Magallanes Inv., Inc. v. Circuit Systems, Inc., 92-2142

• Decision Date: 25 June 1993
• Docket Number: No. 92-2142,92-2142
• Citation: 994 F.2d 1214
• Parties: , 20 UCC Rep.Serv.2d 765 MAGALLANES INVESTMENT, INC., Plaintiff-Appellant, v. CIRCUIT SYSTEMS, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1214

994 F.2d 1214

1993 A.M.C. 2301, 20 UCC Rep.Serv.2d 765

MAGALLANES INVESTMENT, INC., Plaintiff-Appellant, v. CIRCUIT SYSTEMS, INC., Defendant-Appellee.

No. 92-2142.

United States Court of Appeals Seventh Circuit.

Argued Dec. 4, 1992.

Decided May 18, 1993.

As Amended on Denial of Rehearing June 25, 1993.

Michael A. Snyder (argued), Richard A. Forster, Ray, Robinson, Carle, Davies & Snyder, Chicago, IL, for plaintiff-appellant.

Jerome F. Crotty, Kevin P. Brown (argued), Rieck & Crotty, Chicago, IL, for defendant-appellee.

Before CUMMINGS and CUDAHY, Circuit Judges, and LAY, Senior Circuit Judge. ^*

CUMMINGS, Circuit Judge.

This case raises the interesting issue of whether a series of telexes exchanged between shipping brokers constituted a binding contract for the sale of the ship Acacia. The parties here made written offers and counter-offers, converged on the price and details of a sale, and concluded their correspondence with "deal confirmed * * * we give you hereunder recapitulation of terms and conditions agreed" (buyer) and "pleased to confirm agreement to your recap of terms" (seller). ¹ Ordinarily courts would call this exchange a contract. Here, however, relying on a clause containing the words "subject" and "negotiation," the district court found as a matter of law that the parties were not bound by the telexes until they signed a memorandum of agreement (MOA). We reverse because the telexes neither say nor imply that the parties intended to sign an MOA before their agreement became binding.

Sometime before August 22, 1990, Magallanes Investment, Inc. put the Acacia up for sale through its agent, Nedlloyd Shipbrokers Limited of London. Magallanes is a Liberian corporation with its principal place of business in Hong Kong. Since there are no agency disputes in this case, we refer to Magallanes and Nedlloyd collectively as "seller." On August 22, 1990, Circuit Systems, Inc. offered to buy the Acacia through its agent, W.P. Sauer Co. of Tequesta, Florida. Circuit Systems is an Illinois corporation with its principal place of business in Elk Grove, Illinois. We refer to Circuit Systems and Sauer as "buyer."

Buyer's first telex of August 22 contained fourteen numbered paragraphs that outlined detailed terms of its offer to purchase the Acacia. This telex specified a price of $254 per ton and explained how ballast and builder's plans would be used to corroborate the ship's weight. The telex also outlined numerous terms relating to the Acacia's condition upon delivery. The ship was to be delivered "free of" cargo, charter, leakage, fire damage, encumbrances, debts, taxes, maritime liens, mortgages, "and any other claims whatsoever." Buyer stated it "understood [that] the vessel is equipped with a bronze working propeller"; the engine type was noted in the same paragraph. Buyer further proposed that the Acacia would be delivered to Alang, India during October of 1990. The telex concluded by stating that buyer's offer would remain open until the following day, August 23.

Seller telexed the next day as follows: "[re Acacia,] have done utmost obtain firm counter your direction * * * [p] the best we can do is counterfirm as follows for reply here within London opening 24/8: [p] subject unsold [p] accept/except [p]". We read "accept/except" to mean that seller accepted buyer's offer except for the numbered reservations that followed, which suggested modifications to Paragraphs 1, 2, 5, 6, and 13 of buyer's offer. Seller demanded a price of $258 per ton, rather than $254, and deducted a 2 percent broker commission rather than 3 percent as in buyer's offer. Seller changed the paragraphs on delivery date and weight verification, and requested that the Acacia's equipment be itemized and excluded from the sale.

Buyer replied the same day. It reiterated "subject unsold," asked for a price of $255 per ton, but otherwise accepted seller's modifications to its offer. Buyer stressed that it had conceded to the lower commission and concluded, "only out of price and * * * relying on your efforts to get same concluded [p] pl[ea]se call at anytime * * * don[']t let's lose this one". Later that day the brokers arrived at a price of $257 per ton in a phone conference.

