Frances Hosiery Mills, Inc. v. Burlington Industries, Inc. , 285 N.C. 344 ( 1974 )

204 S.E.2d 834 (1974) 285 N.C. 344

FRANCES HOSIERY MILLS, INCORPORATED
v.
BURLINGTON INDUSTRIES, INCORPORATED.

No. 17.

Supreme Court of North Carolina.

May 15, 1974.

Sanders, Holt & Spencer by W. Clary Holt, James C. Spencer, Jr. and Frank A. Longest, Jr., Burlington, for defendant appellant.

Latham, Pickard, Cooper & Ennis by Thomas D. Cooper, Jr., Burlington, for plaintiff appellee.

LAKE, Justice.

Article IV, § 1, of the Constitution of the United States provides:

"Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State. And the Congress may by general Laws prescribe the Manner in which such Act, Records and Proceedings shall be proved, and the Effect thereof."

By an Act of Congress, 28 U.S.C.A. § 1738, the manner in which judicial proceedings in the court of any state are to be proved in other courts within the United States is established and it is provided that judicial proceedings, so authenticated, "shall have the same full faith and credit in every court within the United States * * * as they have by law or usage in the courts of such State * * * from which they are taken."

As was said by Mr. Justice Frankfurter, speaking for the Court in Williams v. North Carolina, 325 U.S. 226, 65 S. Ct. 1092, 89 L. Ed. 1577:

"The implications of the Full Faith and Credit Clause, Article IV, Section 1, of the Constitution, first received the sharp analysis of this Court in Thompson v. Whitman, 18 Wall. (U.S.) 457, 21 L. Ed. 897. * * * Thompson v. Whitman made it clear that the doctrine of Mills v. Duryee, 7 Cranch 481, 3 L. Ed. 411 [i. e., the judgment of a state court should have the same credit, validity and effect in every other court of the United States which it had in the state where it was pronounced] comes into operation only when, in the language of Kent, `the jurisdiction of the court in another state is not impeached, either as to the subject matter or the person.' Only then is `the record of the judgment * * * entitled to full faith and credit.' 1 Kent, Commentaries (2d ed., 1832), 261 n. b. * * *

"A judgment in one State is conclusive upon the merits in every other State, but only if the court of the first State had power to pass on the merits — had jurisdiction, that is, to render the judgment."

The judgment rendered by the New York Court in the present matter is a judgment in personam. Such a judgment is void if the court which rendered it did not have jurisdiction both as to the person and as to the subject matter of the action before it. The Full Faith and Credit Clause does not give validity to such void judgment when it is offered as a basis for action, or as a defense, in the court of another state. May v. Anderson, 345 U.S. 528, 73 S. Ct. 840, 97 L. Ed. 1221; New York ex rel. Halvey v. Halvey, 330 U.S. 610, 67 S. Ct. 903, 91 L. Ed. 1133; Bigelow v. Old Dominion Copper Co., 225 U.S. 111, 32 S. Ct. 641, 56 L. Ed. 1009; Pennoyer v. Neff, 95 U.S. 714, 24 L. Ed. 565; Thompson v. Whitman, supra; Marketing Systems v. Realty Co., 277 N.C. 230, 176 S.E.2d 775; Thomas v. Frosty Morn Meats, 266 N.C. 523, 146 S.E.2d 397.

"It is elementary that unless one named as a defendant has been brought into court in some way sanctioned by law, or makes a voluntary appearance in person or by attorney, the court has no jurisdiction of the person and judgment [in personam] rendered against him is void." Thomas v. Frosty Morn Meats, supra; Pennoyer v. Neff, supra. When suit is brought upon a judgment in personam rendered by a court of another state, or when such judgment is pleaded as a defense, the burden is upon such person resisting such judgment to establish that the court rendering it had no jurisdiction, Thomas v. Frosty Morn Meats, supra, and the jurisdiction of such court is to be determined by the law of the state wherein the judgment was rendered. Marketing Systems v. Realty Co., supra; Dansby v. Insurance Co., 209 N.C. 127, 183 S.E. 521.

