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June 12, 1991


The opinion of the court was delivered by: Irving Ben Cooper, District Judge.


Plaintiff Jamaica Commodity Trading Company Limited ("JCTC") commenced this contract action on May 22, 1987 against defendant Connell Rice & Sugar, Inc. ("CRS") for damages totalling $123,606.90 plus interest. JCTC alleges that sum constitutes the total of an award rendered on October 17, 1986 plus fees and legal costs claimed to have arisen out of the related arbitration proceeding between JCTC and Panama Centroamericana de Navegacion, S.A. ("Panama"), its ocean carrier contracted to carry to Kingston, Jamaica a shipment of rice supplied by CRS.

JCTC alleges that it entered into a commodity contract with CRS for the sale and delivery of 5,250 metric tons of rice to one loadport for the delivery period August 18-September 8, 1984, and, in reliance on the terms of that commodity contract, it entered into a charter party agreement with Panama to transport the rice to Jamaica. The charter party, JCTC alleges, was consistent with the commodity contract in that it provided for one port loading of the cargo; further, although CRS nominated and later reconfirmed the port of Orange, Texas as its sole loadport for the delivery period in question, CRS delivered the rice to two loadports, thus breaching the agreement.

JCTC raises two assertions: first, that the commodity contract nowhere gave CRS a two port loading option, and that CRS breached the commodity contract with JCTC when it failed to have all the rice ready to load at the vessel's call at Orange; and second, that the breach of CRS caused JCTC to suffer damages for which CRS contractually agreed to be responsible and to indemnify JCTC.

CRS denies the allegations made by JCTC and maintains that the commodity contract gave CRS the option to deliver the rice to two loadports. CRS admits that although it nominated Orange for delivery of the entire quantity of rice, it relied on clause XVI(4) of the commodity contract, which allowed it to nominate a second port to satisfy its own scheduling needs. CRS maintains that under clause XVI(4), CRS is contractually obligated to pay damages of $6,500.00, the actual cost of shifting the vessel to the second port. As an affirmative defense, CRS maintains that the damages suffered by JCTC were the result not of any supposed breach on the part of CRS, but of the demands and delays of the ocean carrier Panama occasioned by JCTC's failure to charter a vessel on terms compatible with those of the commodity contract.

The action was tried before this Court on May 8, 9, 10, 11, and 15, 1990. We base our opinion upon the findings of fact and conclusions of law hereinbelow.


Plaintiff JCTC is an entity owned by the government of the country of Jamaica. It is engaged in the business of, inter alia, purchasing rice from foreign suppliers and chartering vessels to transport the rice to Jamaica. (S.F. 1)*fn1 Defendant CRS is a New Jersey corporation that is engaged in the business of, inter alia, buying and selling rice and sugar to domestic and foreign customers. (S.F. 2) Fettig and Donalty, Inc. ("F & D") (not a party to this action) is engaged in the business of, inter alia, acting as agent for foreign governments, including Jamaica, in purchasing foodstuffs under the PL-480 program and chartering vessels for the carriage of those foodstuffs from the United States to various recipient countries. The PL-480 program is administered by the Foreign Agricultural Service of the United States Department of Agriculture ("USDA"). (S.F. 3) Under its terms, approximately $1 billion of food aid per year is sent to approximately 35 recipient developing countries throughout the world. (Tr. 19)*fn2

JCTC purchases foodstuffs and charters vessels under the PL-480 Program for distribution and consumption in Jamaica. For nearly eleven years F & D has acted as the stateside agent of JCTC in the purchase of PL-480 commodities and in the chartering of ships to transport the commodities to Jamaica. (S.F. 4) Purchasing and chartering are done through Invitations for Bids ("IFB"): a commodity IFB solicits offers from American suppliers to sell commodities to JCTC under the PL-480 program. Similarly, an ocean freight IFB solicits offers from ocean transportation suppliers to provide vessels to carry the commodities. (S.F. 5) F & D drafts PL-480 IFB's on behalf of JCTC. F & D also drafts the request for a Purchase Authorization ("PA") on behalf of JCTC. A PA is a request from a foreign government to USDA for approval to make purchases under the PL-480 Program; the USDA must issue the PA before an IFB can be released. (S.F. 10)

