Yale L.J. 1389, 1400 (1948).

Although the courts, with few exceptions, have been most sensitive to problems presented by contracts resulting from gross disparity in buyer-seller bargaining positions, they have not articulated a general principle condemning, as opposed to public policy, the imposition on the buyer of a skeleton warranty as a means of limiting the responsibility of the manufacturer. They have endeavored thus far to avoid a drastic departure from age-old tenets of freedom of contract by adopting doctrines of strict construction, and notice and knowledgeable assent by the buyer to the attempted exculpation of the seller. 1 Corbin, supra, 337; 2 Harper & James, supra, 1590; Prosser, "Warranty of Merchantable Quality," 27 Minn. L. Rev. 117, 159 (1932). Accordingly to be found in the cases are statements that disclaimers and [392] the consequent limitation of liability will not be given effect if "unfairly procured," Davis Motors, Dodge and Plymouth Co. v. Avett, 294 S.W.2d 882, 887 (Tex. Civ. App. 1956); International Harvester Co. of America v. Bean, 159 Ky. 842, 169 S.W. 549 (Ct. App. 1914); if not brought to the buyer's attention and he was not made understandingly aware of it, Vaughan's Seed Store v. Stringfellow, 56 Fla. 708, 48 So. 410 (Sup. Ct. 1908); Parsons Band Cutter & Self-Feeder Co. v. Haub, 83 Minn. 180, 86 N.W. 14 (Sup. Ct. 1901); Bell v. Mills, 78 App. Div. 42, 80 N.Y.S. 34 (1902); Landreth v. Wyckoff, 67 App. Div. 145, 73 N.Y.S. 388 (1901); St. Louis Cordage Mills v. Western Supply Co., 54 Okl. 757, 154 P. 646 (Sup. Ct. 1916); Reliance Varnish Co. v. Mullins Lumber Co., 213 S.C. 84, 48 S.E.2d 653 (Sup. Ct. 1948); Stevenson v. B.B. Kirkland Seed Co., 176 S.C. 345, 180 S.E. 197 (Sup. Ct. 1935); Black v. B.B. Kirkland Seed Co., 158 S.C. 112, 155 S.E. 268 (Sup. Ct. 1930); or if not clear and explicit, McPeak v. Boker, 236 Minn. 420, 53 N.W.2d 130 (Sup. Ct. 1952).

Some of these cases are worthy of more specific reference. In Stevenson v. B.B. Kirkland Seed Co., supra [176 S.C. 345, 180 S.E. 199], plaintiff asked for Abruzzi rye seed and defendant's agent sold seed to him as such. The invoice contained a non-warranty or disclaimer clause to the effect that no warranty, express or implied, was given by the seller "as to description, quality, productiveness, or any other matter of any seeds, bulbs, or plants," that there would be no responsibility for the crop, and that if the goods were not acceptable they were to be returned at once. The seed was discovered not to be Abruzzi when it had grown sufficiently to be distinguished. In the absence of proof that the disclaimer was actually brought to the attention of the buyer, it was declared not binding.

In St. Louis Cordage Mills v. Western Supply Co., supra [54 Okl. 757, 154 P. 648], the seller claimed that a card was attached to certain cables when they were sold. It purported to notify plaintiff that defendant "sells no goods [393] with a warranty." On this basis, the contention was advanced that any oral guaranty was rebutted. The "complete answer" was adjudged to be that the record failed to show that the card was brought to the attention of the plaintiff. And the court went on to say that if there was evidence tending to establish the fact, the problem was for determination by the jury.

International Harvester Co. of America v. Bean, supra, involved the purchase of an "auto wagon" which the buyer wanted for use in the transportation of passengers and their baggage between two cities. He explained the kind of roads to be traversed and the salesman recommended the type of vehicle purchased. The car could not operate on the roads described and rescission was sought.

International Harvester contended that the only warranty extended was contained in the purchase order. It was substantially similar to the one in the present case, providing for the replacement of defective parts over a 60-day period and reciting that "This express warranty excludes all implied warranties." The Kentucky Court of Appeals affirmed a rescission judgment saying:

"It must be borne in mind that the warranty of fitness for a particular use, which is implied by law where a manufacturer sells machinery for a purpose made known to him by the buyer thereof, relying on the skill and judgment of the manufacturer in selecting machinery adapted thereto, is a warranty which attaches itself to the contract of sale, independent of any express representation by the manufacturer of the suitability of the machinery for such use. It attaches by implication of law as a direct result of the communication by the buyer to the manufacturer of the nature of the intended use.

And while, if the parties to a contract for the sale of machinery, under such circumstances, expressly stipulate against all warranties implied by law, none will be imposed by the court against their consent, still such stipulation will not be given effect unless fairly made as a part of the contract of sale. Such a stipulation, relieving, as it does, the manufacturer from duties imposed by law, will be conclusively presumed to have been inserted in the contract of sale for the sole benefit of the manufacturer, the beneficiary of such relieving stipulation, and effect will not be given to such stipulation unless its inclusion in the contract was fairly procured.

[394] In the case under consideration, this stipulation was contained in a printed form of order blank or contract used by appellant company. The language of the stipulation is extremely technical, `This express warranty excludes all implied warranties'; its meaning is clear to but few persons. The writing in which such stipulation appears directs appellant company to furnish to appellee an auto vehicle, a class of machinery concerning which appellee was indisputably ignorant; and the particular style or pattern of auto vehicle ordered was that selected and recommended by the company's agent; this is undenied. Appellee testified that he explained to the company's agent the purposes for which he intended to use the auto wagon; and it is apparent that, had he understood the full import of the stipulation, he would not have signed the order. Under these circumstances, the court will not say that the stipulation against implied warranties was fairly procured to be included in the contract of sale. To hold that it was so included would be to give life to the letter of the contract and render inanimate the spirit thereof." 169 S.W., at pages 550, 551. (Emphasis ours)

The same court, in Myers v. Land, 314 Ky. 514, 235 S.W.2d 988 (1950), made a similar forthright declaration. The plaintiff purchased a new machine designed and represented as capable of making concrete blocks. It would not do the work and recovery of the purchase price was sought.

The purchase order contained this provision:

"There are no understandings, agreements, representations or warranties, expressed or implied, not specified herein respecting this order. The warranties, provisions, terms and conditions on the reverse side hereof are expressly made a part of this agreement." 235 S.W.2d, at page 990.

The back of the order contained special warranties limiting the seller's liability to defects in material and workmanship which might develop under normal use and service, the obligation being limited to making good at its factory any defective parts.

Attention is attracted to the fact that the language quoted above is more comprehensive and formidable in its adverse implications to the buyer than in our case. The clause in the Henningsen purchase order makes no express reference to the exclusion of warranties express or implied except those appearing on the back of the contract. But in the case under [395] discussion, a jury question was held to exist as to the binding effect of the limitation of liability. The court said:

"In short, this contract undertakes to eliminate and to avoid practically every sort of warranty except the very limited one stated. There is no remedy provided in case the machinery proves to be worthless. The appellant relies upon this negation of an implied warranty.

The statute is, in the particulars involved here, a codification of the prevailing common law on the subject. This court long before its enactment recognized the principle that it was competent for the parties to a contract to stipulate expressly against implied or extrinsic warranties and to confine the obligations of the seller to specific terms. But we have always required that such limitation of liability shall be plainly expressed. * * * Though the present disclaimer of warranty is clear in its terms, we cannot overlook the fact that it is to be found in a long and formidable document prepared by the seller and that it was doubtless unnoticed or its import uncomprehended by the buyer. Anyone brought up to believe that for every wrong there is a remedy will pause before saying that the seller will escape all liability by merely putting in an order blank a statement to the effect that there is no assurance that the buyer will get a machine that will work. We have paused for the moment and have readily concluded that the avoidance of liability under such a circumstance is not permitted by the law. * * *" 235 S.W.2d, at page 990. (Emphasis ours)

The sales contract in Reliance Varnish Co. v. Mullins Lumber Co., supra, contained a limited liability warranty in fine print. The officers of the buyer who made the purchase testified they had not observed the limiting clause and that it was not called to their attention. The court pointed out that it was "so located as to easily escape attention" and declared:

"Certainly it could not be said as a matter of law that appellant should have been aware of the stipulation. `The rule in this state is that for such a clause to be applicable in any case it must be shown that it was brought to the attention of the purchaser.'" 48 S.E.2d, at page 659.

Although Cutler Corp. v. Latshaw, 374 Pa. 1, 97 A.2d 234 (Sup. Ct. 1953), involves a contract for the performance of work for a homeowner, and not a sale, the result reached [396] by the court reflects a pertinent point of view. The contract for the work contained on its reverse side a warrant of attorney for the confession of judgment. In denying enforcement, this was said:

"Equally in the case at bar the defendant did not sign the warrant of attorney-confession of judgment. The reference on the face side of the contract to the `conditions' on the reverse side, among which was buried the supposed authority for a warrant of attorney, can hardly be accepted in a court of law as an acknowledgment of a confession of judgment. While the word `condition' may conceivably embrace almost any circumstance, upon which, or, because of which, a right is created or a liability attaches, it cannot be used to mean surrender of fundamental personal and property absolutes unless the word appears within a setting which warns of the potency of the capitulation being made.

* * * * * * * *

The case at bar falls far short of producing evidence that Miss Latshaw was even aware that a warrant of attorney was remotely contemplated. The physical characteristics of the five-page document demonstrate that the reverse sides were entirely ignored." 97 A.2d, at page 236.

The rigid scrutiny which the courts give to attempted limitations of warranties and of the liability that would normally flow from a transaction is not limited to the field of sales of goods. Clauses on baggage checks restricting the liability of common carriers for loss or damage in transit are not enforceable unless the limitation is fairly and honestly negotiated and understandingly entered into. If not called specifically to the patron's attention, it is not binding. It is not enough merely to show the form of a contract; it must appear also that the agreement was understandingly made. Hill v. Adams Express Co., 82 N.J.L. 373 (E. & A. 1911); S.S. Ansaldo San Giorgio I v. Rheinstrom Bros. Co., 294 U.S. 494, 55 S.Ct. 483, 79 L.Ed. 1016 (1935) (clause void as against public policy); Ferris v. Minneapolis & St. L. Ry. Co., 143 Minn. 90, 173 N.W. 178 (Sup. Ct. 1919); Healy v. New York Cent. & H.R.R. Co., 153 App. Div. 516, 138 N.Y.S. 287 (1912). The same holds true in cases of such limitations [397] on parcel check room tickets, Jones v. Great Northern Ry. Co., 68 Mont. 231, 217 P. 673, 37 A.L.R. 754 (1923); Klar v. H. & M. Parcel Room, 270 App. Div. 538, 61 N.Y.S.2d 285 (1946), affirmed 296 N.Y. 1044, 73 N.E.2d 912 (Ct. App. 1947); and on storage warehouse receipts, French v. Bekins Moving & Storage Co., 118 Colo. 424, 195 P.2d 968 (Sup. Ct. 1948); Denver Public Warehouse Co. v. Munger, 20 Colo. App. 56, 77 P. 5 (1904); Brasch v. Sloan's Moving & Storage Co., 237 Mo. App. 597, 176 S.W.2d 58 (1943); Voyt v. Bekins Moving & Storage Co., 169 Or. 30, 119 P.2d 586 (Sup. Ct. 1941), affirmed on rehearing 127 P.2d 360 (Sup. Ct. 1942); on automobile parking lot or garage tickets or claim checks, Kravitz v. Parking Service Co., 29 Ala. App. 523, 199 So. 727 (Ct. App. 1940); Hoel v. Flour City Fuel & Transfer Co., 144 Minn. 280, 175 N.W. 300 (Sup. Ct. 1919); Miller's Mut. Fire Ins. Ass'n of Alton, Ill. v. Parker, 234 N.C. 20, 65 S.E.2d 341 (Sup. Ct. 1951); Agricultural Ins. Co. v. Constantine, 144 Ohio St. 275, 58 N.E.2d 658 (Sup. Ct. 1944); as to exculpatory clauses in leases releasing a landlord of apartments in a multiple dwelling house from all liability for negligence where inequality of bargaining exists, see Annotation, 175 A.L.R. 8 (1948). And the validity of release clauses in orders signed by a depositor directing a bank to stop payment of his check, exonerating the bank from liability for negligent payment, has been seriously questioned on public policy grounds in this State, Reinhardt v. Passaic-Clifton Nat. Bank, 16 N.J. Super. 430, 436 (App. Div. 1951), affirmed 9 N.J. 607 (1952). Elsewhere they have been declared void as opposed to public policy. Speroff v. First-Cent. Trust Co., 149 Ohio St. 415, 79 N.E.2d 119, 1 A.L.R.2d 1150 (Sup. Ct. 1948).

French v. Bekins Moving & Storage Co., supra [118 Colo. 425, 195 P.2d 970], is particularly significant in the present connection. There the patron signed a storage receipt which contained blanks in which were written the details of removal of the household articles, charges and other information. [398] Toward the bottom, in "smaller poorly printed five-point type" were eight lines authorizing the handling of the goods at a limited valuation. Plaintiff testified that she did not read the provision and no one informed her of it or of its implications. The Supreme Court of Colorado, in commenting upon the clause, said:

"`While a warehouseman may not avoid his liability for negligence, he may nevertheless stipulate with the owner as to what the extent of the latter's recovery shall be, where the rate charged the owner is based upon an agreed valuation which is put upon the property. * * * if the condition was to become a part of the contract, it was necessary that plaintiff's attention be called to it, and that she be advised that the rate to be charged was a reduced rate to be applied in consideration of her consent to the limitation of defendant's liability.'" 195 P.2d, at page 971.

It is true that the rule governing the limitation of liability cases last referred to is generally applied in situations said to involve services of a public or semi-public nature. Typical, of course, are the public carrier or storage or parking lot cases. Kuzmiak v. Brookchester, 33 N.J. Super. 575 (App. Div. 1954); Annotation, supra, 175 A.L.R., at pp. 14-17. But in recent times the books have not been barren of instances of its application in private contract controversies, witness, e.g., Kuzmiak v. Brookchester, supra; Fairfax Gas & Supply Co. v. Hadary, 151 F.2d 939 (4 Cir. 1945); and Cutler Corp. v. Latshaw, supra. In the last named matter, which has been noted earlier, the court relied upon the public interest cases as authority. It said:

"Although these cases have to do with limitation on the liability of common carriers, their reasoning applies with equal force to the facts in the case at bar. When a party to a contract seeks to bind the other party with the unyielding thongs of a warrant of attorney-confession of judgment, a device not ordinarily expected by a homeowner in a simple agreement for alterations and repairs, the inclusion of such a self-abnegating provision must appear in the body of the contract and cannot be incorporated by casual reference with a designation not its own." 97 A.2d, at page 238. [399] Basically, the reason a contracting party offering services of a public or quasi-public nature has been held to the requirements of fair dealing, and, when it attempts to limit its liability, of securing the understanding consent of the patron or consumer, is because members of the public generally have no other means of fulfilling the specific need represented by the contract. Having in mind the situation in the automobile industry as detailed above, and particularly the fact that the limited warranty extended by the manufacturers is a uniform one, there would appear to be no just reason why the principles of all of the cases set forth should not chart the course to be taken here.

It is undisputed that the president of the dealer with whom Henningsen dealt did not specifically call attention to the warranty on the back of the purchase order. The form and the arrangement of its face, as described above, certainly would cause the minds of reasonable men to differ as to whether notice of a yielding of basic rights stemming from the relationship with the manufacturer was adequately given. The words "warranty" or "limited warranty" did not even appear in the fine print above the place for signature, and a jury might well find that the type of print itself was such as to promote lack of attention rather than sharp scrutiny. The inference from the facts is that Chrysler placed the method of communicating its warranty to the purchaser in the hands of the dealer. If either one or both of them wished to make certain that Henningsen became aware of that agreement and its purported implications, neither the form of the document nor the method of expressing the precise nature of the obligation intended to be assumed would have presented any difficulty.

But there is more than this. Assuming that a jury might find that the fine print referred to reasonably served the objective of directing a buyer's attention to the warranty on the reverse side, and, therefore, that he should be charged with awareness of its language, can it be said that an ordinary layman would realize what he was relinquishing in [400] return for what he was being granted? Under the law, breach of warranty against defective parts or workmanship which caused personal injuries would entitle a buyer to damages even if due care were used in the manufacturing process. Because of the great potential for harm if the vehicle was defective, that right is the most important and fundamental one arising from the relationship. Difficulties so frequently encountered in establishing negligence in manufacture in the ordinary case make this manifest. 2 Harper & James, supra, §§ 28.14, 28.15; Prosser, supra, 506. Any ordinary layman of reasonable intelligence, looking at the phraseology, might well conclude that Chrysler was agreeing to replace defective parts and perhaps replace anything that went wrong because of defective workmanship during the first 90 days or 4,000 miles of operation, but that he would not be entitled to a new car. It is not unreasonable to believe that the entire scheme being conveyed was a proposed remedy for physical deficiencies in the car. In the context of this warranty, only the abandonment of all sense of justice would permit us to hold that, as a matter of law, the phrase "its obligation under this warranty being limited to making good at its factory any part or parts thereof" signifies to an ordinary reasonable person that he is relinquishing any personal injury claim that might flow from the use of a defective automobile. Such claims are nowhere mentioned. The draftsmanship is reflective of the care and skill of the Automobile Manufacturers Association in undertaking to avoid warranty obligations without drawing too much attention to its effort in that regard. No one can doubt that if the will to do so were present, the ability to inform the buying public of the intention to disclaim liability for injury claims arising from breach of warranty would present no problem.

In this connection, attention is drawn to the Plymouth Owner Certificate mentioned earlier. Obviously, Chrysler is aware of it because the New Car Preparation Service Guide sent from the factory to the dealer directs that it be given to the purchaser. That certificate contains a paragraph called [401] "Explanation of Warranty." Its entire tenor relates to replacement of defective parts. There is nothing about it to stimulate the idea that the intention of the warranty is to exclude personal injury claims.

At this point, a recent decision of the New York Court of Appeals is relevant. In Lachs v. Fidelity & Casualty Co. of New York, 306 N.Y. 357, 118 N.E.2d 555, 557 (1954), the plaintiff's mother went to Newark Airport in order to obtain a plane flight to Miami, Florida. A vending machine was located in front of the Air Service counter where she obtained her transportation ticket. On the machine, in letters ten times as large as any other words on it, appeared "Airline Trip Insurance." Over that legend was a well illuminated display of airplanes flying round and round, and in large characters the words and numerals "25¢ For Each $5,000. Maximum $25,000." Below that on a placard, in letters "many times" the size of the other words thereon, was printed:

"Domestic

Airline Trip Insurance

25¢ for each $5,000. Maximum $25,000."

Below, in much smaller print on the same placard, appeared:

"Covers one-way flight shown on application * * * completed in 12 months within [certain points] on any scheduled airline. Policy void outside above limits."

The application mentioned was obtained by inserting 25¢ in a slot for each $5,000 of insurance desired. The application says, among other things: "I hereby apply to Company named below for Airline Trip Insurance to insure me on one Airline trip between:- * * *." Provision is made therein for the naming of a beneficiary and for the signature of the applicant.

Upon completion of the application, the prospective insured pressed a button and a policy of insurance emerged from the machine. The contract was about 11 inches long [402] and both sides of it were filled with printed matter. Across the front of it, in large letters which obliterated some of the printing beneath, was the statement: "This Policy Is Limited To Aircraft Accidents. Read It Carefully." The coverage clause on page 1 said:

"This insurance shall apply only to such injuries sustained following the purchase by or for the Insured of a transportation ticket from * * * a Scheduled Airline during any portion of the first one way or round airline trip covered by such transportation ticket * * * in consequence of: (a) boarding, riding as a passenger in * * * any aircraft operated on a regular or special or chartered flight by a Civilian Scheduled Airline maintaining regular, published schedules and licensed for interstate, intrastate or international transportation of passengers by the Governmental Authority having jurisdiction over Civil Aviation * * *." 118 N.E.2d, at page 557.

The mother's plane ticket (plaintiff was the named beneficiary) was for transportation on a Miami Airline, Inc. plane. It crashed on the way to Florida and she was killed. The insurance carrier refused to pay on the ground that the flight was not operated by a Civilian Scheduled Airline. The court sustained the refusal to dismiss the complaint, saying:

"What contract of insurance, then, did the decedent purchase? She intended to buy coverage for her flight to Miami. The defendant says it did not intend to cover her on that flight. We all know that a contract of insurance, drawn by the insurer, must be read through the eyes of the average man on the street or the average housewife who purchases it. Neither of them is expected to carry the Civil Aeronautics Act or the Code of Federal Regulations when taking a plane. * * * Was the decedent entitled to believe that she had purchased `Airline Trip Insurance' through a policy `Limited To Aircraft Accidents'? It seems to us that a jury could find that when decedent purchased her policy on an application for `Airline Trip Insurance' from a machine having in prominent lighting those same three words, before obtaining her ticket from a counter in front of which the machine stood, she was covered on her flight, since the minds of the decedent and the company had met on that basis. * * *

* * * As we pointed out in Hartol Products Corp. v. Prudential Ins. Co., supra, the burden in such a case as this is on the [403] defendant to establish that the words and expressions used not only are susceptible of the construction sought by defendant but that it is the only construction which may fairly be placed on them. The defendant in its large illuminated lettering and in its application could have added proper, unambiguous words or a definition or could have avoided allowing its vending machine to be placed in front of the ticket counter `utilized by all non-scheduled airlines operating out of the Newark Airport,' thus removing the ambiguity or equivocal character of the invitation to insure, of the application for insurance and the contract of insurance itself." 118 N.E.2d, at pages 558-559. (Emphasis ours)

The task of the judiciary is to administer the spirit as well as the letter of the law. On issues such as the present one, part of that burden is to protect the ordinary man against the loss of important rights through what, in effect, is the unilateral act of the manufacturer. The status of the automobile industry is unique. Manufacturers are few in number and strong in bargaining position. In the matter of warranties on the sale of their products, the Automotive Manufacturers Association has enabled them to present a united front. From the standpoint of the purchaser, there can be no arms length negotiating on the subject. Because his capacity for bargaining is so grossly unequal, the inexorable conclusion which follows is that he is not permitted to bargain at all. He must take or leave the automobile on the warranty terms dictated by the maker. He cannot turn to a competitor for better security.

Public policy is a term not easily defined. Its significance varies as the habits and needs of a people may vary. It is not static and the field of application is an ever increasing one. A contract, or a particular provision therein, valid in one era may be wholly opposed to the public policy of another. See Collopy v. Newark Eye & Ear Infirmary, 27 N.J. 29, 39 (1958). Courts keep in mind the principle that the best interests of society demand that persons should not be unnecessarily restricted in their freedom to contract. But they do not hesitate to declare void as against public policy contractual provisions which clearly tend to the injury of [404] the public in some way. Hodnick v. Fidelity Trust Co., 96 Ind. App. 342, 183 N.E. 488 (App. Ct. 1932).

Public policy at a given time finds expression in the Constitution, the statutory law and in judicial decisions. In the area of sale of goods, the legislative will has imposed an implied warranty of merchantability as a general incident of sale of an automobile by description. The warranty does not depend upon the affirmative intention of the parties. It is a child of the law; it annexes itself to the contract because of the very nature of the transaction. Minneapolis Steel & Machinery Co. v. Casey Land Agency, 51 N.D. 832, 201 N.W. 172 (Sup. Ct. 1924). The judicial process has recognized a right to recover damages for personal injuries arising from a breach of that warranty. The disclaimer of the implied warranty and exclusion of all obligations except those specifically assumed by the express warranty signify a studied effort to frustrate that protection. True, the Sales Act authorizes agreements between buyer and seller qualifying the warranty obligations. But quite obviously the Legislature contemplated lawful stipulations (which are determined by the circumstances of a particular case) arrived at freely by parties of relatively equal bargaining strength. The lawmakers did not authorize the automobile manufacturer to use its grossly disproportionate bargaining power to relieve itself from liability and to impose on the ordinary buyer, who in effect has no real freedom of choice, the grave danger of injury to himself and others that attends the sale of such a dangerous instrumentality as a defectively made automobile. In the framework of this case, illuminated as it is by the facts and the many decisions noted, we are of the opinion that Chrysler's attempted disclaimer of an implied warranty of merchantability and of the obligations arising therefrom is so inimical to the public good as to compel an adjudication of its invalidity. See 57 Yale L.J., supra, at pp. 1400-1404; proposed Uniform Commercial Code, 1958 Official Text, § 202.

