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Mottaghi v. Barkey Importing Co.

decided: March 29, 1957.


Before Clark, Chief Judge, and Frank*fn* and Lumbard, Circuit Judges.

Author: Lumbard

LUMBARD, Circuit Judge.

This is a contract action brought by M. Shafi Iravani Mottaghi (hereinafter Iravani), a citizen of Iran, against Barkey Importing Co., Incorporated in New York (hereinafter "BIC"). Iravani's complaint contained ten causes of action, on all of which the district court ultimately found against him. BIC filed a counterclaim, which the district court also found that Iravani had admitted. The court therefore entered judgment for BIC in the sum of $139,723.31, the full amount of the counter-claim. Iravani appeals.

There are four main contracts, as to the existence of which there is no dispute, but as to the performance of which there are many, as well as many alleged modifications of these agreements; in addition, there are many other agreements as to the existence and scope of which the parties differ radically.Most of the negotiations on these alleged agreements took place by correspondence and findings had to be made on the slimmest of evidence. The district judge filed an opinion of 84 pages, D.C.S.D.N.Y.1955, 134 F.Supp. 719-802, and although we can well understand the difficulties of the problems he faced, we must reverse on certain issues and remand for certain additional findings on other issues.

We shall first set out chronologically a statement of the events which gave rise to this litigation.

I. Chronology of Events

In general, the case before us deals with shipments of Iranian carpet wool by Iravani in Iran, through his agent, Randolph Valensi in New York, to BIC, also in New York. Iravani had never sold any wool before. In late 1949 Valensi became Iravani's American agent and in December 1949 Iravani and BIC contracted for the sale of 350 tons*fn1 of greasy*fn2 white*fn3 wool, to be delivered by February 15, 1950, at 60 cents per net pound clean basis. A letter of credit was opened by BIC in Iravani's favor, to be used only for bills of lading dated not later than February 15, 1950. In January Iravani indicated he would not be able to complete the contract in time. In February the contract was modified in Iran by Iravani and BIC's agent, Robert Kitching, in that in place of 50 tons of washed white wool, Iravani was permitted to ship 40 tons of greasy cream wool. No price change appears or is material. It is clear that the contract, even as modified, was not completed in time and one of the basic disputes in the case is when this first contract was finally completed. Iravani claims completion was on December 5, 1950; BIC claims the contract was not completed until January 1951.

Throughout January and February 1950 there are many indications in the correspondence of Iravani's great difficulties in shipping the wool, of Iravani's very precarious financial position and that BIC was made aware of this. Valensi also corresponded with Iravani about the possibility of a consignment arrangement with BIC for shipments of colored wool at prices much lower than for white wool.

In April the S.S. Steel Artisan embarked from Iran carrying 70 tons of wool.*fn4 BIC accounts indicate this was composed of 36 tons white and 34 tons cream, all allocable to the First Contract at 60 cents. There is no substantial dispute as to this.

In April two more contracts were made between Iravani and BIC. The first of these (the "Second Contract") was executed between April 17 and 19, 1950, and was for 300 tons of white wool (200 greasy and 100 washed) at 70 cents per net clean pound, shipment not leter than June 5, 1950. A second letter of credit was opened to cover this, not to be drawn against until the first letter of credit was exhausted.

The other contract ("Third Contract") was executed between April 21 and 25, 1950 for 100 tons of cream wool at 60 cents per net clean pound, shipment during July/August from Iran. Also in April, Valensi again advised Iravani that BIC "would be willing to help finance a consignment of up to 150 tons of other color wools."

By June 1950 the market for wool in both the United States and Iran had started to rise rapidly, induced in Iran partly by the presence of American buyers there. Since Iravani, following Iranian business custom, did not receive delivery until after he had made his contracts to sell, he was caught between lowprice contracts with his customers and rising prices from his suppliers. Moreover, Iravani was habitually short of capital. In May he wrote that his "greatest difficulty was the matter of finance" and about that time found it necessary to mortgage his property to raise $100,000 for the purchase of wool, which was all the money he had.