However, a mere recital in the judgment that the court rendering it had jurisdiction is not conclusive and, notwithstanding such recital, the court of another state, in which the judgment is asserted as a cause of action, or as a defense, may, within limits noted below, make its own independent inquiry into the jurisdiction of the court which rendered the judgment. Bigelow v. Old Dominion Copper Co., supra; Brown v. Fletcher's Estate, 210 U.S. 82, 28 S. Ct. 702, 52 L. Ed. 966; Andrews v. Andrews, 188 U.S. 14, 23 S. Ct. 237, 47 L. Ed. 366; Thormann v. Frame, 176 U.S. 350, 20 S. Ct. 446, 44 L. Ed. 500; Pennoyer v. Neff, supra; Thompson v. Whitman, supra. As Mr. Justice Holmes, speaking for the Court, said in Chicago Life Insurance Co. v. Cherry, 244 U.S. 25, 37 S. Ct. 492, 61 L. Ed. 966: "A court that renders judgment against a defendant thereby tacitly asserts, if it does not do so expressly, that it has jurisdiction over that defendant. But it must be taken to be established that a court cannot conclude all persons interested by its mere assertion of its own power, Thompson v. Whitman, 18 Wall. 457, 21 L. Ed. 897, even where its power depends upon a fact and it finds the fact. * * * There is no doubt of the general proposition that, in a suit upon a judgment, the jurisdiction of the court rendering it over the person of the defendant may be inquired into."

Of course, jurisdiction is, itself, an issue which may have been fully litigated in, and determined by, the court which rendered the judgment thereafter pleaded as a cause of action, or as a defense, in a court of another state, as where the defendant therein was actually present in the first court and raised and litigated therein a question concerning the fact and validity of the service of its process upon the defendant.

In Durfee v. Duke, 375 U.S. 106, 84 S. Ct. 242, 11 L. Ed. 2d 186, the petitioners sued in a Nebraska court to quiet title to certain bottom land on the Missouri River. The Nebraska court had jurisdiction of the subject matter if, but only if, the land was in Nebraska. That depended upon whether a shift in the river's course was due to accretion or avulsion. The respondent appeared in the Nebraska court and fully litigated the issues, including a contest of the jursidiction of the Nebraska court over the subject matter of the controversy. The Nebraska court found the issues in favor of the petitioners and ordered title quieted in them. The respondent thereafter filed suit in Missouri to quiet title of the same land in her. That suit was removed to the Federal Court because of diversity of citizenship. The question arose as to whether the Federal Court in Missouri (in the same position as a State court in this respect) could inquire into the jurisdiction of the Nebraska court over the subject matter. The District Court held that the Nebraska judgment on this question was res judicata. The Court of Appeals reversed, holding that a Missouri court could inquire into the jurisdiction of the Nebraska court over the subject matter of the Nebraska action. The Supreme Court reversed the Court of Appeals, saying, through Mr. Justice Stewart:

"[W]hile it is established that a court in one State, when asked to give effect to the judgment of a court in another State, may constitutionally inquire into the foreign court's jurisdiction to render that judgment, the modern decisions of this Court have carefully delineated the permissible scope of such an inquiry. From these decisions there emerges the general rule that a judgment is entitled to full faith and credit—even as to questions of jurisdiction—when the second court's inquiry discloses that those questions have been fully and fairly litigated and finally decided in the court which rendered the original judgment.

"With respect to questions of jurisdiction over the person, this principle was unambiguously established in Baldwin v. Iowa State Traveling Men's Ass'n, 283 U.S. 522, 71 S. Ct. 517, 75 L. Ed. 1244. There it was held that a federal court in Iowa must give binding effect to the judgment of a federal court in Missouri despite the claim that the original court did not have jurisdiction over the defendant's person, once it was shown to the court in Iowa that that question had been fully litigated in the Missouri forum. `Public policy,' said the Court, `dictates that there be an end of litigation; that those who have contested an issue shall be bound by the results of the contest; and that matters once tried shall be considered forever settled as between the parties. We see no reason why this doctrine should not apply in every case where one voluntarily appears, presents his case and is fully heard, and why he should not, in the absence of fraud, be thereafter concluded by the judgment of the tribunal to which he had submitted his cause.' * * *

"Following the Baldwin case, this Court soon made clear in a series of decisions that the general rule is no different when the claim is made that the original forum did not have jurisdiction over the subject matter."

In the Durfee case, a footnote by the Court states: "It is not disputed in the present case that the Nebraska courts had jurisdiction over the respondent's person. She entered a general appearance in the trial court, and initiated the appeal in the Nebraska Supreme Court."

