Opinion ID: 262002
Heading Depth: 1
Heading Rank: 2

Heading: the conclusiveness of the inspection certificate

Text: 17 Our next question is the weight to be accorded the certificate of inspection issued at Nebraska City. Merchants contends that it should not be binding on the parties, either because of Merchants's reserved right to reject, or because the inspection did not meet the standards contemplated by both parties. We have already disposed of the first contention. In support of its second, Merchants contends the inspection was not proper because the inspector took samples every five minutes as the grain was being loaded, whereas he should have taken them at least once every minute. In addition, he omitted from his certificate the percentage of foreign material which he found in the corn, an omission that is a violation of a United States Department of Agriculture regulation prescribing that each inspection certificate have the statement of the factors determining the grade if not No. 1 (the foreign material percentage here made the corn No. 2 instead of No. 1). Merchants's primary reliance, however, is upon the inspector's failure to issue separate certificates, again as required by regulation, showing material portions of the cargo to be of different grades. According to the inspector's deposition, the first 500,000 pounds loaded contained 3.7% Foreign matter, which would have made that corn No. 3 grade, and the next 400,000 pounds contained 5% Foreign matter, which would drop the grade to No. 4. Upon discovering this variance from the grade specification, he notified Bartlett that the corn being loaded was below No. 2 grade specification, whereupon Bartlett 'cleaned and remaining portion of the corn', with the result that the samples from the last 850,000 pounds loaded met the standards for No. 2 or No. 1 grade corn. Merchants contends that the information disclosed by these samples made it mandatory for the inspector to issue separate certificates for the distinct portions of the cargo, instead of issuing the certificate showing that the entire cargo averaged out to No. 2 grade yellow corn. 18 An inspection certificate is conclusive and final upon the parties in the absence of fraud, bad faith, or such gross mistake as amounts to fraud. See, e.g., Massman Const. Co. v. Lake Lotawana Ass'n., 1948, 240 Mo.App. 469, 210 S.W.2d 398. In Gratiot St. Warehouse Co. v. Wilkinson, the St. Louis inspection certificate, the one made at origin, was held to be final as to the grade and quality of the corn shipped in the absence of any evidence to impeach the inspection as dishonest or collusive. To set aside the results of an inspection it is not enough that there be a simple mistake. For example, where parties to a contract for the sale of a business agreed that the value was to be determined by two appraisals, and one party alleged that the appraisals mistakenly included two items of wire in their appraisal, a Missouri court of appeals held that the appraisal was not subject to attack for mistake. Rogers v. Rehard, 1906, 122 Mo.App. 44, 97 S.W. 951; see Federal Grain Co. v. Hayes Grain & Comm. Co., 1923, 161 Ark. 51, 255 S.W. 307. Furthermore, a mere difference in grade determined by a destination inspection, as against an origin inspection, was held not to constitute evidence showing fraud or gross mistake from which fraud could be inferred. Hayes Grain & Comm. Co. v. Federal Grain Co., 1925, 169 Ark. 1072, 277 S.W. 521. To allow a mere mistake or error in the decision of an umpire to nullify his decision would make the chosen means of avoiding litigation-- breed litigation. Alabama Chem. Co. v. International Agricultural Corp., 1926, 215 Ala. 381, 110 So. 614, 615. Nevertheless, a gross mistake in the inspection may suffice to overturn the inspection certificate. Herman H. Hettler Lumber Co. v. Olds, 6 Cir., 1915, 221 F. 612; see Alabama Chem. Co. v. Unternational Agricultural Corp. 19 In Blum Milling Co. v. Moore-Seaver Grain Co., Tex.Com.App.1925, 2 277 S.W. 78, in which Merchants relies, there is language indicating that any incorrect inspection is not binding. In that case, however, the inspection was grossly inadequate, and the court was convinced that the inspection report and the testimony of the inspector affirmatively showed gross mistake or dishonesty in the inspection. Moreover, the court found that the parties had not agreed that any one inspection was to be incontrovertible. Here, of course, the parties had specifically agreed upon an inspection. A more recent Texas case follows the rule thatthe determination of a common agent is final and conclusive in the absence of fraud or bad faith. See Texas Gas Corp. v. Hankamer, Tex.Ct.Civ.App.1959, 326 S.W.2d 944, 955. 20 The other authorities the appellee cites support the view that the inspection is to be accorded conclusive effect in the absence of fraud or bad faith. For example, in Herman H. Hettler Lumber Co. v. Olds, the court said: 21 'Where    the inspector is agreed upon    the inspection is impeachable only by clear proof of either fraud or of mistake so gross as to be in effect equivalent to a fraud, and    proof of only an honest error of judgment in the chosen inspector, even if there were as an effect a measurable difference of results from those obtained by other equally reliable inspectors, cannot be made available to overthrow the original conclusion.' 221 F. at 616. 22 See Hayes Grain & Comm. Co. v. Federal Grain Co., 1925, 169 Ark. 1072, 277 S.W. 521. 23 In the case before us, the district court found the inference inescapable that 'this barge was loaded in Nebraska City with an excessive amount of molded wheat which contaminated the cargo and accounted for its unsalable condition in Guntersville.    Altogether the shipment contained a large quantity of No. 1 corn, it contained a substantial quantity of No. 4 grade corn together with this molded wheat and the quality of grain did not average out to the lowest quality for which the parties contracted.' The court concluded therefore that the inspector's certificate 'was not fair or accurate and erroneously neglected and failed to reveal the true condition of this cargo in this barge on the date of shipment, and the Plaintiff was and is not bound thereby.' 24 Usually in a sale of this nature the burden of proof would be on the seller to show he had delivered goods to the carrier in compliance with the contract, see Arkla Lumber & Mfg. Co. v. Henry Quellmalz Lumber & Mfg. Co., Mo. 1923, 252 S.W. 961, and the trier of fact would properly make the determination whether the goods were of the quality stipulated. But, as we have seen, where the parties have agreed to an inspection, this inspection is conclusive on the issue and there can be no inquiry into it in the absence of fraud. 25 As we read the district court's findings and conclusions, the court did not decide whether there was fraud present in the inspection; the opinion merely characterized the certificate as 'not fair or accurate.' The court found 'no gross negligence or willfulness or oppressiveness on the part of the seller'. It does not appear whether this was intended to apply to the inspector's actions; only the seller is expressly absolved from gross negligence and willfulness. In the circumstances, we reverse and remand this case for the trial court to ascertain, in light of this opinion, whether there existed fraud, bad faith, or gross mistake amounting to fraud which would warrant setting the certificate aside. 26 On remand, the district court may wish to consider whether the difference between the grade certified by the inspector and the actual grade of the corn at the time of loading is so great as to constitute a mistake which would show fraud on the part of the inspector. Also, the court might consider whether the alleged deviations from prescribed inspection standards and the customary practices are flagrant enough to show bad faith or failure to exercise an honest judgment. If these show only a simple mistake or a more error in judgment, the certificate should stand as conclusive.