[405] The trial court sent the case to the jury against Chrysler on the theory that the evidence would support a finding of breach of an implied warranty of merchantability. In fact, at one point in his charge he seemed to say that as a matter of law such a warranty existed. He also told them that:

"A provision in a purchase order for an automobile that an express warranty shall exclude all implied warranties will not be given effect so as to defeat an implied warranty that the machine shall be fit for the purposes for which it was intended unless its inclusion in the contract was fairly procured or obtained."

Thereafter, the court charged that when the car was sold a warranty arose that it was reasonably suited for ordinary use, and that if they found that it was defective and "not reasonably suited for ordinary driving" liability would exist "provided * * * you find there was an implied warranty and a breach thereof." The reasonable inference to be drawn from the whole context is that a preliminary finding against the binding effect of the disclaimer would have to be made, i.e., that the disclaimer was not "fairly procured," before an implied warranty could be deemed to exist. Even assuming that the duty to make such a finding was not as explicit as it should have been, in view of our holding that the disclaimer is void as a matter of law, the charge was more favorable to the defendant than the law required it to be. The verdict in favor of the plaintiffs and against Chrysler Corporation establishes that the jury found that the disclaimer was not fairly obtained. Thus, this defendant cannot claim to have been prejudiced by a jury finding on an aspect of the case which the court should have disposed of as a matter of law.

Chrysler raises in this court for the first time the defense that plaintiffs' failure to give reasonable notice of the breach of warranty bars their recovery. The claim was not made in the answer, pretrial order, at the trial or as a ground of appeal in the brief filed on this review. It [406] was added by letter filed after oral argument. It comes too late for consideration at this point in the proceedings.

The same situation arose in National Equipment Corporation v. Moore, 189 Minn. 632, 250 N.W. 677 (Sup. Ct. 1933). The contention was rejected, the court saying:

"It is enough to say that no such defense to the counterclaim was pleaded, litigated, or submitted to the jury. There was some testimony as to whether certain complaints were made * * * but nothing to indicate to the court or opposing counsel that such evidence was directed to prove noncompliance with said section 8423, and no such issue was submitted, or requested to be submitted, to the jury." 250 N.W., at page 679.

III.

THE DEALER'S IMPLIED WARRANTY.

The principles that have been expounded as to the obligation of the manufacturer apply with equal force to the separate express warranty of the dealer. This is so, irrespective of the absence of the relationship of principal and agent between these defendants, because the manufacturer and the Association establish the warranty policy for the industry. The bargaining position of the dealer is inextricably bound by practice to that of the maker and the purchaser must take or leave the automobile, accompanied and encumbered as it is by the uniform warranty.

Moreover, it must be remembered that the actual contract was between Bloomfield Motors, Inc., and Claus Henningsen, and that the description of the car sold was included in the purchase order. Therefore, R.S. 46:30-21(2) annexed an implied warranty of merchantability to the agreement. Stuart v. Burlington Co. Farmers' Exchange, 90 N.J.L. 584 (E. & A. 1917); Adams v. Peter Tramontin Motor Sales, supra; Cassini v. Curtis Candy Co., 113 N.J.L. 91 (Sup. Ct. 1934); McCabe v. L.K. Liggett Drug Co., 330 Mass. 177, 112 N.E.2d 254 [407] (Sup. Jud. Ct. 1953); Ryan v. Progressive Grocery Stores, supra; Mahoney v. Shaker Square Beverages, Inc., supra; Prosser, Law of Torts, supra, at p. 495; Vold on Sales, supra, at pp. 436, 442-443; 1 Williston on Sales, supra, §§ 233, 242. It remains operative unless the disclaimer and liability limitation clauses were competent to exclude it and the ordinary remedy for its breach. It has been said that this doctrine is harsh on retailers who generally have only a limited opportunity for inspection of the car. But, as Chief Judge Cardozo said in Ryan, supra:

"The burden may be heavy. It is one of the hazards of the business.

* * * * * * * *

* * * In such circumstances, the law casts the burden on the seller, who may vouch in the manufacturer, if the latter was to blame. The loss in its final incidence will be borne where it is placed by the initial wrong." 175 N.E., at pages 106 and 107.

Re-examination of the purchase contract discloses an ambiguous situation with respect to the warranty position of the dealer. Section 7, on the reverse side thereof, says no warranties, express or implied, are made by the dealer or manufacturer except the express warranty of the manufacturer discussed above. However, the last paragraph of the section says that: "The dealer also agrees to promptly perform and fulfill all terms and conditions of the owner service policy." That policy, as noted above, sets forth the same manufacturer's warranty and then adds a stipulation substituting "dealer" in the context wherever "manufacturer" appears. Presumably the intention was to incorporate the policy into the sales contract by reference. Accepting that to be the dealer's intention, the binding character of the limitation on its liability to the buyer under the warranty is even less apparent than in the case of Chrysler. The uncontradicted proof shows that the policy was not shown or given to Henningsen prior to or at the time of execution of the sales agreement; it was delivered with the car. No [408] one suggests that the clause limiting the dealer's liability to replacement of defective parts and excluding implied warranties as well as responsibility for personal injury claims was specifically brought to Henningsen's attention, or that any attempt was made to make him understand that he was yielding his right, and that of any third person claiming in his right, to recover for such injuries.

For the reasons set forth in Part I hereof, we conclude that the disclaimer of an implied warranty of merchantability by the dealer, as well as the attempted elimination of all obligations other than replacement of defective parts, are violative of public policy and void.

The trial court submitted to the jury, on the same basis as in the claim against the manufacturer, the issue of whether the disclaimer provisions in the contract were fairly procured by the dealer. The dealer also contends that the language is susceptible of the conclusion that the jurors were told as a matter of law that an implied warranty of merchantability came into existence once the sale was made by him. As we have said, a reasonable purport of the instructions in context is that upon the evidence adduced at the trial a decision was to be made as to whether the disclaimer clauses were valid, and if it was found that they were not valid, then an implied warranty existed, breach of which would support plaintiffs' action. Submission of the case to the jury on that basis represented more favorable treatment than the dealer was entitled to receive. But assuming the contention to be correct that the only conclusion to be drawn from the court's statements is that the jury were told that an implied warranty of merchantability arose from the sale as a matter of law, and that they were to decide if the proof demonstrated a breach of it, such advice was correct for the public policy reasons already expressed. Under the circumstances, there is nothing in defendant Bloomfield Motors' criticism of the charge on that score which would warrant reversal of the judgment.

[409] IV.

PROOF OF BREACH OF THE IMPLIED WARRANTY OF MERCHANTABILITY.

Both defendants argue that the proof adduced by plaintiffs as to the happening of the accident was not sufficient to demonstrate a breach of warranty. Consequently, they claim that their motion for judgment should have been granted by the trial court. We cannot agree. In our view, the total effect of the circumstances shown from purchase to accident is adequate to raise an inference that the car was defective and that such condition was causally related to the mishap. See, Yormack v. Farmers' Co-op. Ass'n of N.J., 11 N.J. Super. 416 (App. Div. 1951); Knapp v. Willys-Ardmore, Inc., supra. Thus, determination by the jury was required.

The proof adduced by the plaintiffs disclosed that after servicing and delivery of the car, it operated normally during the succeeding ten days, so far as the Henningsens could tell. They had no difficulty or mishap of any kind, and it neither had nor required any servicing. It was driven by them alone. The owners service certificate provided for return for further servicing at the end of the first 1,000 miles — less than half of which had been covered at the time of Mrs. Henningsen's injury.

The facts, detailed above, show that on the day of the accident, ten days after delivery, Mrs. Henningsen was driving in a normal fashion, on a smooth highway, when unexpectedly the steering wheel and the front wheels of the car went into the bizarre action described. Can it reasonably be said that the circumstances do not warrant an inference of unsuitability for ordinary use against the manufacturer and the dealer? Obviously there is nothing in the proof to indicate in the slightest that the most unusual action of the steering wheel was caused by Mrs. Henningsen's operation of the automobile on this day, or by the use of the car between delivery and the happening of the incident. Nor is there [410] anything to suggest that any external force or condition unrelated to the manufacturing or servicing of the car operated as an inducing or even concurring factor.

It is a commonplace of our law that on a motion for dismissal all of the evidence and the inferences therefrom must be taken most favorably to the plaintiff. And if reasonable men studying the proof in that light could conclude that the car was not merchantable, the issue had to be submitted to the jury for determination. Applying that test here, we have no hesitation in holding that the settlement of the question of breach of warranty as to both defendants was properly placed in the hands of the jury. In our judgment, the evidence shown, as a matter of preponderance of probabilities, would justify the conclusion by the ultimate triers of the facts that the accident was caused by a failure of the steering mechanism of the car and that such failure constituted a breach of the warranty of both defendants.

A somewhat similar case is Knapp v. Willys-Ardmore, Inc., supra, where liability was predicated upon breach of implied warranty of merchantability. Plaintiff bought a new car from defendant and drove it 107 miles in eight days. During that period it was used only for pleasure and was driven properly and without incident. Immediately before the accident, Mrs. Knapp was driving along at a moderate speed, when the steering mechanism failed to function and the car suddenly veered to the right over the curb and into a telephone pole. After the collision it was noted that the tie-rod at the right end of the steering assembly had become disconnected and had dropped to the ground. Inspection showed that the rod had been bent and a connecting sleeve or turn-buckle had been broken. A witness who had been driving in the opposite direction testified that he observed the right front wheel "wobbling" and the car "seemed to go out of control," over the curb and into the pole. A mechanic gave some testimony from which it might be inferred that the tie-rod had been broken before the impact with the pole. [411] It was held that the facts created a reasonable inference that the car was defective when delivered and that the defect was not caused by subsequent conduct of the plaintiff. The court pointed out that while existence of a defect cannot be found on the basis of mere conjecture or guess, yet it is not necessary to exclude every other possible cause which the ingenuity of counsel might suggest. The finding of breach of an implied warranty of merchantability was held to be circumstantially supportable by the necessary quantum of proof.

It may be conceded that the opinion of the automobile expert produced by the plaintiffs in the present case was not entitled to very much probative force. However, his assertion in answer to the hypothetical question that the unusual action of the steering wheel and front wheels must have been due to a mechanical defect or failure of something from the steering wheel down to the front wheels, that "something down there had to drop off or break loose" to cause the car to act in the manner it did, cannot be rejected as a matter of law. Its evaluation under all of the circumstances was a matter for jury consideration. Defendants argue that the proof of his qualifications was not adequate to warrant the admission of his testimony. But the matter of an expert's competency to testify is primarily for the discretion of the trial court. An appellate tribunal will not interfere unless a clear abuse of discretion appears. Carbone v. Warburton, 11 N.J. 418 (1953). In our view, the experience of the witness, as an automobile repairman and as an appraiser of damaged cars, was such as to preclude a holding by us that the trial court accepted his qualifications without any reasonable basis.

In M. Dietz & Sons, Inc. v. Miller, 43 N.J. Super. 334 (App. Div. 1957), defendant purchased a new car from a dealer. He drove it only 50 miles when, on the day of the accident while driving in traffic, he applied the brakes in order to stop in back of the Dietz vehicle. The brakes failed completely and Miller ran into the rear of that car. [412] Dietz sued Miller, who cross-claimed against the dealer for negligent installation or inspection of the power brakes. The Appellate Division properly declared that "even where the rule of res ipsa loquitur does not apply, the plaintiff may nevertheless show `defendant's negligence by circumstantial or direct evidence of specific acts from which liability may be inferred.'" Supra, at page 338. And further that: "The real issue here is the efficacy of the circumstantial proof to create a fact issue as to defendant's negligence either in installation or inspection of the unit upon installation. There can be no doubt as to the sufficiency of the evidence to justify the finding that there was a power brake failure * * *." Supra, at pages 338-339. And see, Mazzietelle v. Belleville Nutley Buick Co., 46 N.J. Super. 410 (App. Div. 1957); Yormack v. Farmers' Co-op. Ass'n of N.J., supra. Although these latter cases sound in negligence, the test for finding a jury question in them is even more stringent. Circumstantial evidence sufficient to create a jury question as to the negligence of a manufacturer or dealer would clearly justify the same result where the issue is breach of warranty. As the late Chief Justice Vanderbilt said, in Simon v. Graham Bakery, supra, liability would exist notwithstanding all care was used to prevent a breach.

V.

THE DEFENSE OF LACK OF PRIVITY AGAINST MRS. HENNINGSEN.

Both defendants contend that since there was no privity of contract between them and Mrs. Henningsen, she cannot recover for breach of any warranty made by either of them. On the facts, as they were developed, we agree that she was not a party to the purchase agreement. Faber v. Creswick, 31 N.J. 234 (1959). Her right to maintain the action, therefore, depends upon whether she occupies such legal status thereunder as to permit her to take advantage of a breach of defendants' implied warranties.

[413] For the most part the cases that have been considered dealt with the right of the buyer or consumer to maintain an action against the manufacturer where the contract of sale was with a dealer and the buyer had no contractual relationship with the manufacturer. In the present matter, the basic contractual relationship is between Claus Henningsen, Chrysler, and Bloomfield Motors, Inc. The precise issue presented is whether Mrs. Henningsen, who is not a party to their respective warranties, may claim under them. In our judgment, the principles of those cases and the supporting texts are just as proximately applicable to her situation. We are convinced that the cause of justice in this area of the law can be served only by recognizing that she is such a person who, in the reasonable contemplation of the parties to the warranty, might be expected to become a user of the automobile. Accordingly, her lack of privity does not stand in the way of prosecution of the injury suit against the defendant Chrysler.

The context in which the problem of privity with respect to the dealer must be considered, is much the same. Defendant Bloomfield Motors is chargeable with an implied warranty of merchantability to Claus Henningsen. There is no need to engage in a separate or extended discussion of the question. The legal principles which control are the same in quality. The manufacturer establishes the network of trade and the dealer is a unit utilized in that network to accomplish sales. He is the beneficiary of the same express and implied warranties from the manufacturer as he extends to the buyer of the automobile. If he is sued alone, he may implead the manufacturer. Davis v. Radford, 233 N.C. 283, 63 S.E.2d 822, 24 A.L.R.2d 906 (Sup. Ct. 1951); Annotation, 24 A.L.R.2d 913 (1952). His understanding of the expected use of the car by persons other than the buyer is the same as that of the manufacturer. And so, his claim to the doctrine of privity should rise no higher than that of the manufacturer. See, e.g., Haut v. [414] Kleene, supra; Greenberg v. Lorenz, supra; Ryan v. Progressive Grocery Stores, Inc., supra.

The situation before us in its legal aspects is very similar to that which we dealt with recently in Faber v. Creswick, supra. There, in a landlord and tenant relationship the lease contained a covenant to have the premises in good repair at the inception of the occupancy. The wife of the tenant was injured by reason of a breach of that agreement. We held that she was entitled to recover damages even though she was not a party to the lease. In doing so, our approval was given to the doctrine proposed by Section 357 of the Restatement of Torts that where a lessor agrees to keep the premises let in good repair, he is subject to liability for bodily harm caused to the lessee and others on the land with his consent by a condition of disrepair. True, the suit in Faber was in tort while this one is in contract. But it cannot be overlooked that historically actions on warranties were in tort also, sounding in deceit. Simon v. Graham Bakery, supra, 17 N.J., at pages 528, 529; 1 Williston on Sales, supra, §§ 195-197. The contract theory gradually emerged, although the tort idea has continued to lurk in the background, making the warranty "a curious hybrid of tort and contract." Prosser, supra, § 83. An awareness of this evolution makes for ready acceptance of the relaxation of rigid concepts of privity when third persons, who in the reasonable contemplation of the parties to a warranty might be expected to use or consume the product sold, are injured by its unwholesome or defective state.

It is important to express the right of Mrs. Henningsen to maintain her action in terms of a general principle. To what extent may lack of privity be disregarded in suits on such warranties? In that regard, the Faber case points the way. By a parity of reasoning, it is our opinion that an implied warranty of merchantability chargeable to either an automobile manufacturer or a dealer extends to the purchaser of the car, members of his family, and to other persons occupying or using it with his consent. It would be [415] wholly opposed to reality to say that use by such persons is not within the anticipation of parties to such a warranty of reasonable suitability of an automobile for ordinary highway operation. Those persons must be considered within the distributive chain.

Harper and James suggest that this remedy ought to run to members of the public, bystanders, for example, who are in the path of harm from a defective automobile. 2 Harper & James, supra, note 6, p. 1572. Section 2-318 of the Uniform Commercial Code proposes that the warranty be extended to "any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such person may use, consume or be affected by the goods and who is injured in person by breach of the warranty." And the section provides also that "A seller may not exclude or limit the operation" of the extension. A footnote thereto says that beyond this provision "the section is neutral and is not intended to enlarge or restrict the developing case law on whether the seller's warranties, given to his buyer, who resells, extend to other persons in the distributive chain." Uniform Commercial Code, supra, at p. 100.

It is not necessary in this case to establish the outside limits of the warranty protection. For present purposes, with respect to automobiles, it suffices to promulgate the principle set forth above.

In his charge as to Mrs. Henningsen's right to recover on the implied warranty, the trial court referred to her husband's testimony that he was buying the car for her use, and then instructed the jury that on such facts the warranty extended to her. In view of our holding, obviously the protection of the warranty runs to her as an incident of the sale without regard to such testimony. Accordingly, the contention that the instruction was reversible error must be rejected.

Defendants rely upon certain cases for the proposition that lack of privity of contract bars Mrs. Henningsen's recovery. [416] The pertinent ones are Tomlinson v. Armour & Co., supra; Cassini v. Curtis Candy Co., supra; Schlosser v. Goldberg, 123 N.J.L. 470 (Sup. Ct. 1939); General Home, etc., Co. v. American, etc., Inc., 26 N.J. Misc. 24 (Cir. Ct. 1947). Tomlinson v. Armour & Co. provides the foundation for the others. It was decided 52 years ago and the principle on which defendants seek support for their case is contained in a short statement which, if applied in the light of the modern marketing conditions, is not inconsistent with the basic substance of the rule we have now espoused. In discussing the legal consequences of a sale of canned ham, Chancellor Pitney said:

"Whether a warranty be express or implied, it is a matter of contract, rendering the maker liable in case of breach, notwithstanding he used all care to prevent a breach, but rendering him liable in ordinary circumstances only to the party with whom he contracted, or to others for whose benefit the contract was made." 75 N.J.L., at pages 754-755. (Emphasis ours)

In 1908, the need of the community for the making of distinctions growing out of the nature of the contract was not as pressing as it is in this commercial era. A common rule was applied, as indicated by the citation of Marvin Safe Co. v. Ward, 46 N.J.L. 19 (Sup. Ct. 1884), and Styles v. F.R. Long Company, 67 N.J.L. 413 (Sup. Ct. 1902), which involved agreements wholly unrelated to the sale of products for consumer use. In this day, given the present situation, it is extremely unlikely that such an enlightened jurist as Chancellor Pitney would not find his expression that "others for whose benefit the contract was made" could sue for its breach compatible in spirit with the doctrine we deem to be necessary in the interest of justice. In any event, to the extent that Tomlinson v. Armour & Co. and its cited progeny conflict with our ruling, they can no longer be considered the law of this State. See Collopy v. Newark Eye and Ear Infirmary, supra.

The final argument on this point relates to the damage claim of Claus Henningsen. That claim has two [417] aspects: one for property damage to the automobile and the other for medical and hospital expenses and loss of his wife's society and services. As to the first, he being an actual party to the contract of sale, and the owner of the automobile, clearly the property damage is recoverable. The second claim is a derivative one, stemming from his wife's right. Faber v. Creswick, supra. But it is universally known that in family relations husbands and fathers are ordinarily responsible for such expenses of spouses and children. It would be illogical to accept the right of a wife to recover in contract for breach of warranty and to hold that the husband's derivative claim was not within the contemplation of the parties when the agreement of sale was made. For this reason it was proper to submit Henningsen's consequential losses to the jury as an element of damage.

VI.

Plaintiffs contend on cross-appeal that the negligence claim against the defendants should not have been dismissed. Their position is that on the facts developed, the issue should have been submitted to the jury for determination. The result we have reached on the other aspects of the case makes it unnecessary to consider the problem. For that reason we express no opinion thereon.

All other ground of appeal raised by both parties have been examined and we find no reversible error in any of them.

VII.

Under all of the circumstances outlined above, the judgments in favor of the plaintiffs and against defendants are affirmed.

For affirmance — Chief Justice WEINTRAUB, and Justices BURLING, JACOBS, FRANCIS, PROCTOR and SCHETTINO — 6.

For reversal — None.

[160] Robins, Zelle, Larson & Kaplan, Robert M. Wattson and David Evinger, Minneapolis, Dorsey, Windhorst, Hannaford, Whitney & Halladay, William J. Hempel, Philip M. Chen, and Stephen R. Duerr, Minneapolis, for plaintiff.

Faegre & Benson, Norman R. Carpenter, Robert L. Schnell, Jr., and Brian B. O'Neill, Minneapolis, for defendants.

Heard, considered and decided by the court en banc.

SCOTT, Justice.

This is a products liability case involving three questions certified to this court by the Federal District Court of Minnesota. The certified questions arise from a case involving the purchase by plaintiff, Superwood Corporation, of a hot plate press manufactured in 1954 by defendant, G. Siempelkamp. The press operated without problem from 1954 to 1975, when the cylinder on the hot plate press failed and could not be repaired. On March 12, 1979, three years after the cylinder failed, plaintiff brought this Federal District Court action based on negligence, strict products liability, breach of warranty, and breach of contract. Plaintiff sought $616,716 in damages because of alleged damage to the press and lost profits.

The federal court granted defendant's summary judgment motion on the contract and warranty claims.^[1] With regard to the strict liability and negligence claims, the federal court certified three questions of "uncertain" state law to this court:

CERTIFIED QUESTIONS

1. Is the manufacturer of defective equipment (a press) strictly^[2] liable in negligence to the user of the equipment damaged in its property and business by negligent product manufacture, inspection, or installation supervision?

2. Is the manufacturer of defective equipment (a press) strictly liable in tort to the user of the equipment damaged in its property and business by the product defect?

3. If question 1 or 2, or both, are answered affirmatively, are any or all of the following items of damages recoverable, if directly caused by negligence or defect?

a. Costs of replacement and transportation of a substantial component part of the product.

b. Clean-up labor, including payroll taxes and employee fringe benefits.

c. Repair, replacement, and other factory labor, including payroll taxes and employee fringe benefits.

d. Costs of inspection of the destroyed part and the replacement thereof.

e. Net sales value of production lost, less non-continuing expenses.

f. Increased costs of production from other facilities of plaintiff to supply goods to its Bemidji Nu-Ply plant customers to keep their goodwill.

To answer these questions we must determine whether economic losses arising out of [161] commercial transactions are recoverable under negligence and strict products liability theories.^[3] Defendant argues that when the Minnesota Legislature enacted the Uniform Commercial Code^[4] (U.C.C.) it created a comprehensive statutory scheme for dealing with the rights and duties of parties to commercial sales transactions. Defendant contends that to allow a tort action would circumvent the system of rights and remedies detailed by the legislature in the U.C.C.

Many courts have considered defendant's argument, the first of which was the New Jersey Supreme Court in Santor v. Karagheusian, 44 N.J. 52, 207 A.2d 305 (1965). In Santor, a commercial plaintiff purchased defective carpeting from a retailer. The New Jersey court held that the plaintiff could proceed against the manufacturer under either strict products liability or the U.C.C.'s warranty provisions. In so holding, the Santor court decided that the U.C.C. did not provide the exclusive set of remedies for cases arising out of commercial transactions.^[5]

Soon thereafter, the California Supreme Court considered the same issue in Seely v. White Motor Company, 63 Cal.2d 9, 45 Cal. Rptr. 17, 403 P.2d 145 (1965). The Seely court considered whether a plaintiff could, based on a strict products liability theory, recover the purchase price of a defective truck and the resulting loss of profits for lack of its normal use. In rejecting the Santor holding, Chief Justice Traynor, writing for the California court, recognized that the law of sales was designed to meet the needs of commercial transactions. The court refused to allow a form of recovery that would undermine the law of sales, and not reflect the understanding of the parties. Id. at 15, 45 Cal.Rptr. at 23-24, 403 P.2d at 151. The California court held that economic losses were not recoverable in an action based on strict products liability. In dicta the court also indicated that, even in actions based on negligence, economic losses were not actionable. Id. at 16, 45 Cal.Rptr. at 24, 403 P.2d at 151. The majority of jurisdictions that have considered this issue have followed the holding in Seely.^[6]

Although this is a case of first impression in Minnesota, this court has already demonstrated its approval of Seely in Farr v. [162] Armstrong Rubber, 288 Minn. 83, 179 N.W.2d 64 (1970). In Farr, this court stated:

Applying § 402A's concept of strict liability in tort will not result in absolute liability of the manufacturer, as Armstrong contends; nor will it supersede the Uniform Commercial Code concept of strict liability in implied warranty, as some commentators fear.

