LIBERTY NAVIGATION & T. CO. v. Kinoshita & Co., Ltd., Tokyo

• Decision Date: 14 December 1960
• Docket Number: No. 14,Docket 26107.,14
• Parties: LIBERTY NAVIGATION & TRADING CO., Inc., Plaintiff-Appellee, v. KINOSHITA & CO., LTD., TOKYO, Defendant-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

285 F.2d 343 (1960)

LIBERTY NAVIGATION & TRADING CO., Inc., Plaintiff-Appellee, v. KINOSHITA & CO., LTD., TOKYO, Defendant-Appellant.

No. 14, Docket 26107.

United States Court of Appeals Second Circuit.

Argued September 28, 1960.

Decided December 14, 1960.

John V. Lindsay (of Webster, Sheffield & Chrystie), New York City (Donald J. Cohn, New York City, on the brief), for plaintiff-appellee.

James E. Freehill (of Hill, Betts, Yamaoka, Freehill & Longcope), New York City (Daniel J. Tobin and Melvin J. Koch, New York City, on the brief; William F. Suglia, New York City, of counsel), for defendant-appellant.

Before LUMBARD, Chief Judge, and TUTTLE^* and FRIENDLY, Circuit Judges.

FRIENDLY, Circuit Judge.

This appeal presents an interesting question as to the measure of damages for the breach of a voyage charter. Our view differs both from that of the trial judge and from that urged by appellant.

On May 17, 1957, Liberty Navigation & Trading Co., Inc., as owner, and Kinoshita & Co., Ltd., as charterer, entered into a charter of the American steamer Josefina. The vessel was to proceed to loading ports in the Philippines, there load a cargo of raw sugar in bags, "10,160 metric tons 5% more or less at owners option which the charterers bind themselves to ship," and then proceed to discharging ports in Korea. The freight was to be $12 per long ton. The Josefina was required to be in the first loading port in the Philippines on or before July 10, 1957. The charterer was to load at the average rate of 1,000 metric tons per weather working day and to discharge at the average rate of 1,200 metric tons per weather working day, Sundays and holidays excepted, unless used. Loading and discharge were to be performed by the charterer at its expense; however, a separate clause, 22, provided: "Dunnage and mats, and taxes, if any, to be for Owners account."

On June 10, 1957, the Philippine Government having suspended the issuance of export licenses for sugar to Korea, defendant cancelled the charter. The Josefina was then en route with a cargo from India to Japan. On June 21 plaintiff wrote that it regarded the notice of June 10 as a repudiation of the charter, would seek other employment for the Josefina, and would hold defendant liable in damages. Plaintiff did not succeed in obtaining other cargoes within the Far East. However, by paying an indemnity of $12,000 to another vessel, plaintiff arranged a charter from the Philippines to the east coast of the United States, on what were known to be relatively unfavorable terms. The substitute charter consumed 82 days, earned freight of $152,310, and resulted in an overall loss of $71,735; however, it had the advantage, among others, of returning the Josefina to the United States where she had to be in any event in October when the articles of her crew expired. Defendant does not dispute that it is liable for breach of the charter and that plaintiff took all reasonable measures to mitigate the damages.

The first step in computing the damages was to determine the freight plaintiff would have received under the cancelled charter. Here there was a dispute as to how much sugar the Josefina could have carried. The trial court found she had capacity to carry 10,145 long tons, an amount within the owner's option to take on 10,160 metric tons 5% more or less; at the agreed rate this would have yielded freight of $121,740. Appellant claims she could not have carried more than 9,539 long tons, but we accept the judge's finding since there was a conflict of testimony and his determination can in no event be deemed clearly erroneous.

A much more serious controversy concerned the amount to be deducted from the freight for the expenses plaintiff would have had in performing the cancelled charter and the consideration to be given to the results of the substitute charter. As to the former, the trial judge took the view that the only expenses properly deductible from the freight under the cancelled charter were such expenses as would have been entailed in making the voyage over and above the amounts that would have had to be expended in any event to maintain the vessel for the same length of time in a foreign port. As to the second, he held that, since the substitute charter had resulted in a loss, it was not to be considered at all. From the estimated freight of $121,740 receivable under the cancelled charter he therefore deducted only $23,124, this being the sum of ship broker's commissions, port charges and dunnage that would have been payable by the vessel under the cancelled charter, and the excess of the cost of fuel for the 16½ days when the Josefina would have been at sea over the fuel cost for maintaining her in port during the same period. Accordingly, he awarded damages of $98,616.

