Garza v. Marine Transport Lines, Inc.

• Decision Date: 03 November 1988
• Docket Number: D,No. 1361,1361
• Parties: Ricardo GARZA, Plaintiff, v. MARINE TRANSPORT LINES, INC., Defendant and Third-Party Plaintiff-Appellant, v. NORFOLK SHIPBUILDING & DRYDOCK CORPORATION, Third-Party Defendant-Appellee. ocket 88-7246.
• Court: U.S. Court of Appeals — Second Circuit

Page 23

861 F.2d 23

1989 A.M.C. 228

Ricardo GARZA, Plaintiff, v. MARINE TRANSPORT LINES, INC., Defendant and Third-Party Plaintiff-Appellant, v. NORFOLK SHIPBUILDING & DRYDOCK CORPORATION, Third-Party

Defendant-Appellee.

No. 1361, Docket 88-7246.

United States Court of Appeals Second Circuit.

Argued Aug. 17, 1988.

Decided Nov. 3, 1988.

Healy & Baillie, New York City (Thomas L. Rohrer, of counsel) for defendant and third-party plaintiff-appellant.

Frederick W. Meeker, New York City, for third-party defendant-appellee.

Before WINTER and MINER, Circuit Judges, and BILLINGS, District Judge. ^*

BILLINGS, District Judge:

Defendant and third-party plaintiff-appellant Marine Transport Lines, Inc., ("MTL") seeks review of an order of the United States District Court for the Southern District of New York (Cooper, J.) granting summary judgment to third-party defendant-appellee Norfolk Shipbuilding & Drydock Corporation ("Norshipco") on MTL's third-party claim for indemnification and legal fees. The district court granted summary judgment and dismissed the third-party action on the ground that it was time-barred by the terms of the agreement between MTL and Norshipco. Garza v. Marine Transport Lines, Inc., 680 F.Supp. 624 (S.D.N.Y.1988).

MTL argues on this appeal that the district court erred in concluding that the contract clauses were unambiguous, and that because of that error, the court improperly excluded parol evidence relevant to the meaning of the clauses. MTL also requests that this Court, upon examination of the parol offered, rule upon the meaning of the contract clauses in dispute. We agree that the clauses are ambiguous and therefore reverse and remand for reconsideration. We do not pass on the proper interpretation of the disputed contract clauses because we believe the district court should have the first opportunity to assess these clauses in light of the parol evidence introduced.

BACKGROUND

Plaintiff Ricardo Garza commenced this suit in September, 1984, to recover damages for personal injuries sustained while a Sometime after the accident, it was determined that the synthetic mooring line that hit Garza had been damaged at the location of the break by contact with hot molten metal. MTL claims that this damage was caused during the repair period at the Norshipco Yard, presumably as a result of repairs involving burning and welding in the vicinity of the mooring line. MTL notified Norshipco of Garza's claim in May, 1985, and commenced this third-party action against Norshipco in June, 1985, pursuant to leave of the district court. MTL contends that the mooring line parted because it had been damaged by Norshipco employees while the MARINE CHEMIST was at Norshipco's shipyard. Norshipco denies liability on the basis of certain so-called "red letter clauses" contained in the written agreement between the parties.

crew member on the MARINE CHEMIST, a vessel owned and operated by MTL. The MARINE CHEMIST was repaired by Norshipco pursuant to contract during the period between October 11 and November 10, 1983. On November 17, the second time the ship was docked after the repairs, the starboard head mooring line parted and struck plaintiff, causing serious injuries to his right leg. Plaintiff settled with MTL for $200,000 in June, 1985, and is no longer an active party.

The contract for repair of the MARINE CHEMIST consists of MTL's invitation to bid with repair specifications dated July 25, 1983, Norshipco's bid dated August 26, 1983, and MTL's letter of September 1, 1983, awarding the job to Norshipco. The repair specifications do not indicate that any work was to be performed on the mooring line involved in the accident, nor was that line purchased from Norshipco.

Norshipco's bid contained several exculpatory "red-letter" clauses which are common in maritime repair contracts. The red-letter clause upon which Norshipco grounded the instant summary judgment motion reads as follows:

We shall be discharged from all liability for defective workmanship or material or for loss or damage, unless the same is discovered prior to and claim in writing made to us within sixty (60) days and litigation is commenced within one year after our work has ceased for whatever reason or has been completed, or the vessel has been redelivered, whichever first occurs. ¹

The district court agreed with Norshipco that the clause unambiguously imposed a sixty-day limitation period on MTL's indemnification claim, and dismissed the third-party action because written notice had not been provided within the time required by the clause. The district court refused to consider evidence from "without the four corners of the ship repair contract" as to the meaning or application of the clause. 680 F.Supp. at 628. MTL argues on this appeal, as it did in the court below, that the sixty-day limitation clause did not apply to claims for personal injury. Rather, MTL urges, a different red-letter clause was applicable:

We do not agree to the accident, indemnity, and insurance provisions, if any, contained in your invitation or specifications, relating to liability for death or personal injury, and in such cases we accept only such liability as is imposed upon us by law.

