(Dwarf Bunt) and Barley Stripe Mosaic Virus. Id. at 7.
40. The MAF officials stated that they would allow the
fertilizer to be discharged only if East Coast notified all
customers that the fertilizer was contaminated and that it
should not be used where barley would be grown in the season
following application. East Coast rejected this demand,
asserting that it would injure its professional reputation as
a supplier of fertilizer. Id. at 2; Pl.Exhs. 10, 22.
41. After MAF's initial inspection, the plaintiff hired
Dominion Adjusters ("Dominion") to conduct a survey of the
cargo and holds. Tr. 41. A representative of Dominion
inspected the cargo and found barley lodged on the overheads,
stringers and hatch covering returns. Pl.Exh. 20 at 3, 5.
42. Most of the contaminating grains had fallen from the
deck beams and hatch covering returns as evidenced by the
distribution of grain in the hold. There was little or no
contaminant in the "square of the hatches" (the square center
of each hold directly under the hatch) but some quantity was
present in the fertilizer forming the periphery of the
square. Id. at 3; Tr. 110, 118, 191.
43. All five holds had a similar level of contamination.
Id. at 5.
44. The MAF officials and the various parties attempted
over several days to resolve the problem, but ultimately the
cargo was rejected. The officials believed the barley was
layered throughout the heap and therefore refused the
suggestion that the crew simply pick up the visible grain
ears. Id. at 3.
45. The photographs taken by the Dominion inspector show
grain lodged behind the stringers, some of it painted over,
Pl.Exh. 21 (Pictures 5-7, 11, 16-20, 24, 25, 28, 31, 34, 36,
38, 41 and 42), and also scattered over the fertilizer heap,
id. (Pictures 2, 3, 8, 12, 17, 26, 27, 32, 33, 35, 39 and 40).
46. The cargo was ultimately resold to a buyer in Antwerp,
for less than the contract price between Interore and East
Coast. Tr. 49.
A. Contract Liability
The telex that Interore sent SGS on June 19, 1985,
memorializes the agreement between the parties in this case.
It requested SGS to perform a hold cleanliness inspection and
to issue a certificate confirming that the holds were clean.
The telex did not specify the manner in which the inspection
was to be carried out, but correspondence from SGS to
Interore, like the Certificate of Readiness prepared by Mr.
Luard, provides: "All inspections are carried out to the best
of our knowledge and ability and our responsibility is
limited to the exercise of reasonable care." Pl.Exhs. 4, 5, 6
and 14. Considering the long history between the parties,
that degree of care was incorporated in this contract as
well.*fn3 The parties did not define "reasonable care," but
when a contract for services requiring special skills does
not contain a provision describing how the service is to be
rendered, New York law requires the service be performed in a
"workmanlike manner."*fn4 Vitol Trading S.A., Inc. v. SGS
Control Services, Inc., 680 F. Supp. 559, 567 (S.D.N.Y. 1987),
rev'd on other grounds, 874 F.2d 76 (2d Cir. 1989); Lunn v.
Silfies, 106 Misc.2d 41, 44, 431 N.Y.S.2d 282, 284 (Sup.Ct.
Generally speaking, how the service is customarily
performed in the industry will be strong evidence of what is
reasonable or workmanlike. See W. Keeton, D. Dobbs,
R. Keeton, D. Owen, Prosser and Keeton on Torts § 33 at 194-95
(5th ed. 1984) [hereinafter Prosser]. The parties dispute what
the standard in the industry is concerning inspection of the
stringers and the overhead beams, the areas where the grain was
found. Defendant's expert, Captain Shore ("Shore") and
plaintiff's expert, Captain Davenport ("Davenport") agreed that
a reasonable inspector, when entering the hold, would stop
periodically on the access ladder to direct the beam of a
flashlight onto the stringers and deck beams, Tr. 186, 316, and
would inspect them again from the tank top. Tr. 186-87, 318,
400. Shore testified that inspectors would thereafter climb the
forward vertical ladder to the top of the hold, again stopping
periodically to inspect the stringers and deck beams visually.
Tr. 186-87. Luard's inspection was substantially similar to the
hypothetical survey described by Shore.*fn5
Davenport testified that an inspector should take
additional measures to check behind the stringers.
Specifically, Davenport testified that when he performs an
inspection on a vessel with stringers, he runs up the wing
tanks and then climbs the pipe guards, looking for
contaminant in the pockets formed by the stringers and the
vertical ribs. Tr. 238. Shore testified that he does not run
up the wing tanks and knows of no inspector who does. Tr.
