David Crystal, Inc. v. Cunard Steam-Ship Co.

• Decision Date: 09 December 1964
• Docket Number: No. 8,Docket 28656.,8
• Citation: 339 F.2d 295
• Parties: DAVID CRYSTAL, INC., Libellant-Appellant-Appellee, v. The CUNARD STEAM-SHIP CO. Ltd., Respondent-Petitioner-Appellant-Appellee, and John T. Clark & Son, Respondent-Impleaded-Petitioner-Appellant-Appellee, and Penson & Co., Respondent-Impleaded-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

339 F.2d 295 (1964)

DAVID CRYSTAL, INC., Libellant-Appellant-Appellee, v. The CUNARD STEAM-SHIP CO. Ltd., Respondent-Petitioner-Appellant-Appellee, and John T. Clark & Son, Respondent-Impleaded-Petitioner-Appellant-Appellee, and Penson & Co., Respondent-Impleaded-Appellee.

No. 8, Docket 28656.

United States Court of Appeals Second Circuit.

Argued October 19, 1964.

Decided December 9, 1964.

John L. Quinlan, of Bigham, Englar, Jones & Houston, New York City, for libellant-appellant-appellee.

Henry C. Blackiston, of Lord, Day & Lord, New York City (John F. O'Connell, Franklin G. Hunt, New York City, on the brief), for respondent-petitioner-appellant-appellee.

William Weymar, Jr., of Atkins & Weymar, New York City (Joseph B. McDonald, New York City, on the brief), for respondent-impleaded-petitioner-appellant-appellee.

Enrico S. Sanfilippo, New York City, for respondent-impleaded-appellee.

Before FRIENDLY, KAUFMAN and ANDERSON, Circuit Judges.

KAUFMAN, Circuit Judge.

Our problem on this appeal, not devoid of reticulate aspects, is to determine which one of four parties shall bear the loss for the misdelivery of twenty-eight cases of shirts: the buyer and owner David Crystal, Inc., the carrier Cunard Steam-Ship Co. Ltd., the carrier's stevedore John T. Clark & Son, or the buyer's customs broker Penson & Co. After a trial in admiralty, the District Court granted Crystal recovery from Cunard and recovery over by Cunard from Clark, but denied Crystal direct recovery from Clark and dismissed Crystal's and Clark's claims against Penson for lack of admiralty jurisdiction. Crystal, Cunard, and Clark appeal from those portions of the decree adversely affecting their respective interests. We uphold the decree placing the ultimate responsibility for the loss upon Clark and find it unnecessary, because of this result, to reach the jurisdictional questions raised by the claims against Penson.

The basic facts may be stated simply enough although the resolution of liability is quite complex. Clark unloaded the shirts from Cunard's vessel to a pier in Brooklyn, N. Y., and then misdelivered them upon the presentation of a forged Penson delivery order, obtained through the complicity of one of Penson's employees.

For a full understanding of the ramifications of this case, however, a further exposition of the facts is in order. On October 31, 1957, Cunard received the shirts purchased by Crystal at Le Havre, France, for shipment aboard its vessel, the SS Trelyon. The bill of lading named Penson, Crystal's customs broker, as consignee. On November 14, after Penson received Cunard's arrival notice and obtained clearance from Customs, the file folder relating to the shipment was given to one Jose Perez, its traffic clerk. Perez prepared and signed a delivery order naming a trucker, Arrow Carriers, as agent to accept delivery at the pier. He affixed the order to the outside of the folder and placed it on his desk with other completed orders destined for the outgoing mail basket.

But shortly after Perez performed this task, the chain of events intended to effect proper delivery of the shirts to Crystal was cut at one of its most vital links. It appears that as Perez momentarily left his desk, Louis Segarra, a fellow employee who had been plotting with outsiders to steal the valued shirts, surreptitiously took the delivery order, together with a blank form. He gave the original and blank orders to Rigley, a confederate, who together with one Orlando, filled out the blank order, inserting the name of a fictitious trucker, C & L Trucking Co., in place of Arrow. They also forged Perez' signature on the new delivery order and destroyed the original.

The next morning Rigley and Orlando appeared at the pier where Clark's stevedores were unloading the Cunard vessel. They presented the forged delivery order to Keane, Clark's chief delivery clerk, and then waited until late in the afternoon while the documents were checked and the shirts loaded on their truck.¹

Crystal soon discovered its loss and commenced this suit by filing its libel against Cunard for breach of the contract of ocean carriage. Cunard then impleaded Clark seeking indemnity for breach of its stevedoring contract. Clark, in turn, impleaded Penson claiming negligence on its part. Both Clark and Penson answered the libel although Crystal did not assert causes of action against either until amendments to the libel were permitted by the judge upon conclusion of the trial.

