Arrow Petroleum Co. v. Johnston

• Decision Date: 09 July 1947
• Docket Number: No. 9173.,9173.
• Citation: 162 F.2d 269
• Parties: ARROW PETROLEUM CO. v. JOHNSTON.
• Court: U.S. Court of Appeals — Seventh Circuit

162 F.2d 269 (1947)

ARROW PETROLEUM CO. v. JOHNSTON.

No. 9173.

Circuit Court of Appeals, Seventh Circuit.

June 2, 1947.

Rehearing Denied July 9, 1947.

Joseph B. Fleming, David Jacker, Joseph H. Pleck and Edward C. Caldwell, all of Chicago Ill., J. N. Saye, of Longview, Tex., and John M. O'Connor, Jr., (of Kirkland, Fleming, Green, Martin & Ellis), of Chicago, Ill., for appellant.

John H. Bishop and Robert J. Burdett, both of Chicago, Ill., for appellee.

Before SPARKS and MAJOR, Circuit Judges, and LINDLEY, District Judge.

SPARKS, Circuit Judge.

Plaintiff, referred to here as "Arrow," sued the defendant, Johnston, on November 13, 1943, to recover damages for an alleged breach of contract. By this written contract, entered into by the parties on September 6, 1941, Arrow agreed to purchase from Johnston approximately 187,000 barrels of No. 6 fuel oil. Each barrel was to contain 42 gallons, and the price to be paid by Arrow was 85 cents a barrel, plus 1.19 cents a gallon for transportation by barge from Vicksburg, Mississippi, to Lockport, Illinois. There had been an earlier contract between the same parties dated May 14, 1941, for 225,000 barrels of oil, under which 37,935.96 barrels were received. Johnston had repudiated this earlier contract, and the contract of September 6, was for the undelivered portion of the earlier contract. By March 6, 1942, Johnston, in compliance with the later contract, had delivered to Arrow 76,502.14 barrels of oil, for which Arrow had promptly paid him.

The controversy here involves the matter of demurrage. As to this issue the later contract contains the following provisions:

"4. Transportation charges * * *. Responsibility for picking up loaded barges at Lockport, is to be upon Arrow * * *, and as to any time lost awaiting pick-up of loaded barges — same is to be added to unloading time allowed, which is six hours hook-up plus 1,000 barrels per hour.¹ E. C. Johnston agrees to supply the necessary barges, tow-boats, etc., to transport said oil from Vicksburg, Miss., to Chicago (Lockport, Illinois), without cost, other than as herein specified.

"5. It is understood that Arrow * * * shall not be responsible for delays in unloading caused by faulty equipment. Demurrage shall be charged at the rate of $2.00 per hour for the first fortyeight hours, and $4.00 per hour thereafter. * * *

* * * * * *

"8. Tug demurrage hereunder for delay is to be based upon Horse Power of tow boats, to be figured on the following basis: At the rate of $12.50 per hour on tow boats of 750 Horse Power, and more or less at same rate per Horse Power in proportion to the Horse Power of tow boat involved."

In the course of oil deliveries from Vicksburg to Chicago, delays occurred in unloading barges by Arrow. Because of these delays, Johnston billed Arrow for a total demurrage of $4,433.66. Of this amount, $386.33 was for deliveries made under the previous contract. The remainder was under the demurrage clauses of the contract of September 6. Arrow did not pay the demurrage thus claimed and billed by Johnston, because the former asserted that the delays in unloading had been caused by faulty barges furnished by Johnston, and for the further reason that the six hour hook-up time allowed by the contract was to be granted to each barge in a tow, rather than for the tow as a whole, as asserted and claimed by Johnston.

On April 2, 1942, Johnston wired Arrow that he considered their agreement of no further force and effect because it had breached their contract by not paying demurrage as invoiced and requested by him. In response thereto Arrow wired Johnston:

"We have never refused to pay demurrage caused by our inability to unload as covered in contract. We have covered in writing each delay caused by faulty equipment, and have awaited credits covering such cases. We are willing to pay adjusted charges in conformance with contract. Imperative that we receive shipments to meet federal government obligations. If shipments do not come forward immediately it will necessitate our buying on outside, charging you the differential loss."

On April 24, 1942, Johnston wired Arrow:

"When you refused to pay the accrued demurrage on barges, you breached your contract with me, and relieved me from further obligation to perform thereunder. You ended the contract, and its terms are no longer binding upon me. Demand is hereby made upon you for $4,433.66 demurrage charges."