In 1984, JCTC sought to purchase quantities of rice through the benefit of the PL-480 program. On May 21, 1984, JCTC sent to F & D a "Proposed Schedule-1984 PL-480 Programme," a document that was prepared by JCTC for F & D's use in IFB preparation. (S.F. 7, 8) On May 31, 1984, F & D estimated that JCTC could purchase approximately 15,000 metric tons of rice as follows:

  Delivery Period              Estimated Cost per Metric Ton
  June 18-22, 1984                     $320.00 July 18-22, 1984
  $320.00 August 18-22, 1984 $317.50

(S.F. 9)

On June 1, 1984, the Embassy of Jamaica, through F & D, submitted to the USDA a request for a PA to buy 15,000 metric tons of rice for delivery between June 27 and September 15, 1984. (S.F. 11) The USDA issued PA No. JM-7036, dated June 6, 1984, authorizing the purchase by JCTC of up to $5,000,000 worth of rice for delivery from June 29 through September 30, 1984. The quantity authorized for purchase was approximately 14,000 metric tons. The delivery terms were "f.a.s. vessel, U.S. port(s) in case of rice in bags. . . ." (S.F. 12) Section 10(f) of the PA regarding contract awards provided:

  (i) Whenever purchases are made on the basis of an
  IFB, the importer shall consider only offers which
  are responsive to the IFB and shall make awards
  either on the basis of the lowest commodity
  price(s) offered or on the basis of lowest landed
  cost. . . .
  (iii) For purposes of this section, `lowest landed
  cost' means the combination of commodity price and
  ocean freight rate resulting in the lowest total
  cost to deliver the commodity to the importing
  country. . . . Awards may not be made on the
  lowest landed cost basis unless IFB's are issued
  for commodity and ocean freight so that all
  commodity and ocean freight offers are reviewed
  (Ex. 4)*fn3

Pursuant to USDA PA No. JM-7036, F & D drafted a commodity IFB to request offers from American rice suppliers. (S.F. 15) The IFB provided:

  The Government of Jamaica through the Embassy of
  Jamaica (Buyer) invites bids for the sale of rice
  in bags, subject to the terms and conditions set
  forth below and subject to the provisions of
  PL-480 Title I Financing. . . .


  Full details of terms and conditions are in
  Buyer's Proforma Contract.


  (a) Approximately 5,000 Metric Tons 5% more or
    less at Buyer's option for delivery July 6-July
    26, 1984.
  (b) Approximately 5,000 Metric Tons, 5% more or
    less at Buyer's option for delivery July
    18-August 8, 1984.
  (c) Approximately 5,000 Metric Tons, 5% more or
    less at Buyer's option for delivery August
    18-September 8, 1984.


  Delivery to be F.A.S. vessel(s) at U.S. Port of
  Export from one safe berth, one safe port for each
  lot offered.


  Seller guarantees to provide cargo at vessel's

(Ex. 7)

The relevant pro forma terms referred to in the IFB provided, in pertinent part:


    A. Seller shall deliver F.A.S. vessel(s),
    including any wharfage and handling, at one safe
    berth one U.S. port.
    C. Within five (5) calendar days after U.S.D.A.
    approval of sale, Seller shall notify Buyer of
    specific port of loading.


    Any controversy or claim arising out of or
    relating to this contract or the breach thereof
    may be settled by mutual consent by arbitration
    in New York, New York, in accordance with the
    Rules of the American Arbitration Association. .