* * * * * *

The laws of warranty still meet the needs of commercial transactions and function well in a commercial setting. See, Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145. However, the Restatement theory of responsibility more adequately meets the public policy need to protect consumers from the inevitable risks of bodily harm created by mass production and complex marketing conditions. McCormack v. Hankscraft Co., Inc., supra.

Id. at 93-94, 179 N.W.2d at 70-71 (emphasis added).

The U.C.C. clarifies the rights and remedies of parties to commercial transactions. For example, there are specific provisions covering warranties, see Minn.Stat. § 336.2-314 (1980); warranty disclaimers, see Minn. Stat. § 336.2-316 (1980); liability limitations, see Minn.Stat. § 336.2-719 (1980); and notice provisions, see Minn.Stat. § 336.2-607 (1980). The recognition of tort actions in the instant case would create a theory of redress not envisioned by the legislature when it enacted the U.C.C. Furthermore, tort theories of recovery would be totally unrestrained by legislative liability limitations, warranty disclaimers and notice provisions. To allow tort liability in commercial transactions would totally emasculate these provisions of the U.C.C. Clearly, the legislature did not intend for tort law to circumvent the statutory scheme of the U.C.C.

In Cline v. Prowler Industries of Maryland, Inc., 418 A.2d 968 (Del.1980), the Supreme Court of Delaware held that, regarding sales transactions, the U.C.C. completely preempted the field of products liability. According to the Delaware court even an injured consumer purchaser would have to look to the U.C.C. for the sole source of remedies. We, however, do not agree that the U.C.C. was intended to preempt the entire area of products liability. Strict products liability developed in large part to fill gaps in the law of sales with respect to consumer purchasers. See Noel, Products Liability of Retailers and Manufacturers in Tennessee, 32 Tenn.L.Rev. 207 (1965); Prosser, The Assault Upon the Citadel (Strict Liability to the Consumer), 69 Yale L.J. 1099, 1124-34 (1960); Traynor, The Ways and Means of Defective Products and Strict Liability, 32 Tenn.L.Rev. 363 (1965). Limiting the application of strict products liability to consumers' actions or actions involving personal injury will allow the U.C.C. to satisfy the needs of the commercial sector and still protect the legitimate expectations of consumers.

For these reasons, we hold that economic losses that arise out of commercial transactions, except those involving personal injury or damage to other property, are not recoverable under the tort theories of negligence or strict products liability. We therefore answer certified questions 1 and 2 in the negative. Because of our resolution of the first two questions, we need not discuss the third certified question.

YETKA, Justice (concurring in part and dissenting in part).

I concur in that portion of the majority opinion that concludes that strict liability in tort cannot be asserted by a commercial plaintiff as a ground for recovery of purely economic injury.

I must dissent, however, to that portion of the majority opinion that concludes that the negligence of a manufacturer cannot be asserted by a commercial plaintiff as a ground for recovery of economic injury.

Actions based on negligence have long been recognized in commercial contexts in this state. See Nieman v. Channellene Oil & Mfg. Co., 112 Minn. 11, 127 N.W. 394 (1910) (retailer recovered damages from the [163] wholesaler for loss of business resulting from the sale of contaminated cooking oil); Ellis v. Lindmark, 177 Minn. 390, 225 N.W. 395 (1929) (recovery allowed for economic damages to plaintiffs' poultry business resulting from, inter alia, wholesaler's mislabeling of raw linseed oil as cod liver oil). The majority is, therefore, abrogating rights long recognized to exist in commercial plaintiffs.

There is no indication that the legislature intended to preempt negligence recovery when it enacted the Uniform Commercial Code (UCC). There are no references in the text or the comments of the UCC from which such preemption can be inferred. Moreover, Minn.Stat. § 336.1-102(3) (1980) provides that the general obligations of the UCC, such as "reasonableness" and "care," may not be disclaimed by agreement. This strongly suggests that the legislature had no interest in protecting negligent commercial parties.

Legislative enactments are not to be construed in derogation of well-established principles of common law unless the express language or the necessary implications of the particular statute require such construction. Fuller v. City of Mankato, 248 Minn. 342, 347, 80 N.W.2d 9, 12 (1956); Swogger v. Taylor, 243 Minn. 458, 465, 68 N.W.2d 376, 382 (1955). Because there is no clear indication of preemption in this case, I believe the action for negligently inflicted economic loss in commercial contexts survives the enactment of the UCC.

Further, there is no basis for the contention that negligence recovery for economic loss would "emasculate" the remedies provided through the UCC. Cf. Santor v. A. & M. Karagheusian, Inc., 44 N.J. 52, 207 A.2d 305 (1965) (allowing implied warranty recovery).^[7] The remedies provided by the UCC merely supplement the negligence theory of recovery. UCC 2-318, Comment 2, indicates that the expansion of existing warranties to the buyer's household and guests should be "accomplish[ed] * * * without any derogation of any right or remedy resting on negligence." This is a significant indication that the UCC is not designed to exclude negligence from its scheme of remedies.

The continued recognition of negligence recovery for economic loss will not diminish the use or effectiveness of the Code remedies but merely provide an additional means of compelling production of quality manufactured goods. The majority's decision effectively restricts the ability of commercial purchasers to require the manufacturers to provide products that will not result in damage to property. The duty to which manufacturers can be held under negligence standards is not so onerous that this court must step in to relieve them of that duty.

Finally, under the majority opinion, distribution of defective products is only subject to a negligence action when the defect results in personal injury or damages to other property. It seems to me imprudent to permit manufacturers to sell negligently produced and potentially dangerous products and only to make them accountable when a person is harmed or other property is damaged. The better approach is to require accountability when any injury, economic or otherwise, occurs. Insistence on such accountability will provide a definite incentive to manufacture only quality products that ensure the safety of all consumers.

SHERAN, C. J., took no part in the consideration or decision of this case.

[1] The federal court dismissed the contract and warranty claims, finding that the statute of limitations had run on those claims.

[2] It is our assumption that the word "strictly," as used in the certified question by the federal court, was unintended, because strict liability and negligence are separate theories of recovery. The similarity of the first and second questions indicates that use of "strictly" in Question 1 was a clerical error.

[3]The basic theory behind strict products liability is embodied in the Restatement (Second) of Torts 402A (1965) as follows:

One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property, is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property * * *.

Strict products liability was adopted by this court in McCormack v. Hankscraft Co., 278 Minn. 322, 154 N.W.2d 488 (1967).

[4] The U.C.C. was enacted in this state on May 26, 1965. See Act of May 26, 1965, ch. 811, 1965 Minn. Laws 1290.

[5] The Santor court may have "stretched" to allow tort remedies in order to avoid privity requirements that would otherwise have prevented any action against remote sellers of defective products. See Steenson, The Anatomy of Products Liability in Minnesota: The Theories of Recovery, 6 Wm. Mitchell L.Rev. 1, 50 n. 207 (1980). This reason for allowing tort recovery does not exist in Minnesota, since the Minnesota Legislature has adopted the most liberal privity alternative of the U.C.C., see Minn.Stat. § 336.2-318 (1980), and because this court has consistently avoided privity limitations, see Durfee v. Rod Baxter Imports, Inc., 262 N.W.2d 349, 358 (Minn.1978), noted in 5 Wm. Mitchell L.Rev. 241 (1979); Milbank Mutual Ins. Co. v. Proksch, 309 Minn. 106, 113, 244 N.W.2d 105, 109 (1976); McCormack v. Hankscraft Co., 278 Minn. 322, 339, 154 N.W.2d 488, 500-01 (1967); Beck v. Spindler, 256 Minn. 543, 562, 99 N.W.2d 670, 683 (1959); Schubert v. J. R. Clark Co., 49 Minn. 331, 340, 51 N.W. 1103, 1106 (1892).

[6] A number of jurisdictions have adopted the Seely position: Iowa Elec. Light & Power Co. v. Allis-Chalmers Mfg. Co., 360 F.Supp. 25, 27-33 (S.D.Iowa 1973); Miehle Co. v. Smith-Brooks Printing Co., 303 F.Supp. 501, 503 (D.Colo. 1969); Morrow v. New Moon Homes, Inc., 548 P.2d 279 (Alaska 1978); Beauchamp v. Wilson, 21 Ariz.App. 14, 515 P.2d 41 (1973); Long v. Jim Letts Oldsmobile, Inc., 135 Ga.App. 293, 217 S.E.2d 602 (1975); Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978); Rhodes Pharmacal Co. v. Continental Can Co., 72 Ill.App.2d 362, 219 N.E.2d 726 (1966); Marcil v. John Deere Industrial Equipment Co., 9 Mass.App. 908, 403 N.E.2d 430 (Mass.App.1980); Hawkins Constr. Co. v. Matthews Co., Inc., 190 Neb. 546, 209 N.W.2d 643 (1973); Ford Motor Co. v. Lonon, 217 Tenn. 400, 398 S.W.2d 240 (Tenn.1966).

[7] In addition, see Cova v. Harley Davidson Motor Co., 26 Mich.App. 602, 609-11, 182 N.W.2d 800, 806-10 (1970); Russell v. Ford Motor Co., 281 Or. 587, 588-93, 575 P.2d 1383, 1384-86 (1978); Nobility Homes of Texas, Inc. v. Shivers, 557 S.W.2d 77, 80-83 (Tex.1977); Berg v. General Motors Corp., 87 Wash.2d 584, 587-94, 555 P.2d 818, 819-23 (1976); City of La Crosse v. Schubert, Schroeder & Assocs., 72 Wis.2d 38, 43-45, 240 N.W.2d 124, 127-28 (1976).

[350 F.2d 446]

        COPYRIGHT MATERIAL OMITTED

[350 F.2d 447]

Mr. Pierre E. Dostert, Washington, D. C., counsel for appellants in No. 18,605, argued for all appellants.

        Mr. R. R. Curry, Washington, D. C., for appellant in No. 18,604.

        Mr. Harry Protas, Washington, D. C., for appellee.

        Mr. Gerhard P. Van Arkel (appointed by this court), Washington, D. C., as amicus curiae.

        Before BAZELON, Chief Judge, and DANAHER and WRIGHT, Circuit Judges.

        J. SKELLY WRIGHT, Circuit Judge:

        Appellee, Walker-Thomas Furniture Company, operates a retail furniture store in the District of Columbia. During the period from 1957 to 1962 each appellant in these cases purchased a number of household items from Walker-Thomas, for which payment was to be made in installments. The terms of each purchase were contained in a printed form contract which set forth the value of the purchased item and purported to lease the item to appellant for a stipulated monthly rent payment. The contract then provided, in substance, that title would remain in Walker-Thomas until the total of all the monthly payments made equaled the stated value of the item, at which time appellants could take title. In the event of a default in the payment of any monthly installment, Walker-Thomas could repossess the item.

        The contract further provided that "the amount of each periodical installment payment to be made by purchaser to the Company under this present lease shall be inclusive of and not in addition to the amount of each installment payment to be made by purchaser under such prior leases, bills or accounts; and all payments now and hereafter made by purchaser shall be credited pro rata on all outstanding leases, bills and accounts due the Company by purchaser at the time each such payment is made." Emphasis added.) The effect of this rather obscure provision was to keep a balance due on every item purchased until the balance due on all items, whenever purchased, was liquidated. As a result, the debt incurred at the time of purchase of each item was secured by the right to repossess all the items previously purchased by the same purchaser, and each new item purchased automatically became subject to a security interest arising out of the previous dealings.

        On May 12, 1962, appellant Thorne purchased an item described as a Daveno, three tables, and two lamps, having total stated value of $391.10. Shortly thereafter, he defaulted on his monthly payments and appellee sought to replevy all the items purchased since the first transaction in 1958. Similarly, on April 17, 1962, appellant Williams bought a stereo set of stated value of $514.95.¹ She too defaulted shortly thereafter, and appellee sought to replevy all the items purchased since December, 1957. The Court of General Sessions granted judgment for appellee. The District of Columbia Court of Appeals affirmed, and we granted appellants' motion for leave to appeal to this court.

        Appellants' principal contention, rejected by both the trial and the appellate courts below, is that these contracts, or at least some of them, are unconscionable and, hence, not enforceable. In its opinion

[350 F.2d 448]

in Williams v. Walker-Thomas Furniture Company, 198 A.2d 914, 916 (1964), the District of Columbia Court of Appeals explained its rejection of this contention as follows:

"Appellant's second argument presents a more serious question. The record reveals that prior to the last purchase appellant had reduced the balance in her account to $164. The last purchase, a stereo set, raised the balance due to $678. Significantly, at the time of this and the preceding purchases, appellee was aware of appellant's financial position. The reverse side of the stereo contract listed the name of appellant's social worker and her $218 monthly stipend from the government. Nevertheless, with full knowledge that appellant had to feed, clothe and support both herself and seven children on this amount, appellee sold her a $514 stereo set.

"We cannot condemn too strongly appellee's conduct. It raises serious questions of sharp practice and irresponsible business dealings. A review of the legislation in the District of Columbia affecting retail sales and the pertinent decisions of the highest court in this jurisdiction disclose, however, no ground upon which this court can declare the contracts in question contrary to public policy. We note that were the Maryland Retail Installment Sales Act, Art. 83 §§ 128-153, or its equivalent, in force in the District of Columbia, we could grant appellant appropriate relief. We think Congress should consider corrective legislation to protect the public from such exploitive contracts as were utilized in the case at bar."

        We do not agree that the court lacked the power to refuse enforcement to contracts found to be unconscionable. In other jurisdictions, it has been held as a matter of common law that unconscionable contracts are not enforceable.² While no decision of this court so holding has been found, the notion that an unconscionable bargain should not be given full enforcement is by no means novel. In Scott v. United States, 79 U.S. (12 Wall.) 443, 445, 20 L.Ed. 438 (1870), the Supreme Court stated:

"* * * If a contract be unreasonable and unconscionable, but not void for fraud, a court of law will give to the party who sues for its breach damages, not according to its letter, but only such as he is equitably entitled to. * * *"³

        Since we have never adopted or rejected such a rule,⁴ the question here presented is actually one of first impression.

        Congress has recently enacted the Uniform Commercial Code, which specifically provides that the court may refuse to enforce a contract which it finds to be unconscionable at the time it was made. 28 D.C.CODE § 2-302 (Supp. IV 1965). The enactment of this section, which occurred subsequent to the contracts here in suit, does not mean that

[350 F.2d 449]

the common law of the District of Columbia was otherwise at the time of enactment, nor does it preclude the court from adopting a similar rule in the exercise of its powers to develop the common law for the District of Columbia. In fact, in view of the absence of prior authority on the point, we consider the congressional adoption of § 2-302 persuasive authority for following the rationale of the cases from which the section is explicitly derived.⁵ Accordingly, we hold that where the element of unconscionability is present at the time a contract is made, the contract should not be enforced.

        Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.⁶ Whether a meaningful choice is present in a particular case can only be determined by consideration of all the circumstances surrounding the transaction. In many cases the meaningfulness of the choice is negated by a gross inequality of bargaining power.⁷ The manner in which the contract was entered is also relevant to this consideration. Did each party to the contract, considering his obvious education or lack of it, have a reasonable opportunity to understand the terms of the contract, or were the important terms hidden in a maze of fine print and minimized by deceptive sales practices? Ordinarily, one who signs an agreement without full knowledge of its terms might be held to assume the risk that he has entered a one-sided bargain.⁸ But when a party of little bargaining power, and hence little real choice, signs a commercially unreasonable contract with little or no knowledge of its terms, it is hardly likely that his consent, or even an objective manifestation of his consent, was ever given to all the terms. In such a case the usual rule that the terms of the

[350 F.2d 450]

agreement are not to be questioned⁹ should be abandoned and the court should consider whether the terms of the contract are so unfair that enforcement should be withheld.¹⁰

        In determining reasonableness or fairness, the primary concern must be with the terms of the contract considered in light of the circumstances existing when the contract was made. The test is not simple, nor can it be mechanically applied. The terms are to be considered "in the light of the general commercial background and the commercial needs of the particular trade or case."¹¹ Corbin suggests the test as being whether the terms are "so extreme as to appear unconscionable according to the mores and business practices of the time and place." 1 CORBIN, op. cit. supra Note 2.¹² We think this formulation correctly states the test to be applied in those cases where no meaningful choice was exercised upon entering the contract.

        Because the trial court and the appellate court did not feel that enforcement could be refused, no findings were made on the possible unconscionability of the contracts in these cases. Since the record is not sufficient for our deciding the issue as a matter of law, the cases must be remanded to the trial court for further proceedings.

        So ordered.

        DANAHER, Circuit Judge (dissenting):

        The District of Columbia Court of Appeals obviously was as unhappy about the situation here presented as any of us can possibly be. Its opinion in the Williams case, quoted in the majority text, concludes: "We think Congress should consider corrective legislation to protect the public from such exploitive contracts as were utilized in the case at bar."

        My view is thus summed up by an able court which made no finding that there had actually been sharp practice. Rather the appellant seems to have known precisely where she stood.

        There are many aspects of public policy here involved. What is a luxury to some may seem an outright necessity to others. Is public oversight to be required of the expenditures of relief funds? A washing machine, e. g., in the hands of a relief client might become a fruitful source of income. Many relief clients may well need credit, and certain business establishments will take long chances on the sale of items, expecting their pricing policies will afford a degree of protection commensurate with the risk. Perhaps a remedy when necessary will be found within the provisions of the "Loan Shark" law, D.C.CODE §§ 26-601 et seq. (1961).

        I mention such matters only to emphasize the desirability of a cautious approach to any such problem, particularly since the law for so long has allowed parties such great latitude in making their own contracts. I dare say there must annually be thousands upon thousands of installment credit transactions in this jurisdiction, and one can only speculate

[350 F.2d 451]

as to the effect the decision in these cases will have.¹

        I join the District of Columbia Court of Appeals in its disposition of the issues.

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Notes:

        1 At the time of this purchase her account showed a balance of $164 still owing from her prior purchases. The total of all the purchases made over the years in question came to $1,800. The total payments amounted to $1,400.

        2 Campbell Soup Co. v. Wentz, 3 Cir., 172 F.2d 80 (1948); Indianapolis Morris Plan Corporation v. Sparks, 132 Ind.App. 145, 172 N.E.2d 899 (1961); Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 161 A.2d 69, 84-96, 75 A.L.R.2d 1 (1960). Cf. 1 CORBIN, CONTRACTS § 128 (1963).

        3 See Luing v. Peterson, 143 Minn. 6, 172 N.W. 692 (1919); Greer v. Tweed, N.Y. C.P., 13 Abb.Pr., N.S., 427 (1872); Schnell v. Nell, 17 Ind. 29 (1861); and see generally the discussion of the English authorities in Hume v. United States, 132 U.S. 406, 10 S.Ct. 134, 33 L.Ed. 393 (1889).

        4 While some of the statements in the court's opinion in District of Columbia v. Harlan & Hollingsworth Co., 30 App.D.C. 270 (1908), may appear to reject the rule, in reaching its decision upholding the liquidated damages clause in that case the court considered the circumstances existing at the time the contract was made, see 30 App.D.C. at 279, and applied the usual rule on liquidated damages. See 5 CORBIN, CONTRACTS §§ 1054-1075 (1964); Note, 72 YALE L.J. 723, 746-755 (1963). Compare Jaeger v. O'Donoghue, 57 App.D.C. 191, 18 F.2d 1013 (1927).

        5 See Comment, § 2-302, Uniform Commercial Code (1962). Compare Note, 45 VA.L.REV. 583, 590 (1959), where it is predicted that the rule of § 2-302 will be followed by analogy in cases which involve contracts not specifically covered by the section. Cf. 1 STATE OF NEW YORK LAW REVISION COMMISSION, REPORT AND RECORD OF HEARINGS ON THE UNIFORM COMMERCIAL CODE 108-110 (1954) (remarks of Professor Llewellyn).

        6 See Henningsen v. Bloomfield Motors, Inc., supra Note 2; Campbell Soup Co. v. Wentz, supra Note 2.

        7 See Henningsen v. Bloomfield Motors, Inc., supra Note 2, 161 A.2d at 86, and authorities there cited. Inquiry into the relative bargaining power of the two parties is not an inquiry wholly divorced from the general question of unconscionability, since a one-sided bargain is itself evidence of the inequality of the bargaining parties. This fact was vaguely recognized in the common law doctrine of intrinsic fraud, that is, fraud which can be presumed from the grossly unfair nature of the terms of the contract. See the oft-quoted statement of Lord Hardwicke in Earl of Chesterfield v. Janssen, 28 Eng. Rep. 82, 100 (1751):

        "* * * Fraud may be apparent from the intrinsic nature and subject of the bargain itself; such as no man in his senses and not under delusion would make * * *."

        And cf. Hume v. United States, supra Note 3, 132 U.S. at 413, 10 S.Ct. at 137, where the Court characterized the English cases as "cases in which one party took advantage of the other's ignorance of arithmetic to impose upon him, and the fraud was apparent from the face of the contracts." See also Greer v. Tweed, supra Note 3.

        8 See RESTATEMENT, CONTRACTS § 70 (1932); Note, 63 HARV.L.REV. 494 (1950). See also Daley v. People's Building, Loan & Savings Ass'n, 178 Mass. 13, 59 N.E. 452, 453 (1901), in which Mr. Justice Holmes, while sitting on the Supreme Judicial Court of Massachusetts, made this observation:

        "* * * Courts are less and less disposed to interfere with parties making such contracts as they choose, so long as they interfere with no one's welfare but their own. * * * It will be understood that we are speaking of parties standing in an equal position where neither has any oppressive advantage or power * * *."

        9 This rule has never been without exception. In cases involving merely the transfer of unequal amounts of the same commodity, the courts have held the bargain unenforceable for the reason that "in such a case, it is clear, that the law cannot indulge in the presumption of equivalence between the consideration and the promise." 1 WILLISTON, CONTRACTS § 115 (3d ed. 1957).

        10 See the general discussion of "Boiler-Plate Agreements" in LLEWELLYN, THE COMMON LAW TRADITION 362-371 (1960).

        11 Comment, Uniform Commercial Code § 2-307.

        12 See Henningsen v. Bloomfield Motors, Inc., supra Note 2; Mandel v. Liebman, 303 N.Y. 88, 100 N.E.2d 149 (1951). The traditional test as stated in Greer v. Tweed, supra Note 3, 13 Abb.Pr.,N.S., at 429, is "such as no man in his senses and not under delusion would make on the one hand, and as no honest or fair man would accept, on the other."

        1 However the provision ultimately may be applied or in what circumstances, D.C. CODE § 28-2-301 (Supp. IV, 1965) did not become effective until January 1, 1965.

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          This is a writ of error to the county court of Oneida county, in the state of New York (to which court the record had been remitted), to review the judgment of the court of appeals of that state, affirming the judgment of the supreme court, which itself affirmed the judgment of the county court, convicting the defendant of a misdemeanor on an indictment under a statute of that state, known, by its short title, as the labor

Page 46

law. The section of the statute under which the indictment was found is § 110, and is reproduced in the margin (together with the other sections of the labor law upon the subject of bakeries, being §§ 111 to 115, both inclusive).

          The indictment averred that the defendant 'wrongfully and unlawfully required and permitted an employee working for him in his biscuit, bread, and cake bakery and confectionery establishment, at the city of Utica, in this county, to work more than sixty hours in one week,' after having been theretofore convicted of a violation of the name act; and therefore, as averred, he committed the crime of misdemeanor, second offense. The plaintiff in error demurred to the indictment on several grounds, one of which was that the facts stated did not

                '§ 110, Hours of labor in bakeries and confectionery establishments.—No employee shall be required or permitted to work in a biscuit, bread, or cake bakery or confectionery establishment more than sixty hours in any one week, or more than ten hours in any one day, unless for the purpose of making a shorter work day on the last day of the week; nor more hours in any one week than will make an average of ten hours per day for the number of days during such week in which such employee shall work.