Defendant attacks the award as excessive, contending that, at least in the ordinary case, damages for the breach of a voyage charter may not be more than the excess of the freight for the voyage over the expenses of the voyage determined on a full costing basis, although they may be less than this to the extent that a substitute charter has produced profits. The plaintiff claims the award to be required by The Gazelle and Cargo, 1888, 128 U.S. 474, 9 S.Ct. 139, 32 L.Ed. 496. In our view the District Court over-compensated the plaintiff, but not to the extent the defendant argues.

We see no logical basis for a rule that would set the difference between the freight and the fully allocated cost of performing the cancelled voyage as the maximum damages that could be recovered for breach of a charter where consequential damages are not established. Plaintiff points out that such a rule would provide an incentive for the breach of voyage charters when the market had fallen so that owners were offering charters at less than full costs. The damages which the law accords to the plaintiff are the value of the defendant's performance less the plaintiff's savings from being relieved of the necessity of performing on his own part. 5 Williston, Contracts (1937 ed.), pp. 3765-66. Accordingly, what must be deducted from the freight is "any saving to the plaintiff due to the non-performance of the contract." Ibid., p. 3764; amounts which the plaintiff has had to pay in any event, e. g., crew wages, during a period when the vessel is idle, have not been saved. Defendant has cited no authority to support the rule of limitation which it advances. Indeed, in one of the decisions relied on by it, United Transportation Co. v. Berwind-White Coal-Mining Co., 2 Cir., 1926, 13 F.2d 282, this Court sanctioned a measure of damages more liberal to the owner. There the cancelled charter would have been completed in 36 days, whereas the substitute charter began five days later and ran for a longer period. The commissioner computed damages as being the profit under the broken charter determined after deducting full costs, less 31 times the daily profits under the substitute charter similarly computed, plus 5 days of ordinary expenses for keeping the vessel in port while awaiting the substitute charter. This Court sustained the commissioner's computation against attack by the charterer.

The formula in the United Transportation case would support the award here made by the District Court if there had been no substitute charter; for, if the vessel is idle for the entire period, it is immaterial whether one first deducts from the freight the expenses of the broken charter computed on a fully allocated basis and then adds back the expenses of maintaining the vessel in port for the same period, or deducts only the added expenses as the district judge did. However, here there was a substitute charter which, although operated at an overall loss, made some contribution to such expenses as crew hire, maintenance, etc., during the period of the broken charter. The District Court was mistaken insofar as it failed to credit defendant with the amount so contributed and thereby required defendant to reimburse plaintiff for some general expenses that plaintiff has already recovered.

Analysis of the figures of record will serve both to demonstrate this and to arrive at a proper award, bearing in mind the caution in Venus Shipping Co. v. Wilson, 2 Cir., 1907, 152 F. 170, that in determining damages for a broken charter "approximate accuracy is all that can be reasonably expected." Before proceeding with this analysis, we must fix the duration of the cancelled charter.

The trial judge found that the cancelled voyage would have required 37½ days, although, because of his computation of expenses on an added cost basis and his belief that the substitute charter should be disregarded, this figure does not appear to have entered into his calculations. We must first consider how long the charter in fact would have taken and, if the answer is more than 37½ days, decide whether defendant is precluded by an alleged stipulation from asserting this.

Under the charter defendant was entitled to take approximately 10¼ weather working days to load and 8½ to unload. These 18¾ days would necessarily have included at least two Sundays on which defendant was not required to load. Addition of these brings us to a figure approximating the 21 days shown in the stipulation. However, the Josefina's log book showed there was a typhoon in the Philippines which prevented any loading of cargo from 11 a. m. on July 14 to 8 a. m. on July 16. Since the Josefina did not complete the discharge of her prior cargo in Japan until July 2 and could not have reached the Philippines before July 8, this typhoon would have occurred during her loading period. However, July 14, 1957, was a Sunday. Hence the correct figure for loading time should be 22 days and the total days to complete the voyage 38½.¹

We do not think appellant is precluded from claiming this minor adjustment. The alleged stipulation was prepared at the end of the first day of the trial in response to the court's...