Texaco Export, Inc. v. Overseas Tankship Corp.

• Decision Date: 02 March 1978
• Docket Number: 438,D,Nos. 308,s. 308
• Citation: 573 F.2d 717
• Parties: TEXACO EXPORT, INC., and Chevron Oil Sales Co., Plaintiffs-Appellants, v. OVERSEAS TANKSHIP CORP., Defendant, and Getty Tankers Ltd., Defendant-Appellee. UNITED STEAMSHIP CORP., Defendant-Third-Party Plaintiff-Appellee, v. GETTY OIL CO., Third-Party Defendant-Appellant. ockets 77-7358, 77-7382.
• Court: U.S. Court of Appeals — Second Circuit

Page 717

573 F.2d 717

TEXACO EXPORT, INC., and Chevron Oil Sales Co., Plaintiffs-Appellants, v. OVERSEAS TANKSHIP CORP., Defendant, and Getty Tankers Ltd., Defendant-Appellee.

UNITED STEAMSHIP CORP., Defendant-Third-Party Plaintiff-Appellee, v. GETTY OIL CO., Third-Party Defendant-Appellant.

Nos. 308, 438, Dockets 77-7358, 77-7382.

United States Court of Appeals, Second Circuit.

Argued Dec. 12, 1977.

Decided March 2, 1978.

Nicholas J. Healy, New York City (Allan A. Baillie, John D. Kimball, Healy & Baillie, New York City, of counsel), for appellants Texaco Export, Inc. and Chevron Oil Sales Co.

James M. Estabrook, New York City (Robert A. Hulten, Haight, Gardner, Poor & Havens, New York City, of counsel), for appellee Getty Tankers Ltd. and third party appellant Getty Oil Co.

Max Taylor, New York City (Raymond J. Burke, Burke & Parsons, New York City, of counsel), for third party appellee United Steamship Corp.

Before MULLIGAN, OAKES and VAN GRAAFEILAND, Circuit Judges.

OAKES, Circuit Judge:

The transactions which form the basis of these appeals illustrate the Byzantine complexity of international oil dealings as practiced by the major oil companies, the so-called "Seven Sisters." Beneath the corporate mosaics, however, lie relatively simple damage claims which, in the case of the principal appeal, turn upon questions of contractual interpretation and, in the case of the third party appeal, are readily solved by well-recognized principles of damage calculation. On the principal appeal, we reverse and remand to the United States District Court for the Southern District of New York, Edmund L. Palmieri, Judge, with instructions to make, or to refer to the special master to make, specific factual findings on the terms of the two charters involved to determine whether appellants' damages include freight costs. With regard to the third party appeal, we affirm the award of lost voyage profits since they are not too speculative or remote.

I. THE COMMON FACTS

The S/T Wafra was stranded and subsequently destroyed pursuant to governmental authority off the coast of South Africa in February or March, 1971, resulting in a total loss of its cargo of crude oil in bulk. One-half of the cargo was owned by Chevron Oil Sales Co. (Chevron) and one-half by Texaco Export, Inc. (Texaco). They were the plaintiffs below and are the appellants here. The owner of the vessel, defendant-appellee (cross-claim defendant below) was Getty Tankers Ltd. (Getty Tankers). The Wafra was operating under a long-term time charter to Getty Oil Co. (Getty Oil), third party defendant-appellant. By a time charter dated April 7, 1970, Getty Oil subchartered the vessel to United Steamship Corp. (United), defendant below and third party plaintiff-appellee here, for five years. United, in turn, subchartered the Wafra to Overseas Tankship Corp. (Overseas), defendant below, under a twelve-month consecutive voyage charter. In January, 1971, Overseas as disponet owner entered into an oral subcharter with Chevron as charterer for the entire capacity of the vessel (Overseas/Chevron charter), for the carriage of a full cargo of crude oil from Ras Tanura, Saudi Arabia, to Capetown, South Africa. Thereafter, Chevron agreed to an oral charter for one-half of the vessel's carrying capacity with Texaco (Chevron/Texaco charter) at the same rate of freight that Chevron was obligated to pay Overseas under the Overseas/Chevron charter.

After suit was commenced, the parties reached a settlement on the merits in November, 1975. Getty Tankers agreed to pay 62.5% of the provable damages incurred by Chevron and Texaco from the loss of their cargo. ¹ Additionally, Getty Tankers and Getty Oil agreed to pay United 62.5% of its provable damages. Herbert M. Lord was appointed special master to ascertain the damages sustained by Chevron, Texaco and United. The parties thereafter agreed on most of the damage calculations, with the exception of the two questions which constitute the issues on appeal.

