Story Case

Many establishments permit 2 per cent off for cash within thirty days. That is, if the goods sent per contract are paid for within thirty days, a discount of 2 per cent on the contract price is allowed. The firm of Gerald & Company, boot and shoe wholesalers, for many years had allowed such a discount to their customers. George Gregg, a shoe dealer, sent the following letter to Gerald and Company.

Jan. 1, 1915. Send me a consignment of shoes as per the consignment of last year, price to be the same, to reach me by January 10.

(Signed) George Gregg.

Gerald & Co. sent the shoes immediately and they reached Gregg on January 9th. There was no stipulation for discount for cash in the present case or in the contract of last year.

On January 19th, Gregg sent a draft for the price of the shoes minus 2 per cent. Gerald & Company refused to accept the draft because it was not for the entire amount. They claimed that, since there was no stipulation for discount, Gregg was not entitled to it.

Gregg answered that he had always received the discount from Gerald & Co. and that, although there was no stipulation in the contract, there was a custom in the shoe business to allow the discount for cash within thirty days.

Which party wins?

Ruling Court Case. Cunningham Vs. Morning Star, Volume 110 Indiana Reports, Page 328; Volume 59 American Decisions, Page 211

During the season of 1879-80, Cunningham, the plaintiff in this action, was engaged in the pork-packing business in Martinsville, Indiana. Cunningham offered to advance money to Morningstar, if the latter would purchase and deliver fat hogs at their packing house. Cunningham offered to slaughter the hogs, prepare them for market, and deliver the product up to Morningstar upon his demand. In pursuance of the terms of the agreement, Cuningham advanced about $2,500 to Morningstar; with this and other money, Morningstar purchased some 2500 hogs and delivered them to Cunningham. These were butchered and prepared for market. About this time the price of meat began to go down; and had the meat then been sold, the proceeds would have scarcely been sufficient to repay Cunningham the money by him advanced. It was decided that Cunningham should retain the meat a while longer, and that Morningstar should give a note for the repayment of the money advanced to him. He failed to pay the note at maturity, and Cunningham brought this action upon it.

Morningstar contended that he was not liable upon the note because Cunningham had not performed the contract; he contended that Cunningham had mixed his meat with all the meat contained in his packing plant; that he had converted a part of the same, in that he had kept and used the bristles, feet, fat from the entrails and other offal. In reply to this, Cunningham showed that it was the custom among all packers to retain the parts referred to, as compensation for butchering and preparing the animals for market.

Decision

Although nothing was said in their contract by which Cunningham was to retain any part or parts of the animals slaughtered, it is such a well established custom among packers, that it must have been understood as a term in the offer, as made by Cunningham. Such being the case, the facts set up by Morningstar constitute no defense to the action upon the note.

The Court was, therefore, of the opinion that judgment upon the note should be given for Cunningham.

Ruling Law. Story Case Answer

It frequently happens that one party to a contract or the other may set up some custom or usage of trade to add a new term to the contract, or to give a particular meaning to a term, or to make clearer some term. As in the case of Cunningham vs. Morningstar, it was permitted to be shown there that a packer was entitled to mingle all meat together; and that he was entitled to retain certain parts of the slaughtered animals, although nothing was said in the contract in reference to such right. But where such a custom is well known to both parties, under similar circumstances, it is presumed that the parties intended to adopt such customs and usages as a part of their contract.

In order, however, that such customs and usages may be shown to this purpose, certain requirements must be met. The custom or usage must have been established at the time the contract was made. It must have been well known custom or usage. Such custom must not be in conflict with any rule of law.

Nor can it be in conflict with any express term of the contract. In Cunningham vs. Morning star, had it appeared that the parties expressly agreed that those certain parts of the animals were not to be retained by the packer, of course, the custom would have had no effect on the contract.

Thus, in the Story Case, Gregg is entitled to his discount. Since there was a well established custom to allow the discount in question, it must be presumed that they intended that it should be a term of their contract.