568 GENERAL TALKING PICTURES CORP. V. SHEA. [187 GENERAL TALKING PICTURES CORPORATION V. SHEA. 4-3031 Opinion delivered June 12, 1933. i. BAILMENT—IMPLIED WARRANTY.—A warranty in the lease of a - motion picture machine conditioned on a test thereof within a specified time and notification to the lessor of defects within a specified time is binding. 2. APPEAL AND ERROR—CONCLUSIVENESS OF VERDICT.—Whether. the ' lessee of a machine . notified the lessor within a reasonable time of its unsatisfactory operation held for the jury, whose verdict was conclusive.
ARK.] GENERAL TALKING PICTURES • ORP. V. SHEA. 569 3. - BAILMENT—IMPLIED WARRANTY. A lease of a talking motion picture machine which exempted the lessor from-liability for , any .breakdown, defect or change of condition in theater or equipment, any loss or damage to persons in the theater, etc., held not to exempt the lessor fiorn liability for breach of the implied warranty of fitness. 4. BAILMENT—IMPLIED WARRANTY.—Under the laws of New York, the lessor of a talking . motion picture machine impliedly warrants its fitness unless .the ' parties have contracted against a. warranty. — A -LMEi4T—DAMAGES FOR BREACH.—Where an implied warranty in a lease of a motion picture machine was breached by the leSsor, - the; lessee :was entitled to recover . the payments and expenditures incurred in . attempting . to make the machine function and also f or . the loss of • net profits. A,ppeal ufrom . Desha Circuit Ceurt; T. G: Parham, -Jfidge; affirmed. • • Zeiger Berliner, George D. Hester and Coleman & Riddiek, for ap'pellant.. - • • • J. G. Williamson, Lamar WilliaMson and Adrian Williamson,'for appellee. SMITH, -On . May 8 1930; • the General Talking Pictures Corperatiim; hereinafter referred to as thficom-pany; instituted a replevin snit . against T. A. Shea, to recover the pOSSession ora talkingthotion picture machine,. which the - latter had • operated 'at McGehee, Arkansas, under a lease contract frOm the company. The conipany lthd leased the machine to Shea for . a fieriod of ten years, under a licefise contract dated FebrithrY 4, 1929: The . license fee for the ten' years period was $5,680, payable as follows : $1;250 When the - lease was signed ; -$750 when the machine was ready-fer shipment; $3,180 in twelve monthly payments of $265 each, beginning April 20; 1929, and. $50 , on. the lst day •Of . January of each- year during the • term. . The lease was executed on a printed form, by filling. in the blank spaces for the date, the- name . of the . lessee, the place of inStallation of the talking . picture Machine which: was the subject-matter of . the Contract,. the 'approximate •-date of installation, and the . ambunts •and time of payments. Motion talking pictures had not-come into ieneral. use when the lease abovexeferred to was executed. • Shea
570 GENERAL TALKING PICTURES CORP. V. SHEA. - [187 had for sothe time been in the moving picture business before executing the lease, and had a place of business used for that purpose, but he was required by the lease contract to make numerous • changes in his building to adapt it to the exhibition of talking moving pictures. The lease contract required Shea, at his own cost and expense, to make these changes and alterations, and these WOO Made . under the supervision of the company's representative. . . • . The contract provided that "The company will service • the eignipment frbm 'time to time at the ekpense of . the exhibitor," and, further, that: - " The exhibitor Shall not, obtain any: additional;,renewal or spare or assembled parts for the equipment otherwise than through_ the company.". , :, . „ . . . . I The lease contract was divided . into ,•aragraphs, which were numbered i ' and . opposite each paragraph there was printed, in .capital letters, the snbject of the particular„ : paragraph.- Paragraph 11 was entitled: "PaiyATE sTf[oNm■To," and reads as follows : "No public showing of-any . sound-film on the. EQUIPMENT shall. be bad until a private • test shall have been made in the THEATRE f0 insure satisfactory adjustment and operation thereof and the EXHIBITOR agrees to telegraph the COMPANY immediately if the EQUIPMENT fails to operate satisfactorily at . that time, .in the absence of which notification satisfactory functioning shall be, conclusively presumed." Paragraph 15 was, entitled : "LIABILITY FOR INJURY, ETC.," and : reads. as follows : . ."The company shall not be liable for " (A) Any 'breakdown, defect or change of condition in the THEATRE OF EQUIPMENT, any 'interruption of serVice, any loss or damage to any persons or property in or about the THEATRE or elsewhere nor for any damages direct,. special . or consequential, for any reason whatsoever. • The ExmBrroa .agrees to indemnify the COMPANY -and save it harmless from any liability or injury to workmen or others resulting from negligence or otherwise or arising out of the installation or -use of the EQUIPMENT.
