Internatio-Rotterdam, Inc. v. River Brand Rice Mills, Inc.

United States Court of Appeals for the Second Circuit · 1958 · Contracts

Contractsconditionsexpress conditionstrict complianceshipping noticecondition precedentpromissory conditiontime of the essence

Facts

In July 1952, the parties agreed that defendant would sell plaintiff 95,600 pockets of rice at $8.25 per pocket F.A.S. Lake Charles and/or Houston, with shipment in December 1952 and with two weeks' call from buyer. Defendant elected to deliver 50,000 pockets at Lake Charles and received timely instructions for those shipments on December 10, but plaintiff gave no shipping instructions for the remaining 45,600 pockets intended for Houston by December 17, the last date that would leave a full two-week period within December. On December 18, defendant rescinded the contract as to the Houston shipments while continuing Lake Charles deliveries. Plaintiff later obtained export arrangements and sought delivery, but defendant refused.

Issue

Whether plaintiff's giving of shipping instructions by December 17 was a condition precedent to defendant's duty to make the Houston deliveries in December, and whether defendant could rescind when no such instructions were given by that date. A related issue was whether continuing performance at Lake Charles prevented cancellation as to Houston.

Rule

Where a sales contract requires shipment in a specified month and also gives the seller a fixed notice period after buyer's shipping instructions, the buyer's timely notice within that month may be a condition precedent to the seller's duty to perform if the contract, properly interpreted in context, makes delivery within that month of the essence. Nonoccurrence of that condition discharges the seller's duty and permits rescission; continued performance of a separable portion of the contract does not necessarily waive cancellation of another portion.

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Sierra Valley Almond Co., a processor in California, agreed in July to sell 20 railcars of almonds to Meridian Export Group at a price stated F.A.S. Oakland, with shipment in November and '10 days' call from buyer.' Meridian did not identify any vessel, berth, or loading date until November 25, and then demanded shipment by December 5.

Is Sierra Valley obligated to ship after receiving Meridian's November 25 instructions?

Explanation. Under the majority's reasoning, where the seller cannot make F.A.S. delivery until the buyer identifies the ship and location, the buyer's notice is a promissory condition and condition precedent to the seller's duty. If the contract, read in its commercial setting, makes shipment in the named month essential, notice must come early enough to permit the full contractual notice period within that month. Late notice does not merely shift delivery into the next month; it means the condition did not occur, so the seller may treat its obligation as discharged. (Derived from Internatio-Rotterdam, Inc. v. River Brand Rice Mills, Inc. (1958).)