Opinion ID: 381814
Heading Depth: 1
Heading Rank: 1

Heading: The Life-Cycle Of This Appeal: Inception, Growth, And Development

Text: 3 In April 1974 the Republic of Bolivia entered into two contracts for the purchase of 26,618 metric tons of American enriched wheat flour from ADM Milling Co. 3 ADM owns a number of mills throughout the Midwest. Bolivia sought the flour for distribution to her citizens. The contracts were prepared on ADM's standard form, with quantity, chemical specifications, price, mode of shipment, payment terms, and delivery details filled in. The contracts required packing the flour in 100 pound capacity cotton bags and delivering it to Mobile, Alabama. Railcar shipment was contemplated to Mobile, followed by ocean carriage to South America. This was to take place from May to September 1974. The contracts contained the following delivery terms: F.A.S. MOBILE, ALABAMA, for export; and Delivery of goods by SELLER to the carrier at point of shipment shall constitute delivery to BUYER. . . . Upon satisfactory delivery, the price was payable by irrevocable letter of credit. 4 4 Each contract contained an express warranty of merchantability: 5 Except as provided on the reverse side, SELLER MAKES NO WARRANTY, EXPRESS OR IMPLIED, THAT EXTENDS BEYOND THE DESCRIPTION ON THE FACE HEREOF, except that the product sold hereunder shall be of merchantable quality. . . . 6 There was also an express warranty clause on the reverse side of each contract: 7 WARRANTY: SELLER expressly warrants that any goods contracted for herein will be representative of the brand or grade specified herein to be sold, and will comply with all of the applicable provisions of the Federal Food, Drug and Cosmetic Act and of any applicable State Pure Food and Drug Act. 8 But that warranty clause also contained the following notice requirements: 9 BUYER hereby waives any claim or defense based on the quality of the goods specified herein, unless (1) within ten (10) days after BUYER learns by use or otherwise of the defect complained of, but in any event within twenty (20) days after receipt of notice of arrival of said goods at destination, BUYER sends SELLER at SELLER'S main office a letter by registered mail specifying the nature of the complaint and (2) within said twenty (20) days send by parcel post or express prepaid to SELLER'S said office a five (5) pound sample of the goods alleged to be defective or inferior . . . 10 The contracts further contained a merger and parol evidence clause 5 and specified that Illinois law would govern construction of the terms and conditions. 11 In order to arrange ocean carriage of the flour, Bolivia engaged the services of St. John International, Inc., a Washington, D.C., shipping broker. St. John eventually contacted T. J. Stevenson & Co., a company furnishing transportation through tramp steamers. Stevenson and Bolivia entered into a booking note on April 27, 1974, specifying that Stevenson would present ships at Mobile between May and October 1974 and transport the flour to South America. The booking note expressly provided that the Carriage of Goods by Sea Act, 46 U.S.C.A. §§ 1300 et seq. (COGSA), shall govern throughout the entire time the goods are in the custody of the carrier. 6 The booking note also contained two provisions governing payment of freight to Stevenson. The first stated that payment of each vessel's freight would be by irrevocable letter of credit, which in turn required presentment of clean bills of lading. 7 It was also provided that Stevenson's freight would be deemed paid, though not by irrevocable letter of credit, as soon as the ship was fully loaded: Freight to be prepaid in full . . . on delivery of original bill of lading. . . . Under that provision, it is agreed, Stevenson was entitled to freight on issuance of bills of lading whether or not the ship actually sailed. 12
13 Seven flour mills scattered throughout the Midwest manufactured the flour involved in this case. 8 Because of a strike at ADM's largest mill, four of the seven were independent mills subcontracted by ADM to provide large portions of the flour. 9 The remaining three mills were of course ADM owned and operated. 14 In each of the mills, a number of sieves having various degrees of fineness are part of the production process. The very last step in that process takes the flour through a rebolt sifter, which is usually clothed with a fabric sieve fine enough to remove even the microscopic eggs of flour beetles. Thereafter, the flour is packed for shipment. Sometimes there is little or no delay between manufacturing and packing the flour. At other times, however, the flour is stored in bins for a substantial period prior to packing. Sanitation programs, including inspection of the flour and plant fumigation, are also a part of the production process of each plant. During the relevant period, however, the record discloses that the programs and their implementation varied amongst the mills. For example, the three ADM mills tested the flour far more frequently than did three out of four of the independent mills. 15 Packing the flour in cotton bags does not ensure freedom from external insect contamination. Adult flour beetles are capable of entering a cotton bag through the seams, and if present in large numbers are likely to do so. In addition, flour beetle larvae which happen to hatch near the surface of a cotton bag can work their way through the weave. If this occurs, the larvae will eventually mature into adult beetles, which may produce more eggs and internally infest the bags of flour. Of course, flour beetles can also get out of bags which they have infested, crawl or fly to other bags, and infest those. Consequently, the mills took a number of precautions against insect infestation even after the flour was packed and during its shipment by railcar to Mobile. The railcars, for example, were generally inspected, cleaned, fumigated, and lined with paper. 16 The flour involved in this case was shipped from the mills to Mobile by railcar during a period from early August to early October 1974. As the flour reached Mobile, it was taken from the railcars, put on pallets, and stored in waterfront warehouses operated by the Alabama State Docks Department. Checkers from the State Docks and from Stevenson's local agent, Page & Jones, Inc., observed the external appearance of the flour as it was unloaded. The State Docks then issued receipts noting the flour's apparent condition, which were signed by Page & Jones checkers. Except for some wet, torn, and damaged bags, no insect contamination was noticed outside of the bags during unloading. However no internal inspection or sampling was made at this point for the presence of infestation . . . . 449 F.Supp. at 92.