          '§ 111. Drainage and plumbing of buildings and rooms occupied by bakeries.—All buildings or rooms occupied as biscuit, bread, pie, or cake bakeries, shall be drained and plumbed in a manner conducive to the proper and healthful sanitary condition thereof, and shall be constructed with air shafts, windows, or ventilating pipes, sufficient to insure ventilation. The factory inspector may direct the proper drainage, plumbing, and ventilation of such rooms or buildings. No cellar or basement, not now used for a bakery, shall hereafter be so occupied or used, unless the proprietor shall comply with the sanitary provisions of this article.

          '§ 112. Requirements as to rooms, furniture, utensils, and manufactured products.—Every room used for the manufacture of flour or meal food products shall be at least 8 feet in height and shall have, if deemed necessary by the factory inspector, an impermeable floor constructed of cement, or of tiles laid in cement, or an additional flooring of wood properly saturated with linseed oil. The side walls of such rooms shall be plastered or wainscoted. The factory inspector may require the side walls and ceiling to be whitewashed at least once in three months. He may also require the wood work of such walls to be painted. The furniture and utensils shall be so arranged as to be readily cleansed and not prevent the proper cleaning of any part of the room. The manufactured flour or meal food products shall be kept in dry and airy rooms, so arranged that the floors, shelves, and all other facilities for storing the same can be properly cleaned. No domestic animals, except cats, shall be allowed to remain in a room used as a biscuit, bread, pie, or cake bakery, or any room in such bakery where flour or meal products are stored.

          '§ 113. Wash rooms and closets; sleeping places.—Every such bakery shall be provided with a proper wash room and water-closet, or water-closets, apart from the bake room, or rooms where the manufacture of such food product is conducted, and no water-closet, earth closet, privy, or ashpit shall be within, or connected directly with, the bake room of any bakery, hotel, or public restaurant.

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constitute a crime. The demurrer was overruled, and, the plaintiff in error having refused to plead further, a plea of not guilty was entered by order of the court and the trial commenced, and he was convicted of misdemeanor, second offense, as indicted, and sentenced to pay a fine of $50, and to stand committed until paid, not to exceed fifty days in the Oneida county jail. A certificate of reasonable doubt was granted by the county judge of Oneida county, whereon an appeal was taken to the appellate division of the supreme court, fourth department, where the judgment of conviction was affirmed. 73 App. Div. 120, 76 N. Y. Supp. 396. A further appeal was then taken to the court of appeals, where the judgment of conviction was again affirmed. 177 N. Y. 145, 101 Am. St. Rep. 773, 69 N. E. 373.

          Messrs. Frank Harvey Field and Henry Weismann (by special leave) for plaintiff in error.

Page 50

          Mr. Julius M. Mayer for defendant in error.

  [Argument of Counsel from pages 50-52 intentionally omitted]

Page 52

           Mr. Justice Peckham, after making the foregoing statement of the facts, delivered the opinion of the court:

          The indictment, it will be seen, charges that the plaintiff in error violated the 110th section of article 8, chapter 415, of the Laws of 1897, known as the labor law of the state of New York, in that he wrongfully and unlawfully required and permitted an employee working for him to work more than sixty hours in one week. There is nothing in any of the opinions delivered in this case, either in the supreme court or the court of appeals of the state, which construes the section, in using the word 'required,' as referring to any physical force being used to obtain the labor of an employee. It is assumed that the word means nothing more than the requirement arising from voluntary contract for such labor in excess of the number of hours specified in the statute. There is no pretense in any of the opinions that the statute was intended to meet a case of involuntary labor in any form. All the opinions assume that there is no real distinction, so far as this question is concerned, between the words 'required' and 'permitted.' The mandate of the statute, that 'no employee shall be required or permitted to work,' is the substantial equivalent of an enactment that 'no employee shall contract or agree to work,' more than ten hours per day; and, as there is no provision for special emergencies, the statute is mandatory in all cases. It is not an act merely fixing the number of hours which shall constitute a legal day's work, but an absolute prohibition upon the employer permitting, under any circumstances, more than ten hours' work to be done in his establishment. The employee may desire to earn the extra money which would arise from his working more than the prescribed

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time, but this statute forbids the employer from permitting the employee to earn it.

          The statute necessarily interferes with the right of contract between the employer and employees, concerning the number of hours in which the latter may labor in the bakery of the employer. The general right to make a contract in relation to his business is part of the liberty of the individual protected by the 14th Amendment of the Federal Constitution. Allgeyer v. Louisiana, 165 U. S. 578, 41 L. ed. 832, 17 Sup. Ct. Rep. 427. Under that provision no state can deprive any person of life, liberty, or property without due process of law. The right to purchase or to sell labor is part of the liberty protected by this amendment, unless there are circumstances which exclude the right. There are, however, certain powers, existing in the sovereignty of each state in the Union, somewhat vaguely termed police powers, the exact description and limitation of which have not been attempted by the courts. Those powers, broadly stated, and without, at present, any attempt at a more specific limitation, relate to the safety, health, morals, and general welfare of the public. Both property and liberty are held on such reasonable conditions as may be imposed by the governing power of the state in the exercise of those powers, and with such conditions the 14th Amendment was not designed to interfere. Mugler v. Kansas, 123 U. S. 623, 31 L. ed. 205, 8 Sup. Ct. Rep. 273; Re Kemmler, 136 U. S. 436, 34 L. ed. 519, 10 Sup. Ct. Rep. 930; Crowley v. Christensen, 137 U. S. 86, 34 L. ed. 620, 11 Sup. Ct. Rep. 13; Re Converse, 137 U. S. 624, 34 L. ed. 796, 11 Sup. Ct. Rep. 191.

          The state, therefore, has power to prevent the individual from making certain kinds of contracts, and in regard to them the Federal Constitution offers no protection. If the contract be one which the state, in the legitimate exercise of its police power, has the right to prohibit, it is not prevented from prohibiting it by the 14th Amendment. Contracts in violation of a statute, either of the Federal or state government, or a contract to let one's property for immoral purposes, or to do any other unlawful act, could obtain no protection from the Federal Constitution, as coming under the liberty of

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person or of free contract. Therefore, when the state, by its legislature, in the assumed exercise of its police powers, has passed an act which seriously limits the right to labor or the right of contract in regard to their means of livelihood between persons who are sui juris (both employer and employee), it becomes of great importance to determine which shall prevail,—the right of the individual to labor for such time as he may choose, or the right of the state to prevent the individual from laboring, or from entering into any contract to labor, beyond a certain time prescribed by the state.

          This court has recognized the existence and upheld the exercise of the police powers of the states in many cases which might fairly be considered as border ones, and it has, in the course of its determination of questions regarding the asserted invalidity of such statutes, on the ground of their violation of the rights secured by the Federal Constitution, been guided by rules of a very liberal nature, the application of which has resulted, in numerous instances, in upholding the validity of state statutes thus assailed. Among the later cases where the state law has been upheld by this court is that of Holden v. Hardy, 169 U. S. 366, 42 L. ed. 780, 18 Sup. Ct. Rep. 383. A provision in the act of the legislature of Utah was there under consideration, the act limiting the employment of workmen in all underground mines or workings, to eight hours per day, 'except in cases of emergency, where life or property is in imminent danger.' It also limited the hours of labor in smelting and other institutions for the reduction or refining of ores or metals to eight hours per day, except in like cases of emergency. The act was held to be a valid exercise of the police powers of the state. A review of many of the cases on the subject, decided by this and other courts, is given in the opinion. It was held that the kind of employment, mining, smelting, etc., and the character of the employees in such kinds of labor, were such as to make it reasonable and proper for the state to interfere to prevent the employees from being constrained by the rules laid down by the proprietors in regard to labor. The following citation

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from the observations of the supreme court of Utah in that case was made by the judge writing the opinion of this court, and approved: 'The law in question is confined to the protection of that class of people engaged in labor in underground mines, and in smelters and other works wherein ores are reduced and refined. This law applies only to the classes subjected by their employment to the peculiar conditions and effects attending underground mining and work in smelters, and other works for the reduction and refining of ores. Therefore it is not necessary to discuss or decide whether the legislature can fix the hours of labor in other employments.'

          It will be observed that, even with regard to that class of labor, the Utah statute provided for cases of emergency wherein the provisions of the statute would not apply. The statute now before this court has no emergency clause in it, and, if the statute is valid, there are no circumstances and no emergencies under which the slightest violation of the provisions of the act would be innocent. There is nothing in Holden v. Hardy which covers the case now before us. Nor does Atkin v. Kansas, 191 U. S. 207, 48 L. ed. 148, 24 Sup. Ct. Rep. 124, touch the case at bar. The Atkin Case was decided upon the right of the state to control its municipal corporations, and to prescribe the conditions upon which it will permit work of a public character to be done for a municipality. Knoxville Iron Co. v. Harbison, 183 U. S. 13, 46 L. ed. 55, 22 Sup. Ct. Rep. 1, is equally far from an authority for this legislation. The employees in that case were held to be at a disadvantage with the employer in matters of wages, they being miners and coal workers, and the act simply provided for the cashing of coal orders when presented by the miner to the employer.

          The latest case decided by this court, involving the police power, is that of Jacobson v. Massachusetts, decided at this term and reported in 197 U. S. 11, 25 Sup. Ct. Rep. 358, 49 L. ed.——. It related to compulsory vaccination, and the law was held vaild as a proper exercise of the police powers with reference to the public health. It was stated in the opinion that it was a case 'of an adult who, for aught that appears, was himself in perfect health and a fit

Page 56

subject of vaccination, and yet, while remaining in the community, refused to obey the statute and the regulation, adopted in execution of its provisions, for the protection of the public health and the public safety, confessedly endangered by the presence of a dangerous disease.' That case is also far from covering the one now before the court.

          Petit v. Minnesota, 177 U. S. 164, 44 L. ed. 716, 20 Sup. Ct. Rep. 666, was upheld as a proper exercise of the police power relating to the observance of Sunday, and the case held that the legislature had the right to declare that, as matter of law, keeping barber shops open on Sunday was not a work of necessity or charity.

          It must, of course, be conceded that there is a limit to the valied exercise of the police power by the state. There is no dispute concerning this general proposition. Otherwise the 14th Amendment would have no efficacy and the legislatures of the states would have unbounded power, and it would be enough to say that any piece of legislation was enacted to conserve the morals, the health, or the safety of the people; such legislation would be valid, no matter how absolutely without foundation the claim might be. The claim of the police power would be a mere pretext,—become another and delusive name for the supreme sovereignty of the state to be exercised free from constitutional restraint. This is not contended for. In every case that comes before this court, therefore, where legislation of this character is concerned, and where the protection of the Federal Constitution is sought, the question necessarily arises: Is this a fair, reasonable, and appropriate exercise of the police power of the state, or is it an unreasonable, unnecessary, and arbitrary interference with the right of the individual to his personal liberty, or to enter into those contracts in relation to labor which may seem to him appropriate or necessary for the support of himself and his family? Of course the liberty of contract relating to labor includes both parties to it. The one has as much right to purchase as the other to sell labor.

          This is not a question of substituting the judgment of the

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court for that of the legislature. If the act be within the power of the state it is valid, although the judgment of the court might be totally opposed to the enactment of such a law. But the question would still remain: Is it within the police power of the state? and that question must be answered by the court.

          The question whether this act is valid as a labor law, pure and simple, may be dismissed in a few words. There is no reasonable ground for interfering with the liberty of person or the right of free contract, by determining the hours of labor, in the occupation of a baker. There is no contention that bakers as a class are not equal in intelligence and capacity to men in other trades or manual occupations, or that they are not able to assert their rights and care for themselves without the protecting arm of the state, interfering with their independence of judgment and of action. They are in no sense wards of the state. Viewed in the light of a purely labor law, with no reference whatever to the question of health, we think that a law like the one before us involves neither the safety, the morals, nor the welfare, of the public, and that the interest of the public is not in the slightest degree affected by such an act. The law must be upheld, if at all, as a law pertaining to the health of the individual engaged in the occupation of a baker. It does not affect any other portion of the public than those who are engaged in that occupation. Clean and wholesome bread does not depend upon whether the baker works but ten hours per day or only sixty hours a week. The limitation of the hours of labor does not come within the police power on that ground.

          It is a question of which of two powers or rights shall prevail,—the power of the state to legislate or the right of the individual to liberty of person and freedom of contract. The mere assertion that the subject relates, though but in a remote degree, to the public health, does not necessarily render the enactment valid. The act must have a more direct relation, as a means to an end, and the end itself must be appropriate and legitimate, before an act can be held to be valid which interferes

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with the general right of an individual to be free in his person and in his power to contract in relation to his own labor.

          This case has caused much diversity of opinion in the state courts. In the supreme court two of the five judges composing the court dissented from the judgment affirming the validity of the act. In the court of appeals three of the seven judges also dissented from the judgment upholding the statute. Although found in what is called a labor law of the state, the court of appeals has upheld the act as one relating to the public health,—in other words, as a health law. One of the judges of the court of appeals, in upholding the law, stated that, in his opinion, the regulation in question could not be sustained unless they were able to say, from common knowledge, that working in a bakery and candy factory was an unhealthy employment. The judge held that, while the evidence was not uniform, it still led him to the conclusion that the occupation of a baker or confectioner was unhealthy and tended to result in diseases of the respiratory organs. Three of the judges dissented from that view, and they thought the occupation of a baker was not to such an extent unhealthy as to warrant the interference of the legislature with the liberty of the individual.

          We think the limit of the police power has been reached and passed in this case. There is, in our judgment, no reasonable foundation for holding this to be necessary or appropriate as a health law to safeguard the public health, or the health of the individuals who are following the trade of a baker. If this statute be valid, and if, therefore, a proper case is made out in which to deny the right of an individual, sui juris, as employer or employee, to make contracts for the labor of the latter under the protection of the provisions of the Federal Constitution, there would seem to be no length to which legislation of this nature might not go. The case differs widely, as we have already stated, from the expressions of this court in regard to laws of this nature, as stated in Holden v. Hardy, 169 U. S. 366, 42 L. ed. 780, 18 Sup. Ct. Rep. 383, and Jacobson v. Massachusetts, 197 U. S. 11, 25 Sup. Ct. Rep. 358, 49 L. ed.——.

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          We think that there can be no fair doubt that the trade of a baker, in and of itself, is not an unhealthy one to that degree which would authorize the legislature to interfere with the right to labor, and with the right of free contract on the part of the individual, either as employer or employee In looking through statistics regarding all trades and occupations, it may be true that the trade of a baker does not appear to be as healthy as some other trades, and is also vastly more healthy than still others. To the common understanding the trade of a baker has never been regarded as an unhealthy one. Very likely physicians would not recommend the exercise of that or of any other trade as a remedy for ill health. Some occupations are more healthy than others, but we think there are none which might not come under the power of the legislature to supervise and control the hours of working therein, if the mere fact that the occupation is not absolutely and perfectly healthy is to confer that right upon the legislative department of the government. It might be safely affirmed that almost all occupations more or less affect the health. There must be more than the mere fact of the possible existence of some small amount of unhealthiness to warrant legislative interference with liberty. It is unfortunately true that labor, even in any department, may possibly carry with it the seeds of unhealthiness. But are we all, on that account, at the mercy of legislative majorities? A printer, a tinsmith, a locksmith, a carpenter, a cabinetmaker, a dry goods clerk, a bank's, a lawyer's, or a physician's clerk, or a clerk in almost any kind of business, would all come under the power of the legislature, on this assumption. No trade, no occupation, no mode of earning one's living, could escape this all-pervading power, and the acts of the legislature in limiting the hours of labor in all employments would be valid, although such limitation might seriously cripple the ability of the laborer to support himself and his family. In our large cities there are many buildings into which the sun penetrates for but a short time in each day, and these buildings are occupied by people carrying on the

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business of bankers, brokers, lawyers, real estate, and many other kinds of business, aided by many clerks, messengers, and other employees. Upon the assumption of the validity of this act under review, it is not possible to say that an act, prohibiting lawyers' or bank clerks, or others, from contracting to labor for their employers more than eight hours a day would be invalid. It might be said that it is unhealthy to work more than that number of hours in an apartment lighted by artificial light during the working hours of the day; that the occupation of the bank clerk, the lawyer's clerk, the realestate clerk, or the broker's clerk, in such offices is therefore unhealthy, and the legislature, in its paternal wisdom, must, therefore, have the right to legislate on the subject of, and to limit, the hours for such labor; and, if it exercises that power, and its validity be questioned, it is sufficient to say, it has reference to the public health; it has reference to the health of the employees condemned to labor day after day in buildings where the sun never shines; it is a health law, and therefore it is valid, and cannot be questioned by the courts.

          It is also urged, pursuing the same line of argument, that it is to the interest of the state that its population should be strong and robust, and therefore any legislation which may be said to tend to make people healthy must be valid as health laws, enacted under the police power. If this be a valid argument and a justification for this kind of legislation, it follows that the protection of the Federal Constitution from undue interference with liberty of person and freedom of contract is visionary, wherever the law is sought to be justified as a valid exercise of the police power. Scarcely any law but might find shelter under such assumptions, and conduct, properly so called, as well as contract, would come under the restrictive sway of the legislature. Not only the hours of employees, but the hours of employers, could be regulated, and doctors, lawyers, scientists, all professional men, as well as athletes and artisans, could be forbidden to fatigue their brains and bodies by prolonged hours of exercise, lest the fighting strength

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of the state be impaired. We mention these extreme cases because the contention is extreme. We do not believe in the soundness of the views which uphold this law. On the contrary, we think that such a law as this, although passed in the assumed exercise of the police power, and as relating to the public health, or the health of the employees named, is not within that power, and is invalid. The act is not, within any fair meaning of the term, a health law, but is an illegal interference with the rights of individuals, both employers and employees, to make contracts regarding labor upon such terms as they may think best, or which they may agree upon with the other parties to such contracts. Statutes of the nature of that under review, limiting the hours in which grown and intelligent men may labor to earn their living, are mere meddlesome interferences with the rights of the individual, and they are not asved from condemnation by the claim that they are passed in the exercise of the police power and upon the subject of the health of the individual whose rights are interfered with, unless there be some fair ground, reasonable in and of itself, to say that there is material danger to the public health, or to the health of the employees, if the hours of labor are not curtailed. If this be not clearly the case, the individuals whose rights are thus made the subject of legislative interference are under the protection of the Federal Constitution regarding their liberty of contract as well as of person; and the legislature of the state has no power to limit their right as proposed in this statute. All that it could properly do has been done by it with regard to the conduct of bakeries, as provided for in the other sections of the act, above set forth. These several sections provide for the inspection of the premises where the bakery is carried on, with regard to furnishing proper wash rooms and waterclosets, apart from the bake room, also with regard to providing proper drainage, plumbing, and painting; the sections, in addition, provide for the height of the ceiling, the cementing or tiling of floors, where necessary in the opinion of the factory inspector, and for other things of

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that nature; alterations are also provided for, and are to be made where necessary in the opinion of the inspector, in order to comply with the provisions of the statute. These various sections may be wise and valid regulations, and they certainly go to the full extent of providing for the cleanliness and the healthiness, so far as possible, of the quarters in which bakeries are to be conducted. Adding to all these requirements a prohibition to enter into any contract of labor in a bakery for more than a certain number of hours a week is, in our judgment, so wholly beside the matter of a proper, reasonable, and fair provision as to run counter to that liberty of person and of free contract provided for in the Federal Constitution.

          It was further urged on the argument that restricting the hours of labor in the case of bakers was valid because it tended to cleanliness on the part of the workers, as a man was more apt to be cleanly when not overworked, and if cleanly then his 'output' was also more likely to be so. What has already been said applies with equal force to this contention. We do not admit the reasoning to be sufficient to justify the claimed right of such interference. The state in that case would assume the position of a supervisor, or pater familias, over every act of the individual, and its right of governmental interference with his hours of labor, his hours of exercise, the character thereof, and the extent to which it shall be carried would be recognized and upheld. In our judgment it is not possible in fact to discover the connection between the number of hours a baker may work in the bakery and the healthful quality of the bread made by the workman. The connection, if any exist, is too shadowy and thin to build any argument for the interference of the legislature. If the man works ten hours a day it is all right, but if ten and a half or eleven his health is in danger and his bread may be unhealthy, and, therefore, he shall not be permitted to do it. This, we think, is unreasonable and entirely arbitrary. When assertions such as we have adverted to become necessary in order to give, if possible, a plausible foundation for the contention that the law is a 'health law,'

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it gives rise to at least a suspicion that there was some other motive dominating the legislature than the purpose to subserve the public health or welfare.

          This interference on the part of the legislatures of the several states with the ordinary trades and occupations of the people seems to be on the increase. In the supreme court of New York, in the case of People v. Beattie, appellate division, first department, decided in 1904 (96 App. Div. 383, 89 N. Y. Supp. 193), a statute regulating the trade of horseshoeing, and requiring the person practising such trade to be examined, and to obtain a certificate from a board of examiners and file the same with the clerk of the county wherein the person proposes to practise such trade, was held invalid, as an arbitrary interference with personal liberty and private property without due process of law. The attempt was made, unsuccessfully, to justify it as a health law.

          The same kind of a statute was held invalid (Re Aubry) by the supreme court of Washington in December, 1904. 78 Pac. 900. The court held that the act deprived citizens of their liberty and property without due process of law, and denied to them the equal protection of the laws. It also held that the trade of a horseshoer is not a subject of regulation under the police power of the state, as a business concerning and directly affecting the health, welfare, or comfort of its inhabitants; and that, therefore, a law which provided for the examination and registration of horseshoers in certain cities was unconstitutional, as an illegitimate exercise of the police power.

          The supreme court of Illinois, in Bessette v. People, 193 Ill. 334, 56 L. R. A. 558, 62 N. E. 215, also held that a law of the same nature, providing for the regulation and licensing of horseshoers, was unconstitutional as an illegal interference with the liberty of the individual in adopting and pursuing such calling as he may choose, subject only to the restraint necessary to secure the common welfare. See also Godcharles v. Wigeman, 113 Pa. 431, 437, 6 Atl. 354; Low v. Rees Printing Co. 41 Neb. 127, 145, 24 L. R. A. 702, 43 Am. St. Rep. 670, 59 N. W. 362. In

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these cases the courts upheld the right of free contract and the right to purchase and sell labor upon such terms as the parties may agree to.

          It is impossible for us to shut our eyes to the fact that many of the laws of this character, while passed under what is claimed to be the police power for the purpose of protecting the public health or welfare, are, in reality, passed from other motives. We are justified in saying so when, from the character of the law and the subject upon which it legislates, it is apparent that the public health or welfare bears but the most remote relation to the law. The purpose of a statute must be determined from the natural and legal effect of the language employed; and whether it is or is not repugnant to the Constitution of the United States must be determined from the natural effect of such statutes when put into operation, and not from their proclaimed purpose. Minnesota v. Barber, 136 U. S. 313, 34 L. ed. 455, 3 Inters. Com. Rep. 185, 10 Sup. Ct. Rep. 862; Brimmer v. Rebman, 138 U. S. 78, 34 L. ed. 862, 3 Inters. Com. Rep. 485, 11 Sup. Ct. Rep. 213. The court looks beyond the mere letter of the law in such cases. Yick Wo v. Hopkins, 118 U. S. 356, 30 L. ed. 220, 6 Sup. Ct. Rep. 1064.

          It is manifest to us that the limitation of the hours of labor as provided for in this section of the statute under which the indictment was found, and the plaintiff in error convicted, has no such direct relation to, and no such substantial effect upon, the health of the employee, as to justify us in regarding the section as really a health law. It seems to us that the real object and purpose were simply to regulate the hours of labor between the master and his employees (all being men, Sui juris), in a private business, not dangerous in any degree to morals, or in any real and substantial degree to the health of the employees. Under such circumstances the freedom of master and employee to contract with each other in relation to their employment, and in defining the same, cannot be prohibited or interfered with, without violating the Federal Constitution.

          The judgment of the Court of Appeals of New York, as well as that of the Supreme Court and of the County Court of Oneida County, must be reversed and the case remanded to

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the County Court for further proceedings not inconsistent with this opinion.

          Reversed.

           Mr. Justice Harlan (with whom Mr. Justice White and Mr. Justice Day concurred) dissenting:

          While this court has not attempted to mark the precise boundaries of what is called the police power of the state, the existence of the power has been uniformly recognized, equally by the Federal and State courts.