The District Court held, as we have already indicated, that Cunard was fully liable to Crystal, but was entitled to be indemnified by Clark. We turn now to examine each phase of that conclusion.

I. Crystal v. Cunard

Because Crystal's claim against Cunard was for breach of the contract of ocean carriage, we must look first to the bill of lading to determine the parties' rights and duties. The District Court was of the opinion that the bill of lading became inoperative once the cargo was discharged. We believe, however, that it is more precise to say that although the bill continued to govern the parties' relationships after discharge, its terms did not insulate Cunard from liability. It is true that the bill provided that Cunard's responsibility would cease when delivery was made from the ship's deck and that if the consignee did not immediately receive the goods, Cunard could simply abandon them on the wharf. But these clauses were clearly null and void under the Harter Act's restrictions against certain stipulations seeking to relieve carriers from liability. 46 U.S.C. § 190.

The bill of lading also provided that Cunard had the option to land or store the cargo "at the sole expense and risk of Consignee in the Warehouses provided for that purpose." But it is clear that Cunard did not take advantage of that option, for it discharged the goods in the custody of its stevedore on a pier and did not deposit them in a warehouse.

Since the bill of lading did not specify Cunard's obligations when it discharged the shirts to Clark, the law steps in to fill the lacuna; this it does by properly characterizing Cunard's status as a bailee. Cf. The Italia, 187 F. 113 (2d Cir. 1911); Standard Brands, Inc. v. Nippon Yusen Kaisha, 42 F.Supp. 43 (D.Mass. 1941). And there is no sound reason to alter its bailee status simply because it landed the shirts on Clark's pier. Absent a valid contract to the contrary, a bailee remains liable for the safety of the goods in whatever hands he may place them; exceptions that may arise when a consignee fails to accept the goods have no relevance to this case. Cf. The Eddy, 5 Wall. 481, 72 U.S. 481, 495, 18 L.Ed. 486 (1867).

It is interesting that there is no direct precedent in the law of admiralty establishing the standard of responsibility of a bailee who misdelivers cargo. Because of this void and mindful that maritime law draws on many sources, the able District Court judge in order to shape the appropriate maritime law properly resorted to state decisional law, see 1 Harper & James, Torts 156 (1956), various uniform acts, including the Federal Bills of Lading Act, 49 U.S.C. §§ 81-124, as well as the Uniform Commercial Code, and finally fastened appropriately on the rule articulated in the Restatement, Torts § 234 (1934).

The Restatement rule suggests that a bailee is absolutely liable for misdelivering cargo, unless his mistake as to the person entitled to receive the goods was induced by the bailor. We agree with the District Court that considerations of uniformity and the need for certainty in commercial transactions justified application of this widely accepted rule to maritime transactions. It is not prudent to have a rule which varies a bailee's liability depending upon his proximity to the sea and susceptibility to admiralty's jurisdiction. At the same time, the rule of absolute liability represents a sound allocation of responsibility for the bailee is in a better position than the bailor to establish procedures to minimize the risk of misdeliveries and to insure against the few misdeliveries that will inevitably occur despite the most careful precautions.

Cunard was therefore absolutely liable for the misdelivery unless (a) certain bill of lading provisions not yet considered eliminated or reduced such liability or (b) the misdelivery was induced by Crystal or Penson, acting in its behalf. One of these provisions, the exception for acts of "thieves," seems to us inapplicable because the loss of the cargo here is more appropriately characterized as due to misdelivery rather than theft. It is true that under New York law a taking by false pretenses is larceny, Penal Law, McKinney's Consol.Laws, c. 40, § 1290, but we do not believe that the broad definition of theft in the criminal law should be extended to a commercial contract. See Freedman v. George W. Bush & Sons Co., 284 Pa. 16, 130 A. 263 (1925). The law already recognizes this distinction for a warehouseman is absolutely liable for misdeliveries but is responsible in trespassory theft cases only where he has been negligent. See North American Smelting Co. v. Moller S.S. Co., 204 F.2d 384 (3d Cir. 1953). These differing standards are based on sound policy considerations since it is proper that a warehouseman should bear a greater responsibility for being duped by false pretenses than for thefts that cannot be avoided despite the exercise of ordinary care.

Cunard's attempt, elsewhere in the bill of lading, to limit its liability to £ 20 per package also must fail. This clause was clearly void while the goods were at sea, for the Carriage of Goods by Sea Act (COGSA), 46 U.S.C. § 1304(5), does not permit limitations under $500. It seems to us that once the law declared this clause void it should remain void forever. It would be unfair to permit the void clause to spring to life once the goods reached land, for by then Crystal had justifiably relied on the clause's inapplicability in making its decision on...