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A.F.L. FALCK, S.P.A. v. E.A. KARAY CO.

June 10, 1986

A.F.L. FALCK, S.p.A., Plaintiff, against E.A. KARAY COMPANY, INC., Defendant


The opinion of the court was delivered by: SWEET

SWEET, D.J.

Defendant E.A. Karay Company, Inc. ("Karay") a New York buyer, has moved for summary judgment to dismiss the complaint of plaintiff A. F. L. Falck, S.p.A. ("Falck"), an Italian seller, which seeks recovery of $704,343 for goods sold and delivered. Falck cross-moved to dismiss Karay's defenses of accord and satisfaction, set-off, fraud and reformation. On the basis of the facts and conclusions set forth below, Falck's cross-motion is granted and Karay's motion for summary judgment denied.

Prior Proceedings

 These crossing motions for summary judgment have followed after the filing of the complaint on March 14, 1985 and the completion of discovery. Both parties seek a resolution of their dispute, each maintaining that the facts supporting their respective positions are not in dispute while claiming a dispute as to the facts relied upon by their opponents. An examination of the Rule 3(g) statements as reflected in the facts stated below, reveals no factual dispute, that is, no dispute as to the past events, but rather the inference to be drawn from these facts.

 The Issues Presented

 Falck and Karay in 1981 and 1982 had an established course of dealing in steel pipe known as oil country tubular goods ("OCTG") manufactured by Falck and used in the oil and gas industry. In 1982 Karay fell behind in its payments, disputes arose as to the fitness of the goods shipped. In 1983 the parties sought to resolve their differences and Falck agreed to take back certain quantities of OCTG. A portion of the dispute remains and has given rise to this action and the pending motions.

 Facts

 Falck is a corporation organized and existing under the laws of Italy with its principal place of business in Milan, Italy and acted in its own behalf or through its authorized agent, Joseph J. C. Hoo, president of Falck Steel, Inc. ("Hoo"), Falck's American affiliate. Falck is engaged in the manufacture and sale of steel products throughout the world.

 Karay, a New York corporation with its principal place of business in New York, New York, is a trading company engaged in the business of buying steel products for sale to its customers. During the time period relevant to this action, a number of Karay's domestic customers were engaged in oil drilling and related businesses in Texas.

 In 1981, Karay ordered in excess of $5 million of tubular steel products from Falck under its purchase order No. 160, which order was amended from time to time with respect to quantity and size of the tubular steel products which would ultimately be processed for use in oil well casings and related oil business activities. The tubular steel products were purchased by Karay for resale or for its own account. The purchase order provided for several shipments of the tubular products to be made from Milan, Italy to the Port of Houston in Houston, Texas. In accordance with standard commercial practice, the agreement between Falck and Karay called for payment terms on a cash-against-documents basis: Karay or its agent would receive shipping documents (bill of lading, packing slip, and so forth) necessary to release the goods from the carrier at the Port of Houston upon payment of Falck's invoices.

 In or about the fourth quarter of 1981, Falck began shipping OCTG pursuant to purchase order No. 160. Karay asked for payment terms permitting Karay to take possession of the OCTG on credit terms. Falck agreed to such a modification. By March, 1982, Karay owed Falck $3,314.715.29 for OCTG sold and delivered by Falck to Karay at the Port of Houston.

 Thereafter, Falck and Karay entered into an agreement (the "1982 Redelivery Agreement") pursuant to which Falck agreed to accept redelivery of any OCTG for which Karay had not received payment and to pay any trucking, storage and processing charges incurred for the OCTG redelivery to it. Karay agreed to assist in arranging redelivery of such OCTG. By May of 1983, Falck credited Karay $2,316,066.09 for OCTG redelivered as per the 1982 Redelivery Agreement, leaving an outstanding balance of $998,649.20.

 Among Karay's customers for OCTG supplied pursuant to purchase order No. 160 were Texas Upsetting & Finishing, Inc. ("Texas Upsetting"), General Pipe & Supply, Inc. ("General Pipe and American Pipe Threaders. Falck had no contractual relationship with any of Karay's customers, and Karay never advised Falck of the terms of its resale agreements with its customers.