  This contract will also reference all terms and
  conditions of the Rice Invitation as follows:
  (3) Seller to make commodity available at not more
    than one port.
  (4) Seller to be responsible for all damages
    sustained by Buyer due to Seller's failure to
    perform the terms and conditions of this
    contract, including without limitation the
    All costs and expenses incurred by Buyer
    resulting from detention or demurrage incurred
    by the load port, or incurred by Buyer as result
    of delays in loading or rehandling caused by
    delivery of commodity not meeting contract
    specifications, or for failure of Seller to
    commence or to maintain continuity of delivery in
    accordance with the delivery terms specified
    herein, notwithstanding any custom of the port,
    to be for Seller's account. In the event Seller
    amends or changes their original port nominations
    in order to satisfy Seller's own scheduling and
    for Seller's own benefit, then Seller is
    obligated to pay vessel's deviation, and
    additional cost and resulting demurrage, if any,
    occasioned by second port nomination, and to
    waive carrying charges resulting from delay in
    loading attributed to changed nomination of
    original port.
    Supplier guarantees to provide cargo at vessel's

(Ex. 7) (emphasis ours)

By letter dated June 5, 1984, F & D forwarded its draft of the commodity IFB and the JCTC pro forma "Bagged Rice Contract" to USDA. It is a USDA requirement for IFB's to be submitted for approval before offers are solicited in the market. (S.F. 16) USDA approved the commodity IFB into which the JCTC pro forma "Bagged Rice Contract" was incorporated. (S.F. 17) On June 7, 1984, F & D issued the IFB on behalf of JCTC to various U.S. suppliers, including CRS*fn4, which requested bids for the sale of approximately 15,000 metric tons (5% more or less) of U.S. grade No. 5 or better long grain well milled rice in bags. (S.F. 18) All commodity bids were due June 14, 1984 at 3 P.M. (Ex. 8)

On June 8, 1984, F & D, on behalf of JCTC, issued a USDA-approved ocean freight IFB, requesting bids, inter alia, for the carriage of the bagged rice from the U.S. Gulf of Mexico to Kingston, Jamaica aboard U.S. or non-U.S. vessels. Loading was to be from one or two safe berths at one safe United States Gulf of Mexico port per delivery period. All freight bids were due June 14, 1984 at noon. (Ex. 10)

On June 14, 1984, in response to the commodity IFB, JCTC, through F & D, received five offers. (S.F. 20) Among them was the following offer made by CRS:

  (a) Two Lots of up to 3,000 Metric Tons each, 5%
  more or less at Buyer's option, (total of 6,000
  Metric Tons, 5% more or less at Buyer's option)
  each lot of $307.18 repeat $307.18 per Metric Ton
  of 2,204.6 lbs. net FAS vessel(s) U.S.A. Gulf
  Port(s). U.S.A. Gulf Port(s) to be at

  Seller's option. Delivery from July 6 to July 26,
  1984, both dates inclusive.

(Ex. 9).

The terms for delivery periods July 18-August 8 and August 18-September 8, 1984 were the same as for the first. The offer was signed by Jonathan Perry as Vice President for CRS and contained the following clause:

  P.S. Please contact Mr. Grover Connell, President,
  at telephone number (201) 233-0700 (after business
  hours, (201) 233-7030), should you have any
  question in connection with the above.


Additionally, on June 14, 1984, JCTC received 12 offers in response to the freight IFB, including the offer made by Panama through its agent, Sealift. The Panama offer covered the first and third delivery periods: for the first delivery period, July 6-16, 1984, Panama offered to pick up the rice at 1 or 2 safe berths at Lake Charles, Louisiana, for $38.50 per metric ton. For the third delivery period, August 18-28, 1984, Panama offered transport from 1 or 2 safe berths, 1 safe U.S. Gulf port, for $39.50 per metric ton. (Ex. 11) The offers were opened in a public opening at the offices of F & D in Washington, D.C. at 3 P.M. on Thursday, June 14, 1984 and initially reviewed. (Tr. 54) The next day, employees of F & D, along with John Anton Thompson, commodity manager for JCTC, met with a USDA representative at the USDA office in Washington, D.C. to discuss the freight and commodity offers. (Tr. 56, 58, 287) The commodity offer made by CRS seemed to the group to be outside the parameters required by the commodity IFB. The USDA representative suggested that in light of the fact that the CRS offer had the lowest commodity price, F & D should contact CRS immediately by telephone to determine, by way of clarification, whether in fact the commodity offer as received was responsive to the commodity IFB. (Tr. 58) Ronald Fettig, named partner of F & D, made a calling card charge call to the offices of CRS in New Jersey and asked for Grover Connell as per the instructions on the commodity offer. (Tr. 58) Mr. Thompson testified before us that he was with Mr. Fettig at the USDA when Mr. Fettig called CRS, and that Mr. Fettig reported to the group after he hung up that he had spoken with Mr. Connell and that the problem was resolved. (Tr. 290) Mr. Thompson testified that the problem referred to was an ambiguity as to the number of ports per delivery position that would be required to load the cargo. (Tr. 291)