380, 391. He added that he had once attempted to run up the
wing tank of a ship in doing a structural survey, but was
unable to do so. Tr. 404. Luard and the Swedish inspector
also testified that it was not standard practice to run up
the surface of the wing tanks. Tr. 144, 282, 351.
The parties apparently did not have a "meeting of the
minds" on precisely what the inspection would entail.
Considering their past relationship, each contemplated that
the defendant would exercise reasonable care, which obligated
it to use workmanlike efforts. In determining what steps this
would actually require, plaintiff maintains that the court
should interpret "workmanlike conduct" by an objective
standard of reasonableness, which would require the surveyor
to perform an inspection reasonably calculated to find hidden
contaminants. Plaintiff asserts that the surveyor should
either climb the wing tanks as Davenport does, or get a
ladder from the crew to enable him to inspect behind the
stringers. Plaintiff contends that Shore's inspection would
be adequate in a modern ship built without stringers, but is
inadequate and, therefore unworkmanlike in a ship with
stringers. See Prosser § 33 at 194 ("[C]ustoms which are
entirely reasonable under the ordinary circumstances which give
rise to them in the first instance may become entirely
unreasonable in the light of a single fact altering the
situation in the particular case.") Plaintiff argues that if
the industry standard is as defendant's expert describes, it is
deficient. Plaintiff cites The T.J. Hooper, 60 F.2d 737, 740
(2d Cir. 1932) (Hand, J.) for the proposition that because an
entire industry may be negligent, industry custom is only some
evidence of what is reasonable; the court must ultimately
decide whether the service in question was performed
Defendant argues first that Davenport's testimony is not
credible, claiming it is virtually impossible to run up the
wing tanks and climb the pipe guards. Although it may be a
difficult procedure in some types of holds, it is certainly
not an impossible task, especially in a hold whose wing tanks
are shorter and flatter than others. See Tr. 238. Even if it
could be done, however, SGS claims that the parties contracted
only for the standard industry inspection, which did not
involve any more extensive checking of the stringers than that
carried out by Mr. Luard. See Vitol, 680 F. Supp. at 567; Milau
Assoc., Inc. v. North Ave. Dev. Corp., 42 N.Y.2d 482, 486,
368 N.E.2d 1247, 1250, 398 N.Y.S.2d 882, 885 (1977) ("[R]easonable
care and competence owed generally
by practitioners in the particular trade or profession
defines the limits of an injured party's justifiable
demands."). Indeed, SGS claims that its inspectors have
performed inspections without checking behind the stringers
on many prior occasions. Noting that contract law allows the
parties to agree on whatever type of inspection they choose,
SGS argues that the interpretation of the parties' intent
regarding the term "reasonable" should be limited by the
custom and practices in the industry.
Although contract law provides a method to resolve such
disputes over interpretation, see, e.g., A. Corbin, Corbin on
Contracts § 536 (1960 & Supp. 1990), the court need not reach
the issue of what "workmanlike efforts" would entail. Whether
it does, or should, involve efforts as extensive as that
suggested by plaintiff or could be satisfied by the inspection
performed by Luard, would not be determinative because even if
Luard violated his contractual duties, SGS would not be
required to pay the full amount of damages plaintiff seeks. The
mere fact that one party to an agreement has failed to satisfy
a contractual duty of care does not necessarily mean that it
will be held fully liable for all resulting damages, even if
It is not always in the interest of justice to
require the party in breach to pay damages for
all of the foreseeable loss that he has caused.
There are unusual instances in which it appears
from the circumstances either that the parties
assumed that one of them would not bear the risk
of a particular loss or that, although there was
no such assumption, it would be unjust to put the
risk on that party. One such circumstance is an
extreme disproportion between the loss and the
price charged by the party whose liability for
that loss is in question. The fact that the price
is relatively small suggests that it was not
intended to cover the risk of such liability.
Another such circumstance is an informality of
dealing, including the absence of a detailed
written contract, which indicates that there was
no careful attempt to allocate all of the risks.
The fact that the parties did not attempt to
delineate with precision all of the risks
justifies a court in attempting to allocate them
Restatement (Second) of Contracts § 351 comment f (1979).
Interore paid SGS fifty dollars per hold or one-hundred fifty
dollars to perform the cleanliness inspection in Tampa, and
seeks damages of $2,400,000. In a case very similar to the one
at bar involving the same defendant, Vitol Trading S.A., Inc.
v. SGS Control Services, 874 F.2d 76, 81 (2d Cir. 1989),
plaintiff sought damages in the amount of $547,688 on a
contract price of $220, a ratio of approximately 2,500 to one.
The Second Circuit explained that if SGS intended to assume so
great a risk, it would have charged substantially more for its
services. Alternatively, it would have turned down the
plaintiff's offer, rather than risk so much for so little.