 In or about the beginning of 1982, Texas Upsetting's principal, John Boyd, notified Karay that certain of the Falck origin steel which Texas Upseting purchased from Karay had alleged manufacturing defects. Karay informed Falck of this claim, and, in accordance with Falck's practice, Falck sent its American agent Hoo, and a representative from its mill in Milan, Italy, to Texas for an on-site inspection which according to Falck revealed that approximately 5% of the pipe had manufacturing defects which would require correction and that the rest of the material was not defective. On or about March 23, 1982, Texas Upsetting sent three invoices to Karay for "Cost of Services to Cure Mill Defects " amounting to $268,688.56, presumably the amount of its order. Karay in turn sent these invoices to Falck and requested a credit in the same amount.

 On receipt of these invoices, Falck, by letter addressed to Texas Upsetting dated March 30, 1982, copied to and received by Karay, rejected the requested credit. Hoo explained that the invoices assumed that 18" was cut off both ends of all the steel pipe Texas Upsetting purchased from Karay, even though "only a small portion of the pipes" was found to need such correction. In a March 30, 1982 letter, Hoo stated: "Please review the data on your invoices and submit to us the proof for the number of pipes that were actually cut back for treading." Neither Karay nor Texas Upsetting provided the requested information. On September 3, 1982, Hoo wrote to Karay stating: "Since the sum of your total unpaid invoices is $3,314.715.29 even counting the $268,688.56 that Texas Upsetting and Finishing, Incorporated is charging you for the alleged mill defects (which we are taking separate action with Texas Upsetting and Finishing Incorporated) the difference between what you owe us and what we have taken back is still very large."

 On or about February 2, 1982, Robert White, a principal of General Pipe, informed Karay that it rejected as defective part of Karay's shipments of Falck origin steel which Karay had sold and delivered to General Pipe. After notifying Falck of the alleged defect, Karay attempted to arrange for Karay and Falck to conduct an on-site inspection. General Pipe refused to cooperate with Karay and Falck, and no such inspection was permitted. By letter dated March 17, 1982, Karay memorialized its unsuccessful efforts in arranging an inspection with General Pipe, and concluded

 
As we have not received any reply, we assume that there is no quality problem or that you are not interested in discussing it any further. We cannot accept, therefore, any further delay in payment due to an alleged quality problem.

 Falck also took back as part of the 1982 Redelivery Agreement OCTG that Karay had purchased for resale to Wilson Pipe. By letter dated July 14, 1982, Karay forwarded five invoices issued by Houston Port Transit Services for hauling and storing this pipe. The letter erroneously stated that Karay had paid $417.55 toward these invoices but by letter dated August 10, 1982 (Exhibit S), Karay advised Falck of the error and stated that the correct amount paid by Falck was $3,275.19 (the total of invoices 5550 and 5655) and that that amount was being applied against the outstanding indebtedness. Pursuant to the August 10 letter, the remaining three invoices were forwarded to Falck for payment.

 In early 1981, Karay sent Falck origin steel to American Pipe for processing and storage. American Pipe issued invoices to Karay for $36,621.41 in connection with the Falck material which was redelivered to Falck, which invoices Karay sent to Falck under the 1982 Redelivery Agreement, together with letters dated June 17 and 24, 1982 requesting a credit for this amount.

 A telex sent from Falck Milano to Falck USA dated April 26, 1983 (Exhibit F) states "We accept the claim for American Pipe Threaders but have not means to control that Doll. 39621,41 is the exact amount." While Falck Milano may not have been informed of the invoices furnished by Karay, its U.S. agent received the invoices and examined them for accuracy.

 On May 3, 1983, Falck and Karay entered into a letter agreement in which both parties agreed on the amount of unpaid invoices issued from Falck to Karay, the value of returned material, payments made by Karay to Falck, miscellaneous adjustments and amounts in dispute with Texas Upsetting, General Pipe and American Pipe. After agreeing to various offsets and adjustments, the parties agreed that, aside from the amounts in dispute, Karay owed Falck $220,420.73. The letter which is attached as Appendix A, made reference to $704,343.00, the sum sought in this lawsuit. The letter provided for a payout of the $220,420.73 less an agreed upon credit of $126,155.98. Falck stated that it would ...


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