In May the S.S. Lemsterkerk/Westerdam (voyage #2) set out for the United States with what our calculations show to be from 144 to 149 tons of wool,*fn5 and arrived in New York on July 17, 1950. Iravani did not invoice his shipments until later and the three invoices covering this shipment billed approximately 129 tons at 60 cents (the two invoices on this were dated July 6, 1950 and December 5, 1950) allocable to the First Contract and 20 tons at 70 cents (invoice dated July 6, 1950) evidently allocated to the Second Contract. On the other hand, BIC's accounts differed as to both allocation to contracts and prices. BIC's original accounts with respect to this shipment are that 58 tons were white wool, 6 tons were cream, and only this was allocated to the First Contract. BIC allocated nothing to the Second Contract and 30 tons cream to the Third. 50 tons were colored wool, allocable to no contract and paid for at 42 cents per net clean pound. This was in accord with BIC's consistent accounting procedure whereby it allocated nothing to the Second Contract until the First was completed, allegedly in January 1951.

In June 1950, BIC was told by Kitching that Iravani was taking a severe loss on the First Contract because of the rising market. Although BIC expressed great annoyance at Iravani's failure to complete the contracts in time, Iravani persuaded BIC to delete a restriction in the second letter of credit which had prevented Iravani from drawing on it until the first credit was exhausted.

To ease his financial difficulties, Iravani made two suggestiions to BIC through Valensi. On June 15, 1950 he cabled "as losses unsupportable arrange Barkey accept half all future shipments against contracts and half to sell our account." (This arrangement later came to be known as the "half-half agreement.") On June 21, 1950 BIC's agent, Kitching, cabled that Iravani intended to allocate the shipments against the contracts "half at sixty [i.e., against the First Contract] half at seventy [i.e., against the Second Contract]" and that Iravani contemplated completing the contracts within 30 days. Whether or not these proposals were acceptable to BIC at the time is not clear. Certainly BIC's final accounting, Exhibit QQ, suggests that it did not accede to the second proposal about allocation of contract shipments and this has some support in some ambiguous statements made in August by Kitching to Iravani. The district court, however, apparently agreed with Iravani to some extent, since it found for Iravani on the second cause of action in which he claimed that shipments on voyages #2, #4 and #9 were applicable to the Second Contract.*fn6 As to the proposal for allocating the shipments half against contracts and half on consignment - the "half-half" agreement - the district court found that BIC acceded to this on or about September 28, 1950, contrary to BIC's accounting. See the discussion of the fourth cause of action, infra.

Despite BIC's annoyance with Iravani's delays and suggestions for revision of the first three contracts, he entered into a fourth contract with Iravani on June 30, 1950 which was "contingent upon you [Iravani] completing your present outstanding contracts with us" for 200 tons of greasy white wool at 85 cents per net clean pound, and 200 tons of greasy cream wool at 75 cents per net clean pound.

This completes the June transactions, except for one 142 bale shipment allegedly on consignment which underlies the third cause of action. The court tentatively found for Iravani and no appeal from that part of the decision is taken.

The S.S Laagkerk/Westerdam and the S.S. Steel Apprentice (voyages #5 and #6), sailed in July, carrying approximately 21 and 124 tons respectively. The claimed allocations among the contracts on this as on the other shipments differs sharply.

The market in both the United States and Iran continued to rise rapidly especially because of the Korean war. The correspondence again indicates BIC's annoyance with Iravani, Iravani's explanations for delay and his requests that BIC open a letter of credit on the Fourth Contract immediately. Valensi also rebuked Iravani for his delays and requests for alternate and additional arrangements. At this time, however, Iravani expressed willingness to surrender documents for 27 of the 144 to 149 tons shipped on the Lemsterkers/Westerdam (voyage #2) which arrived in New York on July 17, 1950 against which 27 tons BIC paid $17,000. This 27 tons is part of the second cause of action on the Second Contract in which Iravani claims 70 cents per pound. The district court found for Iravani and this implies that the parties did agree that at least some of the shipments were to be divided, at least among the first two contracts.

In July the Steel Designer (voyage #3) also arrived carrying from 86 to 88 tons, of which 32 are asserted by Iravani to be allocable to the Second Contract. Also in July the S.S Laagkerk/Westerdam (voyage #4) carrying approximately 21 tons and the S.S. Steel Apprentice (voyage #5) carrying from 124 to 130 tons sailed, and both arrived in New York in September 1950.