MTL argues that under this clause, the proper limitations period for actions grounded in personal injury would be that "imposed upon us by law", not the sixty-day period. At the very least, MTL argues, the meaning and application of the contract clauses are ambiguous and parol should have been allowed to determine the application of the clauses. ² We agree.

DISCUSSION

1. Summary Judgment

Summary judgment may be granted only if the moving party can show that there is "no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Summary judgment is a drastic procedural weapon because "its prophylactic function, when exercised, cuts off a party's right to present his case to the jury." Donnelly v. Guion, 467 F.2d 290, 291 (2d Cir.1972). Thus, when the court considers a summary judgment motion, it must draw all reasonable inferences and resolve all ambiguities in favor of the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962). The burden is on the moving party to demonstrate the lack of genuine dispute on any material factual issue. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970); Heyman v. Commerce and Industry Insurance Co., 524 F.2d 1317, 1320 (2d Cir.1975).

In this case, the district court concluded that no triable issue of material fact remained because the parol evidence rule barred extrinsic evidence concerning the meaning of the clauses. 680 F.Supp. at 626. Although the district court was correct in proceeding via the summary judgment route once it determined that the clauses were unambiguous, see Tokio Marine & Fire Insurance Co. v. McDonnell Douglas Corp., 617 F.2d 936, 940 (2d Cir.1980), we disagree with the court's determination that the clauses were unambiguous. We believe that the red-letter clauses are ambiguous as a matter of law, and that both parties are entitled to present evidence outside the four corners of the agreement that bears on the meaning and application of the several clauses. "Where contractual language is susceptible of at least two fairly reasonable interpretations, this presents a triable issue of fact, and summary judgment [is] improper." Aetna Casualty & Surety Co. v. Giesow, 412 F.2d 468, 471 (2d Cir.1969); accord Rothenberg v. Lincoln Farm Camp, Inc., 755 F.2d 1017, 1019 (2d Cir.1985); Heyman, 524 F.2d at 1320.

2. The Parol Evidence Rule

The parol evidence rule, a substantive rule of contract law and not a rule of evidence, ³ is generally stated as follows:

When two parties have made a contract and have expressed it in a writing to which they have both assented as the complete and accurate integration of that contract, evidence, whether parol or otherwise, of antecedent understandings and negotiations will not be admitted for the purpose of varying or contradicting the writing.

3 A. Corbin, Contracts Sec. 573, at 357 (1960). All state and federal jurisdictions accept this basic statement of the rule, although interpretations vary. Battery Steamship Corp. v. Refineria Panama, S.A., 513 F.2d 735, 738 (2d Cir.1975). In this case, principles of general maritime contract law govern. See id. at 738-39.

The parol evidence rule aims to ensure some measure of stability in commercial relations. The purpose and essence of the rule is to avoid the possibility that fraud might be perpetrated if testimony as to subjective intent could be substituted for the plain meaning of a contract. In the absence of ambiguity, the effect of admitting extrinsic evidence would be to allow

                one party "to substitute his view of his obligations for those clearly stated."    Eskimo Pie Corp. v. Whitelawn Dairies, Inc., 284 F.Supp. 987, 994 (S.D.N.Y.1968).  However, when the obligations are not clearly stated--when they are ambiguous--the parol evidence rule does not prevent the introduction of extrinsic evidence to aid in interpretation of the contract.  The rule excludes "only evidence of prior understandings and negotiations which contradicts the unambiguous meaning of a writing which completely and accurately integrates the agreement of the parties."    Battery Steamship, 513 F.2d at 739-40 (emphasis in original).  When extrinsic evidence is considered for the purpose of interpretation, the parol evidence rule is inoperative.  Heyman, 524 F.2d at 1320 n. 2.    Then, the evidence is not considered to vary or contradict the terms of an integrated agreement;  rather, the parol is used to determine what the terms of the agreement are.  3 A. Corbin, supra, Sec. 579, at 421-22. 4
                

3. The Ambiguities

To begin, we note that the determination of whether a contract term is ambiguous--and thus...