The next day, on August 24, buyer telexed "pleased to confirm that obtained buyer's authority to conclude at [$257 per ton], wherefore deal confirmed cleanly. For clarity sake we give you hereunder recapitulation of terms and conditions agreed as per our understanding." The remainder of the telex was identical in form and most details to buyer's August 22 offer, but it reflected the negotiations of the previous two days and it was not styled a "firm offer." It also did not begin with the words "subject unsold," as the negotiating telexes had. Paragraph 1 was changed to show the final price of $257 per ton and the broker's commission originally outlined in Paragraph 13. Paragraph 2 contained revised delivery and cancellation dates. Paragraph 5 included a statement that the Acacia's "hired equipment" would be "itemised in the memorandum of agreement." Paragraph 7 reflected minor adjustments to the method of calculating the ship's weight. Paragraph 12 was changed to read "this recapitulation and sale are to be treated as a private and confidential negotiation;" the August 22 version had begun "this offer and subsequent negotiation and sale, if concluded, are to be treated". Buyer's telex ended with "thanks for all your good work in getting in there". Seller responded by telex the same day, "pleased to confirm agreement to your recap of terms".

The question before this Court is whether the exchange ending in the August 24 "recap of terms" and "confirm agreement" telexes formed a binding contract for the sale of the Acacia. Buyer argues that there was no contract because Paragraph 11, which never varied over the exchange, required the parties to sign an MOA before the sale outlined in the telexes became binding. Seller argues that the August 24 telexes bound the sale of the Acacia, and that the signing of an MOA would have been a mere formality to memorialize the pre-existing contract created by telex.

As an initial matter, "contracts for the sale of a ship are not 'maritime' and thus admiralty jurisdiction does not apply." Chase Manhattan Financial Services, Inc. v. McMillian, 896 F.2d 452, 460 (10th Cir.1990); S.C. Loveland, Inc. v. East West Towing, Inc., 608 F.2d 160, 164 (5th Cir.1979). ² This means that the existence of a contract in the present case is determined "by reference to the appropriate state law, not the general maritime law." Puamier v. Barge BT 1793, 395 F.Supp. 1019, 1028 (E.D.Va.1974) (Florida Uniform Commercial Code ("UCC") governs sale of ship); Chase Manhattan, 896 F.2d at 460 (state law determines when ship title passed); Chi Shun Hua Steel Co. v. Crest Tankers, Inc., 1990 A.M.C. 2816, 1990 WL 265970 (N.D.Cal.) ³ (California UCC governs ship sale); Grant Gilmore & Charles L. Black, Jr., The Law of Admiralty 26 n. 90 (1975). Here the disputed telexes ran between Florida and London. The ship was to be transferred from buyer to seller in India. Buyer has ties to Liberia or Hong Kong, seller to Illinois. Though their transaction presents potential conflicts of law issues, the parties only argue Illinois contract law. Ordinarily, when parties agree on choice of law, we need not address the issue further. SNACI, SLR v. Illinois Foundation Seeds, Inc., 830 F.2d 90, 92 n. 1 (7th Cir.1987).

Here, however, Paragraph 11 of the disputed telexes contains an arbitration clause that purports "to incorporate arbitration London with English law to apply." Federal law provides that "A written provision in any * * * contract * * * to settle by arbitration a controversy * * * shall be valid, irrevocable, and enforceable, save upon such grounds as exist * * * for the revocation of any contract." 9 U.S.C. § 2. Courts have read this statute, the Arbitration Act, to manifest a "liberal federal policy favoring arbitration agreements", Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765, and thus we briefly explain why this case need not be ceded to English arbitrators.

The Arbitration Act was designed to guarantee enforcement of private contractual arrangements. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444. Because "arbitral jurisdiction is rooted in the consent of the parties," Three Valleys Municipal Water District v. E.F. Hutton & Co., 925 F.2d 1136, 1140-1141 (9th Cir.1991), the existence of a contract to arbitrate is usually a threshold question for the court not the arbitrator to determine. AT & T Technologies, Inc. v. Communication Workers, 475 U.S. 643, 649-650, 106 S.Ct. 1415, 1418-1419, 89 L.Ed.2d 648; Virginia Carolina Tools, Inc. v. International Tool Supply, Inc., 984 F.2d 113, 117 (4th Cir.1993). The right to arbitrate also can be waived; whether the right has been waived will depend on the circumstances of each case. Ohio-Sealy Mattress Manufacturing Co. v. Kaplan, 712 F.2d 270, 272-273 (7th Cir.1983). A party that litigates arbitrable questions before a federal court may waive its right to request arbitration. Saint Mary's Medical Center v. Disco Aluminum Products Co., 969 F.2d 585, 589-590 (7th Cir.1992). Here the parties have waived any right to arbitrate the existence of this contract in England by choosing to contest the issue under Illinois law in federal court. Since they now prefer Illinois litigation to English arbitration, so be it.

The parties here agree that their telexes establish the essential terms of an agreement, and the district court correctly found that the telexes satisfy Illinois' statute of frauds. ⁴ 810 ILCS 5/2-201. The only dispute is whether the parties intended not to be bound under the telexes until they signed an MOA. If parties intend a writing to be binding,...