17 While the flour was in the State Docks warehouses, ADM employed Superintendence, Inc., to sample and test-weigh the flour and to prepare Certificates of Quality which ADM needed to collect payment of the purchase price. One of the tests employed by Superintendence involved taking a small amount 10 of grain out of 2% of the bags, by means of a grain probe. The grain samples were then sent to Superintendence laboratories for testing. 18 On September 19, 1974, Stevenson presented the M/V Arizona for loading at Mobile. Loading began the following morning. A second Stevenson vessel, the M/V Southwall, began loading three days later, on September 23. In preparation for these loadings, Superintendence took, between September 4 and September 20, 1974, samples of the flour intended for the ships. As each sample was drawn, it was sent to a Superintendence laboratory to be analyzed. However, none of the samples were analyzed until September 24, several days after loading of the ships had begun. Although during loading, no one observed any apparent infestation of the flour, id. at 96, late on September 24, Superintendence's laboratory announced that it had found evidence of live internal infestation by flour beetles in 36 and 1/2 railcar lots, 19 of which had already been loaded. Stevenson immediately declared a temporary halt to the loading. At that point, the Southwall was almost completely loaded while the Arizona was considerably less complete, perhaps only half-loaded. 19 A number of conversations between agents of Stevenson, of ADM, St. John personnel (representing Bolivia), and Superintendence, among others, ensued. ADM instructed Superintendence to fumigate the 17 and 1/2 infested lots which had not been loaded and to hold those lots in the warehouses until the next shipment. Nothing was agreed concerning the 19 infested lots aboard the ships, however. Stevenson resumed loading of the ships, with apparently clean flour, but also decided that on board fumigation of the flour would be necessary before the ships sailed. During these events, the various parties or their agents were in nearly continuous communication with one another, both orally and by telex, concerning the infestation discovered, fumigation, and related matters. On September 26, the Southwall (with 5 and 1/2 of approximately 37 lots known to be infested) was fumigated. The next day, the Arizona (with 13 and 1/2 of approximately 90 lots known to be infested) was similarly fumigated. 20 One important subject of the discussions between the parties during this period concerned the extent to which the on board bills of lading should be claused by Stevenson. In order for ADM to collect its purchase price and Stevenson its freight under their respective irrevocable letters of credit, Stevenson had to issue clean bills of lading-bills of lading declaring the shipments in apparent good order and condition. 11 Stevenson's first inclination was to clause the bills of lading to indicate live infestation of the flour. Even after fumigation of the ships, Stevenson initially took the position that it could not issue clean bills of lading unless ADM provided Stevenson with a letter of indemnity holding Stevenson harmless. ADM refused, however, reiterating that it had delivered only good, clean flour to Mobile and was not in any way responsible for the infested flour. Subsequently, Stevenson obtained a report from the fumigating company indicating that all infestation had been killed. ADM, moreover, assured Stevenson that flour containing dead infestation met the contracts' specifications. Consequently, after informing the parties or their agents of those developments, Stevenson released clean bills of lading for the Arizona and Southwall cargoes. On September 30, 1974, the ships set sail for South America. Shortly thereafter, ADM received its purchase price and Stevenson its freight under their respective letters of credit.