The principal dispute centered on whether Chevron's and Texaco's damages included freight charges which they in fact paid to Overseas. Resolution of this issue, in turn, necessitated determination of another disputed question whether the Overseas/Chevron or Chevron/Texaco charters, or both, provided that freight would be earned irrevocably upon loading. If both, Chevron was legally obligated to pay Overseas for the carriage of the entire cargo, and Texaco was legally obligated to pay Chevron for the carriage of Texaco's share of the cargo. With regard to the third party appeal, the parties disagreed on whether United was entitled to include in the calculation of its damages profits lost on the voyage in progress at the time of Wafra's destruction.

The special master found against Chevron and Texaco, recommending to the district court that the freights be excluded from their damage computations. Without a hearing, the district court approved the special master's conclusions in a memorandum decision. Accordingly, it awarded Texaco and Chevron $463,736.94 (representing 62.5% of the invoice value of the cargo ($737,129.89), plus 62.5% of the fees of a salvage master ($4,849.23)), which did not take into account the freights paid. The district court also followed the special master's report on the third party claim, and awarded United $187,871.01 (representing 62.5% of $164,326.71 lost profits plus 62.5% of $136,266.96 out-of-pocket expenses).

II. THE PRINCIPAL APPEAL

Chevron and Texaco urge that under the terms of both the Overseas/Chevron and the Chevron/Texaco oral charters the freights were earned and became nonreturnable once the cargo was loaded. That is, at the time of loading, Chevron was obligated to pay the freight charges to Overseas for the carriage of the entire cargo, whether or not the ship and its contents later arrived at the destination; similarly, Texaco was obligated to pay Chevron one-half of the freight charges. All parties agree that if the charters contained an earned prepaid freight provision, ² the freights should be included in the computation of appellants' damages. ³ Conversely, in the absence of such an agreement freight is not earned until the cargo is delivered, and thus appellants' damages would not include freight. E. g., The Kimball, 70 U.S. (3 Wall.) 37, 44-45, 18 L.Ed. 50 (1865); Hellenic Lines, Ltd. v. United States, 512 F.2d 1196, 1203, 1209 (2d Cir. 1975); see The Nat Sutton, 62 F.2d 787, 790-91 (2d Cir. 1933).

A. The Overseas/Chevron Charter

Appellant's chief contention before the special master was that the Overseas/Chevron agreement is governed by two prior, formally executed contracts still in force. Both contracts incorporated an earned-on-loading freight provision, thereby making the freight actually paid to Overseas ($316,667.52) ⁴ an element of Chevron's damages. A complete understanding of the relationship between these prior agreements and the Overseas/Chevron charter requires a brief genealogical review of Standard Oil of California (Standard Oil) and some of its affiliates.

Chevron, whose function is to market crude oil outside of the United States, is a Standard Oil affiliate. A Standard Oil subsidiary formerly named California Transport Corp., now named Chevron Transport Corp. (California), is a tanker company. Overseas is also a Standard Oil subsidiary and a tanker company. Both of these tanker companies are managed by Chevron Shipping, see note 4 supra, another Standard Oil subsidiary.

On April 1, 1959, Standard Oil and California executed a tanker transportation agreement (the 1959 contract) whereby the latter agreed to furnish tankers to Standard and its affiliates, including Chevron, for the transportation of petroleum cargoes. ⁵ On June 1, 1970, California and Overseas entered into a transportation contract (the 1970 contract). Under this agreement, Overseas contracted to provide vessels in performance of California's obligations to Standard Oil under the 1959 contract, on the terms and conditions specified in the 1959 agreement. Both contracts incorporated by reference the terms of Part II of the "Warshipoilvoy" ⁶ form of tanker voyage charter which oblige the charterer to pay freight irrevocably on loading, "ship and/or cargo lost or not lost." ⁷

Appellants contend specifically that the Wafra was chartered by Overseas to Chevron, Standard Oil's affiliate, pursuant to the terms of the 1970 contract. They further assert that since the 1970 contract expressly incorporated the terms of the 1959 contract, and since the 1959 contract expressly incorporated the irrevocable freight-on-loading provision of the Warshipoilvoy form of charter, "it follows, as the night the day," Brief for Appellants at 21, that the oral Overseas/Chevron charter incorporated by reference the freight payment clause of the Warshipoilvoy charter. ⁸ Accordingly, the argument runs, Chevron was obligated to pay full freight to Overseas on the entire cargo at the time of loading, thereby entitling Overseas to retain the freight despite the loss of appellants' cargo.

In holding that there was no enforceable oral agreement requiring appellants to pay freight irrevocably to Overseas upon loading, the special master focused solely on the activities of Chevron and Texaco with respect to their oral charter. By the time of the Overseas/Chevron charter, Chevron and Texaco had negotiated draft transportation agreements dealing with destination sales, as the one involved here. See note 3 supra. However, the draft agreements had not been executed when the Wafra shipment was made. ⁹ These unexecuted contracts provided that freight was earned on loading. Appellants argued that the existence of these clauses in all of the drafts was an important indicator that the parties had agreed on freight irrevocably earned upon loading. The special master, however, concluded that an equally plausible inference from the fact that the documents were not executed was...