          All the cases agree that this power extends at least to the protection of the lives, the health, and the safety of the public against the injurious exercise by any citizen of his own rights.

          In Patterson v. Kentucky, 97 U. S. 501, 24 L. ed. 1115, after referring to the general principle that rights given by the Constitution cannot be impaired by state legislation of any kind, this court said: 'It [this court] has, nevertheless, with marked distinctness and uniformity, recognized the necessity, growing out of the fundamental conditions of civil society, of upholding state police regulations which were enacted in good faith, and had appropriate and direct connection with that protection to life, health, and property which each state owes to her citizens.' So in Barbier v. Connolly, 113 U. S. 27, 28 L. ed. 923, 5 Sup. Ct. Rep. 357: 'But neither the [14th] Amendment, —broad and comprehensive as it is,—nor any other amendment, was designed to interfere with the power of the state, sometimes termed its police power, to prescribe regulations to promote the health, peace, morals, education, and good order of the people.'

          Speaking generally, the state, in the exercise of its powers, may not unduly interfere with the right of the citizen to enter into contracts that may be necessary and essential in the enjoyment of the inherent rights belonging to everyone, among which rights is the right 'to be free in the enjoyment of all his faculties, to be free to use them in all lawful ways, to live and work where he will, to earn his livelihood by any lawful calling, to pursue any livelihood or avocation.' This was de-

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clared in Allgeyer v. Louisiana, 165 U. S. 578, 589, 41 L. ed. 832, 835, 17 Sup. Ct. Rep. 427, 431. But in the same case it was conceded that the right to contract in relation to persons and property, or to do business, within a state, may be 'regulated, and sometimes prohibited, when the contracts or business conflict with the policy of the state as contained in its statutes.' (p. 591, L. ed. p. 836, Sup. Ct. Rep. p. 432.)

          So, as said in Holden v. Hardy, 169 U. S. 366, 391, 42 L. ed. 780, 790, 18 Sup. Ct. Rep. 383, 388: 'This right of contract, however, is itself subject to certain limitations which the state may lawfully impose in the exercise of its police powers. While this power is inherent in all governments, it has doubtless been greatly expanded in its application during the past century, owing to an enormous increase in the number of occupations which are dangerous, or so far detrimental, to the health of employees as to demand special precautions for their well-being and protection, or the safety of adjacent property. While this court has held, notably in the cases Davidson v. New Orleans, 96 U. S. 97, 24 L. ed. 616, and Yick Wo. v. Hopkins, 118 U. S. 356, 30 L. ed. 220, 6 Sup. Ct. Rep. 1064, that the police power cannot be put forward as an excuse for oppressive and unjust legislation, it may be lawfully resorted to for the purpose of preserving the public health, safety, or morals, or the abatement of public nuisances; and a large discretion 'is necessarily vested in the legislature to determine, not only what the interests of the public required, but what measures are necessary for the protection of such interests.' Lawton v. Steele, 152 U. S. 133, 136, 38 L. ed. 385, 388, 14 Sup. Ct. Rep. 499, 501.' Referring to the limitations placed by the state upon the hours of workmen, the court in the same case said (p. 395, L. ed. p. 792, Sup. Ct. Rep. p. 389): 'These employments, when too long pursued, the legislature has judged to be detrimental to the health of the employees, and, so long as there are reasonable grounds for believing that this is so, its decision upon this subject cannot be reviewed by the Federal courts.'

          Subsequently, in Gundling v. Chicago, 177 U. S. 183, 188, 44 L. ed. 725, 728, 20 Sup. Ct. Rep. 633, 635, this court said: 'Regulations respecting the pursuit of a lawful trade or business are of very frequent occurrence in the various cities of the country, and what such regulations shall be and

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to what particular trade, business, or occupation they shall apply, are questions for the state to determine, and their determination comes within the proper exercise of the police power by the state, and, unless the regulations are so utterly unreasonable and extravagant in their nature and purpose that the property and personal rights of the citizen are unnecessarily, and in a manner wholly arbitrary, interfered with or destroyed without due process of law, they do not extend beyond the power of the state to pass, and they form no subject for Federal interference. As stated in Crowley v. Christensen, 137 U. S. 86, 34 L. ed. 620, 11 Sup. Ct. Rep. 13, 'the possession and enjoyment of all rights are subject to such reasonable conditions as may be deemed by the governing authority of the country essential to the safety, health, peace, good order, and morals of the community."

          In St. Louis I. M. & S. R. Co. v. Paul, 173 U. S. 404, 409, 43 L. ed. 746, 748, 19 Sup. Ct. Rep. 419, and in Knoxville Iron Co. v. Harbison, 183 U. S. 13, 21, 22, 46 L. ed. 55, 61, 22 Sup. Ct. Rep. 1, it was distinctly adjudged that the right of contract was not 'absolute, but may be subjected to the restraints demanded by the safety and welfare of the state.' Those cases illustrate the extent to which the state may restrict or interfere with the exercise of the right of contracting.

          The authorities on the same line are so numerous that further citations are unnecessary.

          I take it to be firmly established that what is called the liberty of contract may, within certain limits, be subjected to regulations designed and calculated to promote the general welfare, or to guard the public health, the public morals, or the public safety. 'The liberty secured by the Constitution of the United States to every person within its jurisdiction does not import.' this court has recently said, 'an absolute right in each person to be at all times and in all circumstances wholly freed from restraint. There are manifold restraints to which every person is necessarily subject for the common good.' Jacobson v. Massachusetts, 197 U. S. 11, 25 Sup. Ct. Rep. 358, 49 L. ed.

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          Granting, then, that there is a liberty of contract which cannot be violated even under the sanction of direct legislative enactment, but assuming, as according to settled law we may assume, that such liberty of contract is subject to such regulations as the state may reasonably prescribe for the common good and the well-being of society, what are the conditions under which the judiciary may declare such regulations to be in excess of legislative authority and void? Upon this point there is no room for dispute; for the rule is universal that a legislative enactment, Federal or state, is never to be disregarded or held invalid unless it be, beyond question, plainly and palpably in excess of legislative power. In Jacobson v. Massachusetts, 197 U. S. 11, 25 Sup. Ct. Rep. 358, 49 L. ed. ——, we said that the power of the courts to review legislative action in respect of a matter affecting the general welfare exists only 'when that which the legislature has done comes within the rule that, if a statute purporting to have been enacted to protect the public health, the public morals, or the public safety has no real or substantial relation to those objects, or is, beyond all question, a plain, palpable invasion of rights secured by the fundamental law,' citing Mugler v. Kansas, 123 U. S. 623, 661, 31 L. ed. 205, 210, 8 Sup. Ct. Rep. 273; Minnesota v. Barber, 136 U. S. 313, 320, 34 L. ed. 455, 458, 3 Inters. Com. Rep. 185, 10 Sup. Ct. Rep. 862; Atkin v. Kansas, 191 U. S. 207, 223, 48 L. ed. 148, 158, 24 Sup. Ct. Rep. 124. If there be doubt as to the validity of the statute, that doubt must therefore be resolved in favor of its validity, and the courts must keep their hands off, leaving the legislature to meet the responsibility for unwise legislation. If the end which the legislature seeks to accomplish be one to which its power extends, and if the means employed to that end, although not the wisest or best, are yet not plainly and palpably unauthorized by law, then the court cannot interfere. In other words, when the validity of a statute is questioned, the burden of proof, so to speak, is upon those who assert it to be unconstitutional. M'Culloch v. Maryland, 4 Wheat. 316, 421, 4 L. ed. 579, 605.

          Let these principles be applied to the present case. By the statute in question it is provided that 'no employee shall be required, or permitted, to work in a biscuit, bread, or cake

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bakery, or confectionery establishment, more than sixty hours in any one week, or more than ten hours in any one day, unless for the purpose of making a shorter work day on the last day of the week; nor more hours in any one week than will make an average of ten hours per day for the number of days during such week in which such employee shall work.'

          It is plain that this statute was enacted in order to protect the physical well-being of those who work in bakery and confectionery establishments. It may be that the statute had its origin, in part, in the belief that employers and employees in such establishments were not upon an equal footing, and that the necessities of the latter often compelled them to submit to such exactions as unduly taxed their strength. Be this as it may, the statute must be taken as expressing the belief of the people of New York that, as a general rule, and in the case of the average man, labor in excess of sixty hours during a week in such establishments may endanger the health of those who thus labor. Whether or not this be wise legislation it is not the province of the court to inquire. Under our systems of government the courts are not concerned with the wisdom or policy of legislation. So that, in determining the question of power to interfere with liberty of contract, the court may inquire whether the means devised by the state are germane to an end which may be lawfully accomplished and have a real or substantial relation to the protection of health, as involved in the daily work of the persons, male and female, engaged in bakery and confectionery establishments. But when this inquiry is entered upon I find it impossible, in view of common experience, to say that there is here no real or substantial relation between the means employed by the state and the end sought to be accomplished by its legislation. Mugler v. Kansas, 123 U. S. 623, 661, 31 L. ed. 205, 210, 8 Sup. Ct. Rep. 273. Nor can I say that the statute has no appropriate or direct connection with that protection to health which each state owes to her citizens (Patterson v. Kentucky, 97 U. S. 501, 24 L. ed. 1115); or that it is not promotive of the health of the employees in question (Holden v. Hardy, 169 U. S. 366, 391, 42 L. ed. 780, 790, 18 Sup. Ct. Rep. 383; Lawton v. Steele, 152 U. S. 133, 139, 38 L. ed. 385, 389, 14 Sup. Ct. Rep. 499);

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or that the regulation prescribed by the state is utterly unreasonable and extravagant or wholly arbitrary (Gundling v. Chicago, 177 U. S. 183, 188, 44 L. ed. 725, 728, 20 Sup. Ct. Rep. 633). Still less can I say that the statute is, beyond question, a plain, palpable invasion of rights secured by the fundamental law. Jacobson v. Massachusetts, 196 U. S. 11, ante, p. 358, 25 Sup. Ct. Rep. 358. Therefore I submit that this court will transcend its functions if it assumes to annul the statute of New York. It must be remembered that this statute does not apply to all kinds of business. It applies only to work in bakery and confectionery establishments, in which, as all know, the air constantly breathed by workmen is not as pure and healthful as that to be found in some other establishments or out of doors.

          Professor Hirt in his treatise on the 'Diseases of the Workers' has said: 'The labor of the bakers is among the hardest and most laborious imaginable, because it has to be performed under conditions injurious to the health of those engaged in it. It is hard, very hard, work, not only because it requires a great deal of physical exertion in an overheated workshop and during unreasonably long hours, but more so because of the erratic demands of the public, compelling the baker to perform the greater part of his work at night, thus depriving him of an opportunity to enjoy the necessary rest and sleep,—a fact which is highly injurious to his health.' Another writer says: 'The constant inhaling of flour dust causes inflammation of the lungs and of the bronchial tubes. The eyes also suffer through this dust, which is responsible for the many cases of running eyes among the bakers. The long hours of toil to which all bakers are subjected produce rheumatism, cramps, and swollen legs. The intense heat in the workshops induces the workers to resort to cooling drinks, which, together with their habit of exposing the greater part of their bodies to the change in the atmosphere, is another source of a number of diseases of various organs. Nearly all bakers are palefaced and of more delicate health than the workers of other crafts, which is chiefly due to their hard work and their irregular and unnatural mode of living, whereby the power of resistance against disease is

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greatly diminished. The average age of a baker is below that of other workmen; they seldom live over their fiftieth year, most of them dying between the ages of forty and fifty. During periods of epidemic diseases the bakers are generally the first to succumb to the disease, and the number swept away during such periods far exceeds the number of other crafts in comparison to the men employed in the respective industries. When, in 1720, the plague visited the city of Marseilles, France, every baker in the city succumbed to the epidemic, which caused considerable excitement in the neighboring cities and resulted in measures for the sanitary protection of the bakers.'

          In the Eighteenth Annual Report by the New York Bureau of Statistics of Labor it is stated that among the occupations involving exposure to conditions that interfere with nutrition is that of a baker. (p. 52.) In that Report it is also stated that, 'from a social point of view, production will be increased by any change in industrial organization which diminishes the number of idlers, paupers, and criminals. Shorter hours of work, by allowing higher standards of comfort and purer family life, promise to enhance the industrial efficiency of the wage-working class, improved health, longer life, more content and greater intelligence and inventiveness.' (p. 82.)

          Statistics show that the average daily working time among workingmen in different countries is, in Australia, eight hours; in Great Britain, nine; in the United States, nine and three-quarters; in Denmark, nine and three-quarters; in Norway, ten; Sweden, France, and Switzerland, ten and one-half; Germany, ten and one-quarter; Belgium, Italy, and Austria, eleven; and in Russia, twelve hours.

          We judicially know that the question of the number of hours during which a workman should continuously labor has been, for a long period, and is yet, a subject of serious consideration among civilized peoples, and by those having special knowledge of the laws of health. Suppose the statute prohibited labor in bakery and confectionery establishments in excess of eighteen hours each day. No one, I take it, could dispute the power of the state to enact such a statute. But the statute

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before us does not embrace extreme or exceptional cases. It may be said to occupy a middle ground in respect of the hours of labor. What is the true ground for the state to take between legitimate protection, by legislation, of the public health and liberty of contract is not a question easily solved, nor one in respect of which there is or can be absolute certainty. There are very few, if any, questions in political economy about which entire certainty may be predicated. One writer on relation of the state to labor has well said: 'The manner, occasion, and degree in which the state may interfere with the industrial freedom of its citizens is one of the most debatable and difficult questions of social science.' Jevons, 33.

          We also judicially know that the number of hours that should constitute a day's labor in particular occupations involving the physical strength and safety of workmen has been the subject of enactments by Congress and by nearly all of the states. Many, if not most, of those enactments fix eight hours as the proper basis of a day's labor.

          I do not stop to consider whether any particular view of this economic question presents the sounder theory. What the precise facts are it may be difficult to say. It is enough for the determination of this case, and it is enough for this court to know, that the question is one about which there is room for debate and for an honest difference of opinion. There are many reasons of a weighty, substantial character, based upon the experience of mankind, in support of the theory that, all things considered, more than ten hours' steady work each day, from week to week, in a bakery or confectionery establishment, may endanger the health and shorten the lives of the workmen, thereby diminishing their physical and mental capacity to serve the state and to provide for those dependent upon them.

          If such reasons exist that ought to be the end of this case, for the state is not amenable to the judiciary, in respect of its legislative enactments, unless such enactments are plainly, palpably, beyond all question, inconsistent with the Constitu-

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tion of the United States. We are not to presume that the state of New York has acted in bad faith. Nor can we assume that its legislature acted without due deliberation, or that it did not determine this question upon the fullest attainable information and for the common good. We cannot say that the state has acted without reason, nor ought we to proceed upon the theory that its action is a mere sham. Our duty, I submit, is to sustain the statute as not being in conflict with the Federal Constitution, for the reason—and such is an all-sufficient reason—it is not shown to be plainly and palpably inconsistent with that instrument. Let the state alone in the management of its purely domestic affairs, so long as it does not appear beyond all question that it has violated the Federal Constitution. This view necessarily results from the principle that the health and safety of the people of a state are primarily for the state to guard and protect.

          I take leave to say that the New York statute, in the particulars here involved, cannot be held to be in conflict with the 14th Amendment, without enlarging the scope of the amendment far beyond its original purpose, and without bringing under the supervision of this court matters which have been supposed to belong exclusively to the legislative departments of the several states when exerting their conceded power to guard the health and safety of their citizens by such regulations as they in their wisdom deem best. Health laws of every description constitute, said Chief Justice Marshall, a part of that mass of legislation which 'embraces everything within the territory of a state, not surrendered to the general government; all which can be most advantageously exercised by the states themselves.' Gibbons v. Ogden, 9 Wheat. 1, 203, 6 L. ed. 23, 71. A decision that the New York statute is void under the 14th Amendment will, in my opinion, involve consequences of a far-reaching and mischievous character; for such a decision would seriously cripple the inherent power of the states to care for the lives, health, and wellbeing of their citizens. Those are matters which can be best controlled by the states.

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The preservation of the just powers of the states is quite as vital as the preservation of the powers of the general government.

          When this court had before it the question of the constitutionality of a statute of Kansas making it a criminal offense for a contractor for public work to permit or require his employees to perform labor upon such work in excess of eight hours each day, it was contended that the statute was in derogation of the liberty both of employees and employer. It was further contended that the Kansas statute was mischievous in its tendencies. This court, while disposing of the question only as it affected public work, held that the Kansas statute was not void under the 14th Amendment. But it took occasion to say what may well be here repeated: 'The responsibility therefor rests upon legislators, not upon the courts. No evils arising from such legislation could be more far reaching than those that might come to our system of government if the judiciary, abandoning the sphere assigned to it by the fundamental law, should enter the domain of legislation, and upon grounds merely of justice or reason or wisdom annul statutes that had received the sanction of the people's representatives. We are reminded by counsel that it is the solemn duty of the courts in cases before them to guard the constitutional rights of the citizen against merely arbitrary power. That is unquestionably true. But it is equally true—indeed, the public interests imperatively demand—that legislative enactments should be recognized and enforced by the courts as embodying the will of the people, unless they are plainly and palpably beyond all question in violation of the fundamental law of the Constitution.' Atkin v. Kansas, 191 U. S. 207, 223, 48 L. ed. 148, 158, 24 Sup. Ct. Rep. 124, 128.

          The judgment, in my opinion, should be affirmed.

           Mr. Justice Holmes dissenting:

          I regret sincerely that I am unable to agree with the judg-

Page 75

ment in this case, and that I think it my duty to express my dissent.

          This case is decided upon an economic theory which a large part of the country does not entertain. If it were a question whether I agreed with that theory, I should desire to study it further and long before making up my mind. But I do not conceive that to be my duty, because I strongly believe that my agreement or disagreement has nothing to do with the right of a majority to embody their opinions in law. It is settled by various decisions of this court that state constitutions and state laws may regulate life in many ways which we as legislators might think as injudicious, or if you like as tyrannical, as this, and which, equally with this, interfere with the liberty to contract. Sunday laws and usury laws are ancient examples. A more modern one is the prohibition of lotteries. The liberty of the citizen to do as he likes so long as he does not interfere with the liberty of others to do the same, which has been a shibboleth for some well-known writers, is interfered with by school laws, by the Postoffice, by every state or municipal institution which takes his money for purposes thought desirable, whether he likes it or not. The 14th Amendment does not enact Mr. Herbert Spencer's Social Statics. The other day we sustained the Massachusetts vaccination law. Jacobson v. Massachusetts, 197 U. S. 11, 25 Sup. Ct. Rep. 358, 49 L. ed. —United States and state statutes and decisions cutting down the liberty to contract by way of combination are familiar to this court. Northern Securities Co. v. United States, 193 U. S. 197, 48 L. ed. 679, 24 Sup. Ct. Rep. 436. Two years ago we upheld the prohibition of sales of stock on margins, or for future delivery, in the Constitution of California. Otis v. Parker, 187 U. S. 606, 47 L. ed. 323, 23 Sup. Ct. Rep. 168. The decision sustaining an eight-hour law for miners is still recent. Holden v. Hardy, 169 U. S. 366, 42 L. ed. 780, 18 Sup. Ct. Rep. 383. Some of these laws embody convictions or prejudices which judges are likely to share. Some may not. But a Constitution is not intended to embody a particular economic theory, whether of paternalism and the organic relation of the citizen to the state or of laissez faire.

Page 76

It is made for people of fundamentally differing views, and the accident of our finding certain opinions natural and familiar, or novel, and even shocking, ought not to conclude our judgment upon the question whether statutes embodying them conflict with the Constitution of the United States.

          General propositions do not decide concrete cases. The decision will depend on a judgment or intuition more subtle than any articulate major premise. But I think that the proposition just stated, if it is accepted, will carry us far toward the end. Every opinion tends to become a law. I think that the word 'liberty,' in the 14th Amendment, is perverted when it is held to prevent the natural outcome of a dominant opinion, unless it can be said that a rational and fair man necessarily would admit that the statute proposed would infringe fundamental principles as they have been understood by the traditions of our people and our law. It does not need research to show that no such sweeping condemnation can be passed upon the statute before us. A reasonable man might think it a proper measure on the score of health. Men whom I certainly could not pronounce unreasonable would uphold it as a first instalment of a general regulation of the hours of work. Whether in the latter aspect it would be open to the charge of inequality I think it unnecessary to discuss.

^{'No person shall sleep in a room occupied as a bake room. Sleeping places for the persons employed in the bakery shall be separate from the rooms where flour or meal food products are manufactured or stored. If the sleeping places are on the same floor where such products are manufactured, stored, or sold, the factory inspector may inspect and order them put in a proper sanitary condition.}

^{'§ 114. Inspection of bakeries.—The factory inspector shall cause all bakeries to be inspected. If it be found upon such inspection that the bakeries so inspected are constructed and conducted in compliance with the provisions of this chapter, the factory inspector shall issue a certificate to the person owning or conducting such bakeries.}

^{'§ 115. Notice requiring alterations.—If, in the opinion of the factory inspector, alterations are required in or upon premises occupied and used as bakeries, in order to comply with the provisions of this article, a written notice shall be served by him upon the owner, agent, or lessee of such premises, either personally or by mail, requiring such alterations to be made within sixty days after such service, and such alterations shall be made accordingly.' [N. Y. Laws 1897, chap 415.]}

^{[Argument of Counsel from pages 47-50 intentionally omitted]}

Present: QUA, C.J., LUMMUS, RONAN, WILLIAMS, & COUNIHAN, JJ.

[367] Joseph B. Abrams, (Leo Gordon with him,) for the defendants.

Benjamin Goldman, (Arthur Ellison with him,) for the plaintiff.

RONAN, J.

This is an action of tort for deceit brought against two defendants, Hanover-Elm Building Corporation and one Gordon, who, it is alleged, became in November, 1946, the owners of a building a portion of which was then occupied by the plaintiff under a lease from a former owner in which the rent was reserved at a rate of $4,500 and which would expire on March 1, 1947. It is also alleged that the defendants falsely represented to the plaintiff, with the intent that he should rely thereon, that they had a bona fide offer from one Levine for the leasing of the premises at the rate of $10,000 a year; that unless the plaintiff entered into a new lease at said rental for a term of twelve years they would evict the plaintiff on March 1, 1947; and that the plaintiff relied upon such misrepresentations and entered into such a lease with the corporate defendant, all to his damage. The declaration was held good when the case was here before. Kabatchnick v. Hanover-Elm Building Corp. 328 Mass. 341. The jury found against both defendants, and the case is here on various exceptions by the defendants. The plaintiff has also filed a bill of exceptions based upon the refusal of the judge, in allowing the bill of exceptions of the defendants, to include therein a certain paragraph that the plaintiff desired to have inserted.

During the empanelling of the jury, counsel for the defendants exercised two peremptory challenges which he stated were made in behalf of the individual defendant. He then attempted to claim two more such challenges in behalf of the corporate defendant. The defendants contended that the action was one against a principal and an agent. The plaintiff stated that the declaration set forth a joint action. The judge ruled that the cause of action alleged in the declaration was a joint action "impressed in a single count," and that such challenges should be made in behalf of the defendants collectively, and ruled that the [368] defendants had exhausted their challenges. He allowed the first two challenges and, subject to exception, denied the right of the defendants to make more than two challenges in all.

The right to make a peremptory challenge did not exist at common law but is of statutory origin which in this Commonwealth arose out of St. 1862, c. 84, which provided that "either party in a civil cause, and the defendant in a criminal cause, shall, before the trial commences, be entitled to challenge peremptorily two of the jurors from the panel called to try the cause." Soon after its enactment, the interpretation of this statute came before the court in Stone v. Segur, 11 Allen, 568, which was an action for assault and battery against eleven defendants, each of whom claimed the right to two peremptory challenges. It was said that the words "either party" meant those on one side of a case, whether they be one or more persons, that those who unite in perpetrating a wrong upon another are in legal contemplation but one party, and that it was in this sense that the word "party" was used in the statute. It was accordingly held that the defendants together were entitled to only two peremptory challenges. The statute which has remained substantially unchanged in so far as it pertains to civil cases appears in G.L. (Ter. Ed.) c. 234, § 29, as amended by St. 1945, c. 428, § 2. It has been strictly construed. The right to more than two such challenges was denied in Matthews v. New York Central & Hudson River Railroad, 231 Mass. 10, where two trustees brought an action of tort to recover for damage to their real estate because of the improper operation of the railroad. They were coowners and constituted but a single party within the meaning of the statute.

