Opinion ID: 463733
Heading Depth: 2
Heading Rank: 1

Heading: Insect infested grain and delayed ships: the 1974 dispute between Goodpasture and Yemen

Text: 4 In May 1974 Goodpasture, as seller, and Yemen, as purchaser, both acting through their respective agents in New York City, entered into two contracts for the sale of grain. Goodpasture, a Texas corporation, was to deliver approximately 36,000 metric tons of wheat on FAS terms (free alongside ship) at the Goodpasture grain elevator in the port of Houston, Texas, for loading aboard three ships to be supplied by Yemen. Delivery and loading of the three shipments was to take place in June, July, and August of 1974. Yemen's payment was to be by means of irrevocable letters of credit which could be negotiated upon presentation of, among other documentation, clean on-board bills of lading. 5 To transport the grain, Yemen chartered from the Muhammadi Steamship Company (Muhammadi) three vessels, the Al Ahmadi, the Al Kulsum, and the Safina-e-Najam. Delivery of the first grain shipment was to take place between June 20 and July 20, 1974, but Yemen's first ship, the Al Ahmadi, arrived at the Houston elevator on July 26, commenced loading on July 30, completed loading on August 20, and did not depart until August 21. Goodpasture billed Yemen for the actual quantity of bagged grain delivered in this first shipment and received payment through Yemen's letter of credit. 6 The second ship, the Al Kulsum, arrived at Houston on September 16, more than a month past the scheduled delivery date. Delayed arrival, however, was only the beginning of the problems involving this second grain shipment. When the Al Kulsum arrived at Houston, several of its holds were found to be unclean and contaminated with live insects, so the ship had to be deodorized and fumigated. After passing inspection the ship began loading, but before the loading was completed insect infestation was again found in all but one of the holds. As a result, and after the loading was completed, the ship had to be fumigated a second time. 7 Claiming that the wheat had already been infested when it was delivered, the Al Kulsum refused to issue the clean on-board bills of lading that Goodpasture needed under Yemen's letter of credit in order to receive payment for the second shipment of grain. The master of the Al Kulsum insisted that the bills of lading be claused by describing the wheat as having been contaminated and thereafter fumigated. Goodpasture disputed the claim that the grain was infested prior to loading, and supported its position by dock receipts certifying that the wheat was received in good condition. 8 To preserve its rights, Goodpasture immediately commenced an in rem action in federal court in Houston and on October 21, 1974, arrested the Al Kulsum to prevent her from sailing away with the wheat for which Goodpasture had not been paid. Two days later, after negotiations between the parties, Yemen agreed to pay Goodpasture for the wheat loaded on the Al Kulsum by amending the letter of credit to provide for payment against claused bills of lading. The Al Kulsum was released from arrest on October 25 and sailed on October 27. 9 By this time additional disagreements had surfaced because of increased costs to Goodpasture caused by the delays. On October 8, while the Al Kulsum was being loaded, Goodpasture notified Yemen that Goodpasture expected to be paid for carrying charges representing grain storage costs--not only those that had accrued in connection with the delays in Yemen's loading the first two shipments of wheat, but also those that would continue to accrue until the third and final shipment was completed. Goodpasture's demand also included interest on the contract price for the time the three shipments were delayed. 10 When the third ship chartered by Yemen, the Safina-e-Najam, arrived at Houston on October 11--again more than a month past the scheduled delivery date--Goodpasture withheld delivery of the third shipment of wheat because Yemen had not yet paid to Goodpasture the claimed carrying charges and interest. This stalemate lasted until November 7, when Yemen agreed to pay Goodpasture $248,129.46 for the alleged carrying charges. After payment was made on November 8, the Safina-e-Najam began loading on November 11 and departed on November 27. 11 Once Yemen had paid Goodpasture for the carrying charges and the Safina-e-Najam had sailed, matters appeared, at least at that time, to be settled between Yemen and Goodpasture. Quite unsettled, however, was a set of related disputes between Yemen and Muhammadi, the owner of the three ships.B. The arbitrated dispute between Yemen and Muhammadi over deadfreight charges, carrying charges, and other matters 12 In January 1975 Muhammadi demanded arbitration with Yemen under the charter parties it had signed for shipping the Goodpasture grain. Muhammadi sought to recover from Yemen for an unpaid balance of the freight charges on all three vessels, for fumigating the Al Kulsum, and for detention and deadfreight charges for the Safina-e-Najam. Yemen counterclaimed against Muhammadi, in the arbitration proceeding seeking, inter alia, the full $248,129.46 in carrying charges on the stored grain that Yemen had paid to Goodpasture in November of 1974. 13 The arbitrators held hearings in November 1975, June 1976, and April 1978, and issued a final award on August 1, 1979 upholding Muhammadi's claims for additional freight costs, for detention costs, for fumigation costs, and for a portion of the deadfreight costs, plus interest; they rejected Yemen's argument that the cargo contamination was the responsibility of the Al Kulsum. The award explained that the evidence before the arbitrators showed that before loading the ship had been tendered and certified free of weevils, clean and clear. Yemen's claim against Muhammadi for the carrying charges paid to Goodpasture was denied for lack of substantiating proof. Although the full amount of the award was $661,183.78, plus interest, Yemen, in February 1981, paid Muhammadi $575,000 in full settlement of the award. 14 C. The district court proceedings in the present action 15 After settling the arbitration award, Yemen turned back to Goodpasture and on October 20, 1982, filed a federal court complaint against Goodpasture to recover the $248,129.46 in carrying charges it had paid in 1974. Yemen also sought reimbursement for the fumigation charges for the Al Kulsum and the deadfreight and detention charges involving the Safina-e-Najam, which it had been required to pay to Muhammadi. Goodpasture's answer asserted, among other defenses, that Yemen's claims were barred by the statute of limitations for contract claims for the sale of goods, which, in New York, is four years. See N.Y.U.C.C. Sec. 2-725(1) (McKinney 1964). 16 After a nonjury trial, the district court, on December 28, 1984, filed a memorandum decision that rejected Goodpasture's statute of limitations defense. The court reasoned that Yemen's action was based on indemnification rather than on breach of contract, and that the six-year statute of limitations for indemnification claims did not begin to run until February 1981, when Yemen paid Muhammadi in settlement of the arbitration award. 17 Although the court admitted the arbitration award into evidence, it rejected the arbitrators' finding that Goodpasture had delivered insect-infested grain. Relying on evidence not before the arbitrators, the court found that Yemen had not proved that Goodpasture caused the grain infestation, and it therefore rejected Yemen's claim for the fumigation costs and for the carrying charges incurred as a result of the infestation. 18 The district court did grant recovery to Yemen, however, on four separate indemnity claims. One claim was for carrying charges due to the delay of the Al Kulsum when it was prevented from leaving Houston until the dispute over claused bills of lading was resolved. The second claim was also for carrying charges, but in connection with Goodpasture's refusal to permit the Safina-e-Najam to load when it first reached Houston. The third and fourth claims were for deadfreight and detention charges, respectively, incurred on the Safina-e-Najam. 19 The decision of December 28 did not specify the amounts recoverable for each of the four claims decided in Yemen's favor, and both parties submitted proposed judgments. On January 14, 1985, the district court issued a supplemental decision and judgment specifying the precise amount due on each claim and concluding that Goodpasture was liable for a total of $369,875.39. Goodpasture appeals.