In the present case, the plaintiff (defendant in the New York judgment) is a North Carolina corporation not doing business in New York. It was not served with process in New York. Its contract with the defendant was made in North Carolina and required performance in this State. The claim of the defendant, which the New York judgment purported to determine, did not originate in any activity of the plaintiff in New York or in any contact of the plaintiff therewith. The plaintiff did not appear in the New York court. It did not participate in and was not represented at the hearing before the arbitrators in New York. Thus, the New York court which gave judgment in personam against the plaintiff had no jurisdiction to render such judgment, unless the plaintiff consented to the jurisdiction of that court by its contract with the defendant. The defendant contends that the plaintiff did so consent, for the reason that the contract provided that any controversy arising thereon would be submitted to arbitration in New York. The plaintiff denies that its contract with the defendant so provided. The contract is governed by the Uniform Commercial Code, GS Chapter 25.

The evidence of both parties in the record before us shows that a complete and valid oral contract for the sale of the yarn was made by telephone, such oral contract being valid and enforceable where, as here, each party "admits in his pleading, testimony or otherwise in court that a contract of sale was made." G.S. § 25-2-201(3)(b). Furthermore, as against the defendant, its Exhibits A, B, C and D constitute writings "sufficient to indicate that a contract for sale has been made between the parties," within the meaning of G.S. § 25-2-201(1). Each of these exhibits constituted a "written confirmation" of a previously made oral contract for sale, within the meaning of G.S. § 25-2-207.

The evidence of both parties is clear that the oral contract in each instance did not include any agreement for arbitration in New York, or elsewhere. Each such written confirmation did state that any controversy or claim arising in relation to the contract "shall be settled by arbitration" to be held in New York in accordance with the laws of that State. However, the plaintiff did not sign and return to the defendant any copy of such document, nor did it at any time otherwise manifest to the defendant its consent to the arbitration provision, unless its failure to object thereto constitutes such a manifestation of assent.

The Uniform Commercial Code provides in G.S. § 25-2-207 as follows:

"Additional terms in acceptance or confirmation.—

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. (Emphasis added.)

"(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

"(a) the offer expressly limits acceptance to the terms of the offer;

"(b) they materially alter it; or

"(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. * * *"

As other courts have observed, this provision of the Uniform Commercial Code is not a model of clarity. However, it does seem clear that when one party to a valid oral contract for the sale of goods, within a reasonable time after the making of such contract, sends to the other party a document purporting to set out in writing the terms of the contract and includes therein a term not previously agreed upon, this constitutes a proposal for an addition to the contract. When, as is stipulated here, the parties to the contract are "merchants," as that term is defined in the Code, G.S. § 25-2-104(1), all such proposed additional terms, to which the other party does not object in due time, become part of the contract, unless "they materially alter it."

Over strenuous belated objections by the plaintiff, the defendant has steadfastly refused to yield its preference for arbitration in New York over litigation in North Carolina. It ill behooves the defendant now to contend that this alleged addition to the oral contract was of no consequence to the parties and, therefore, not a material change therein. Obviously, under the oral contract, the plaintiff was entitled to present to the courts of North Carolina such claim as it may have against the defendant for breach of that contract. Under the alleged additional term, it could not do so but would be confined to a presentation of its claim to a board of arbitration in New York. Beyond question, such a change in the contract would be a material alteration of it. Consequently, such proposed additional provision may not be deemed incorporated into the contract for sale of yarn between these parties by reason of the mere silence of the plaintiff following its receipt of the defendant's Exhibits A, B, C and D. The "Official Comment" following the above quoted section of the Uniform Commercial Code states:

"Whether or not additional or different terms will become part of the agreement depends upon the provisions of subsection (2). If they are such as materially to alter the original bargain, they will not be included unless expressly agreed to by the other party. If, however, they are terms which would not so change the bargain they will be incorporated unless notice of objection to them has already been given or is given within a reasonable time."

It follows that there was no agreement by the plaintiff to submit its claim for breach of the contract to arbitration in New York and, therefore, the New York court was without jurisdiction to enter the judgment upon which the defendant relies. Consequently, this judgment was not entitled to full faith and credit in the Superior Court and the principle of res judicata does not apply to claims of the parties under the contract of sale.

While peremptory instructions on the issues submitted to the jury by the Superior Court would have been proper upon the evidence in the record, the submission of these issues upon the instructions given was not error prejudicial to the defendant.

The trial in the Superior Court being limited to the defendant's plea in bar, evidence as to the quality of the yarn delivered by the defendant was not relevant to any question for determination of this trial. However, the defendant introduced, through the New York judgment roll, its contention that the yarn delivered conformed to the contract. We find no prejudicial error in the rulings of the Superior Court whereby the plaintiff was allowed to explain that its failure to pay the contract price was due to its contention that the yarn was defective. The exclusion of such evidence could not reasonably have led to a different result as to the defendant's plea in bar.

No error.