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November 30, 1971


Gurfein, District Judge.

The opinion of the court was delivered by: GURFEIN

GURFEIN, District Judge.

This is a petition to compel arbitration brought by Joseph Muller Corporation Zurich, Switzerland, pursuant to 9 U.S.C. § 4. Petitioner seeks an order compelling respondent to submit to arbitration in accordance with a purported written arbitration provision agreed to by both parties and enforceable under 9 U.S.C. § 2. The jurisdiction of this Court, which requires an independent basis for jurisdiction (Metro Industrial Painting Corp. v. Terminal Construction Co., 287 F.2d 382, 384 (2 Cir.), cert. denied, 368 U.S. 817, 82 S. Ct. 31, 7 L. Ed. 2d 24 (1961)), may be found in 28 U.S.C. § 1332(a) in that diversity of citizenship is present and the amount in question exceeds $10,000. Petitioner Joseph Muller Corporation is incorporated under the laws of the Canton of Zurich, Switzerland, and is, therefore, a citizen of a foreign state within the meaning of 28 U.S.C. § 1332(a)(2). Chemical Transportation Corp. v. Metropolitan Petroleum Corp., 246 F. Supp. 563 (S.D.N.Y. 1964). Respondent Commonwealth is a corporation organized under the laws of the Commonwealth of Puerto Rico with an office in San Juan. As such respondent is a "citizen of a State" within the meaning of 28 U.S.C. § 1332(a)(2). See 28 U.S.C. § 1332(d); Lummus Co. v. Commonwealth Oil Refining Co., 297 F.2d 80, 87 (2 Cir. 1961), cert. denied, Dawson v. Lummus Co., 368 U.S. 986, 82 S. Ct. 601, 7 L. Ed. 2d 524 (1962). The award which may result from arbitration of the controversy involves demurrage charges and other claims in excess of $10,000. The demurrage charges alone amount to $2,600 per day for at least 4 days. Jurisdiction, therefore, lies.

 The respondent contends that the petition to compel arbitration should not be granted for two reasons: (1) that there never was an agreement to arbitrate by the parties; and (2) that, even if there was an agreement, it is invalid and unenforceable because there was fraud in the inducement of the contract. These contentions cannot be considered without a recital of the documents exchanged between the parties.

 Early in 1971, the parties entered into negotiations for the sale and delivery by the petitioner of propylene to the respondent at its storage facilities in Puerto Rico. Propylene is a flammable gas which is shipped in liquid form under pressure or refrigeration. Respondent originally requested that the propylene be discharged in Puerto Rico at temperatures approximating atmospheric conditions in order to facilitate its unloading. Petitioner was unable to charter any ships with a capacity to unload at atmospheric temperature. Extensive additional negotiations were then carried on to determine at which temperature the propylene would be shipped and at which temperature it would be unloaded. Respondent asserted that the unloading temperature was crucial because the cooled gas might cause extensive damage to respondent's facilities if it were unloaded in too cold a condition. The petitioner, thereafter, suggested shipping the propylene on a vessel which would enable the propylene to be carried at a colder temperature and heated to the ambient temperature in Puerto Rico when it was unloaded under pressure. It was known that the heating and pressurizing of the propylene for discharge in Puerto Rico would require some time and, accordingly, the question arose as to who would pay the demurrage charges for the delay incident to such unloading.

 Petitioner made its initial offer for the sale of propylene in a letter dated January 4, 1971, to which respondent replied on February 8, 1971, accepting petitioner's terms and adding the qualification that the propylene would be delivered to Guayanilla from the ship's tanks "at atmospheric temperature more or less." On February 22, petitioner replied that only semi-refrigerated ships were available for this traffic and asked the respondent to notify it of the "minimum temperature at which you are able to receive cargo and maximum pressure." To this the respondent replied by telex on the same day "can receive propylene at ambient temperature only (90 degrees F) maximum pressure 250 PSI." Respondent added that its offer to purchase would terminate if the petitioner failed to confirm respondent's condition by 5 p.m. that day. Petitioner, by telex received at 3:30 p.m. that day, confirmed its conclusion of a freight contract with a shipowner for 5 shipments of 2,200 metric tons of propylene and stated that the ships would transport the material semi-refrigerated and would heat up the material to discharge under pressure. The petitioner added "will pass on your temperature/pressure to shipowner tomorrow." There was, in fact, a further exchange concerning the temperature and pressure, but it presumably did not succeed in establishing any clear statement of those requirements.

 Thereafter, on March 8 petitioner by telex nominated the vessel FROSTFONN to transport the first shipment of propylene and informed the respondent that "shipowner estimates transfer commencing at 60 degrees F and lowering promptly to 32 degrees F against 220-250 PSIG will require 24 hours maximum." Ultimately the FROSTFONN arrived in Puerto Rico on April 15 and began the next day to discharge propylene in alleged violation of the respondent's discharge requirements. It is unnecessary to advert to the arguments and counterarguments with respect to an alleged misunderstanding between the parties of the temperature and pressure requirements.

 On March 2, 1971, before the FROSTFONN had sailed, the petitioner sent to the respondent a copy of its form entitled "INSTRUCTIONS HOW TO OPEN LETTER OF CREDIT IN FAVOUR OF JOSEPH MUELLER CORPORATION ZUERICH" and requested the respondent to open a letter of credit in favor of the petitioner in the amount of $140,700 in accordance with the enclosed instructions. These "Instructions," in addition to containing terms dealing with the specifications of the propylene, documentation and payment, also contained "Special Instructions." These "Special Instructions" included: (1) an arbitration clause and (2) a statement that, in the absence of a signed contract of sale and purchase between the parties, the letter of credit constitutes the entire contract. The arbitration clause therein contained is set forth in the margin. *fn1"

 On March 5 the petitioner submitted to the respondent a proposed contract for the sale and delivery of propylene which contained the same arbitration clause in haec verba. The respondent refused to execute the agreement on the ground that it failed to include the understanding concerning respondent's discharge requirements for the propylene. No question was raised or discussed about the arbitration clause.

 In the meantime, by telex of March 12, 1971 the respondent appears to have accepted the "Instructions" as follows:

"The content of the Instructions on How to Open a Letter of Credit in Favor of Joseph Mueller Corporation-Zurich are acceptable to us. However, by no means as previously explained does it represent the complete agreement between us."

 Thus, there was no rejection of the arbitration clause as such. This apparently was the view of the petitioner who, replying on March 19 to the above, wrote:

"From this telex we see that you accept our form entitled 'Instructions how to open letter of credit' * * * sent to you attached to our letter of March 2, 1971. Please note that when and if we receive your Letter of Credit it shall be the complete agreement between the parties for the first shipment and the only binding document between our two companies, except arbitration to which you agreed in your above telex, unless you sign the written Contract No. 13.786 submitted to you and until such signed Contract is in our hands."

 The respondent did open a letter of credit at the First National City Bank in favor of the respondent for $155,000, which did not, however, include the provision for arbitration or the "complete agreement" clause. Petitioner's New York counsel on March 17 wrote to respondent stating:

"It is my understanding that the letter of credit will be revised so as to conform to the terms set forth in 'Instructions How to Open a Letter of Credit in Favour of Joseph Mueller Corporation Zuerich' previously delivered to you, with the exception that you do not accept the first paragraph in the section captioned 'Special Instructions,' and while you accept the balance of the 'Special Instructions' sections, you will ...

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