Canal Barge Company, Inc. v. Torco Oil Company

Gulfstream Trading, Ltd. agreed to purchase a cargo of spent lube oil from Torco. Gulfstream contacted Canal Barge to transport the spent lube oil. Canal Barge provided a tank barge from its "clean" fleet, meaning that the barge was dedicated to transporting light oil products and was cleaned periodically between loadings.

During the time of the charter with Gulfstream, the tank barge was also dedicated to a long term contract with Citgo to transport clean lube oil. Therefore, the tank barge was scheduled for a cleaning after transporting the spent lube oil for Gulfstream. The charter party contained a cleaning provision which provided that "any cleaning required subsequent to the moving contemplated hereunder as a result of tank contamination or unusual build up of cargo residue, shall be for shipper’s account and time so spent shall be counted as used lay time."

When the tank barge arrived at Torco’s facility for loading, Torco did not have enough barrels of spent lube oil to fulfill the contract with Gulfstream. The gauge on Torco’s shore tank was broken, and the pump was permitted to suck air for 5 - 10 minutes. Subsequently, during unloading, nearly 188 barrels could not be discharged. Before loading, there had only been 37 barrels from the prior cargo remaining on board. When the tank barge arrived for its scheduled cleaning, a three to four inch residue of heavy sludge was observed at the bottom of the tanks. Canal Barge’s expert determined that the shore tank bottoms had been permitted to flow into the barge when Torco’s pumps began sucking air while draining Torco’s shore tank. The sludge could not be removed from the barge by ordinary cleaning.

The barge was out of service for approximately eighty days. Canal Barge notified Gulfstream about the sludge problem and attempted to recover its costs pursuant to the charter party. Gulfstream did not inspect the barge or attempt to reclaim the sludge. Therefore, in addition to cleaning the barge, Canal Barge was responsible for disposal of the sludge, which was found to be hazardous due to the presence of benzene.

Canal Barge filed suit against both Gulfstream and Torco. Canal Barge charged Gulfstream with breach of contract and negligence, and averred a negligence claim against Torco. The court ruled that Gulfstream and Torco were jointly and severally liable for cleaning costs and lost profits. Only Torco appealed.

Torco argued that it was not contractually bound to Canal Barge and did not owe a duty to Canal Barge. Furthermore, Torco argued that the damages were not foreseeable because Torco had no knowledge of the kind of barge that Canal Barge planned on tendering. The Court of Appeals disagreed and held that Torco knew there were tank bottoms in its shore tank and that it was foreseeable, due to Torco’s decision to get every drop out of the shore tank and to allow the hose to suck air, that the tank barge could be contaminated by the bottoms. The Court of Appeals also upheld the trial court’s award of cleaning costs, loss profits, and damages from delays in repairs.