21 As a landlocked country, Bolivia imports much of its ship-carried goods by way of Chile. A treaty between Bolivia and Chile permits free importation of goods to Bolivia by way of the Port of Arica in Chile. 449 F.Supp. at 89 n.5. 22 The Arizona and Southwall arrived at Arica on October 12, 1974. The vessels began to discharge their cargoes on October 14, 1974. Soon after unloading began, live insect infestation on both ships' cargoes was detected. Further examination revealed internal infestation was present in moderate amounts throughout almost all of the flour on both ships. A port official immediately advised Sub-Secretary Heran Landivar of the Bolivian Ministry of Industry, Commerce, and Tourism of the infestation. As the District Judge found, Landivar immediately instructed the port official to refuse the shipment of flour aboard the SOUTHWALL and ARIZONA . . . and then Landivar confirmed his order by telex . . . the following day. 449 F.Supp. at 105. Neither the telex nor the substance of Landivar's later testimony were revealed to Stevenson or ADM, however, until Landivar appeared at trial. Consequently, when Arica port officials refused to allow the Arizona and Southwall to discharge their cargoes, it was not readily apparent whether that refusal stemmed from Bolivia's dissatisfaction with the quality of the cargoes or from the port officials' fear that their port would be contaminated by the infested flour. 23 From October 14 to November 5, 1974, Stevenson arduously negotiated with Arica port officials, Landivar, and others to obtain permission to unload the two ships. During this period the infested cargoes were surveyed by experts, and it was indicated by some that with fumigation, shifting, and repackaging the flour could be made fit for human consumption. After unloading resumed on November 5, 1974, these procedures were in fact followed by a local salvage firm. Eventually, the Arizona and Southwall flour was shipped by rail to Bolivia and sold at a reduced price to consumers.E. Events In Mobile: Part II 24 Just following the discovery in Arica of infestation aboard the Arizona and Southwall, Stevenson presented the M/V Nedon at Mobile for loading the last shipment of flour. The remaining flour was of suspicious quality, however, because of its close ties to the troubled cargoes of the Arizona and Southwall : the flour was stored in the same two State Docks warehouses; many of the railcar lots of flour came from the same three independent mills that had been linked with the previous infestation problems; and the 17 and 1/2 railcar lots held back from the Arizona and Southwall were among the flour in this last shipment. Moreover, despite the intervening fumigation of the 17 and 1/2 railcar lots held back from the previous shipments, between October 12 and 17 an additional 13 car lots of flour were found to be infested. Unfortunately, when Superintendence arranged for the fumigation of those 13 car lots, one car lot was omitted. Subsequently, therefore, that car lot was loaded aboard the Nedon without being fumigated. Compounding these problems was the fact that at no time was the entire warehouse fumigated. Rather, the 17 and 1/2 and 12 car lot groups were simply pulled some several feet from the other cargo and fumigated. 449 F.Supp. at 106. 25 Seeking to avoid the problems of the Arizona and Southwall, Stevenson required Superintendence to clear in writing all cargo to be loaded on the Nedon. In addition, the Nedon's holds were cleaned, though not fumigated, and then inspected by the National Cargo Bureau. On October 15, 1974, loading of car lots cleared by Superintendence began. 26 On the following day, Stevenson took the added precaution of having its own tests run on the flour not yet loaded aboard the Nedon. Near the end of the October 16 loading day, the test results came back from the laboratory. The results indicated that there was no live (flour beetle) infestation, but remains (of beetles) were noted. 449 F.Supp. at 107. Later that evening, Stevenson received further information that several more of the samples contained dead infestation. Id. at 107. Also that evening, apparently because of its underwriters' insistence that a London surveyor examine the Nedon cargo, Stevenson decided to hold the Nedon in Mobile until further notice. Id. at 108. 12 The District Judge also found, however, that Stevenson was awaiting the full (laboratory) report which was to be released on October 17. Id. 13 27 Despite the discoveries and its decisions on the evening of October 16, the following morning Stevenson resumed loading the Nedon. By the end of the day, loading was complete, with some 81,193 bags of flour on board. No external live infestation had been observed by anyone during loading. 