Summary of first seven months.

To summarize briefly the events through July 1950: The parties had made four contracts calling ultimately for a total of 1,140 tons, and more than 305 had arrived, although the allocation of these shipments is in dispute. The wool market had started to rise by July and Iravani sought concessions involving irregular - i.e., non-chronological - allocation, and side arrangements for particular amounts of wool as well as additional financial assistance. BIC did agree to some financial assistance.

On August 1, 1950 Kitching notified BIC that he had the documents for 32 tons of white wool shipped aboard the Steel Apprentice (voyage #5) which had left in July, see supra, for which he recommended Barkey pay $20,000 to various people in New York for Iravani's account. This payment was to be at the rate of 70 cents per clean pound. BIC complied with this immediately. This same procedure, involving "Twenty two Tons White Seventy Cents And Seventysix Tons Cream Sixty Cents All Steel Apprentice"*fn7 was followed again in August and BIC paid one Murad $35,000 for Iravani's account, as Iravani requested. Here again, as on all shipments of white wool until January 1951, BIC allocated the white wool to the First Contract at 60 cents. Because the cream requirements of the First Contract had already been met, BIC allocated the 76 tons of cream wool in this shipment to the Third Contract, also at 60 cents for cream. These 54 tons of white wool are involved in the second cause of action on the Second Contract.

Also in August, four more ships left Iran carrying wool from Iravani to BIC. On August 5 the S.S. Lindekerk/Arkeldyk (voyage #6), sailed for New York, apparently carrying 27 tons white wool and 5 tons cream and arrived on November 2. As to this, Kitching reported to BIC in August that he had the documents in hand for the "27 tons white Lindekerk seventy cents." BIC ultimately credited this also to the First Contract at 60 cents. These 27 tons also constitute a part of the second cause of action on the Second Contract.

The Lindekerk/Averdyk (voyage #7) also sailed on August 5, carrying 47 tons, all of which Iravani allocated to the First Contract, but at 70 cents (see the first cause of action, infra ), whereas BIC allocated the tonnage as follows: 14 tons of white wool to the First Contract at 60 cents, 18 tons of cream wool to the Fourth Contract, and 15 tons of colored wool allocable to none of the contracts.

On August 19 the S.S. Lissekerk/Alblasserdyk sailed (voyage #8) but from the record it is very difficult to ascertain the total tonnage shipped on this voyage. BIC applied 21.5 white tons of this shipment to the First Contract; Iravani's allocation was to the Second Contract and to other arrangement to be noted infra.

The last August shipments were on the Steel Artisan (Voyage #9) which left Iran on August 24 and arrived in New York on October 4, with a relatively small shipment, the exact size of which is not clear from the record. Iravani claimed that this shipment was governed by the half-half agreement, and the second and fourth causes of action relate in part to this shipment. BIC denied this and allocated the wools among the First and Fourth Contracts.

In August, BIC cabled its agreement to allocate shipments between the First and Second Contracts. In addition, Iravani proposed that BIC accept the balance of the documents for the Lemsterkerk/Westerdam (voyage #2), the Steel Designer (voyage #3), and the Lindekerk/Averdyk (voyage #7) shipments against the letter of credit for the First Contract at 70 cents white and 42 cents color. BIC agreed and subsequently paid a draft for these shipments and for some on the Laagkerk/Westerdam (voyage #4). In its accounts BIC credited Iravani at only 60 cents for the white, and the alleged 10 cent underpayment on the four shipments constitutes the basis for the first cause of action.

Iravani also asked that the letter of credit for the Fourth Contract be opened regardless of the incompleteness on the first two contracts, to which BIC much later ultimately agreed.