In this case, the disparity between the contract price and
the damages is even greater. Plaintiff seeks damages of
$2,400,000 on a contract price of $150, a ratio of 16,000 to
one.*fn6 See Evra Corp v. Swiss Bank Corp., 673 F.2d 951, 956
(7th Cir.) (difference between damages of $2,100,000 too
disproportionate to contract price of $27,000), cert. denied,
459 U.S. 1017, 103 S.Ct. 377, 74 L.Ed.2d 511 (1982); cf.
Kenford Co. v. County of Erie, 108 A.D.2d 132, 137 n. 5, 489
N YS.2d 939, 944 n. 5 (App. Div. 1985) (damages not out of
proportion to profit defendants could have made), aff'd, 67
N Y2d 257, 493 N.E.2d 234, 502 N.Y.S.2d 131 (1986). In
addition, the parties reached their agreement over the phone,
and plaintiff simply confirmed it with a one-page telex. The
telex merely requests defendant to perform the various services
and to issue a series of documents. It is devoid of any mention
of liability. The low contract price and informal dealings
between the parties indicates that they did not attempt to
allocate all of the risks. Therefore, the court is justified in
them fairly. Accordingly, it finds that plaintiff should not
recover compensatory damages on the contract.*fn7
B. Tort Liability
The court's denial of recovery under the contract theory is
based upon the disparity between the contract price and the
damages incurred. Nevertheless, that consideration does not
apply to the analysis of defendant's duties under independent
When the duty of one person to another exists solely by
virtue of a negotiated agreement, the relationship is
normally governed only by the law of contract. See Niagara
Mohawk Power Corp. v. Stone & Webster Engineering Corp.,
725 F. Supp. 656, 662 (N.D.N.Y. 1989); Carmania Corp., N.V. v.
Hambrecht Terrell Int'l, 705 F. Supp. 936, 938 (S.D.N.Y. 1989).
Accordingly, a violation of that duty does not ordinarily give
rise to a remedy in tort. Niagara, 725 F. Supp. at 661-62.
Nevertheless, if the conduct of one party would constitute a
tort in the absence of the contract, then that cause of action
is not extinguished simply because some aspects of the
relationship between the parties happen also to be governed by
an independent agreement. Id.; see Eaves Brooks Costume Co.,
Inc. v. Y.B.H. Realty Corp., 76 N.Y.2d 220, 556 N.E.2d 1093,
557 N.Y.S.2d 286 (1990) (plaintiff may properly bring an action
in tort when defendant had assumed a duty to exercise
reasonable care to prevent foreseeable harm to plaintiff).
Plaintiff has urged two theories under tort law, negligence
and negligent representation. Plaintiff's negligence claim
asserts that defendant unreasonably failed to detect the
presence of the contaminating barley. Essentially, plaintiff
argues that defendant had a duty to perform a "reasonable"
inspection, which would have at least involved inspecting the
stringers on the sides of the hold. Unfortunately, the duty
to inspect the hold arose only by virtue of the contract. For
example, without the contract, there would have been no duty
requiring defendant to send a representative to inspect
plaintiff's ship. Similarly, defendant did not have a duty to
perform any particular kind of inspection, except as required
under the contract. Indeed, nothing in the law of tort would
have imposed additional duties on defendant if the parties
had agreed that the surveyor was supposed to conduct only a
limited inspection. Since the duty to inspect arose only by
virtue of the contract, which was freely negotiated by the
parties, there can be no independent tort liability for
failing to take certain steps as part of that inspection.
See Niagara at 662; Clark-Fitzpatrick, Inc. v. Long Island R.R.
Co., 70 N.Y.2d 382, 389, 516 N.E.2d 190, 193-94, 521 N.Y.S.2d
653, 656-67 (1987).
That does not rule out liability for negligent
misrepresentation, however. Under the law of negligent
misrepresentation, a person will be held liable for damages
arising from the reliance by another on a representation that
the person knows, or should have known, was not true. See White
v. Guarente, 43 N.Y.2d 356, 353, 372 N.E.2d 315, 319, 401
N YS.2d 474, 478 (1977); Ultramares Corp. v. Touche, 255 N.Y. 170,
181-82, 174 N.E. 441, 445 (1931). In addition, "[a]
representation made with an honest belief in its truth may
still be negligent, because of lack of reasonable care in
ascertaining the facts." Prosser § 107 at 745. The agreement
called for Luard, after finishing his inspection, to provide a
document confirming that he had performed an inspection and
found the holds to be suitable to receive the cargo. As
previously noted, the parties probably did not have a meeting
of the minds as to exactly how, or how extensively, Luard would
inspect the holds. They each knew, however, that Luard's
inspection was to be the last check before the fertilizer was
loaded. Moreover, Luard had the authority
to block the loading if he were not satisfied with the
condition of the hold. In fact, all of the inspectors
including Luard have on occasion delayed the loading of a
cargo so that crews could properly clean the holds.