ARK.] GENERAL TALKING PICTURES CORP. v. SHEA. 571 " (B) Any loss, damage or delay caused by strikes, riots, fire, insurrection, war, elements, embargoes; failure of carriers, inability to obtain transportation facilities, acts of God,•or of the public enemy, or any other cause beyond the COMPANY 'S control, Whether Or not similar to the foregoing." The concluding sentence of the lease was that it should be construed in accordance with the laws of the State of New York.. The complaint in the replevin snit alleged that Shea had made default in his payments, and had thereby forfeited the right to retain possession of the machine. There was a prayer for the recovery of the machine, and for dainages for its detention. Shea had, before the institution of the suit, abandoned the use of the.machine, and did not resist the recovery of its posseSsion; but he filed an anwer and cross-complaint, in which he prayed damages in a large sum against the cOmpany. Upon the allegation that the company was a foreig-n corporation and had done business in this State Without complying with the'laws thereof authorizing it so to 'do, the trial court heard only the testimony offered by , Shea upon the allegations Of his creSs-complaint, 'and there was a verdict and judgment in his faVor for $12,500: Upon an appeal to'this court; it was held' that the lease contract was interstate cOmmerce, and that the company had the right, although it had not been 'authorized to do business in this State, maintahi a suit to recoVer the machine and damages 'for its detention.' Upon rerhand-ing the cause, it was • said: "Appellee . argues, however, that, if the court erred in disinissing the 'complaint of appellant, it was not prejudiciAl error: The nontention of appellee that the only issues in the case were covered by the cross-complaint and the' Answers thereto "is not sound. The issue tendered , by appellant's complaint that appellee had breached the contract, and' that by reason thereof it was entitled to the balance of the rentals and to $1,000 damages, was not included in the cross-complaint and answer thereto. Had appellant's cOntract' been treated as valid, it might have proVed that same
_ -572. _GENIJ1AL TALKING PICTURRS CORP: v. - [187 was breached by appellee, and recovered the balance of the. rents and any damages on account of the breach, and have set off them- against any damages appellee.-might have recovered." General Talking Pictures Corporation v: Shea, 185 Ark. 777, 49 S. W. (2d) 359. . • Upon the remand of the case there Was a trial aneW in the court below, which- resulted in a verdict and judgment for the identical amount of the first judgment WhiCh Shea had recovered. Tbe testimony- LIP011 the issues raised in the answer and cross-complaint was substantially the same at both trials. •• It was alleged by Shea in his pleadings that, while there 'was no express warranty in the lease contract• 6f the fitness of the 'machine for the use for which it was intended, there was a 'warranty implied by law' to 'that effect; and that there had been a breach thereof. There was an allegation also that there had been a breach Of the company's obligation to service the machine,' that is,7to make it operate, .and• that, for these reasons, Shea had sustained a large loss, the items of which will be later discussed. .. The company sent _its representative to install the machine .after the building had been altered in accord, ance. with the directions of its sound expert, .and a preliminary or -private test -of the machine was , bad which the contract required. Shea testified that he was .not present at that time., but that he. was -present • when 'the first public exhibition of tbe pictures was• given. After this exhibition Shea sent the following telegram tO .the .company : '` Open • tonight to -sell-out business...We find Phonofilm all that you re present it to be and more. •Regards." In answer to this ,te]egram, the company sent the following reply : "We thank you . for yOur 'very -encouraging wire of- April 1. advising us • hat yon opened to a sell-out business, and that the DeForest Phonofilm has met with your every ex p ectation. Pass the good word along to your fellow .exhibitors. • If we can be- of further -service to yon, please command.us ." It is very earnestly insisted that, under the provisions of paragraph 1.1. of the lease contract, copied above, the