In September 1950 the Laagkerk/Westerdam and Steel Apprentice (voyages #4 and #5) arrived in New York.In early September Iravani admitted owing 650 tons of wool to BIC but declared that the only way he could avoid suffering an "unbearable loss" was to allocate the "unnegotiated shipments, stocks and purchases" shipped on the Lissekerk (voyage #8), Lindekerk (voyage #6 or #7) and Artisan (voyage #9), then in transit, and 260 other tons, available but not yet shipped, half against the contracts and half on consignment. This is the proposal for the half-and-half agreement which is involved in the second cause of action and is the basis for the fourth. 80 tons of these shipments were conceded by Iravani to be outside the scope of this agreement. On September 14, 1950, Iravani cabled he was shipping 250 tons "half against contract and half for sale at present prices. In this manner hope to complete all contracts end November." At first, Valensi said BIC would not accept this in part because BIC claimed that it did not do business on commission. The district court found that such an agreement was made on September 23, 1950, that it was limited to the Steel Designer and future shipments, that "future shipments" meant shipments not yet afloat, rather than shipments afloat but not yet arrived or whose documents had not yet been negotiated. BIC subsequently argued that this agreement although made, never went into effect, and indeed, its own allocation takes no account of it, crediting all of the white tonnage to the First Contract, following strict chronological order, as noted supra.

At this time also, Iravani sought to have a draft of $114,257 on the first letter of credit and $15,000 in cash paid to Murad. BIC paid the $15,000 but postponed payment of this draft.

In October, the Lissekerk/Alblasserdyk (voyage #8), Lindekerk/Arkeldyk (voyage #6) and Steel Artisan (voyage #9) arrived in New York. BIC finally agreed to modify the fourth letter of credit for Iravani thereby making it immediately available, rather than upon the completion of the first three contracts.

In November the Steel Apprentice (voyage #11) left for New York, arriving in January 1951 with approximately 210 tons of white and cream wool. Iravani asked that $30,000 be paid to Murad to which BIC agreed, because "of the very high balances and equity which you now have here in New York." Iravani also requested BIC to finance additional consignment business which BIC refused to do until all the contracts had been completed. Valensi and BIC urged Iravani to come to New York to "effect compromise settlement 400 ton contract" after the 175 ton shipment on the Steel Apprentice. BIC's cable seems to indicate this would involve only the 400 ton Fourth Contract, although according to its own calculations, no shipments under the Second Contract had yet been received. In reply to the invitation to come to New York, Iravani promised to fly to New York in December, but because of visa trouble, he did not arrive until January 28, 1951.

On November 10, Valensi wrote Iravani that the wools were being charged off to the contracts in chronological order, "as a matter of expediency," and he repeated this on January 5, 1951, stating "contrary to your understanding Barkey will not accept one-half of these wools under contract and sell the other one-half for your account at current market prices * * * Barkey will attempt to seek full satisfaction on all contracts with whatever wools you ship." Iravani replied to Valensi's November 10 letter, and after receiving BIC's accountings Iravani complained that BIC had calculated at 60 cents wool drawn by Iravani at 70 cents and declared "we therefore cannot understand why Mr. Barkey has now calculated them at 60 cents * * * [reducing] the price to 60 cents for those shipments against which he has already paid us at 70 cents * * * His insistence that we should complete our contracts at 60 cents at 70 cents, while we are paying twice that amount here, would simply mean * * * running headlong into bankruptcy." According to his testimony however, Iravani was not complaining about the chronological allocation but only about the 60 cent credit for wool agreed to be at 70 cents, although allocable to the First Contract. We find no record of any response to this until Valensi's January 5 letter noted above.

In December Iravani again asked for consignment financing and BIC evidently agreed to finance 200 tons as 75 cents per net clean pound. On December 31 the Steel Artisan (voyage #12) left Iran for New York carrying approximately 220 tons, of which 75 had been sold by Iravani to other buyers.

The Steel Apprentice arrived January 4, 1951 and BIC credited 9 of its 44 white tons to the Second Contract, the other 35 having been applied to completing the First Contract according to BIC's accounting. Iravani arrived in New York on the 28th.

