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Agroindustrias Vezel, S.A. v. H.P. Schmid Inc.

filed: January 18, 1994.


Appeal from the United States District Court for the Northern District of California. D.C. No. CV-89-02456-SAW. Stanley A. Weigel, District Judge, Presiding

Before: Goodwin, Hug, and Fletcher, Circuit Judges.


In this contract dispute, appellant, H.P. Schmid, Inc. ("Schmid"), challenges the district court's initial grant of partial summary judgment for appellee, Agroindustrias Vezel ("Vezel"), and the later summary judgment for Vezel entered by the magistrate Judge to whom the case was transferred by stipulation. This is a diversity action in which California law applies.



Vezel is a sesame seed supplier in El Salvador, which obtains the seeds from the growers. Schmid is a sesame seed trader, which purchases the seeds and resells them to its customers. On October 28, 1988, Vezel and Schmid entered into a contract for the purchase and sale of 500 metric tons of sesame seed. Schmid agreed to pay Vezel $28.50 per 100 pounds of seed for shipment "at buyers call," between November, 1988, and January, 1989. The parties agreed upon payment as "cash against documents," meaning that Schmid must pay as billed for seed shipped by Vezel.

Before any shipments were made, Vezel contacted Schmid and requested, because floods had destroyed forty percent of El Salvador's sesame seed crop, that the contract be modified to increase the price to $29.50 per 100 pounds of seed for 300 of the 500 metric tons of seed. On December 13, 1988, Schmid agreed to the price increase, but noted in its letter to Vezel that "we therefore reluctantly and under protest agree to adjust the price on 300 metric tons to USD29.50 per 100 lbs." On December 14, 1988, at Schmid's request per the "buyer's call" provision, Vezel loaded 200 metric tons of seed on the "S.S. Seamaster" headed for Japan. Vezel sent a bill for that shipment to Schmid in the amount of $125,400, which Schmid received on January 10, 1989.

In the meantime, Schmid requested that Vezel load an additional 100 metric tons of seed onto the "Lady Dona," for shipment to Japan. The "Lady Dona" was scheduled to load twice in El Salvador before sailing to Japan, on December 28, 1988 and January 20, 1989. Therefore, regardless of whether the grain was loaded onto the "Lady Dona" in December or in January, the shipment from El Salvador would reach Japan at the same time.

Schmid contends it became concerned at that point that Vezel might not uphold its end of the contract. This concern was based partly on Vezel's failure to load seed onto the "Lady Dona," and partly on rumors circulating that Vezel was not fulfilling its contracts with other buyers. Therefore, Schmid decided to withhold part of the payment for the first shipment until Schmid was assured by Vezel that the contract would be fulfilled. Schmid withheld $50,000, alerting Vezel to this action in a telex sent on January 10, 1989. The telex stated:


Schmid offered to tender the retained money if it could get adequate assurance from Vezel that performance was forthcoming.

Vezel informed Schmid that it was willing and able to continue performance if Schmid would pay the money owed. Vezel offered to fly Schmid's president to El Salvador to personally inspect the sesame seed awaiting shipment. However, Vezel was unwilling to comply with Schmid's other requested means of assurance. Finally, with Vezel unwilling to give in to Schmid's demands of assurance and Schmid unwilling to pay for the remainder of the first shipment, Vezel commenced this action to recover the money owed to it by Schmid.

Schmid claimed that it did not owe the money to Vezel because Schmid was excused from performance. Schmid offered a number of arguments to support this claim. First, Schmid argued that the modification of the contract with regard to the final 300 tons of sesame seed was invalid because it was made in bad faith. Second, Schmid claimed that it was excused from performance under the doctrine of economic duress. Third, Schmid claimed that it was excused from performance because its actions were justified under California Commercial Code § 2609, which allows a party to withhold performance and ask for assurance if it has reasonable grounds to believe that the other party is not going to perform. Finally, Schmid argued that it was excused from performance under California Commercial Code § 2610 because Vezel's failure to ship on the December docking of the "Lady Dona" amounted to an anticipatory repudiation.

The district Judge granted a motion for partial summary judgment in favor of Vezel on Schmid's claim of economic duress. Pursuant to a stipulation by the parties, the district Judge ordered that the case be referred to Magistrate Judge Joan S. Brennan for further proceedings, including trial and judgment. The magistrate Judge thereafter granted Vezel's motion for summary judgment on all remaining issues. The final judgment is based upon the decisions of the district Judge and the magistrate Judge granting summary judgments in favor of Vezel. We are thus concerned in ...

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