ARE.] CENERAL TALKING PICTURES CORP. v. .SEIEA. • 578 - telegram furnished and is conclusive 'evidence of . the satisfactory functioning of tbe machine, but :that, if not so, the failure to immediately advise the comPany that the machine bad not functioned and did not functiou satisfactorily raised-A conclusive presumption that 'it did Sunction 'satisfactorily. . . Numerous cases 'are cited Upon the question of. the failure-to send the telegrarn as required-by , paragraph 11 of 'the lease contract, • 'our. . case- of . Carle v.:.A!CerY Power Machinery Co., 185 Ark. 799, 49 S. W. (2d) 599, being among the number.. The effect of the Carle case, supra, and Of the other cases -cited, is that a -warranty in a sale (and the rule would be the same in.a lease), conditioned upon A test of the machine 'sold- or leased, and .giving notice of any defects within a time specified for that purpose, if the machine proved defective, is binding, and the purchaser or lessee of 'the machine who fails to give thenotice of defects as required by the contract will not -be entitled to resist the payment of tbe purchase money' or rent on account* of- defects. ,The :rule. -is not different in New York, according to the laws of •which State the contract must- be construed. - • Tbe telegram from' Shea to- the company set out above, read by itself or unexplained, would appear' to be conclusive that the machine, upon test,jhad' functioned satisfactorily. . But the testimony, while - conflicting, 'abundantly supports the finding that -tbe machine did not then.or :at any later time function saisfactorily.. The testimony on .the part of 'Shea was to. the effect that tho sound.was harsh -and grating and not easily understood, and .that there was a. lack of co-ordination 'of sound and motion, the result being that the exhibition .excited : the derision of the spectators; and- that the continued:attempt to use- the machine and-make it function resulted:in .an almost total loss of patronage. and destroyed-Ahe. remunerative .business which ' Shea had.built up : with his tion pictures; - 'Shea explanation of the telegram wa s to this- effect The test .was not satisfactory, eVen to . Levy, who had • charge of- the installation of the 'machine for' the coin-
- -574 - G-E• ERAL TALKING -PICTURES CORP. V. -SHEA. -[187 pany, but Levy represented that adjustments Would make it. so, and that he would remain Until the adjustments had been- made, and that he could and would make the adjustments. Levy explained, so Shea testified, that the telegram was desired by : the company for • advertising purposes, and that the representation as to the pictures would benlade truthful in a short time. The repre§enta-lion as to the size of-the audience was true when made. The testimony on the part of Shea was to the further effect -that Levy 'endeavored for several days thereafter to make the machine function, as he had said he could and would do, but, failing to do so, Levy left without advising Shea that he was going. Shea also -testified that promptly after Levy abandoned the-attempt to make the machine lunction he wrote the company at it§ New Orleans . office,.where the contract had been negotiated, asking the attention of Mr. Harri-son, , who had represented the comPany in making the contract, requesting that a service man be sent him to make the machine function, arid that he wired and wrote the' New York office to the same effect, and that he finally wrote a personal letter to an executive vice-president of the company, whom he had previously met, but .nothing came of •hese notices and requests- in the way- of Making the machine function: There' was' A conflicf in the testimony as tO the time and manner 'in which notice. was given to the corripany; hut this issue of fact wa s' submitted -to the jury in the instructions on behalf of the company; one of which reads; in part, as follows : "If you -find from the evidence therefore that the machine, when installed, privately tested and publicly shown, did not operate' hat-isfactorily, And was unsuitable for the exhibition of talking pictures, and that . the defendant did not immediately, that is, within . a reasonable time, notify the company that the machine failed to operate satisfactorily, or that it was unsuitable for the exhibition of talking pictures, the court charges you, as a matter of law, that the defendant is not entitled to recover any damages on the ground of an alleged breach of an implied warranty of fitness."