See Tr. 283-84, 349, 408-09.
Therefore, defendant must have realized that if it provided
the certificate, plaintiff would take no further steps to
determine the state of cleanliness of the holds. Even if, as
defendant argues, it had no duty under contract or tort law
to do more than was the practice in the industry, it must
have been aware that in entering into this agreement,
plaintiff was relying, if not on the actual inspection
itself, then at least on this document for reassurance that
the fertilizer could safely be loaded.
Luard should also have known that his representation about
the cleanliness of the holds might have been inaccurate. He
testified that he looked at the stringers only from the
vantage point of the Australian ladder. Considering the
orientation of the stringers and their distance from these
ladders, the court is skeptical that Luard could have
adequately observed whether they were clean. Even if he could
see those portions of the stringers close to the ladders, he
should have known that this would not necessarily be
indicative of the portions further away. For example, just
like Luard, a cleaning crew would have difficulty reaching
the center section of the stringers, although it could more
easily access the areas by the ladders. See Tr. 300. As a
matter of common sense, Luard should have realized that the
cleanliness of easily accessed areas would not necessarily
reflect the condition of those that were difficult to reach.
Both plaintiff's and defendant's experts, as well as Luard,
testified that the back of the stringers is an area where one
would expect to find cargo residue. Tr. 178-79, 192, 298,
401. Therefore, Luard knew, or should have known, that his
limited inspection did not provide a valid basis upon which
to state that the hold was, in fact, free of all possible
contaminants. Accordingly, he should not have simply signed a
certificate that reasonably led plaintiff to assume it was
Instead, Luard should have reported to Mr. Clemente Colon,
plaintiff's representative on the ship, that there were areas
in the hold that he could not inspect in the course of his
routine survey.*fn8 Colon had the ultimate responsibility
for deciding whether the cargo would be loaded. Armed with
this information, Colon could have intelligently decided how
to proceed. See Tr. 74, 93. For example, he might have decided
that a further delay was warranted and asked defendant to
secure a ladder to check the stringers. Shore testified that it
is normal to request a ladder whenever an inspector wishes to
see an area that cannot otherwise be accessed. Tr. 408-09.
Indeed, in this case, if Luard had told Colon that he could not
attest to the cleanliness of the hold, Colon would likely have
requested a ladder and this loss would have been avoided. Even
in the case of a vessel with overhead beams and no stringers,
the plaintiff's representative could take further investigatory
steps such as inquiring of the cleaning crew how the beams were
cleaned, if at all.*fn9 Since the risk of an incorrect
decision to load might result in a loss of several million
dollars, it would seem likely that Colon would have wanted to
take whatever additional steps were reasonable under the
circumstances to protect the cargo.*fn10
Although Luard was negligent in failing to inform plaintiff
that there remained a risk of contamination, part of the
reason for his failure was because plaintiff had not brought
home to him the risks involved. Tort law attempts, inter alia,
to put the risk of loss on the party best able to avert it. See
Prosser § 4. Interore was in the fertilizer business and had
previously shipped fertilizer to New Zealand. In fact, Interore
sent a representative to New Zealand specifically to handle
this contract. Tr. 4, 31. The inspector from Dominion notes in
his report that the New Zealand officials are extremely strict
regarding the importation of foreign vegetable matter. Pl.Exh.
20 at 8. Since it was in the fertilizer business and had
dealings with New Zealand authorities before, plaintiff was in
a better position than defendant to know that even minimal
contamination of grain could result in rejection by the New
Zealand authorities. If it did not know, it should have known
because a reasonable seller of fertilizer would have determined
the requirements for bringing its product into a foreign
When it retained defendant's services, plaintiff could
easily have alerted it to the strict standards of cleanliness
that were necessary. Had Luard been informed that the
slightest amount of foreign matter could contaminate the
cargo, he would likely have performed a more thorough
inspection. That does not diminish Luard's negligence for
representing that the hold was clean, but it illustrates that
each party had exclusive knowledge of facts that, if
communicated to the other, might well have avoided the risk
of loss. The court therefore finds that the plaintiff and
defendant are equally responsible for the barley not being
discovered and apportions fault at fifty percent each.
Defendant is liable for fifty percent of the damages
resulting from contamination of the fertilizer. The actual
amount of damages will be determined in the second phase of