Recollections of Mr. Fettig and Messrs. Perry and Connell diverge as to the particulars of this telephone conversation. Mr. Fettig maintains that he dialed the number for Mr. Connell that appeared at the bottom of the CRS offer, asked to be connected to Mr. Connell, spoke to Mr. Connell and resolved the matter with him. Mr. Fettig testified that Mr. Connell told him that CRS was going to use three ports, Lake Charles, Louisiana; Houston, Texas; and Orange, Texas, and that Mr. Connell agreed that he would make the cargo available at one port out of those three ports for each of the three delivery periods. Further, Mr. Fettig claims that Mr. Connell said he would check, at Mr. Fettig's request, to see whether he could eliminate the port of Orange from consideration in the second period. (Tr. 59) During the conversation, Mr. Fettig made the following notes on the back of the CRS offer:

  Grover Connell
  L. Chas. Houston Orange
  1 pt. ea. position

(Ex. 15)

Conversely, Jonathan Perry of CRS testified that Mr. Fettig spoke not with Mr. Connell but with him on Friday, June 15, 1984, and that Mr. Fettig asked if CRS would consider a single loadport for the two lots of rice offered in each of the three delivery positions; Mr. Perry responded that he would pursue it and call Mr. Fettig back with an answer. (Tr. 452) Mr. Perry, who has alternately described himself as a go-between in the bid process (Tr. 470-71), a rice economist (Tr. 447), and Vice President of the company (Ex. 9, 15), then testified that since he had no authority to make that decision, he spoke with Mr. Connell and related in great detail the request made by Mr. Fettig, whereupon Mr. Connell responded, "[l]et me think about it," or, "I'll get back to you." (Tr. 453) Mr. Perry further testified that although he had not called back Mr. Fettig regarding his request for a single loadport, later that day he received a second telephone call from Mr. Fettig asking if CRS would consider eliminating the port of Orange from consideration for the second delivery period. (Tr. 453-4) Mr. Perry claimed that since he had no authority to make this decision either he would be required to follow the identical procedure as for the first telephone call. Mr. Connell testified before us that he had no recollection of any conversation with or regarding Mr. Fettig at any time. (Tr. 504, 505, 506)

Mr. Perry testified that he prepared the following internal memorandum of the telephone calls with Mr. Fettig on June 15, 1984, after they spoke the second time: (Tr. 455)

1) 6/15/84 — (am) RF called wanting to know if we would
    agree to one port per loading period for the two lots
    offered per period.
2) 6/15/84 — (pm) RF called and wanted to know if we
    would eliminate Orange as a port for the second shipping

(Ex. L)

After the second entry there was an additional notation: "we agreed to eliminate Orange in 2nd period." There was no notation after the first entry. Mr. Fettig did not recall a second conversation with anyone at CRS on June 15, 1984, but had a notation indicating that he did have a subsequent conversation with the officers of CRS wherein the parties agreed to eliminate Orange as a possible loadport in the second position. (Tr. 76, 244, 245)

Mr. Perry further testified that he received a third telephone call from Mr. Fettig, this time on Monday, June 18, 1984 at approximately 11:50 A.M. (Tr. 456) The third call was added to the memorandum as follows:

3) 6/18/84 — (approx. 11:50 am) RF called and wanted to
  know if we would agree to him treating both lots for delivery
  in 1st & 3rd shipping period as a single lot as far as his
  setting up credits w/ Bank of Jamaica.

(Ex. L)

There was a notation to that entry which read, "we called back and said NO." Id. Mr. Fettig had no recollection of a conversation with anyone at CRS on June 18, 1984. (Tr. 245) Telephone bills of F & D for the dates in question show the following calls to CRS:

June 15, 1984           10:12 A.M.        2 minutes
June 15, 1984            4:41 P.M.        ...

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