Before Iravani's arrival, he cabled that he had shipped 220 tons on the Steel Artisan, of which 75 were committed to others. He also cabled he had 250 additional tons which he wanted BIC to sell for his account. BIC cabled back that it would "do utmost your behalf." Valensi wrote Iravani that this reply seemed very enigmatic to him. Iravani at any rate apparently expected BIC to handle all 395 tons (145 on the Steel Artisan plus the additional 250) on a consignment basis and this alleged consignment constitutes the fifth and sixth causes of action. At this time, Iravani also asked BIC to deliver $90,000 to Iravani's agents in New York and to open a letter of credit for $200,000, with both of which BIC complied, reiterating "again assure you our utmost cooperation." This letter of credit was opened against the 250 tons. Valensi subsequently cabled Iravani on January 13, 1951 that the 250 tons had been sold by BIC "However prices adnd whether sale for your account left hundetermined."

BIC claimed that at this time it needed 450 tons to complete his own contracts, excluding the 145 tons from the Steel Artisan. Julius Lavis, the Secretary of BIC, also testified that before the Steel Artisan arrived in February, Iravani owed 523 tons on the outstanding contracts: 258 tons of white on the second contract, 200 tons of white on the fourth and 65 tons of cream on the fourth.

By January 28, when Iravani arrived in New York, he had delivered approximately 850 tons to BIC, and thought that BIC had agreed to the half-half proposal further modified by divisiion of contract shipments between the First and Second Contracts. The shipments had resulted in completing at least the First and Third Contracts. Iravani also claims he completed the Second Contract by this time and had a large amount on consignment under the half-half agreement, and the colored wool consignments. The accounts between the parties were sharply disputed, as they had been almost from the beginning of their relationship.

On February 4, 1951, the Steel Artisan (voyage #12) arrived carrying 220 tons of Iravani's wool of which 145 was for BIC. BIC claims it obtained only 120 tons of this shipment. This will be discussed in the analysis of the sixth cause of action. In the shipment which arrived on the Steel Artisan, there was a 292 bale lot which Iravani claimed was to be sold for his account together with the rest. BIC denies that these 292 bales were to be on consignment and indeed denies that Iravani had any right to the wool at all. This claim is the basis for the fifth cause of action, and since it is largely separable from the other events, we shall defer full description until the analysis of that cause of action.

After his arrival in New York, Iravani presented two drafts to BIC for payment, one for $114,071.31 already referred to, and the other for $316.010.88. BIC claims it refused to pay them because Iravani did not have enough credits to cover them. BIC claims that about February 20 or 22 Iravani and BIC arrived at a settlement of the differences between them which would get Iravani out of trouble and that BIC then paid the drafts. Iravani claimed that the settlement occurred in March, and this is supported by Lavis' testimony. The district court found that the settlement occurred on or about March 7, 1951. The settlement terms were never put in writing. Briefly, the two versions are as follows:

Iravani: He was to ship 150 tons of white wool at $1.25 per pound; the half-half agreement and four written contracts as amended were to remain in effect so far as already executed and cancelled to the extent that Iravani still owed wool under them; the 395 ton consignment with a 5% commission for BIC still remained in effect; other future shipments would be handled on a joint venture basis.

BIC: Iravani was to ship 150 tons of white wool at $1.10 per pound; the half-half agreement was to be set aside; Iravani was to get BIC's prices from his customers less 5% for all wools shipped in order to complete the Second Contract and after; and the Fourth Contract was to be cancelled.

The district court upheld BIC's version as to all the terms, and found further that any claims Iravani had under the first four contracts were also discharged by the settlement.

To anticipate a bit, Iravani further claims that in June 1951, the 150 ton agreement was changed to 120 tons at $150,000 of which BIC accepted only 80, refusing to accept 40 in September. BIC denies the modification and claims that the full 150 were received and that he refused to accept the 40 excess because he no longer wanted to do business with Iravani. There is testimony by both Barkey and Murad that Barkey was at first willing to pay $37,000 for the 40 tons, whereas Murad, acting on Iravani's behalf, asked for $40,000. The wool market had fallen by then.

On March 20, 1951 a wire was sent by the Irving Trust Co. to Bank Melli in Iran stating "Barkey * * * requests us cable you it will * * * pay drafts for * * * wool shipments steamers Steelworker Alamak Laurenkerk [which had left Iran by this time] on following basis one third quantity white and cream dollars one point two five per pound two thirds dollars one point sixty and colors dollars one." Iravani relies heavily on ...

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