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COMMERCIAL METALS CO. v. INTERNATIONAL UNION MARIN

December 30, 1968

COMMERCIAL METALS COMPANY, Plaintiff,
v.
INTERNATIONAL UNION MARINE CORPORATION, Defendant



The opinion of the court was delivered by: MANSFIELD

MANSFIELD, District Judge.

 In this action for breach of a charter party contract, plaintiff, charterer of the ship, moves for a stay of litigation and an order directing defendant shipowner to proceed to arbitration in accordance with the contract's arbitration clause, to which defendant objects on the ground that plaintiff, by institution and prosecution of the litigation, has waived its right to arbitration. The motion is granted.

 On February 16, 1967, the parties entered into a charter party contract whereby defendant, the owner of the S. S. Gilia, agreed to tender the ship to plaintiff at certain United States ports for shipment of a cargo of metal to Japan, for which the plaintiff agreed to pay lump sum freight in the sum of $200,500. Paragraph 41 of the charter contract contained the following arbitration clause:

 
"It is mutually agreed that should any dispute arise between Owners and the Charterers, the matter in dispute shall be referred to three persons at New York for arbitration, one to be appointed by each of the parties hereto, and the third by the two so chosen. Their decision or that of any two of them shall be final, and for the purpose of enforcing any award, this agreement may be made a rule of the Court. The Arbitrators shall be commercial men. Should the two so chosen not be able to agree who the third Arbiter should be, then the New York Produce Exchange is to appoint such third Arbitrator."

 The contract was modified in September of 1967 to change the laydays for tender of the ship, originally agreed upon as the period October 10, 1967 to November 10, 1967, to the period December 1-31, 1967.

 Plaintiff alleges that following the execution of the contract the charter party market rose, whereupon defendant entered into another charter party contract with third parties, whereby it agreed to tender the same ship to them during the period from December 13-30, 1967, for shipment of a cargo of wheat from the United States to Pakistan at the more profitable lump sum freight figure of $316,360, which contract the defendant performed, making it impossible for it to tender the ship to the plaintiff by December 31, 1967 or within a reasonable time thereafter because of the time required for the round-trip from the United States to Karachi, India.

 On October 31, 1967, after learning of defendant's entry into the charter party contract with third parties, plaintiff filed a complaint in the United States District Court for the Western District of Washington, Southern Division, seeking damages and an attachment of the ship because of defendant's alleged breach of its contract with plaintiff by defendant's entry into the contract with third parties which would prevent it from performing its charter party contract with plaintiff. Although the complaint attached a copy of the latter contract, including the aforementioned arbitration clause, it did not specifically refer to the arbitration clause or otherwise indicate an intent to invoke it. Security was obtained by attachment of the ship, following which defendant posted a surety bond for release of the vessel and by stipulation of the parties the action was transferred to this district as originally filed the complaint alleged that defendant's agreement to charter the ship to the third parties constituted an anticipatory repudiation of the February 16, 1967 contract, as amended, for the reason that

 
"The GILIA cannot load its cargo at the North Pacific port, proceed to Karchi, secure a berth at Karachi, discharge the wheat and return to the U.S. Atlantic Coast or Gulf by December 31, 1967."

 Pursuant to Rule 12(b)(6) defendant moved to dismiss the complaint for failure to state a claim on its face. On April 8, 1968 Judge Cooper denied the motion in a memorandum decision noting that while the December 31, 1967 delivery date fixed the time within which the plaintiff had an option to cancel, the defendant's obligation under the contract was to tender the ship with reasonable dispatch rather than by the December 31st date. In characterizing the claim as barely sufficient, he was not of course passing upon its merits and did not have before him evidence indicating the extent to which time might be of the essence, such as the purpose for which the metal was to be shipped, the custom of the trade, and the like. See Davison v. Von Lingen, 113 U.S. 40, 5 S. Ct. 346, 28 L. Ed. 885 (1885). Furthermore, plaintiff contends that if the Court had known all of these facts, it would conclude that under the circumstances defendants' entry into the charter party contract with third parties for transport of the wheat to Karachi at the very time that it was contemplated that the ship would be made available for transportation of plaintiff's metal would, if defendant adhered to the Karachi charter party, make it impossible for it to tender the ship within a reasonable time. It is hornbook law that such a manifestation of intention not to perform would constitute an anticipatory repudiation and an actionable breach of the contract with plaintiff. Lovell v. St. Louis Mutual Life Ins. Co., 111 U.S. 264, 274, 4 S. Ct. 390, 28 L. Ed. 423 (1884); Cavalliotis v. P. N. Gray & Co., 293 F. 1018 (2d Cir. 1923), affirming 276 F. 565 (E.D.N.Y.1921).

 In compliance with the suggestion inherent in Judge Cooper's decision, plaintiff on April 12, 1968, filed an amended complaint alleging that the Karachi charter contract not only would, but in fact did, cause defendant to breach its obligation to tender the ship within a reasonable time. More important for present purposes, Paragraph 14 of the amended complaint alleged:

 
"14. Clause 41 of the charter party provides that disputes between the parties shall be referred to three persons at New York for arbitration, one to be appointed by each of the parties hereto, and the third by the two so chosen. The plaintiff expressly reserves its right to arbitrate any and all issues and disputes between the parties."

 Following defendant's filing of its answer on April 29, 1968, coupled with a notice to take defendant's deposition on May 14, 1968, plaintiff's attorneys on May 8, 1968, mailed to defendant's counsel a letter naming an arbitrator on behalf of plaintiff and calling upon defendant to nominate an arbitrator in accordance with the above-quoted paragraph. When the defendant refused to appoint an arbitrator, plaintiff made the present application on May 13, 1968, for an order designating an arbitrator, directing that arbitration proceed, and staying all other proceedings herein until the arbitration has been completed.

 Defendant opposes plaintiff's application on three grounds. First it urges that by bringing suit for anticipatory repudiation of the contract plaintiff itself repudiated the contract including the arbitration clause, thereby excusing plaintiff from performance; secondly, that plaintiff thereby elected to invoke the remedies afforded by the court in lieu of arbitration and was thereafter estopped and precluded from invoking arbitration; thirdly, that plaintiff's claim is defective by reason of its failure to allege and prove plaintiff's own willingness to ship the metal on the chartered vessel. All three arguments must be rejected as wholly devoid of merit.

 Plaintiff's mere institution of a libel for damages and its attachment of the ship did not excuse defendant from its obligation to tender the ship within a reasonable time as required by the charter party contract. Plaintiff's resort to these remedies did not constitute a repudiation of the contract for the reason that, according to plaintiff, defendant had already repudiated it, necessitating plaintiff's suit for breach. Faced with a plain and practical problem, the prospect that the departure of the vessel from these shores would leave it with no meaningful remedy, especially since specific performance of charter party contracts will not ordinarily be ordered, plaintiff resorted to the libel and attachment of the ship as a means of protecting itself and with the hope that the suit might induce the defendant to tender the ship within a reasonable time rather than (in plaintiff's view) abandon or repudiate its obligations in lieu of a more lucrative fee in a rising charter market. Prior to the institution of suit plaintiff had been unsuccessful over a period of several weeks in efforts to induce defendant to specify when the ship would be furnished, and on December 21, 1967, after commencement of the libel proceeding, plaintiff's counsel wrote defendant asking it ...


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