One who has sustained an injury in person or damage to his property by a wrong committed in which several persons have actively participated may bring an action against one or more of them, although of course he can have but one satisfaction of the judgments which he may recover. Corey v. Havener, 182 Mass. 250. Donnelly v. Larkin, 327 Mass. 287.

[369] It has long been established in this Commonwealth that a principal or master who has not actively engaged with his agent or servant in committing a wrong, where liability is attempted to be imposed upon him because the wrong was committed by the agent or servant while acting within the scope of his employment, is not a joint tortfeasor with the offending agent or servant and cannot be joined in an action with the latter, Parsons v. Winchell, 5 Cush. 592, Mulchey v. Methodist Religious Society, 125 Mass. 487, Feneff v. Boston & Maine Railroad, 196 Mass. 575, 581; and if the principal or master is compelled to pay a judgment because of the wrongful act of the agent or servant, he can compel the latter to indemnify him. Barry v. Keeler, 322 Mass. 114, 128. Restatement: Restitution, § 96. See Karcher v. Burbank, 303 Mass. 303; Restatement: Agency, § 401.

But the plaintiff contends that by virtue of G.L. (Ter. Ed.) c. 231, § 4A, inserted by St. 1943, c. 350, § 1, as amended by St. 1947, c. 408, § 1, two or more persons may be joined in one action as defendants if there is asserted against them jointly or severally any right to recover in respect of or rising out of the same matter or transaction. This statute is one of procedure and permits the joining in a single action of wrongdoers, even acting independently of each other, who have contributed to cause the injury or damage of which the plaintiff complains. This remedial statute has been frequently employed. Thorneal v. Cape Pond Ice Co. 321 Mass. 528. Repucci v. Exchange Realty Co. 321 Mass. 571. Nunan v. Dudley Properties, Inc. 325 Mass. 551. Koleshinski v. David, 328 Mass. 276. It changes the former rule and now permits the joining of the principal and the agent in a single action even where the principal or master did not participate in the wrongful act of the agent or servant. Collins v. Croteau, 322 Mass. 291, 296. The statute, however, does not change the substantive law. It does not convert the several liability of the principal or master into a joint tort liability with the agent or servant. It certainly did not justify dealing with them as joint tortfeasors. In [370] the next place, the question of the number of peremptory challenges that should be allowed arises at the opening of the trial. A judge has little, at that stage of the trial, other than the pleadings upon which to determine whether the relations of the respective litigants to each other and to the cause of action are such that under the statute, G.L. (Ter. Ed.) c. 234, § 29, any of them is entitled to two such challenges, or whether all together they comprise one party plaintiff or defendant as the case may be. It is, however, to be noted in this case that a pre-trial report, which we assume was in the papers before the judge and which shaped and limited the issues which were to be tried, stated that the defendant Gordon was the president and treasurer of the corporate defendant and was authorized to negotiate for the lease in its behalf. This was persuasive evidence that the action was to be tried on the theory that Gordon was acting within the scope of his employment as agent of the corporate defendant. That report seems to have been overlooked although the defendants' counsel directed the judge's attention to the fact that the action was against a principal and an agent. We think a separate cause of action against the principal could be joined with a cause of action arising out of the wrong committed by its agent within the scope of his employment, but we do not think that putting them in a single count changed the nature of the cause of action against each of them or deprived them of two peremptory challenges to which each was entitled under the statute.^[1]

The right to exercise peremptory challenges gives a litigant a limited opportunity of choice and allows him to have a juror withdrawn who in his opinion, because of bias, prejudice, or some other personal characteristic, is not inclined to look with favor upon him or upon the nature of the controversy, where he lacks sufficient grounds to support a challenge for cause. The right is a valuable one, and where, as [371] here, a party is deprived of its exercise he has a just cause of complaint. Sackett v. Ruder, 152 Mass. 397, 400-402. Searle v. Roman Catholic Bishop of Springfield, 203 Mass. 493, 499-500.

There was evidence that, during the negotiations for the lease, the plaintiff, in order to satisfy Gordon that he would be able to pay the increased rent, stated to Gordon that his gross sales amounted to $300,000 to $350,000 a year and that he made a "terrific profit" upon some of the sales of his merchandise. The judge subject to the exception of the defendants refused to permit them to inquire of the plaintiff with respect to his gross business and profits. The defendants contended that the evidence was competent upon the issues of liability and the value of the lease.

One of the issues of liability was what influence, if any, the alleged misstatements of Gordon had upon the plaintiff. We think it was open to the defendants to show that the amount of business and profits which the plaintiff had made during his occupancy of the premises was the real inducement for executing the new lease and not reliance, as the plaintiff contended, upon the alleged misrepresentations. In order to recover it was not necessary for the plaintiff to prove that he relied solely upon the misrepresentations. It was enough if he could prove that they were one of the principal grounds that caused him to execute the new lease or, in other words, that he would not have executed the lease if the false statements had not been made. What it was that actuated him to do so was a question of fact. The evidence was competent as tending to show on what the plaintiff relied. National Shawmut Bank v. Johnson, 317 Mass. 485, 490. Golding v. 108 Longwood Avenue, Inc. 325 Mass. 465, 468.

The evidence was not competent on the value of the lease which was the other ground upon which it was offered. Doubtless, where the plaintiff in an action of deceit was induced to purchase property by statements of the vendor that the profits were a certain amount, he may show that the profits were less than represented in order to prove the [372] falsity of the representations and to prove his damages by using the profits as represented as evidence to compute the value of the property if the statements were true and by using the evidence of actual profits to compute the actual value of the property. Powers v. Rittenberg, 270 Mass. 221, 223-224. Forman v. Hamilburg, 300 Mass. 138, 140-141. In the instant case, the defendants made no misrepresentations concerning profits. Here the evidence was offered to prove the value of the lease. The value of a leasehold used for the conduct of business depends upon so many factors that the amount of gross receipts or of net profits alone would not furnish an adequate criterion for the determination of its value. In the case at bar, evidence of profits to prove the value of the lease had such little persuasive effect that the judge in his discretion properly excluded it. Nelson Theatre Co. v. Nelson, 216 Mass. 30, 36. Revere v. Revere Construction Co. 285 Mass. 243, 248-250. Ferrick v. Barry, 320 Mass. 217, 227. Amory v. Commonwealth, 321 Mass. 240, 258. The case is distinguishable from those where evidence as to loss of profits, when shown with a reasonable degree of certainty to have been within the contemplation of the parties in making the lease, has been admitted where the lessor has broken the lease by refusing to grant a renewal or to prevent competition with the lessee's business. Neal v. Jefferson, 212 Mass. 517. Sheff v. Candy Box Inc. 274 Mass. 402. Parker v. Levin, 285 Mass. 125.

The defendants' motions for directed verdicts in so far as they related to the merits were properly denied for all the essential elements of an action for deceit were proved, Alpine v. Friend Bros. Inc. 244 Mass. 164, 167; Piper v. Childs, 290 Mass. 560, 562, even though there were some variations in testimony as to the exact terms of the representation made by Gordon. It was enough that the jury could find that they could have been fairly understood as alleged. See Adams v. Collins, 196 Mass. 422, 430; Sheffer v. Rudnick, 291 Mass. 205, 209; Downey v. Finucane, 205 N.Y. 251. These motions were also based upon the pleadings. The declaration alleged that the defendants were co-owners. [373] The few isolated places in the testimony where Gordon appears to have said that he was the new owner, in the teeth of all the rest of the evidence relating to ownership of the demised premises, the truth of which can hardly be challenged, to the effect that the corporate defendant had purchased the property, that Gordon was an officer of the corporation and managed its affairs, that he held a second mortgage from the corporation, that the plaintiff and the corporation alone mutually released each other under the existing lease before the present lease was executed, and that the only parties to the present lease were the plaintiff and the corporate defendant, were at most no more than a mere scintilla of evidence which fell far short of warranting a finding that Gordon was a coowner with the corporation. It was said in Buswell v. Fuller, 156 Mass. 309, 312-313, quoting from Hillyer v. Dickinson, 154 Mass. 502, 503-504, "The view no longer prevails that a party who has the burden of proof can retain a verdict in his favor by pointing to a mere scintilla of evidence, when, on an examination of the whole case, the court can find no substantial evidence to support it." Rainger v. Boston Mutual Life Association, 167 Mass. 109, 110. Farnham v. Lenox Motor Car Co. 229 Mass. 478, 484. Hartmann v. Boston Herald-Traveler Corp. 323 Mass. 56, 59-60. There was a variance between the declaration and the proof.

There is nothing here that would warrant us in now dealing with Gordon as the sole defendant, as the plaintiff now offers to do, by discontinuing against the corporation, as was done in Mulchey v. Methodist Religious Society, 125 Mass. 487, where after a full trial found free from error except in joining the principal and the agents, the plaintiff was permitted to discontinue against the agents.

Where a verdict has been directed on the ground of variance and where the plaintiff has failed to make out a case, the plaintiff's exceptions have been overruled. Glynn v. Blomerth, 312 Mass. 299. In other cases where the plaintiff has made out a meritorious case but different from the one alleged and where the motion has been based on a variance, [374] we have given the plaintiff an opportunity to apply in the trial court to amend the pleadings to conform to the proof. Coburn v. Moore, 320 Mass. 116, 123-124. We have at times simply sustained the defendant's exceptions where the plaintiff has made out a case but not the case alleged. Richards v. New York, New Haven & Hartford Railroad, 328 Mass. 204. We think the last course is the proper one to adopt here.

The plaintiff's exception is to the refusal of the judge, in allowing the defendants' substitute bill of exceptions, to include therein a certain paragraph as requested by the plaintiff. If we assume, without deciding, that an exception is the proper remedy, the exception must be overruled since in any event the defendants' exceptions must be sustained; consequently the plaintiff was not harmed.

We have considered all matters which are likely to arise at the new trial.

Plaintiff's exceptions overruled.

Defendants' exceptions sustained.

[1] Both principals and agents are considered as one party under statutes regulating the number of peremptory challenges in jurisdictions where the principals and agents are deemed to be joint tortfeasors. See 136 A.L.R. 417.

ERROR to the district court for the Louisiana district.

The defendant in error filed his petition, or libel, in the court below, stating, that on the 18th day of February, 1815, he purchased of the plaintiffs in error one hundred and eleven hogsheads of tobacco, as appeared by the copy of a bill of parcels annexed, and that the same were delivered to him by the said Laidlaw & Co., and that he was in the lawful and quiet possession of the said tobacco, when, on the 20th day of the said month, the said Laidlaw & Co., by force, and of their own wrong, took possession of the same, and unlawfully withheld the same from the petitioner, notwithstanding he was at all times, and still was, ready to do and perform all things on his part stipulated to be done and performed in relation to said purchase, and had actually tendered to the said Laidlaw & Co. bills of exchange for the amount of the purchase money, agreeably to the said contract; to his damage, &c. Wherefore the petition prayed that the said Laidlaw & Co. might be cited to appear and answer to his plaint, and that judgment might be rendered against them for his damages, &c. And inasmuch as the petitioner did verily believe that the said one hundred and eleven hogsheads of tobacco would be removed, concealed, or disposed of by the [179] said Laidlaw & Co., he prayed that a writ of sequestration might issue, and that the same might be sequestered in the hands of the marshal, to abide the judgment of the court, and that the said one hundred and eleven hogsheads of tobacco might be finally adjudged to the petitioner, together with his damages, &c., and costs of suit, and that the petitioner might have such other and farther relief as to the court should seem meet, &c.

The bill of parcels referred to in the petition was in the following words and figures, to wit:

'Mr. Organ Bo't of Peter Laidlaw & Co. 111 hhds. Tobacco, weighing 120,715 pounds n't. fr. $7,544.69.

'New-Orleans, 18th February, 1815.'

On the 21st of February, 1815, a citation to the said Laidlaw & Co. was issued, and a writ of sequestration, by order of the court, to the marshal, commanding him to sequester 111 hogsheads of tobacco in their possession, and the same so sequestered to take into his (the marshal's) possession, and safely keep, until the farther order of the court; which was duly executed by the marshal. And on the 2d of March, 1815, counsel having been heard in the case, it was ordered, that the petitioner enter into a bond or stipulation, with sufficient sureties in the sum of 1,000 dollars, to the said Laidlaw & Co., to indemnify them for the damages which they might sustain in consequence of prosecuting the writ of sequestration granted in the case.^a

[180] On the 22d of March, 1815, the plaintiffs in error filed their answer, stating that they had no property in the said tobacco claimed by the said petitioner or ownership whatever in the same, nor had they at any time previous to the bringing of said suit; but disclaimed all right, title, interest, and claim, to the said tobacco, the subject of the suit. And on the same day, Messrs. Boorman & Johnston filed their bill of interpleader or intervention, stating that the petitioner having brought his suit, and filed his petition, claiming of the said Laidlaw & Co. 111 hogsheads of tobacco, for which he had obtained a writ of sequestration, when, in truth, the said tobacco belonged to the said Boorman & Johnston, [181] and was not the property of the said Laidlaw & Co., and praying that they, the said Boorman & Johnston, might be admitted to defend their right, title, and claim, to the said tobacco, against the claim and pretensions of the petitioner, the justice of whose claim, under the sale as stated in his petition, was wholly denied, and that the said tobacco might be restored to them, &c.

On the 20th of April, 1815, the cause was tried by a jury, who returned the following verdict, to wit: 'The jury find for the plaintiff, for the tobacco named in the petition, without damages, payable as per contract.' Whereupon the court rendered judgment 'that the plaintiff recover of the said defendants the said 111 hogsheads of tobacco, mentioned in the plaintiff's petition, and sequestered in this suit, with his costs of suit to be taxed; and ordered, that the marshal deliver the said tobacco to the said plaintiff, and that he have execution for his costs aforesaid, upon the said plaintiff's depositing in this court his bills of exchange for the amount of the purchase money endorsed, &c., for the use of the defendants, agreeably to the verdict of the jury.'

On the 29th of April, 1815, the plaintiffs in error filed the following bill of exceptions, to wit: 'Be it remembered, that on the 20th day of April, in the year of our Lord, 1815, the above cause came on for trial before a jury duly sworn and empannelled, the said Peter Laidlaw & Co. having filed a disclaimer, and Boorman and Johnston of the city of New-York, having filed their claim. And now the said Hector [182] M. Organ having closed his testimony, the said claimants, by their counsel, offered Francis Girault, one of the above firm of Peter Laidlaw & Co., as their witness; whereupon the counsel for the plaintiff objected to his being sworn, on the ground of his incompetency. The claimants proved that Peter Laidlaw & Co., before named, were, at the date of the transaction which gave rise to the above suit, commission merchants, and were then known in the city of New-Orleans as such, and that it is invariably the course of trade in said city for commission merchants to make purchases and sales in their own names for the use of their employers; upon which the claimants again urged the propriety of suffering the said Francis Girault to be sworn, it appearing in evidence that the contract was made by Organ, the plaintiff, with said Girault, one of the said firm of Peter Laidlaw & Co. in their own name, and there being evidence that factors and commission merchants do business on their own account as well as for others, and there being no evidence that the plaintiff, at the time of the contract, had any knowledge of the existence of any other interest in the said tobacco, except that of the defendants, Peter Laidlaw & Co. The court sustained the objection, and rejected the said witness. To which decision of the court the counsel for the claimants aforesaid begged leave to except, and prayed that this bill of exceptions might be signed and allowed. And it appearing in evidence in the said cause, that on the night of the 18th of February, 1815, Messrs. Livingston, White, and Shepherd brought from the British fleet the news that a treaty of peace had been signed at Ghent by the American and British commissioners, contained in a letter from Lord Bathurst to the Lord Mayor of London, published in the British newspapers, and that Mr. White caused the same to be made public in a handbill on Sunday morning, 8 o'clock, the 19th of February, 1815, and that the brother of Mr. Shepherd, one of these gentlemen, and who was interested in one-third of the profits of the purchase set forth in said plaintiff's petition, had, on Sunday morning, the 19th of February, 1815, communicated said news to the plaintiff; that the said plaintiff, on receiving said news, called on Francis Girault, (with whom he had been bargaining for the tobacco mentioned in the petition, the evening previous,) said Francis Girault being one of the said house of trade of Peter Laidlaw & Co., soon after sunrise on the morning of Sunday, the 19th of February, 1815, before he had heard said news. Said Girault asked if there was any news which was calculated to enhance the price or value of the article about to be purchased; and that the said purchase was then and there made, and the bill of parcels annexed to the plaintiff's petition delivered to the plaintiff between 8 and 9 o'clock in the morning of that day; and that in consequence of said news the value of said article had risen from 30 to 50 per cent. There being no evidence that the plaintiff had asserted or suggested any thing to the said Girault, calculated to impose upon him with respect to said news, and to induce him to think or believe that it did not exist; and it appearing that the said Girault, when applied to, on the next day, Monday, the 20th of February, 1815, on behalf of the plaintiff, for an invoice of said tobacco, did not then object to the said sale, but promised to deliver the invoice to the said plaintiff in the course of the forenoon of that day; the court charged the jury to find for the plaintiff. Wherefore, that justice, by due course of law, may be done in this case, the counsel of said defendants, for them, and on their behalf, prays the court that this bill of exceptions be filed, allowed, and certified as the law directs.

(Signed,) DOMINICK A. HALL,

District Judge.

New-Orleans, this 3d day of May, 1815.'

On the 29th of April, 1815, a writ of error was allowed to this court, and on the 3d of May, 1815, the defendant in error deposited in the court below, for the use of the plaintiffs in error, the bills of exchange mentioned in the pleadings, according to the verdict of the jury and the judgment of the court thereon, which bills were thereupon taken out of court by the plaintiffs in error.

Feb. 20th.

Mr. C. J. Ingersoll, for the plaintiffs in error. 1. The first question is, whether the sale, under the circumstances of the case, was a valid sale; whether fraud, which vitiates every contract, must be proved by the communication of positive misinformation, or by withholding information when asked. Suppression of material circumstances within the knowledge of the vendee, and not accessible [185] to the vendor, is equivalent to fraud, and vitiates the contract.^b Pothier, in discussing this subject, adopts the distinction of the forum of conscience, and the forum of law; but he admits that fides est servanda.^c The parties treated on an unequal footing, as the one party [186] had received intelligence of the peace of Ghent, at the time of the contract, and the other had not. [187] This news was unexpected, even at Washington, much more at New-Orleans, the recent scene of the [188] most sanguinary operations of the war. In answer to the question, whether there was any news calculated [189] to enhance the price of the article, the vendee was silent. This reserve, when such a question was [190] asked, was equivalent to a false answer, and as much calculated to deceive as the communication of the most fabulous intelligence. Though the plaintiffs in error, after they heard the news of peace, still went on, in ignorance of their legal rights, to complete the contract, equity will protect them. [191] 2. Mr. Girault was improperly rejected as a witness, because he and his partner had disclaimed, and Messrs. Boorman & Johnston, the real owners of the tobacco, had intervened and taken the place of the original defendants. Girault was not obliged to disclose his character of agent, and, as such, he was an admissible witness.^d The tendency of the modern decisions to let objections go to the credibility, and not to the competency of witnesses, ought to be encouraged as an improvement in the jurisprudence on this subject. Besides, the proceedings are essentially in rem, according to the course of the civil law, and that consideration is conclusive as to the admissibility of the witness. 3. The court below had no right to charge the jury absolutely to find for the plaintiff. It was a mixed question of fact and law, which ought to have been left to the jury to decide. 4. There is error in the judgment of the court, in decreeing a deposit of the bills of exchange by the vendee for the tobacco, no such agreement being proved.

Mr. Key contra, 1. Though there be no testimony in the record to show a contract for payment in bills of exchange, still the court may infer that such was the contract from the petition of the plaintiff below, supported as it is by his oath, and uncontradicted, as to this fact, by the defendant's answer. [192] The decree was for a specific performance, and the vendors took the bills out of court. 2. The judge's charge was right, there being no evidence of fraud. The vendee's silence was not legal evidence of fraud, and, therefore, there was no conflict of testimony on this point: it was exclusively a question of law; the law was with the plaintiff; and, consequently, the court did right to instruct the jury to find for the plaintiff. 3. Mr. Girault was an inadmissible witness. He and his partners were general merchants as well as factors. They sold in their own names, and might call the article their own or the property of their principals, as it suited them. But they were parties to the suit, and the intervention of their principals did not abate the suit as to them.^e [193] On every ground, therefore, Mr. Girault was an inadmissible witness. 4. The only real question in the cause is, whether the sale was invalid because the vendee did not communicate information which he received precisely as the vendor might have got it had he been equally diligent or equally fortunate? And, surely, on this question there can be no doubt. Even if the vendor had been entitled to the disclosure, he waived it by not insisting on an answer to his question; and the silence of the vendee might as well have been interpreted into an affirmative as a negative answer. But, on principle, he was not bound to disclose. Even admitting that his conduct was unlawful, in foro conscientiae, does that prove that it was so in the civil forum? Human laws are imperfect in this respect, and the sphere of morality is more extensive than the limits of civil jurisdiction. The maxim of caveat emptor could never have crept into the law, if the province of ethics had been co-extensive with it. There was, in the present case, no circumvention or manoeuvre practised by the vendee, unless rising earlier in the morning, and obtaining by superior diligence and alertness that intelligence by which the price of commodities was regulated, be such. It is a romantic equality that is contended for on the other side. Parties never can be precisely equal in knowledge, either of facts or of the [194] inferences from such facts, and both must concur in order to satisfy the rule contended for. The absence of all authority in England and the United States, both great commercial countries, speaks volumes against the reasonableness and practicability of such a rule.

Mr. C. J. Ingersoll, in reply. Though the record may not show that any thing tending to mislead by positive assertion was said by the vendee, in answer to the question proposed by Mr. Girault, yet it is a case of manoeuvre; of mental reservation; of circumvention. The information was monopolized by the messengers from the British fleet, and not imparted to the public at large until it was too late for the vendor to save himself. The rule of law and of ethics is the same. It is not a romantic, but a practical and legal rule of equality and good faith that is proposed to be applied. The answer of Boorman & Johnston denies the whole of the petition, and consequently denies that payment was to be in bills of exchange; and their taking the bills out of court, ought not to prejudice them. There is nothing in the record to show that the vendors were general merchants, and they disclosed their principals when they came to plead. The judge undertook to decide from the testimony, that there was no fraud; in so doing he invaded the province of the jury; he should have left it to the jury, expressing his opinion merely.

Mr. Chief Justice MARSHALL delivered the opinion of the court.

The question in this case is, whether the intelligence of extrinsic circumstances, which might influence the price of the commodity, and which was exclusively within the knowledge of the vendee, ought to have been communicated by him to the vendor? The court is of opinion that he was not bound to communicate it. It would be difficult to circumscribe the contrary doctrine within proper limits, where the means of intelligence are equally accessible to both parties. But at the same time, each party must take care not to say or do any thing tending to impose upon the other. The court thinks that the absolute instruction of the judge was erroneous, and that the question, whether any imposition was practised by the vendee upon the vendor ought to have been submitted to the jury. For these reasons the judgment must be reversed, and the cause remanded to the district court of Louisiana, with directions to award a venire facias de novo.

Venire de novo awarded.

[a] Sequestration, in the practice of the civil law, is a process to take judicial custody of the res or persona in controversv to abide the event of the suit. It may be applied to real or personal property, the right to which is litigated between the parties, or even to persons, as to a married woman, in a cause of divorce, in order to preserve her from ill treatment on the part of her husband, or to a minor in order to secure him from ill treatment by his parents. Clerke's Prax. Tit. 43. Pothier, de la Proc edure Civile, Partie I, Chap. 3. art. 2. § 1. Code Napoleon, Liv. 3. tit. 11., Des D ep ots et du S equestre, art. 1961. Digest of the Civil laws of Louisiana, 419. The sequestration may be demanded, either in the original petition, or in the progress of the cause at any time before it is set down for hearing by a petition from the party demanding it, with notice to the opposite party, on which the judge, after hearing counsel, pronounces his interlocutory sentence or decree. This sentence is to be provisionally executed notwithstanding an appeal. The sequestration is usually ordered, in possessory actions, where the preliminary proofs of the parties appear to be nearly balanced; where an inheritance consisting of personal effects of great value is in controversy; where there is ground to apprehend that the parties may resort to personal violence in contesting the enjoyment of the mesne profits; in actions of partition, where the property in litigation cannot be quietly enjoyed by the respective owners; and sometimes in cases where the suit is likely to be of long duration. Pothier, Ib. and § 2.