ARK.] GENERAL TALKING PICT -GRES CORP '. V. SHEA: 575 The verdict of the jury,'under the above : and other instructions, is conclusive of this issue of fact: One of the points most strongly urged for the re, versal of the judgment of the court belowi is that , the court, erred in instructing the jury that :there was an implied warranty of the fitness of. the machine fOri the use- intended. This question must, of course, like .all others relating to . the construction of the contraCt i . be decided according to the laws.of the State of New York, as the parties had agreed that it should be.. • :• •.• • Upon the question. of the existence of an implied warranty, numerous cases are s cited to the. effect . that,:in: order to imply a warranty .from the, language of the contract, an intention: to warrant: mist be, found. kin• the, contract, and it is argued that, not only is such intention absent, but that' the paragraphs 11, , and 15, set Out above, when read together, expressly,,exclude, that ,inten-fion, and that these provisions negative an implied, warranty, because they .: leave no field in, which it could operate. • . -- • From what has already been said, it mill appear that: the jury was warranted in finding that there was, no conclusive presumption that the machine had functioned satisfactorily arising out of ihe failure of Shea to notify the company to the contrary; nordo , e thinlc it was the Purpose of the first section of . the first subdivision .Of paragragh 15, set out above, to accomplish that result. This entire paragraph must be read , together to correctly interpret any portion of it. :The title,.of the paragraph, as has been: said, is : "LIABILITY FOR INJURY, ETC. " In the first sentence of the first subdivision of paragraph 15, after first contracting for an exemption to itself against any breakdown, defect or change of condition in the theatre or equipment, or through any interruption of service, there Sollows , an exemption from liability "to any persons or.property in or about the theatre or elsewhere." for any. re .ason whatsoever. Further and more conclusive effect is, at7 tempted .to be given to this exemption,of liability in the sentence following, where the obligation is imposed upon
576- GENERAL TALKING PICTURES- COR-P: .1A the. exhibitor "to indemnify the company and save it .harmless from any liability or injUry to workmen or others resulting from negligence or otherwise or arising out of the installation pr use of the..equipment." -Subparagraph (B. ) of paragraph 15 deals with the liability of the_ company to the exhibitor,' the other contracting party, and .eontains certain exemptions' from liability to him,-1.6 which there- would -be nO point and for which there could be . no necessity, if the. company had, in the previous subparagraph, exeMpted itself from liability "for any damages-'direct, special or consequential for any reason .whatsoever." - •.• We think a fairer and more reasonable construction of subparagraph .(A)' is- that it . relates only -to the'-sub:- jects mentioned andbas'nopurPose to exempt -from bility for a breach Of warranty implied by law. •This : appears to. be An appropriate place to .say under the •laws' of . New York, as'•we understand them, therOwas an implied warranty of the 'suitability and fit-. ness of the machine, .unless the parties have contraCted against 'a' warranty, -which, as we have said, they did not do. ••. The case . of Hoisting Engine Sales Co. v. Hart, 237 N. Y.•30,.1.42.N. E. 342, is extensively annotated in. 31 A.- L. R, 536. *A . headnpte in that casd Toads as follOwS:' "A warfanty, of fitness is implied in 1eaSing Machinery. for performance-of specified \York for which it • waS- de-. signed." In the opinion in that ca'se. by the •Cou'rt Of Ap: peals of New York, Justiee CRA'NE, 7110 delivered the opinion -of the court, quoted with approval from ilals-bury's Laws of England (vol. 1, § 1.11.7) the folloWing statement of the law: " 'The _owner of a chattel wbicb he lets out for hire is under an obligation tO ascertain that the chattel . so let. out by him is reasonably fit and suitable for the purpose for which it is expressly'let out. Or for which. froM its . Character, he must -be aware it is intended to be: used: his delivery of it to the hirer amounts to an iMplied warranty . that the chattel is, in fact, -as fit and suitable for that purpose as reasonable .care • and skill can -make it '."
