T. J. Stevenson & Co., Inc. v. 81,193 Bags of Flour, 77-2523

CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)
Citation629 F.2d 338
Docket NumberNo. 77-2523,77-2523
Parties30 UCC Rep.Serv. 865, 7 Fed. R. Evid. Serv. 1336 T. J. STEVENSON & CO., INC., a corporation, Plaintiff and Counterclaimant, Appellee-Cross-Appellant, v. 81,193 BAGS OF FLOUR, etc., Defendant. ADM MILLING CO., INC., Defendant, Counterclaimant & Third Party Plaintiff- Appellant, Cross-Appellee, v. T. J. STEVENSON & CO., INC., MV NEDON, etc., Defendants as to Counterclaim, Republic of Bolivia, Ministry of Industry, Commerce and Tourism, Third Party Defendant Counterclaimant-Appellee, Cross-Appellant.
Decision Date27 October 1980

George F. Wood, Sidney H. Schell, Mobile, Ala., for T. J. Stevenson.

Alex T. Howard, Jr., Thomas S. Rue, Mobile, Ala., for Ministry of Industry & Tourism, Republic of Bolivia.

Appeals from the United States District Court for the Southern District of Alabama.

Before BROWN, HILL and RANDALL, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

With this decision we hopefully end, in all but a minor respect, an amphibious imbroglio 1 and commercial law practitioner's nightmare involving three shiploads of enriched wheat flour. 2 By a coincidence in this confusing case, each shipload of flour became infested, to varying degrees, with confused (triboleum confusam) and red rust (triboleum casteneum) flour beetles (sometimes called weevils). None of the parties involved-seller, buyer, and carrier-acted faultlessly over the course of the transaction. All brought their differences to the able District Judge for resolution. The District Judge carefully considered five weeks of testimony presented by the parties, their numerous pleadings, motions, briefs and arguments, scores of interlocking mixed law-fact issues, and difficult questions of federal civil procedure, state commercial, and admiralty law. The Judge's careful and lengthy opinion, 449 F.Supp. 84 (S.D. Ala. 1976), resolved the imbroglio but failed to fully convince the parties. The District Judge convinced us, however, and we affirm in almost all respects. Without pause

to reflect on the complications that simple insects-confused flour beetles or otherwise-can create in the lives of men and Courts, we proceed to explain our decision.

I. The Life-Cycle Of This Appeal: Inception, Growth, And Development
A. The Documents

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

Each contract contained an express warranty of merchantability:

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. . . .

There was also an express warranty clause on the reverse side of each contract:

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.

But that warranty clause also contained the following notice requirements:

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 The contracts further contained a merger and parol evidence clause 5 and specified that Illinois law would govern construction of the terms and conditions.

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.

B. The Flour: Manufacturing And Delivery To Mobile

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.

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.

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 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.

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.

C. Events In Mobile: Part I

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.

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....

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