[b] 1 Comyn on Contr. 38. and the authorities there cited.

[c] Pothier, De Vente, Nos. 233 to 241. He considers this question under the four following heads. 1st. Whether good faith obliges the vendor, at least in foro conscientiae, not only to refrain from practising any deception, but also from using any mental reservation? 2d. What reservation binds the party in the civil forum, and to what obligations? 3d. Whether the vendor is bound, at least in foro conscientiae, not to conceal any circumstances, even extrinsic, which the vendee has an interest in knowing? 4th. Whether the vendor may, in foro conscientiae, sometimes sell at a price above the true value of the article. As Pothier's discussion throws great light on this subject, a translation of this part of his admirable treatise may not be unacceptable to the reader.

'ARTICLE I. 233. Although, in many transactions of civil society, the rules of good faith only require us to refrain from falsehood, and permit us to conceal from others that which they have an interest in knowing if we have an equal interest in concealing it from them; yet, in interested contracts, among which is the contract of sale, good faith not only forbids the assertion of falsehood, but also all reservation concerning that which the person with whom we contract has an interest in knowing, touching the thing which is the object of the contract.

'The reason is that equity and justice, in these contracts, consists in equality. It is evident that any reservation, by one of the contracting parties, concerning any circumstance which the other has an interest in knowing, touching the object of the contract, is fatal to this equality: for the moment the one acquires a knowledge of this object superior to the other, he has an advantage over the other in contracting; he knows better what he is doing than the other; and, consequently, equality is no longer found in the contract.

'In applying these principles to the contract of sale, it follows that the vendor is obliged to disclose every circumstance within his knowledge touching the thing which the vendee has an interest in knowing, and that he sins against that good faith which ought to reign in this contract, if he conceals any such circumstance from him.

'This is what Florentinus teaches in the law 43. § 2. Dig. De contr. empt. Dolum malum a se abesse proestare venditor debet, qui non tantum in eo est qui fallendi causd obscur e loquitur, sed etiam qui insidiose, obscure dissimulat.

'234. According to these principles the vendor is obliged not to conceal any of the defects of the article sold, which are within his knowledge, although these defects may not be such as fall within an implied warranty, but even such defects as the vendee would have no right to complain of, if the vendor who had not disclosed them was ignorant of their existence. Cum ex XII. tabulis, says Cicero, (Lib 3. de Off.) satis esset cautum ea praestare quae essent lingu a nuncuipata; a j urisconsultis, etiam reticencioe poena constituta, quidquid enim inest proedio vitii id statuerunt, si venditor sciret, nisi nominatim dictum esset, proestare oportere. The vendor, in this case, is held in id quanti (emptoris) intererit scisse. Dig. l. 4. De act. empt. and this r eservation may sometimes authorize a rescinding of the contract. 1. 11, § 5. Dig. de tit.

'235. This rule ought to be applied, although the vendor, who has concealed the defects in the thing sold, has not sold it for more than its value with these defects. The reason is that he who sells me a thing has no right to require that I should pay the highest price for it, unless I consent to buy it for that price; he has no right to require of me a higher price than that which I voluntarily give, and he ought not to practise any artifice to induce me to consent to buy it at a higher price than I should have been willing to give had I known the defects which he had maliciously concealed.

'236. Good faith obliges the vendor, not only not to conceal any of the intrinsic vices of the thing sold, but generally not to dissemble any circumstance concerning it which might induce the vendee not to buy, or not to buy at so high a price. For example, the vendee may have his action against the vendor if the latter has concealed the existence of a bad neighbourhood to a real estate sold by him, which might have prevented the vendee from purchasing had he known it: Si quis in vendendo proedio confinem celaverit, quem emptor si audisset, empturus non esset. Dig. L. 15. § 8. De contr. empt.

'237. These principles of the Roman jurisconsults, are more accurate and more conformable to justice than the decision of St. Thomas, which permits the vendor to conceal the vices of the thing sold, except in two cases, 1. If the vice be of a nature to cause the vendee some injury; and 2. If the vendor availed himself of his reservation in order to sell the thing at a higher price than it was worth. This decision appears to me to be unjust, since, as the vendor is perfectly at liberty to sell or not to sell, he ought to leave the vendee perfectly at liberty to buy or not to buy, even for a fair price, if that price does not suit the buyer: it is, therefore, unjust to lay a snare for this liberty which the vendee ought to enjoy, by concealing from him the vice of the thing, in order to induce him to buy that which he would not have been willing to buy for the price at which it is sold to him, had he known its defects.

'ARTICLE II. 238. Although it is with respect to the civil forum that the Roman jurisconsults have established the principles which we have stated, touching the obligation of the vendor not to conceal from the vendee any circumstance relative to the thing sold, and although they ought to be exactly followed, in foro conscientioe, yet they are little observed in our tribunals, and the vendee is not easily listened to who complains of the concealment of some vice in the thing sold, unless it be such a defect as falls within the doctrine of implied warranty. The interest of commerce not permitting parties to set aside their contracts with too much facility, they must impute it to their own fault in not having better informed themselves of the defects in the commodities they have purchased.

'239. There are, nevertheless, certain reservations touching the thing sold which have been thought worthy of the attention of the law, and which are obligatory on the vendor in the civil forum; as for instance, when the vendor knows that the thing which he sells does not belong to him, or that it does not irrevocably belong to him, or that it is subject to certain incumbrances, and conceals these facts from the vendee,' &c.

'ARTICLE III. 241. Cicero, in the third book of his Offices, has treated this question in the case of a corn-merchant, who being arrived at Rhodes, in a time of scarcity, before a great number of other vessels loaded with corn, exposes his own for sale: Cicero proposes the question whether this merchant is obliged to inform the buyers that there are a great number of other vessels on their voyage, and near the port? He states, upon this question, the sentiments of two stoic philosophers, Diogenes and Antipater; Diogenes thought that the merchant might lawfully withhold the knowledge which he had of the vessels on the point of arriving, and sell his corn at the current price: Antipater, his disciple, whose decision Cicero appears to adopt, thought, on the contrary, that this dissimulation was contrary to good faith. The reason on which he grounds this opinion is that the concord which ought to exist among men, the affection which we ought to bear to each other, cannot permit us to prefer our private interest to the interest of our neighbour, from whence it follows that, though we may conceal some things from prudence, we cannot conceal, for the sake of profit, facts which those with whom we contract have an interest in knowing. Hoc celandi genus, says he, non aperti, non simplicis, non ingenui; non justi, non viri boni: vertuti potius, obscuri, astuti, fallacis, malitiosi, callidi, veteratoris, vafri.

'This question only concerns the forum of conscience; for there can be no doubt that in the civil forum, the demand of a vendee cannot be listened to who complains that the vendor has not disclosed to him all the extrinsic circumstances relative to the thing sold, whatever interest the vendee might have in knowing them. The decision of Cicero is somewhat difficult to maintain even in the forum of conscience. The greater part of the writers on natural law have considered it as unreasonable.

'These writers are of opinion, that the good faith which ought to govern the contract of sale, only requires that the vendor should represent the thing sold as it is, without dissimulating its defects, and not to sell it above the price which it bears at the time of the contract; that he commits no injustice in selling it at this price, although he knows that the price must soon fall; that he is not obliged to disclose to the vendee a knowledge which he may have of the circumstances that may produce a depression of the price; the vendee having no more right to demand that the vendor should impart this knowledge than that he should give away his property; that if he should do it, it would be merely an act of benevolence, which we are not obliged to exercise except towards those who are in distress, which was not the case with the Rhodians, who were only in want of corn, but were not in want of money to buy it. The profit which the merchant makes in selling it for the price it is worth today, although he is conscious the price will fall to-morrow, is not iniquitous; it is a just recompense for his diligence in reaching the market first, and for the risk which he ran of losing upon his commodities if any accident had prevented his arriving so soon. It is no more forbidden to sell at the current price, without disclosing the circumstances which may cause it to fall, than it is to buy without communicating those which may cause it to rise. And Joseph was never accused of injustice for profiting of the knowledge which he alone had of the years of famine to buy the fifth part of the corn of the Egyptians without warning them of the years of famine that were to follow.

'Notwithstanding these roasons and authorities, I should have some difficulty, in the forum of conscience, in excusing the injustice of a profit which the vendor might derive from concealing a fact which would cause a fall in the price of the commodity, when that fall must be very considerable, and must certainly arrive in a very short period of time, such as that which the merchant knew of the near approach of a fleet to Rhodes laden with corn. In the contract of sale, as well as in other mutually beneficial contracts, equity requires that what the one party gives should be the equivalent of what he receives, and that neither party should wish to profit at the expense of the other. But in the case of the merchant, who, by dissembling the knowledge which he has of this fact, sells his corn at one hundred livres the cask, the market price of the day, can he, without illusion, persuade himself that the article which, in two days, will be worth no more than twenty livres, is the equivalent of one hundred livres which he receives? You will say that it is sufficient if at the time it be worth the price of one hundred livres for which he sells it. I answer, that a thing, which has a present and momentary value of one hundred livres, but which he certainly knows will be reduced in two days to the value of twenty, cannot be seriously regarded by him as truly the equivalent of the money which he receives, and which must always be worth one hundred. Does not his conduct imply, that he wishes, by his reservation, to profit and enrich himself at the expense of the buyers, to induce them to purchase a commodity by which he is certain they must lose in two days four fifths of the original cost?'

The merchant will smile at the rigid morality of this deservedly celebrated writer, who proceeds, in a fourth article, to consider whether the vendor may, in foro conscientia, sometimes sell at a price above the true value of the commodity. After laying down some general rules on this subject, he remarks, that 'they are not adopted in the civil forum, where a vendee is not ordinarily admitted to complain that he has purchased dearer than the true value, it being for the interest of commerce that parties should not be allowed to set aside their contracts with too much facility.' No. 242. In a subsequent part of his treatise he states what are the nature of the frauds that may be committed by the vendee, which he resolves into two classes. 1st. The first consists of any misrepresentation or circumvention which the vendee may employ in order to induce the vendor to sell, or to sell at a less price. 2d. Where the vendee conceals from the vendor the knowledge which he may have, touching the thing sold, and which the vendor may not possess. The former species of fraud, if sufficiently proved, he considers will invalidate the contract even in the civil forum. But the latter he deems only obligatory in foro conscientiae, both because unduly restricting the freedom of commerce, and because the vendor ought to know best the qualities of the articles he sells, and if he does not, it is his own fault. Nos. 294-298. In the fifth part, chap. 2., he considers the subject of the action which is given by the Code, l. 4. tit. 44. De rescind. vend., to the vendor for rescinding the contract on account of enormous lesion, or gross inadequacy of price, which, however, does not extend to merchandise, or other personal property, and, therefore, it is unnecessary to trouble the reader by extending this note to a greater length.

[d] Dixon v. Cooper, 3 Wils. 40. 1 Atk. 248. Benjamin v. Porteus, 2 H. Bl. 590. Mackay v. Rhinelander et al., 1 Johns. Cas. 408. Jones v. Hake, 2 Johns Cas. 60. Burlingame v. Dyer, Johns. Rep. 189.

[e] Intervention is a proceeding by which a third person petitions to be received as a party in a cause, either with the plaintiff or the defendant, and to prosecute the suit jointly with the party whose interests may be connected with his own. It may take place either before or after the cause is at issue, and set down for hearing; either in the court below, or upon appeal. But it cannot operate to retard the adjudication of the principal cause; which may either be determined separately, or the whole controversy may be decided by one and the same judgment. Clerke's Prax. tit. 38, 39. Pothier, De la Proc edure Civile, Partie 1, chap. 2, art. 3. § 3. Code de Proc edure Civile, Partie 1. Liv. 2. tit. 16. De l'Intervention, art. 339, 340. It may take place where the goods of one person are attached as the property or for the debt of another. Clerke's Prax. Ib. In actions of warranty, Pothier, Ib. Partie 1. chap. 2. art. 2. § 2. Code de Proc edure Civile, 1ere Partie Liv. 2. tit. 9. Des Exceptions Dilatoires, art. 183. So also in a suit for separation of property between husband and wife, the creditors of the husband may intervene for the preservation of their rights. Ib. 2 Partie. Liv. 1. tit. 8. Des Separations de Biens, art. 871.

Interest in the subject matter of the suit is a fatal objection to the competency of a witness by the civil law; (Pothier, Id. Partie 2. chap. 3.art. 4. § 3.;) but according to the above authorities, Mr. Girault appears to have been an inadmissible witness, because still a party to the cause notwithstanding the intervention of his principals.

193 Cal.Rptr. 130

145 Cal.App.3d 261

Dorris Joni REED, Plaintiff and Appellant,
v.
Robert J. KING et al., Defendants and Respondents.

Civ. 21937.

Court of Appeal, Third District, California.

June 21, 1983.
Hearing Denied Oct. 6, 1983.

[145 Cal.App.3d 263] McKernan & Lanam and Stephen E. Benson, Chico, for plaintiff and appellant.

Price, Burnes, Price, Davis & Brown, Philip B. Price, Chico, and Mary Marsh Linde for defendants and respondents.

BLEASE, Associate Justice.

In the sale of a house, must the seller disclose it was the site of a multiple murder? Dorris Reed purchased a house from Robert King. Neither King nor his real estate agents (the other named defendants) told Reed that a woman and her four children were murdered there ten years earlier. However, it seems "truth will come to light; murder cannot be hid long." (Shakespeare, Merchant of Venice, Act II, Scene II.) Reed learned of the gruesome episode from a neighbor after the sale. She sues seeking rescission and damages. King and the real estate agent defendants successfully demurred to her first [145 Cal.App.3d 264] amended complaint for failure to state a cause of action. Reed appeals the ensuing judgment of dismissal. We will reverse the judgment.

FACTS

We take all issuable facts pled in Reed's complaint as true. (See 3 Witkin, Cal.Procedure [193 Cal.Rptr. 131] (2d ed. 1971) Pleading, § 800.) King and his real estate agent knew about the murders and knew the event materially affected the market value of the house when they listed it for sale. They represented to Reed the premises were in good condition and fit for an "elderly lady" living alone. They did not disclose the fact of the murders. At some point King asked a neighbor not to inform Reed of that event. Nonetheless, after Reed moved in neighbors informed her no one was interested in purchasing the house because of the stigma. Reed paid $76,000, but the house is only worth $65,000 because of its past.

The trial court sustained the demurrers to the complaint on the ground it did not state a cause of action. The court concluded a cause of action could only be stated "if the subject property, by reason of the prior circumstances, were presently the object of community notoriety ...." (Original italics.) Reed declined the offer of leave to amend.

Discussion

Does Reed's pleading state a cause of action? Concealed within this question is the nettlesome problem of the duty of disclosure of blemishes on real property which are not physical defects or legal impairments to use.

Reed seeks to state a cause of action sounding in contract, i.e. rescission, or in tort, i.e. deceit. In either event her allegations must reveal a fraud. (See Civ.Code, §§ 1571-1573, 1689, 1709-1710.) "The elements of actual fraud, whether as the basis of the remedy in contract or tort, may be stated as follows: There must be (1) a false representation or concealment of a material fact (or, in some cases, an opinion) susceptible of knowledge, (2) made with knowledge of its falsity or without sufficient knowledge on the subject to warrant a representation, (3) with the intent to induce the person to whom it is made to act upon it; and such person must (4) act in reliance upon the representation (5) to his damage."^[1] (Original italics.) (1 Witkin, Summary of California Law (8th ed. 1973) Contracts, § 315.)

The trial court perceived the defect in Reed's complaint to be a failure to allege concealment of a material fact. "Concealment" and "material" are [145 Cal.App.3d 265] legal conclusions concerning the effect of the issuable facts pled. As appears, the analytic pathways to these conclusions are intertwined.

Concealment is a term of art which includes mere non-disclosure when a party has a duty to disclose. (See e.g. Lingsch v. Savage (1963) 213 Cal.App.2d 729, 738, 29 Cal.Rptr. 201; Rest.2d Contracts, § 161; Rest.2d Torts, § 551; Rest.Restitution, § 8, esp. com. b.) Reed's complaint reveals only non-disclosure despite the allegation King asked a neighbor to hold his peace. There is no allegation the attempt at suppression was a cause in fact of Reed's ignorance.^[2] (See Rest.2d Contracts, §§ 160, 162-164; Rest.2d Torts, § 550; Rest.Restitution, § 9.) Accordingly, the critical question is: does the seller have duty to disclose here? Resolution of this question depends on the materiality of the fact of the murders.

In general, a seller of real property has a duty to disclose: "where the seller knows of facts materially affecting the value or desirability of the property which are [193 Cal.Rptr. 132] known or accessible only to him and also knows that such facts are not known to, or within the reach of the diligent attention and observation of the buyer, the seller is under a duty to disclose them to the buyer.^[3] [Emphasis added; Citations omitted.]" (Lingsch v. Savage, supra, 213 Cal.App.2d at p. 735, 29 Cal.Rptr. 201.) This broad statement of duty has led one commentator to conclude: "The ancient maxin caveat emptor ('let the buyer beware.') has little or no application to California real estate transactions." (1 Miller and Starr, Current Law of Cal.Real Estate (rev. ed. 1975) § 1:80.)

Whether information "is of sufficient materiality to affect the value or desirability of the property ... depends on the facts of the particular case." (Lingsch, supra, 213 Cal.App.2d at p. 737, 29 Cal.Rptr. 201.) Materiality "is a question of law, and is part of the concept of right to rely or justifiable reliance." (3 Witkin, Cal.Procedure (2d ed. 1971) Pleading, § 578, p. 2217.) Accordingly,[145 Cal.App.3d 266] the term is essentially a label affixed to a normative conclusion.^[4] Three considerations bear on this legal conclusion: the gravity of the harm inflicted by non-disclosure; the fairness of imposing a duty of discovery on the buyer as an alternative to compelling disclosure, and its impact on the stability of contracts if rescission is permitted.

Numerous cases have found non-disclosure of physical defects and legal impediments to use of real property are material. (See 1 Miller and Starr, supra, § 181.)^[5] However, to our knowledge, no prior real estate sale case has faced an issue of non-disclosure of the kind presented here. (Compare Earl v. Saks & Co., supra; Kuhn v. Gottfried (1951) 103 Cal.App.2d 80, 85-86, 229 P.2d 137.) Should this variety of ill-repute be required to be disclosed? Is this a circumstance where "non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing [?]" (Rest.2d Contracts, § 161, subd. (b).)

The paramount argument against an affirmative conclusion is it permits the camel's nose of unrestrained irrationality admission to the tent. If such an "irrational" consideration is permitted as a basis of rescission the stability of all conveyances will be seriously undermined. Any fact that might disquiet the enjoyment of some segment of the buying public may be seized upon by a disgruntled purchaser to void a bargain.^[6] In our view, keeping [145 Cal.App.3d 267] this genie [193 Cal.Rptr. 133] in the bottle is not as difficult a task as these arguments assume. We do not view a decision allowing Reed to survive a demurrer in these unusual circumstances as endorsing the materiality of facts predicating peripheral, insubstantial, or fancied harms.

The murder of innocents is highly unusual in its potential for so disturbing buyers they may be unable to reside in a home where it has occurred. This fact may foreseeably deprive a buyer of the intended use of the purchase. Murder is not such a common occurrence that buyers should be charged with anticipating and discovering this disquieting possibility. Accordingly, the fact is not one for which a duty of inquiry and discovery can sensibly be imposed upon the buyer.

Reed alleges the fact of the murders has a quantifiable effect on the market value of the premises.^[7] We cannot say this allegation is inherently wrong and, in the pleading posture of the case, we assume it to be true. If information known or accessible only to the seller has a significant and measureable effect on market value and, as is alleged here, the seller is aware of this effect, we see no principled basis for making the duty to disclose turn upon the character of the information. Physical usefulness is not and never has been the sole criterion of valuation. Stamp collections and gold speculation would be insane activities if utilitarian considerations were the sole measure of value. (See also Civ.Code, § 3355 [deprivation of property of peculiar value to owner]; Annot. (1950) 12 A.L.R.2d 902 [measure of damages for conversion or loss of, or damage to, personal property having no market value].)

Reputation and history can have a significant effect on the value of realty. "George Washington slept here" is worth something, however physically inconsequential that consideration may be. Ill-repute or "bad will" conversely may depress the value of property. Failure to disclose such a negative fact where it will have a forseeably depressing effect on income expected to be generated by a business is tortious. (See Rest.2d Torts, § 551, illus. 11.) Some cases have held that unreasonable fears of the potential buying public that a gas or oil pipeline may rupture may depress the market value of land and entitle the owner to incremental compensation in eminent domain. (See Annot., Eminent Domain: Elements and measure of compensation for oil or gas pipeline through private property (1954) 38 A.L.R.2d 788, 801-804.)

[145 Cal.App.3d 268] Whether Reed will be able to prove her allegation the decade-old multiple murder has a significant effect on market value we cannot determine.^[8] If she is able to do so by competent evidence she is entitled to a favorable ruling on the issues of materiality and duty to disclose.^[9] Her demonstration [193 Cal.Rptr. 134] of objective tangible harm would still the concern that permitting her to go forward will open the floodgates to rescission on subjective and idiosyncratic grounds.

A more troublesome question would arise if a buyer in similar circumstances were unable to plead or establish a significant and quantifiable effect on market value. However, this question is not presented in the posture of this case. Reed has not alleged the fact of the murders has rendered the premises useless to her as a residence. As currently pled, the gravamen of her case is pecuniary harm. We decline to speculate on the abstract alternative.

The judgment is reversed.

EVANS, Acting P.J., and CARR, J., concur.

Hearing denied; RICHARDSON, J., dissenting.

[1] Proof of damage, i.e. specific pecuniary loss, is not essential to obtain rescission alone. (See 1 Witkin, op. cit. supra, §§ 324-325; see also Earl v. Saks & Co. (1951) 36 Cal.2d 602, 226 P.2d 340.)

[2] Reed elsewhere in the complaint asserts defendants "actively concealed" the fact of the murders and this in part misled her. However, no connection is made or apparent between the legal conclusion of active concealment and any issuable fact pled by Reed. Accordingly, the assertion is insufficient. (See Bacon v. Soule (1912) 19 Cal.App. 428, 438, 126 P. 384.) Similarly we do not view the statement the house was fit for Reed to inhabit as transmuting her case from one of non-disclosure to one of false representation. To view the representation as patently false is to find "elderly ladies" uniformly susceptible to squeamishness. We decline to indulge this stereotypical assumption. To view the representation as misleading because it conflicts with a duty to disclose is to beg that question.

[3] The real estate agent or broker representing the seller is under the same duty of disclosure. (Lingsch v. Savage, supra, 213 Cal.App.2d at p. 736, 29 Cal.Rptr. 201.)

[4] This often subsumes a policy analysis of the effect of permitting rescission on the stability of contracts. (See fn. 6, ante.) "In the case law of fraud, the word 'material' has become a sort of talisman. It is suggested that it has no meaning when undefined other than to the user since the word actually means no more than that the fraud is the sort which will justify rescission or damages in deceit. However, courts continue to use materiality as a test without explanatory reference to the varying standards of reliance, damage, etc. they are following." (Note, Rescission: Fraud as Ground: Contracts (1951) 39 Cal.L.Rev. 309, 310-311, fn. 4.)

[5] For example, the following have been held of sufficient materiality to require disclosure: the home sold was constructed on filled land (Burkett v. J.A. Thompson & Son (1957) 150 Cal.App.2d 523, 526, 310 P.2d 56); improvements were added without a building permit and in violation of zoning regulations (Barder v. McClung (1949) 93 Cal.App.2d 692, 697, 209 P.2d 808) or in violation of building codes (Curran v. Heslop (1953) 115 Cal.App.2d 476, 480-481, 252 P.2d 378); the structure was condemned (Katz v. Department of Real Estate (1979) 96 Cal.App.3d 895, 900, 158 Cal.Rptr. 766); the structure was termite-infested (Godfrey v. Steinpress (1982) 128 Cal.App.3d 154, 180 Cal.Rptr. 95); there was water infiltration in the soil (Barnhouse v. City of Pinole (1982) 133 Cal.App.3d 171, 187-188, 183 Cal.Rptr. 881); the correct amount of net income a piece of property would yield (Ford v. Cournale (1973) 36 Cal.App.3d 172, 179-180, 111 Cal.Rptr. 334.)