28 Consistent with the hold decision made on the evening of October 16, the fully-loaded Nedon did not, however, set sail for South America. Besides waiting for the London surveyor to reach Mobile, Stevenson was grappling with the necessity of clausing the Nedon bill of lading. Stevenson's underwriters were unhappy that the bills of lading for the Arizona and Southwall had not been claused 14 and threatened to refuse claims connected with the Nedon unless that ship's bill of lading was claused. Although it is not clear when the Nedon bill of lading was actually issued, the record shows that issuance occurred sometime after the October 17, 1974, date indicated on the bill of lading. See 449 F.Supp. at 109-10 (bill of lading issued only after it was determined that Nedon was infested and after Bolivia refused the Nedon cargo). As finally issued, the bill of lading was claused to indicate: Cargo infested by insects prior to loading. 29 On October 19, 1974, the London surveyor arrived. The surveyor examined the Nedon cargo and found live and dead infestation, especially in the No. 1 hold. The infestation was very largely due to flour beetles. The surveyor recommended that the cargo be fumigated before entering into tropical South American waters. He further advised that the bill of lading be claused with respect to such infestation and/or fumigation as requisite. The surveyor also inspected the State Docks warehouses which appeared comparatively clean. 449 F.Supp. at 109. 30 Because of the infestation problems in the last three shipments of flour, on October 24, 1974, Bolivia took steps to prevent further payments to ADM under the irrevocable letter of credit. On October 25, 1974, Bolivia told Stevenson not to permit the Nedon to leave for South America. In the course of a meeting on October 31, Bolivia notified ADM that it rejected the Nedon flour. ADM, however, replied, as it had all along, that it had no interest in the flour since risk of loss had passed to Bolivia at the time the flour was delivered to the warehouses. 31 Because of this aptly described hands off policy, 449 F.Supp. at 111, Stevenson was left with: a fully-loaded Nedon ; a shipper-consignee which refused to permit shipment or accept delivery of the cargo; and a supplier without interest in regaining its goods. Despite Stevenson's ensuing attempts, neither Bolivia nor ADM could be persuaded to take responsibility for the flour. Stevenson tried to sell the flour itself but was unsuccessful. Efforts to discharge the Nedon cargo were similarly unsuccessful because of legal and other restrictions. 449 F.Supp. at 123. Stevenson made no attempt to fumigate the flour aboard vessel, however. The record shows that Stevenson felt, in light of its experience with the Arizona and Southwall cargoes, that fumigation aboard ship was futile. The Nedon's cargo was tightly stowed and the holds were full, so that the fumigant gas would be unlikely to penetrate very far into the flour. Stevenson felt that fumigation could only be successful after the flour was taken ashore and spread out. 32 On November 11, Bolivia requested the United States Department of Agriculture (USDA) to inspect the Nedon cargo. The USDA inspected on November 12 and found pretty heavy infestation throughout the flour. Only the flour in the No. 1 hold was found so infested that it was unfit for human consumption, however; the infested flour in the Nos. 2, 3 and 4 holds was found fit for human consumption if fumigated. 33 Finally, Stevenson broke the impasse by filing this lawsuit against the cargo in rem on November 21, 1974. Surveyors examined the cleanliness of the Nedon itself, as well as the cargo, on December 2, 1974. On December 10, ADM entered a claim of ownership as to the cargo, and posted bond. The Nedon was finally unloaded in Mobile on December 14 and 15, 1974. The flour was then placed in a State Docks warehouse, and fumigated. 34 ADM subsequently attempted to sell the Nedon flour but found it difficult to do so. On February 7, 1975, the flour was finally sold at a substantial discount for use in the manufacture of ceiling boards. 35 After setting out findings much lengthier than our summary of the facts, the District Judge awarded Stevenson and Bolivia substantial damages. Stevenson was awarded $92,014.82 against Bolivia for the detention of its ships Arizona and Southwall in Arica; and $310,067.25 against ADM as claimant of the Nedon cargo, for prepaid freight, detention, and other charges incurred by that ship. Bolivia was awarded $325,960.51 for breach of contract damages against ADM for the Arizona and Southwall flour. In addition, the loss resulting from the salvage sale of the Nedon flour was left on ADM, and the cost of fumigating the Arizona and Southwall flour was left on Stevenson. 36 From that judgment, every party appeals. In sum, over a score of errors are asserted. ADM's complaints against Bolivia mostly involve issues concerning the flour quality and sales contracts' interpretation, especially with respect to the Arizona and Southwall flour. Bolivia appeals issues relating to the detention in Arica. ADM's complaints against Stevenson concern the care of all of the flour involved, as well as the award for freight and damages connected with the Nedon. Stevenson argues for an increase in the Nedon award, and for reimbursement from ADM of fumigating expenses. Our tasks delineated, we begin our labors.