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GROBAN v. S.S. PEGU

July 23, 1971

Sidney J. GROBAN et al., and Union Tractor, Ltd., Plaintiffs,
v.
S.S. PEGU, her engines, etc. and Elder Dempster Lines, Ltd., Defendants. Sidney J. GROBAN et al. d/b/a Groban Supply Company, and Union Tractor, Ltd., Plaintiffs, v. AMERICAN CASUALTY COMPANY, Defendant


Frederick van Pelt Bryan, District Judge.


The opinion of the court was delivered by: BRYAN

FREDERICK van PELT BRYAN, District Judge:

These two actions, consolidated for purposes of trial, were tried before me without a jury. Both concern an inventory of Caterpillar tractor parts purchased from the Sierra Leone Development Company, Ltd. (SLDC), a British corporation, consigned aboard the S.S. Pegu to Groban Supply Company (Groban), an Illinois partnership, *fn1" at the Port of New York.

 One of the actions is a suit in admiralty by Groban and Union Tractor Ltd. (Union), a Canadian corporation with principal offices in Edmonton, Alberta, against the S.S. Pegu (Pegu) and its owner and operator Elder Dempster Lines, Ltd. (Elder Dempster), a British corporation, alleging that plaintiffs relied to their detriment on a misdescription of the shipment of the tractor parts in a bill of lading issued by the Pegu at Freetown, Sierra Leone. The other is a diversity action by Groban and Union to recover for damages to the goods upon a marine open cargo policy, allegedly covering the shipment, issued by defendant American Casualty Company (American), a Pennsylvania corporation.

 I.

 Basic Facts

 In June 1961, Groban contracted to purchase an inventory of Caterpillar tractor parts, located in Sierra Leone, West Africa, from SLDC at a price to be agreed upon. Before that purchase was concluded, Groban contracted to resell the inventory to Union. As part of its transaction with Union, Groban, at Union's request, *fn2" agreed to obtain marine and war risk insurance on the shipment at Union's expense. At that time Groban was the assured under a marine open cargo policy of insurance issued by defendant American in 1958. Under the terms of the policy, Groban, as assured, was permitted to insure shipments for its own account and for the accounts of others from whom written instructions to insure had been received prior to known or reported loss. Groban was also authorized to issue certificates or special policies of insurance on forms furnished by American for any and all shipments with respect to which insurance was provided under the open cargo policy.

 When Groban contracted to purchase the tractor parts inventory it was stored at Marampa Mines, some 90 miles from the port of Freetown, Sierra Leone. The inventory was sold, subject to inspection in New York to insure that the goods were free of defect or damage. The parts were represented by the seller to be genuine Caterpillar spare parts in unused condition.

 While at Marampa Mines, the inventory was stored indoors. Smaller parts were stored in bins and the larger parts on the floor. Those which had been packaged in cartons by the manufacturer were stored in that condition. The inventory was periodically inspected for condition and oiled and greased from time to time. None of the parts had been used.

 After SLDC contracted to sell the parts to Groban, they were packed for ocean shipment and were given yard storage at Marampa Mines, under tarpaulin in good condition, protected from the elements.

 In late August, 1961, the goods left Marampa Mines destined for Groban in the United States. At that time the parts were dry and not rusty. Prior to transit, the cases and other shipping units had been marked "Groban", with the destination port. The inventory was transported from Marampa Mines to Freetown by rail and lighter in early September, 1961, and remained there for some six weeks until shipped aboard the Pegu, a general merchant ship engaged in the common carriage of goods. In Freetown the goods were stored on an open quay owned and controlled by the Freetown Port Management, an independent governmental authority. During this time the tractor parts were left uncovered and exposed to frequent and heavy tropical rains. Employees of SLDC who recoopered and repacked some of the shipping cartons which had been damaged in transit observed that the contents of the cases had become wet and some of the parts were rusty.

 Although the shipment had been booked by Groban with Elder Dempster for shipment aboard the first available vessel, the goods were not loaded aboard the Pegu bound for the port of New York until October 24, 1961. Groban was not responsible for the delay that occurred in Freetown.

 The Pegu loaded the inventory from lighters owned by the Freetown Port Authority. A claused bill of lading was issued by the Pegu stating, among other things:

 
Cargo loaded in second hand condition 12 Case [sic] loaded broken

 * * *

 During loading the exposed items in the shipment were found to be rusty; the shipping crates, heavily weather stained. The straw and packing materials inside some of the wooden packing cases which had broken open were wet and soggy and the contents showed rust.