[6] Concern for the effects of an overly indulgent rescission policy on the stability of bargains is not new. Our Supreme Court early on quoted with approval the sentiment: "The power to cancel a contract is a most extraordinary power. It is one which should be exercised with great caution,--nay, I may say, with great reluctance,--unless in a clear case. A too free use of this power would render all business uncertain, and, as has been said, make the length of a chancellor's foot the measure of individual rights. The greatest liberty of making contracts is essential to the business interests of the country. In general, the parties must look out for themselves." (Colton v. Stanford (1890) 82 Cal. 351, 398, 23 P. 16.)

[7] See Evidence Code section 810 et seq. We note the traditional formulation of market value assumes a buyer "with knowledge of all the uses and purposes to which [the realty] is adapted." (See e.g. South Bay Irr. Dist. v. California-American Water Co. (1976) 61 Cal.App.3d 944, 961 and 970, 133 Cal.Rptr. 166.)

[8] "[I]n determining what factors would motivate [buyers and sellers] in reaching an agreement as to price, and in weighing the effect of their motivation, [the trier of fact] may rely upon the opinion of experts in the field and also upon its knowledge and experience shared in common with people in general." (South Bay Irr. Dist., supra, 61 Cal.App.3d at p. 970, 133 Cal.Rptr. 166; see also 3 Wigmore, Evidence (Chadbourn rev. ed. 1970) § 711 et seq.)

[9] The ruling of the trial court requiring the additional element of notoriety, i.e. widespread public knowledge, is unpersuasive. Lack of notoriety may facilitate resale to yet another unsuspecting buyer at the "market price" of a house with no ill-repute. However, it appears the buyer will learn of the possibly unsettling history of the house soon after moving in. Those who suffer no discomfort from the specter of residing in such quarters per se, will nonetheless be discomforted by the prospect they have bought a house that may be difficult to sell to less hardy souls. Non-disclosure must be evaluated as fair or unfair regardless of the ease with which a buyer may escape this discomfort by foisting it upon another.

Mattahiah Eytan, pro se.

Ella Eytan, pro se.

No appearance was entered for appellee.

Before FICKLING^[1] and KERN, Associate Judges, and REILLY, Chief Judge, Retired.

REILLY, Chief Judge, Retired:

This is an appeal from a judgment in the Small Claims Court^[2] dismissing an action to recover $157.50 — the total sales price of three paintings paid to a Georgetown retailer of antiques and miscellaneous second-hand furniture by appellants (a married couple). Their basic contention was that they had bought these paintings because the vendor had represented them to be the original productions of some 19th Century artist (or artists), notwithstanding the fact [880] that these were merely copies (as the purchasers subsequently discovered) processed and placed in frames to convey the impression of age.

When this case was reached on the calendar, the trial judge, in compliance with Small Claims Rule 12(a), sought to elicit from the parties the information bearing on the case and attempted to obtain a pretrial settlement. The principal claimant, the husband, told the court that he and his wife had come to the defendant's shop to purchase some antique paintings, where they inspected and touched several canvases. They selected three because the brittleness of the material, cracks in the paint, discoloration, grease stains on the back, and punctures in the frame, he asserted, led them to believe these particular items were old. The proprietor of the shop, conceding that these paintings were not genuine originals but recent reproductions, nevertheless insisted that they were worth considerably more than the purchasers had paid, saying that he had agreed to cut his prices in order to effectuate the sale. At the court's suggestion, he offered the claimants $50 in settlement. This offer was rejected, and the parties were instructed to return that afternoon for trial.^[3]

When court reconvened, the trial judge said that in his opinion the complainants had no cause of action. At the request of the principal claimant, however, the court permitted him to make a statement of the facts and to present argument.

In his presentation, this appellant repeated much of what he had said in the conciliation proceedings, conceded that the vendor had made no express representation that the paintings were either originals or ancient, but contended that because he and his wife had, in the course of their inspection, displayed such interest in indicia of age, it became the legal duty of the dealer to disclose the true facts before the sale was completed. The only new fact he adduced was that the dealer did make a comment on one of the paintings — a plantation scene in which a group of white men in costumes of a past century were depicted with a black man in one corner of the canvas. The dealer remarked that paintings with black men in them were unusual in the 19th Century.^[4] Plaintiff then argued that defendant was guilty of a breach of implied or express warranty. The court disagreed.

The trial judge found "no controverted issues of material fact."^[5] Based on a "general knowledge of the economics of the locality," the trial judge concluded that the average price paid for each of the three paintings — approximately $50 — was ". . a sufficiently small amount to put any purchaser on notice that he was not buying a legitimate antique original work of art" and summarily dismissed the complaint.^[6]

In the brief accompanying the application for allowance of appeal, appellants contended that the court erred in (1) ruling that the failure of a seller to disclose a material fact does not amount to a misrepresentation, (2) ruling that the doctrine of implied warranty of fitness has no application to secondhand goods, (3) relying upon its own knowledge and expertise in American art history to reach the conclusion that the purchasers should have known that the paintings were not old, but were reproductions, and (4) basing its judgment solely upon something said in the course of conciliation.

As abstract propositions of law, some of these contentions are not devoid of merit. This court has recognized that in certain circumstances, concealment of a "material fact is as fraudulent as a positive direct misrepresentation." Andolsun v. Berlitz Schools of Languages of America, Inc., D.C. App., 196 A.2d 926, 927 (1964). Moreover, [881] D.C.Code 1973, § 28:2-315 makes no distinction between new and used goods in its discussion of implied warranties of fitness for a particular purpose. This section was enacted as a part of the Uniform Commercial Code, and courts have adopted the view that secondhand goods are within its coverage. See Green v. Northeast Motor Co., D.C.Mun.App., 166 A.2d 923 (1961); Overland Bond and Investment Corp. v. Howard, 9 Ill.App.3d 348, 292 N.E.2d 168 (1972).

An examination of the proceedings — transcribed after appeal was allowed — reveals, however, that none of these issues is really raised by the record and that the judgment of the court does not rest upon any of the rulings attributed to it by appellants. What the court did hold was that a purchaser who bought artificially aged copies of primitive paintings for the low unit prices upon which he and the dealer ultimately agreed, could not credibly assign as fraud the fact that the articles purchased turned out not to be vastly more valuable — as, of course, original paintings would have been. Under the circumstances — the customer not having inquired as to whether the canvases were originals — we perceive no duty upon the part of the vendor to inform him of the obvious. If a customer went into a jewelry store and bought for $50 an item which looked like a diamond pendant set with pearls, it would plainly not be incumbent upon the sales clerk to warn the customer that what he had selected was a piece of costume jewelry with synthetic gems.

In taking this view of the matter, the record does not reflect that the trial judge^[7] relied upon — or took judicial notice of his own knowledge of the history of American art — although in the course of oral argument, appellant accused him of doing so. The trial judge disclaimed this approach and his written findings make clear that this was not a factor.

Although appellants strongly urge that they were aggrieved because the court entered judgment against them before any testimony was taken and thereby prevented their calling witnesses, it is fundamental that a court may direct a verdict where the opening statement of plaintiff reveals that no cause of action exists. Cook v. Safeway Stores, Inc., D.C.App., 354 A.2d 507 (1976) and cases cited at 508. Plainly, this principle also applies to jury-waived cases, including trials in the Small Claims Branch. Appellants argue, however, that it was improper for the court to decide the case simply upon something said in the conciliation proceedings. Presumably they are adverting to the familiar rule of evidence which excludes testimony of concessions made in settlement conferences.

It is not altogether clear that proceedings under Rule 12(a) fall into this category, for this rule requires the court to inquire into the nature of the claims and defenses — thereby implying that if there are no substantial issues of fact to support a valid claim, the court may take appropriate action even though Rule 12(b) provides for a trial when the parties fail to settle the controversy. But we need not decide this question here. Although the court expressed its view of the matter when the parties reconvened for trial, it did not enter formal judgment until it had heard the principal appellant's opening statement and orally pointed out what it deemed to be the fatal flaws in the described claim. It then granted summary judgment.

It is immaterial that the defendant did not formally move for summary judgment, but rather was awarded judgment by the court sua sponte. In the Small Claims Branch, informal procedures govern and the relevant inquiry is whether "substantial justice" has been achieved. Interstate Bankers Corp. v. Kennedy, D.C.Mun.App., 33 A.2d 165, 166 (1943).

Affirmed.

[1] Associate Judge Fickling participated at argument and in the post-argument conference prior to his death on March 6, 1977.

[2] Now a branch of the Superior Court. Plaintiffs in the action filed an application for allowance of appeal, which was granted. D.C.Code 1973, § 11-721.

[3] All parties were present and not represented by counsel.

[4] The claimant contends that this comment was tantamount to warranting that the painting was done in the 19th Century, but the trial judge noted that the vendor's observation seemed to be a caveat rather than a representation.

[5] Certification of Trial Court at 1, Oct. 28, 1975.

[6] Id. at 2.

[7] The trial judge, Hon. Edward A. Beard, was the moving force in the creation of the Superior Court Art Trust, a collection which includes some excellent examples of American art.

Knollmiller, Herrick, Brown & Arenofsky by Thomas N. Swift, Tempe, for Warren and Gloria Hill.

Johnson & Shelley by Bryn R. Johnson, Mesa, for Ora and Barbara Jones.

OPINION

MEYERSON, Judge.

Must the seller of a residence disclose to the buyer facts pertaining to past termite infestation? This is the primary question presented in this appeal. Plaintiffs Warren G. Hill and Gloria R. Hill (buyers) filed suit to rescind an agreement to purchase a residence. Buyers alleged that Ora G. Jones and Barbara R. Jones (sellers) had made misrepresentations concerning termite damage in the residence and had failed to disclose to them the existence of the damage and history of termite infestation in the residence. The trial court dismissed the claim for misrepresentation based upon a so-called integration clause in the parties' agreement.

Sellers then sought summary judgment on the "concealment" claim arguing that [82] they had no duty to disclose information pertaining to termite infestation and that even if they did, the record failed to show all of the elements necessary for fraudulent concealment. The trial court granted summary judgment, finding that there was "no genuinely disputed issue of material fact and that the law favors the ... defendants." The trial court awarded sellers $1,000.00 in attorney's fees. Buyers have appealed from the judgment and sellers have cross-appealed from the trial court's ruling on attorney's fees.

I. FACTS

In 1982, buyers entered into an agreement to purchase sellers' residence for $72,000. The agreement was entered after buyers made several visits to the home. The purchase agreement provided that sellers were to pay for and place in escrow a termite inspection report stating that the property was free from evidence of termite infestation. Escrow was scheduled to close two months later.

One of the central features of the house is a parquet teak floor covering the sunken living room, the dining room, the entryway and portions of the halls. On a subsequent visit to the house, and when sellers were present, buyers noticed a small "ripple" in the wood floor on the step leading up to the dining room from the sunken living room. Mr. Hill asked if the ripple could be termite damage. Mrs. Jones answered that it was water damage. A few years previously, a broken water heater in the house had in fact caused water damage in the area of the dining room and steps which necessitated that some repairs be made to the floor. No further discussion on the subject, however, took place between the parties at that time or afterwards.

Mr. Hill, through his job as maintenance supervisor at a school district, had seen similar "ripples" in wood which had turned out to be termite damage. Mr. Hill was not totally satisfied with Mrs. Jones's explanation, but he felt that the termite inspection report would reveal whether the ripple was due to termites or some other cause.

The termite inspection report stated that there was no visible evidence of infestation. The report failed to note the existence of physical damage or evidence of previous treatment. The realtor notified the parties that the property had passed the termite inspection. Apparently, neither party actually saw the report prior to close of escrow.

After moving into the house, buyers found a pamphlet left in one of the drawers entitled "Termites, the Silent Saboteurs." They learned from a neighbor that the house had some termite infestation in the past. Shortly after the close of escrow, Mrs. Hill noticed that the wood on the steps leading down to the sunken living room was crumbling. She called an exterminator who confirmed the existence of termite damage to the floor and steps and to wood columns in the house. The estimated cost of repairing the wood floor alone was approximately $5,000.

Through discovery after their lawsuit was filed, buyers learned the following. When sellers purchased the residence in 1974, they received two termite guarantees that had been given to the previous owner by Truly Nolen, as well as a diagram showing termite treatment at the residence that had taken place in 1963. The guarantees provided for semi-annual inspections and annual termite booster treatments. The accompanying diagram stated that the existing damage had not been repaired. The second guarantee, dated 1965, reinstated the earlier contract for inspection and treatment. Mr. Jones admitted that he read the guarantees when he received them. Sellers renewed the guarantees when they purchased the residence in 1974. They also paid the annual fee each year until they sold the home.

On two occasions during sellers' ownership of the house but while they were at their other residence in Minnesota, a neighbor noticed "streamers" evidencing live termites in the wood tile floor near the entryway. On both occasions, Truly Nolen gave a booster treatment for termites. On the [83] second incident, Truly Nolen drilled through one of the wood tiles to treat for termites. The neighbor showed Mr. Jones the area where the damage and treatment had occurred. Sellers had also seen termites on the back fence and had replaced and treated portions of the fence.

Sellers did not mention any of this information to buyers prior to close of escrow. They did not mention the past termite infestation and treatment to the realtor or to the termite inspector. There was evidence of holes on the patio that had been drilled years previously to treat for termites. The inspector returned to the residence to determine why he had not found evidence of prior treatment and termite damage. He indicated that he had not seen the holes in the patio because of boxes stacked there. It is unclear whether the boxes had been placed there by buyers or sellers. He had not found the damage inside the house because a large plant, which buyers had purchased from sellers, covered the area. After investigating the second time, the inspector found the damage and evidence of past treatment. He acknowledged that this information should have appeared in the report. He complained, however, that he should have been told of any history of termite infestation and treatment before he performed his inspection and that it was customary for the inspector to be given such information.

Other evidence presented to the trial court was that during their numerous visits to the residence before close of escrow, buyers had unrestricted access to view and inspect the entire house. Both Mr. and Mrs. Hill had seen termite damage and were therefore familiar with what it might look like. Mr. Hill had seen termite damage on the fence at this property. Mrs. Hill had noticed the holes on the patio but claimed not to realize at the time what they were for. Buyers asked no questions about termites except when they asked if the "ripple" on the stairs was termite damage. Mrs. Hill admitted she was not "trying" to find problems with the house because she really wanted it.

II. CONTRACT INTEGRATION CLAUSE

We first turn to the trial court's ruling that the agreement of the parties did not give buyers the right to rely on the statement made by Mrs. Jones that the "ripple" in the floor was water damage. We find this ruling to be in error. The contract provision upon which the trial court based its ruling reads as follows:

That the Purchaser has investigated the said premises, and the Broker and the Seller are hereby released from all responsibility regarding the valuation thereof, and neither Purchaser, Seller, nor Broker shall be bound by any understanding, agreement, promise, representation or stipulation expressed or implied, not specified herein.

In Lufty v. R.D. Roper & Sons Motor Co., 57 Ariz. 495, 506, 115 P.2d 161, 166 (1941), the Arizona Supreme Court considered a similar clause in an agreement and concluded that "any provision in a contract making it possible for a party thereto to free himself from the consequences of his own fraud in procuring its execution is invalid and necessarily constitutes no defense." The court went on to hold that "parol evidence is always admissible to show fraud, and this is true, even though it has the effect of varying the terms of a writing between the parties." 57 Ariz. at 506-507, 115 P.2d at 166; Barnes v. Lopez, 25 Ariz. App. 477, 480, 544 P.2d 694, 697 (1976). In this case, the claimed misrepresentation occurred after the parties executed the contract.^[1] Assuming, for the purposes of this decision, that the integration clause would extend to statements made subsequent to the execution of the contract, the clause could not shield sellers from liability should buyers be able to prove fraud.

III. DUTY TO DISCLOSE

The principal legal question presented in this appeal is whether a seller has a [84] duty to disclose to the buyer the existence of termite damage in a residential dwelling known to the seller, but not to the buyer, which materially affects the value of the property. For the reasons stated herein, we hold that such a duty exists.

This is not the place to trace the history of the doctrine of caveat emptor. Suffice it to say that its vitality has waned during the latter half of the 20th century. E.g., Richards v. Powercraft Homes, Inc., 139 Ariz. 242, 678 P.2d 427 (1984) (implied warranty of workmanship and habitability extends to subsequent buyers of homes); see generally Quashnock v. Frost, 299 Pa.Super. 9, 445 A.2d 121 (1982); Ollerman v. O'Rourke Co., 94 Wis.2d 17, 288 N.W.2d 95 (1980). The modern view is that a vendor has an affirmative duty to disclose material facts where:

1. Disclosure is necessary to prevent a previous assertion from being a misrepresentation or from being fraudulent or material;

2. Disclosure would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if nondisclosure amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing;

3. Disclosure would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part;

4. The other person is entitled to know the fact because of a relationship of trust and confidence between them.

Restatement (Second) of Contracts § 161 (1981) (Restatement); see Restatement (Second) of Torts § 551 (1977).

Arizona courts have long recognized that under certain circumstances there may be a "duty to speak." Van Buren v. Pima Community College Dist. Bd., 113 Ariz. 85, 87, 546 P.2d 821, 823 (1976); Batty v. Arizona State Dental Bd., 57 Ariz. 239, 254, 112 P.2d 870, 877 (1941). As the supreme court noted in the context of a confidential relationship, "[s]uppression of a material fact which a party is bound in good faith to disclose is equivalent to a false representation." Leigh v. Loyd, 74 Ariz. 84, 87, 244 P.2d 356, 358 (1952); National Housing Indus. Inc. v. E.L. Jones Dev. Co., 118 Ariz. 374, 379, 576 P.2d 1374, 1379 (1978).

Thus, the important question we must answer is whether under the facts of this case, buyers should have been permitted to present to the jury their claim that sellers were under a duty to disclose their (sellers') knowledge of termite infestation in the residence. This broader question involves two inquiries. First, must a seller of residential property advise the buyer of material facts within his knowledge pertaining to the value of the property? Second, may termite damage and the existence of past infestation constitute such material facts?

The doctrine imposing a duty to disclose is akin to the well-established contractual rules pertaining to relief from contracts based upon mistake. Although the law of contracts supports the finality of transactions, over the years courts have recognized that under certain limited circumstances it is unjust to strictly enforce the policy favoring finality. Thus, for example, even a unilaterial mistake of one party to a transaction may justify rescission. Restatement § 153.

There is also a judicial policy promoting honesty and fair dealing in business relationships. This policy is expressed in the law of fraudulent and negligent misrepresentations. Where a misrepresentation is fraudulent or where a negligent misrepresentation is one of material fact, the policy of finality rightly gives way to the policy of promoting honest dealings between the parties. See Restatement § 164(1).

Under certain circumstances nondisclosure of a fact known to one party may be equivalent to the assertion that the fact does not exist. For example "[w]hen one conveys a false impression by the disclosure of some facts and the concealment of others, such concealment is in effect a false representation that what is disclosed is the [85] whole truth." State v. Coddington, 135 Ariz. 480, 481, 662 P.2d 155, 156 (App. 1983). Thus, nondisclosure may be equated with and given the same legal effect as fraud and misrepresentation. One category of cases where this has been done involves the area of nondisclosure of material facts affecting the value of property, known to the seller but not reasonably capable of being known to the buyer.

Courts have formulated this "duty to disclose" in slightly different ways. For example, the Florida Supreme Court recently declared that "where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer." Johnson v. Davis, 480 So.2d 625, 629 (Fla. 1985) (defective roof in three-year old home). In California, the rule has been stated this way:

[W]here the seller knows of facts materially affecting the value or desirability of the property which are known or accessible only to him and also knows that such facts are not known to, or within the reach of the diligent attention and observation of the buyer, the seller is under a duty to disclose them to the buyer.

Lingsch v. Savage, 213 Cal. App.2d 729, 735, 29 Cal. Rptr. 201, 204 (1963); contra Ray v. Montgomery, 399 So.2d 230 (Ala. 1980); see generally W. Prosser & W. Keeton, The Law of Torts § 106 (5th ed. 1984).^[2] We find that the Florida formulation of the disclosure rule properly balances the legitimate interests of the parties in a transaction for the sale of a private residence and accordingly adopt it for such cases.

As can be seen, the rule requiring disclosure is invoked in the case of material facts.^[3] Thus, we are led to the second inquiry — whether the existence of termite damage in a residential dwelling is the type of material fact which gives rise to the duty to disclose. The existence of termite damage and past termite infestation has been considered by other courts to be sufficiently material to warrant disclosure. See generally Annot., 22 A.L.R.3d 972 (1968).

In Lynn v. Taylor, 7 Kan. App.2d 369, 642 P.2d 131 (1982), the purchaser of a termite-damaged residence brought suit against the seller and realtor for fraud and against the termite inspector for negligence. An initial termite report found evidence of prior termite infestation and recommended treatment. A second report indicated that the house was termite free. The first report was not given to the buyer. The seller contended that because treatment would not have repaired the existing damage, the first report was not material. The buyer testified that he would not have purchased the house had he known of the first report. Under these circumstances, the court concluded that the facts contained in the first report were material. See Hunt v. Walker, 483 S.W.2d 732 (Tenn. App. 1971) (severe damage to the residence by past termite infestation); Mercer v. Woodard, 166 Ga. App. 119, 123, 303 S.E.2d 475, 481-82 (1983) (duty of disclosure extends to fact of past termite damage).

Although sellers have attempted to draw a distinction between live termites^[4] and past infestation, the concept of materiality is an elastic one which is not limited by the termites' health. "A matter is material if it is one to which a reasonable person would attach importance in determining his choice of action in the transaction in question." [86] Lynn v. Taylor, 7 Kan. App.2d at 371, 642 P.2d at 134-35. For example, termite damage substantially affecting the structural soundness of the residence may be material even if there is no evidence of present infestation. Unless reasonable minds could not differ, materiality is a factual matter which must be determined by the trier of fact. The termite damage in this case may or may not be material. Accordingly, we conclude that buyers should be allowed to present their case to a jury.

Sellers argue that even assuming the existence of a duty to disclose, summary judgment was proper because the record shows that their "silence ... did not induce or influence" the buyers. This is so, sellers contend, because Mr. Hill stated in his deposition that he intended to rely on the termite inspection report. But this argument begs the question. If sellers were fully aware of the extent of termite damage and if such information had been disclosed to buyers, a jury could accept Mr. Hill's testimony that had he known of the termite damage he would not have purchased the house.

Sellers further contend that buyers were put on notice of the possible existence of termite infestation and were therefore "chargeable with the knowledge which [an] inquiry, if made, would have revealed." Godfrey v. Navratil, 3 Ariz. App. 47, 51, 411 P.2d 470 (1966) (quoting Luke v. Smith, 13 Ariz. 155, 162, 108 P. 494, 496 (1910)). It is also true that "a party may ... reasonably expect the other to take normal steps to inform himself and to draw his own conclusions." Restatement § 161 comment d. Under the facts of this case, the question of buyers' knowledge of the termite problem (or their diligence in attempting to inform themselves about the termite problem) should be left to the jury.^[5]

By virtue of our holding, sellers' crossappeal is moot. Reversed and remanded.

CONTRERAS, P.J., and YALE McFATE, J. (Retired), concur.

Note: The Honorable Yale McFate, a retired judge of the Court of Appeals, was authorized to participate in the disposition of this matter by the Chief Justice of the Arizona Supreme Court pursuant to Ariz. Const. art. VI, § 20.

[1] Buyers' fraud theory is apparently based on the premise that they were not bound under the contract until a satisfactory termite inspection report was submitted.

[2] There are variations on this same theme. For example, Pennsylvania has limited the obligation of disclosure to cases of dangerous defects. Glanski v. Ervine, 269 Pa.Super. 182, 191, 409 A.2d 425, 430 (1979).

[3] Arizona has recognized that a duty to disclose may arise where the buyer makes an inquiry of the seller, regardless of whether or not the fact is material. Universal Inv. Co. v. Sahara Motor Inn, Inc., 127 Ariz. 213, 215, 619 P.2d 485, 487 (1980). The inquiry by buyers whether the ripple was termite damage imposed a duty upon sellers to disclose what information they knew concerning the existence of termite infestation in the residence.

[4] Sellers acknowledge that a duty of disclosure would exist if live termites were present. Obde v. Schlemeyer, 56 Wash.2d 449, 353 P.2d 672 (1960).

[5] Sellers also contend that they had no knowledge of any existing termite damage in the house. An extended discussion of the facts on this point is unnecessary. Simply stated, the facts are in conflict on this issue.