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United States v. Farr & Co.

February 25, 1965


Author: Marshall

Before LUMBARD, Chief Judge, and HAYS and MARSHALL, Circuit Judges.

MARSHALL, Circuit Judge:

Suit was commenced by the United States on behalf of the Commodity Credit Corporation [CCC] in the Southern District of New York, jurisdiction being based on 15 U.S.C. § 714b(c), against Farr and Superintendence Co., Inc. The gist of CCC's claim against Farr, the only claim that need concern us here, is that sugar sold by Farr to Societe Generale de Compensation of Paris, France, who then sold it to CCC, contained foreign matter and was unfit for human consumption without further processing. This, it was claimed, constituted a breach of Farr's promise, made to CCC, to "hold the CCC free of any loss or damage due to our failure to deliver 10,000 short tons 10% more or less FAS Santos/Rio of Brazilian white crystals under the conditions of this announcement [inviting tenders of sugar]." Farr answered, primarily insisting that the sugar met the specified standards.

Farr filed, by leave of court and pursuant to Rule 14, Federal Rules of Civil Procedure, a third-party complaint, later to be amended, against Bingham, seeking indemnity for any judgment CCC might obtain*fn1 Bingham moved for summary judgment, pursuant to Rule 56, Federal Rules of Civil Procedure, the motion was granted and a judgment dismissing the amended third-party complaint was entered. The main action is still pending and the only issue before us on this appeal is whether the District Court erred in granting Bingham's motion. We hold that it did.

The theory underlying Farr's claim for indemnification seems to be, in substance, that, on the basis of Bingham's solicitation, Farr employed Bingham as its agent to secure 10,000 tons of Brazilian white sugar; Bingham agreed to and undertook to secure this sugar; and, if Farr is held liable to CCC for supplying defective sugar, Bingham must have failed to supply the specified sugar, for "Brazilian white sugar" according to trade usage is fit for human consumption without further processing and contains minimal foreign matter. We have been unable to perceive of any flaw in this theory that could properly be reached by a motion for summary judgment.

The parties seem to agree that Bingham acted as Farr's agent, and there is little disagreement with the elementary proposition of law that an "agent is subject to liability for loss caused to the principal by any breach of duty," Restatement, Second, Agency, § 401. The principal controversy instead concerns the extent of Bingham's duty.

At one level the dispute centers on whether Bingham's duty was to obtain Brazilian white sugar for Farr, or whether its duty was to obtain an executory contract for the sale of that sugar to Farr.If it were the latter, then Bingham claims that its duty was fully and faithfully discharged: it obtained the promised executory contract for sale of the Brazilian white sugar from the Instituto do Acucar e do Alcool [IAA], the Brazilian public corporation having a monopoly on the sale of sugar grown on the plantations of Brazil, and if improper sugar was supplied to Farr and ultimately to CCC, this would be a breach by IAA in the execution of its contract, not a default by Bingham. Farr sharply controverted Bingham's limited view of its duty and states in an opposing affidavit: "What we wanted, what we expected Bingham to get and what we thought Bingham did get, was sugar of specified characteristics and not an executory contract." The issue is drawn; but this aspect of the controversy over the content of Bingham's duty involves genuine and material factual issues that must be tried, not disposed of on a motion for summary judgment. Boro Hall Corp. v. General Motors Corp., 164 F.2d 770 (2 Cir.1947). Specific facts have been set forth to show that there is a "genuine issue for trial," Rule 556(e), Federal Rules of Civil Procedure as amended in 1963. The solicitations of Bingham, the letters and cables between Farr and Bingham, see Detsch and Co. v. American Products Co., 152 F.2d 473, 475 (9 Cir.1946), and the custom and usage of the international sugar trade are likely to shed some light on the question whether Bingham's duty was to procure the sugar or an executory contract; and the presentation and exploration of these items should not be confined to an exchange of affidavits, see Sartor v. Arkansas Natural Gas Corp., 321 U.S. 620, 628-629, 64 S. Ct. 724, 88 L. Ed. 967 (1944).