Thereupon, Arrow, by this complaint, sued Johnston for the difference between the contract price and the market price in Chicago of the 110,561.90 barrels (4,643,599.80 gallons), still undelivered by Johnston. Without admitting liability Johnston agrees with Arrow that this price differential is correct.

The defendant moved to dismiss the complaint, for lack of material facts, which was overruled. He moved for a pretrial conference. He then filed an answer in two paragraphs accompanied by a counterclaim. The first paragraph of answer alleges that the complaint fails to state a claim upon which relief can be granted. The second paragraph avers that Arrow failed to provide facilities by which oil could be discharged at its terminal at the rate of 750 barrels per hour; that Arrow ignored Johnston's requests for payment of demurrage prior to the latter's declaration that he considered the contract no longer effectual; that the barges and tugs were unnecessarily detained by Arrow in excess of the unloading time allowed, thereby unnecessarily depriving Johnston of their use, thus impeding and obstructing him in his production and marketing of oil. He denied that any delays of Arrow in unloading, over free time, were caused by Johnston's faulty equipment, or that Arrow advised him of that fact. He asserted that his failure to deliver oil was due to causes beyond his control, but did not specify such causes other than Arrow's failure to provide unloading facilities which would discharge the oil at the rate of 750 gallons per hour. He alleged that he abandoned the contract because of Arrow's refusal to pay demurrage thereunder.

The counterclaim alleges that Johnston was induced to enter into the contract of September 6, 1941, by Arrow's promise to improve its unloading facilities, so that it could discharge the oil at 750 barrels an hour. On information and belief, it was alleged that Arrow did not thus improve its unloading facilities. By reason of these facts, Johnston claims damage by way of demurrage to the extent of $4,433.66, and for the further sum of $25,000 because Arrow's failure to unload the oil within the time allowed deprived Johnston of the use of the barges, thus preventing him from operating his refinery at maximum capacity and from transacting such business to the fullest extent.

On December 15, 1944, this cause was set for pretrial conference, and at that conference Arrow, on December 21, 1944, was ordered to reply to the answer and counterclaim, and in the alternative to move to strike portions of those pleadings, and both parties were ordered to support by briefs their contentions with respect to Arrow's alternative motion to strike.

On January 10, 1945, Arrow filed its replies to the answer and counterclaim, together with its alternative motions to strike all or portions of each of those pleadings, for the respective reasons that the allegations of the answer did not constitute a defense to the complaint, and that the allegations of the counterclaim did not constitute a cause of action, other than as to the alleged demurrage of $4,433.66. On January 16, 1945, defendant demanded a jury trial.

Subsequently, on February 17, 1945, prior to the court's ruling on the motions to strike, Johnston filed an amendment to his answer by which he sought to read into the above quoted demurrage clauses an express oral undertaking of Arrow to unload 750 barrels an hour, and a promise of Arrow to install pumping equipment capable of pumping that much per hour. He further alleged therein that Arrow's nonpayment of the demurrage was a repudiation of a material part of the contract and indicated an intention on the part of Arrow to no longer be bound thereby.

Thereupon, on November 5, 1945, Johnston moved to file a third defense by way of an amendment to his amended answer. The court permitted it to be filed on the theory that it had no discretion to refuse it. However, the court required such answer to be under oath and requested authorities on the question of discretion. This amended answer was filed on November 15, 1945, and on November 27, 1945, Arrow moved to strike the third defense.

This third defense alleges an oral agreement between the parties on November 12, 1942, whereby they mutually agreed that the contract of September 6 should be abandoned and rescinded, Johnston releasing Arrow from liability to accept and pay for further shipments of oil and for any liability under the contract, except accrued demurrage. It further alleges that Arrow thereby released Johnston from any liability to make further shipments of oil and from all liability under the contract. It then alleges that at the same time, Arrow and Johnston entered into an oral contract under which Johnston obligated himself to deliver to an affiliate of Arrow an amount of crude oil equal in amount, barrel for barrel, to the fuel oil remaining undelivered under the contract of September 6, 1941. The crude oil was to be delivered by Johnston in East Texas, Louisiana and Mississippi, with the understanding that arrangements were to be made for tank car shipments to Centralia, Illinois, in the most economical manner. It further alleges that Johnston has at all times been ready, willing and able to fulfill the later contract but that this suit was filed the next day in apparent repudiation thereof; nevertheless, it is alleged that the contract of September 6, was rescinded and could not be revived except by mutual assent of both parties.

Arrow's motion to strike this third...