In Raw Silk Trading Co., Inc. v. Kaltenbach & Stephens, Inc. 199 AD 799, 192 NYS 375 [1st Dept 1922], plaintiff seller had contracted with defendant buyer for the sale of certain goods.
Defendant argued that the goods were nonconforming, refused to accept tender, and consequently refused to pay the purchase price. Plaintiff brought an action seeking payment of the purchase price, and defendant "asserted a counterclaim for the failure of the plaintiff to perform its part of the contract to deliver goods that were merchantable." (Id. at 801.)
The trial court dismissed the counterclaim and directed a verdict in plaintiff's favor, based on the fact that the contract incorporated by reference the "Raw silk rules of the Silk Association of America" (id. at 800), which obligated defendant to complain about any defect in the goods delivered within 15 days of receipt.
As defendant did not raise any complaint about the merchantability of the goods until setting forth its counterclaim--a period far in excess of 15 days--the trial court dismissed the counterclaim.
The First Department agreed that the rules of the Silk Association were, indeed, incorporated into the contract between the parties, stating, "The fair intendment of the provision in the contracts that the contracts shall be subject to these rules and regulations incorporates those rules and regulations governing the transactions between members as a substantial part of the contract itself." (Id. at 803.)