At another level, the dispute concerning the extent of Bingham's duty involves the question, assuming arguendo that Bingham's objective was to procure Brazilian white sugar rather than merely to procure an executory contract for sale of that sugar, whether his duty was merely to use due care and skill, or whether he had a duty pure and simple to obtain the Brazilian white sugar, to fulfill his task. In some situations, for example, when the agent realizes that he is undertaking an extremely risky enterprise and warns the principal that at most an exercise of due care and skill, rather than success, could be expected, this question may turn on the facts. However, the District Court treated the question as one that was not resolved by trade custom or agreement between the parties, one that did not depend on the development of the facts and one that could easily be reached by a motion for summary judgment. The Court took the position that the limits of an agent's duty was to use due care and skill, and that he could not be held responsible for the mere failure to accomplish the result; and held that since "there is no contention by Farr, nor does the proof show any negligence by Bingham in procuring the sugar," Farr could not recover against Bingham for defects in the sugar.

Even if this interpretation of an agent's duty were correct, error could be found in the failure of the District Court to afford Farr an opportunity to amend his complaint to include allegations of negligence and to offer proof, either through affidavits or, if appropriate, at trial, to that effect. Farr adequately explained its failure to allege negligence; Bingham never specifically objected to the complaint on that ground as the debate centered on whether Bingham's assigned task was to procure the sugar or the executory contract, and Farr thought its indemnity claim could succeed without an allegation of negligence. An opportunity to amend and not a summary judgment would appear to be the proper remedy in this situation.

Moreover, I am prepared to go one step further and to hold that in certain circumstances an agent discharges his duty not merely by using due care, but by fully performing his assigned task. Where (1) the agent is to be paid for his services, (2) there is no understanding between the parties limiting the agent's duty to use due care rather than to achieve the agreed-upon objective*fn2, (3) the agent's failure to achieve the agreed-upon objective is due to reasons not beyond his control, and (4) the principal is not informed of the agent's failure and is thereby unable to take appropriate self-protective steps*fn3, then it would not be unfair to hold the agent responsible for the foreseeable loss to the principal caused by the failure of the agent to obtain the specified type of goods. See Bank of British North America v. Cooper, 137 U.S. 473, 11 S. Ct. 160, 34 L. Ed. 759 (1890); cf. Cassaboglou v. Gibb, 11 Q.B.D. 797, 802, 805 (C.A. 1883)*fn4 Under these circumstances it would not be unreasonable for a principal to expect that his agent will do all that he has voluntarily undertaken to do, and to rely on this expectation. Farr also alleges that Bingham held itself out as especially qualified to operate in the Brazilian market as it had a correspondent there; if such representations could be established, then Farr's reliance would be all the more justified and Bingham's responsibility that much greater.

Indemnification is merely a legal tool for passing a liability on to the party who is ultimately responsible for the loss the court has attempted to redistribute. If Farr suffers a loss by reason of supplying CCC with defective sugar, which allegedly could not be the case if Brazilian white sugar were procured for Farr, then it would seem fair to shift that loss to Bingham if its task was to procure Brazilian white sugar. Bingham certainly could or should have foreseen that a failure to supply Farr with sugar that measured up to the standards of Brazilian white sugar might expose Farr to the risk of liability at the suit of a subsequent purchaser, in this case CCC. The fact that CCC has based its suit on Farr's expressed promise to hold CCC free from any loss on its purchase of the sugar does not impair Farr's claim for indemnification. If liability is imposed upon Farr, the failure to provide Brazilian white sugar can be listed as one of the primary causes of this loss and responsibility for this can in turn be traced back to Farr's alleged reasonable reliance on Bingham's alleged voluntary assumption of the task of procuring Brazilian white sugar and the alleged failure of Bingham to procure that sugar.

Finally, there is no merit to the District Court's holding, in part based on the refusal to acknowledge Farr's claim for indemnification, that Farr's claim is barred by the statute of limitations. For the statute of limitations cannot possibly start to run on an indemnity claim until the party seeking indemnification suffers a loss. See generally Federal Reserve Bank of Atlanta for Use of American Surety Co. of New York v. Atlanta Trust Co., 91 F.2d 283, 117 A.L.R. 1160 (5 Cir. 1937). That point has not yet been reached, although the initial transactions with Bingham took place in the spring of 1955. CCC notified Farr on or about January 30, 1956 that the sugar was defective; suit was not commenced by CCC against Farr until December 23, 1959; Farr filed its original third-party complaint on June 19, 1962 and the amended version on January 3, 1963; and as the primary suit is still pending, no liability has yet been imposed on Farr.

Reversed and remanded.

LUMBARD, Chief Judge ...

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