ARK.] GENERAL TALKING PICTURES CORP. V. SHEA. 577 It must be remembered that the contract related to a machine about which Shea had no knowledge whatever, but for the use of which he was required to pay $2,000 before its installation was commenced, and that he was also required to incur expense preparatory to- the in-• stallation , of the machine, which,,sif it did not satisfactorily display talking moving pictures, was valueless. Under . theie circumstances we -think . it would not be a fair and reasonable construction of the contract to say that there was no implied warranty of the fitness and suitability of the machine for the purpose for which it .had been leased, this being the only thing which gave it any value at all, when the contracting parties had not' stipulated that there was no warranty, either express or implied. We conclude therefore that the court did not err in telling the jury, as a matter of law, that there was an implied warranty .of tbe suitability of the machine for its intended use. _ It is. insisted Yery earnestly that the judgment of the court below should be reversed because of error in an instruction on the measure of -damages given to the jury at Shea's . request and over the objection of . the company. It has been said . that the. cross7complaint alleged, as a basis for recovering damages, that there had been both a breach of . an implied warranty of the fitness of. the machine and a breach Of the obligation to service-• the machine by making it operate and perform the , functions for which it was intended. The instruction on the measure of damages, given at the request of Shea, apparently does not distinguish the damages resulting from one cause or the other, and many cases are cited to the effect that the same rule to measure the damages cannot be applied in both cases. As an abstract proposition, the company appears to be correct in this contention ; but we think the error was not, , prejudicial, for reasons which we proceed to state.. . According to the testimony on Shea.'s behalf, be did not, rescind the contract, as he had the right to do, but he continued, for mcire than two months„ in an en-
578 _ _GENERAL _ TALKING_PICTURES -CORP. V. SHEN. [187 deavor to operate -the. machine. - Daring all :this time he -was insisting that . the company "service it" and make it operate. He bought from the company new parts and * eqnipment, and paid two of the $265 notes. The number of admissions dwindled rapidly until finally there. was no appreciable patronage. Shea testified that he repeatedly_ warned the company that he would refuse to pay additional notes -and would discard the machine less it was made to- function, and filially Mr. Buch, a representative of the company, was sent to 'McGehee. But this representative was a collection agent, and not an engineer. Shea -testified that he. asked Buch if he could make the machine function, and Bucb said he could do so, and Shea said to him, "There won't •e any qUeStiOn about your money if you will put the equipment in condition to function." This conversation appears to have occurred over the telephone, Shea being in Louisiana and Buch in McGehee.' Shea left Louisiana at 11 P. Saturday night, driving to McGehee, where he. arrived early Sunday morning, but he found . later that morning that, instead of fixing the equipment, Buck 1-i 'ad wrecked it by removing the optical system, which action put the machine entirely out of commission. Later this suit was brought to recover the machine. Numerous instructions submitted the question whether this action of Buch was authorized on the part of the company, this right being made dependent on the question-whether Shea had failed to comply with his obligations under the contract. One of these instructions reads as follows : "On the issue of whether or not the plaintiff breached the contract by a failure to furnish service requested by- the defendant; tbe court charges you that, if you find from the• evidence that prior to such request the defendant himself bad breached the contract by a 'failure to pay any note at its maturity, without a prior and unwaived breach by plaintiff, and that -such default existed at the date of . tlie request for service, the plaintiff was not required to furnish service While. such default continued,