 Prior to the shipment from Freetown, Groban had sent SLDC a letter of credit conditioned, among other things, upon the furnishing of a full set of on board clean bills of lading to accompany seller's draft. After the goods had been shipped from Freetown but prior to arrival in New York, SLDC negotiated the draft accompanied by various instruments. However, instead of the clean bills specified in the letter of credit, SLDC tendered the claused bills of lading issued by the Pegu and also tendered an indemnity agreement of its bank issued because the bill of lading was claused and not clean. These documents were accepted and Groban paid $13,373.25, the amount of the draft when presented. A copy of the claused bill of lading had been sent to Groban by SLDC from England, about November 1, 1961, and was received by Groban in Chicago within the next few days.

 The Pegu arrived in New York on November 10, 1961 and completed discharge on or about November 13. Following discharge, the shipment of tractor parts was inspected by surveyors appointed by defendants American and Elder and by representatives of the plaintiffs. After representative packing cases had been opened packing materials were found to be wet and deteriorated and the parts extensively and severely rusted. The rust, although of relatively recent origin, was not due to exposure to salt water. It was caused by fresh water wetting as a result of exposure to the elements for a considerable period of time. The rust damage found on outturn in New York was the result of exposure to heavy and frequent rainfall during open and unprotected storage on the Port Management quay at Freetown.

 On or about November 17, 1961 Groban prepared a declaration of the shipment under the marine open cargo policy. The declaration, dated August 15, 1961, recited insurance coverage on 283 packages of new Caterpillar tractor parts aboard the Pegu from Freetown to New York, valued at $48,000 plus 10%, with loss payable to Groban and Union or order. The declaration was on the standard all-risk form supplied by American. Groban simultaneously issued a special marine policy covering Union's interest in the shipment, as it was authorized to do under the Policy terms. The special marine policy was on the all-risk form of American and was in terms identical to the declaration. The coverage in favor of Union was pursuant to Union's pre-shipment request to Groban made the previous June.

 Copies of the declaration and special policy of insurance issued by Groban were sent to American on November 28, 1961 and received on or about December 1, 1961. American rejected the declaration and special policy solely on the ground that the tractor parts which Groban had purchased from SLDC were not new parts, as stated in these documents, but were surplus parts. American therefore took the position that the shipment should have been declared and valued as a shipment of surplus parts. Under the American policy, the coverage for new goods was considerably broader and more comprehensive than for surplus merchandise, both as to perils covered and as to quantum of loss.

 After the inspection in New York by representatives of the parties, the goods were shipped on to Union at Edmonton, Alberta, without prejudice to the rights of any of the parties in interest. When the goods arrived there, they were found to have been damaged to the extent of 73%. As between Groban and Union and American, the parties have stipulated, without conceding liability, the amount of damage in the alternative, depending on whether the insured value should be based on Groban's cost or on Union's cost, a point at issue between these parties. Damages have not been stipulated as between plaintiffs and Elder Dempster.

 II.

 The Claim Against the Pegu and Elder Dempster

 There is no evidence that the extensive and severe rust damage to the tractor parts and the wetness of the cases and materials in which they were packed occurred while the goods were aboard the Pegu, or were brought about by any fault of the vessel. Plaintiffs concede that the rust was fresh water, not salt water damage. The cause of the damage was the exposure of the goods to heavy tropical rains on the quay at Freetown before they were loaded aboard the Pegu. Groban does not now make any serious claim to the contrary.

 Groban now asserts that the condition of the goods was known to the officers of the Pegu and the agents of Elder Dempster when the goods were loaded aboard the vessel at Freetown and the bills of lading were issued; that the bills of lading issued misdescribed the condition of the goods by failing to state that they were rusted and packed in wet materials and that Groban was misled thereby to its detriment when it concluded the purchase from SLDC while the shipment was en route to New York.

 The bills of lading recited that the goods were "shipped in apparent good order and condition, except as noted below." The following exceptions were noted:

 
Cargo loaded in Second hand condition 12 Case [sic] loaded broken
 
11 C/S less in dispute by ship's tally if on board to be delivered.
 
2 Bdles more in dispute by ship's tally if on board to be delivered.

 Groban's theory is that Elder Dempster is estopped from showing that the shipment was received aboard the Pegu in substantially the same rusty and wet condition found at outturn because Groban, in reliance upon misdescription of the condition of the goods in the bill of lading, made ...


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