ARK.] GENERAL TALKING PICTURES CORP., V. SHEA. 579 and would not be liable .to tbe defendant for damages on accountof such failure to service the equipment." The instructions on the measure..of damages permitted a recoVery, if warranted by the testimony, Of the following items : (a) The consideration paid for : leasing the machine; (b) money paid the company for spare parts and replac ements ; (c) expense for labor and material in the installation of the machine. From this last-named element of damages the Jury was directed to ex-clude- the items which were or could have been utilized in connection with the installation of another and- different talking motion picture machine which 'Shea- later installed ;. (d) expense incurred in a reasonable effort to make the machine funetion properly, together 'with (e) such additional amounts, if -any, "as you may find from the preponderance of the evidence that the. defendant lost in .the operation of his motion , picture business in. the city of . .McGehee due to failure of suck machine to function properly, while defendant was, .in good faith, acting,as a-reasonable and- prudent person, trying to use said machine , for..tbe purpose. for which it had been leased" . ; and also (f) such net profits as the jury might find had been shown with reasonable-certainty that Shea would have earned, "but did not ear . n -because of plaintiff's breach of contract relative . to installation, .or breach of implied-warranty of the reasonable fitness of said machine for the purpose for which it:was intended." The . net profits, if any, were limited "to the period from. the time said.machine was installed in defendant's , thea-. tre in McGehee to • the time when you find from .the evidence the defendant could . and. -should, as a. reasonable and prudent man, have. dis'carded , said Machine," .and have, secured another "tO .perforni the function for which said machine was leased.' Numerous instructions were given, which we do.not. set out, but,:when read together, required the jury, before . finding for_Shea in ally amount, to find that the-company had first breached the contract by furnishing a defective machine, which it later refused and failed to put in working order, and the verdict of the ' jury reflects
580 GENERAL TALKING PICYLIKES CORP. v. -SHEA. [187 - that this finding was made. This being time, inasmuch as the machine had been repossessed by the company, we think there was no prejudicial error in failing to have the. jury find, separately, the damages accruing under each cause of action ; indeed, under the facts of this case the causes of action appear to coalesce. There was testimony sufficient to support a recovery on the items of damage enumerated in the inStruction on the measure of damages far in excess of the damages recovered. These •items included the original and subsequent payments, expenditures for spare parts and replacements, for labor and material and other costs of installation, for expenses in attempting to make the machine function, and for loss of profits. It is insisted that the instruation permitted Shea to recover profits earned, and also expenses incurred in earning the profits. But the instruction does not appear tOT be open to that objection. A recovery of only net prOfits was authorized. The items above mentioned are not operating expenses,- but were necessary -expenSes incurred in the attempt to make the machine operate - and which would not haVe been incurred bad 'such a machine. been furnished as the contract'contemplated. The case of Beevian v. Banta,-118 N. Y. 538, 23 N. E. 887, 16. 'Ain. St. Rep..779, was a suit for damages for breach of warranty to construct a refrigerator,- and the Court of Appeals of New York there said that "Gains preVented, as well as . losses sustained, are proper elements of damage" in suits of that character. - ' In our own case of Harmon'v. Frye, 103 Ark. 584, 148 S. W..269, in which a building and apparatus for operating a moving picture show were leased . for the purpose of operating the picture- show, the lesSee waS wrongfully evicted from the building and deprived of the picture machinery. It was there held that the lessee was entitled to recover as damages the amount of profits of which he had been deprived and which had been established by the proof. We think no element of damage was submitted to tbe jury which was not warranted by the testimony, and,
upon. a consideration of the entire record, We find no prejudicial error. The. -judgment must be . affirinCd,- and it is . so ordered:
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.