Kulukundis Shipping Co. v. Amtorg Trading Corp.

• Court: U.S. Court of Appeals — Second Circuit
• Writing for the Court: L. HAND, CHASE, and FRANK, Circuit
• Citation: Kulukundis Shipping Co. v. Amtorg Trading Corp., 126 F.2d 978 (2nd Cir. 1942)
• Decision Date: 02 March 1942
• Docket Number: No. 170.,170.
• Parties: KULUKUNDIS SHIPPING CO., S/A, v. AMTORG TRADING CORPORATION.

126 F.2d 978 (1942)

KULUKUNDIS SHIPPING CO., S/A, v. AMTORG TRADING CORPORATION.

No. 170.

Circuit Court of Appeals, Second Circuit.

March 2, 1942.

Edward Ash, of New York City (Charles Recht and David Drucker, both of New York City, on the brief), for respondent-appellant.

Charles R. Hickox, of New York City, for libellant-appellee.

Before L. HAND, CHASE, and FRANK, Circuit Judges.

FRANK, Circuit Judge.

The libel alleged that appellant (respondent) had, through its authorized representatives, agreed to a charter party with appellee (libellant). Appellant's answer in effect denied that anyone authorized to act for it had so agreed.¹ After a trial, the district court made the following

"Findings of Fact

"1. Libellant, Kulukundis Shipping Co. S/A, employed Blidberg Rothchild Co. Inc. as a broker and the respondent, Amtorg Trading Corporation employed Potter & Gordon, Inc. as its broker in the negotiations for the chartering of the ship `Mount Helmos' for a trip to Japan. On March 15, 1940, Rothchild, of the firm of Blidberg Rothchild Co. Inc., and Gordon, acting on behalf of Potter & Gordon, Inc., agreed upon a charter and closed by Gordon executing and delivering to Rothchild a fixture slip which is the usual trade practice, indicating the conclusion of charter negotiations in the trade of ship brokerage. All the material terms of the bargain are set forth in the fixture slip excepting demurrage, dispatch, and the date of the commencement of the charter term which all had been agreed on but were omitted by an oversight. A number of the terms, including the War Risks Clause of 1937, were fixed by the incorporation of a reference to an earlier charter of the steamer `Norbryn.' Gordon acted with authority.

"2. Thereafter, respondent refused to sign the charter but instead repudiated it."

"Conclusions of Law

"1. Respondent has breached a valid contract and is liable in damages to the libellant."

Pursuant to the foregoing, the court entered an order that appellee recover from appellant the damages sustained, and referred to a named commissioner the ascertainment of the damages, to be reported to the court.

1. The errors assigned on this appeal by appellant (with an exception we shall discuss later) relate to the admissibility of certain letters, the weight and sufficiency of the evidence, and the credibility of witnesses. The letters, for reasons adequately stated in the district court's opinion, were properly admitted in evidence. There is no need in this opinion to discuss the other errors. We do not sit as triers of the facts. In the light of Admiralty Rule 46½, 28 U.S.C.A. following section 723, it is for the trial judge, not for us, after hearing the witnesses, to pass on the weight of the evidence, consider questions of credibility and make findings.² In this case, as the findings are not clearly erroneous, we cannot disturb them. The Aakre, 2 Cir., 1941, 122 F.2d 469, 474 certiorari denied, Waterman v. The Aakre, December 8, 1941, 62 S.Ct. 360, 86 L.Ed. ___; Johnson v. Andrus, 2 Cir., 1941, 119 F.2d 287.

2. But there is an error assigned which is of a different character. The appellant, in its answer originally filed, pleaded that no contract had been made. No steps of any importance having meanwhile occurred in the suit, some nine months later and two months before the trial, it sought to amend its answer by including, as a separate defense, the fact that the alleged charter party upon which appellee was suing contained an arbitration clause, that appellee had not at any time asked appellant to proceed to arbitration, and that therefore the suit had been prematurely brought. This motion to amend was denied. If the amendment should have been allowed, the additional defense can now be urged.

The arbitration clause reads as follows: "24. Demurrage or despatch is to be settled at loading and discharging ports separately, except as per Clause 9. Owners and Charterers agree, in case of any dispute or claim, to settle same by arbitration in New York. Also, in case of a dispute of any nature whatsoever, same is to be settled by arbitration in New York. In both cases arbitrators are to be commercial men."

In 1925 Congress enacted the Arbitration Act, U.S.C.A., Title 9. Pertinent sections of that statute read as follows:

"§ 2. Validity, irrevocability, and enforcement of agreements to arbitrate. A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. * * *

"§ 3. Stay of proceedings where issue therein referable to arbitration. If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration. * * *

"§ 4. Failure, etc., to arbitrate under agreement; petition to United States court having jurisdiction for order to compel arbitration; notice and service thereof; hearing and determination. A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any court of the United States which, save for such agreement, would have jurisdiction under the judicial code at law, in equity, or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement. Five days' notice in writing of such application shall be served upon the party in default. Service thereof shall be made in the manner provided by law for the service of summons in the jurisdiction in which the proceeding is brought. The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed. If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof. If no jury trial be demanded by the party alleged to be in default, or if the matter in dispute is within admiralty jurisdiction, the court shall hear and determine such issue. Where such an issue is raised, the party alleged to be in default may, except in cases of admiralty, on or before the return day of the notice of application, demand a jury trial of such issue, and upon such demand the court shall make an order referring the issue or issues to a jury in the manner provided by law for referring to a jury issue in an equity action, or may specially call a jury for that purpose. If the jury find that no agreement in writing for arbitration was made or that there is no default in proceeding thereunder, the proceeding shall be dismissed. If the jury find that an agreement for arbitration was made in writing and that there is a default in proceeding thereunder, the court shall make an order summarily directing the parties to proceed with the arbitration in accordance with the terms thereof."

Appellant admits — as it must — that the district court had jurisdiction to determine whether the parties had made an agreement to arbitrate.³ Appellant contends, however, that, once the court determined in this suit that there was such an arbitration agreement, the court lost all power over the suit beyond that of staying further proceedings until there had been an arbitration as agreed to;⁴ in that arbitration, argues appellant, the arbitrators will have jurisdiction to determine all issues except the existence of the arbitration clause. This jurisdiction, it is urged, is broad enough to permit an independent determination, by the arbitrator, that the contract itself is not valid or binding. Appellee asserts that the defendant had repudiated the charter-party, and that, therefore, the arbitration clause must be wholly disregarded.

In considering these contentions in the light of the precedents, it is necessary to take into account the history of the judicial attitude towards arbitration: The English courts, while giving full effect to agreements to submit controversies to arbitration after they had ripened into arbitrators' awards, would — over a long period beginning at the end of the 17th century — do little or nothing to prevent or make irksome the breach of such agreements when they were still executory.⁵ Prior to 1687, such a breach could be made costly: a penal bond given to abide the result of an arbitration had a real bite, since a breach of the bond's condition led to a judgment for the amount of the penalty. It was so held in 1609 in Vynior's Case, 8 Coke Rep. 81b. To be sure, Coke there, in a dictum, citing precedents, dilated on the inherent revocability of the authority given to an arbitrator;⁶ such a revocation was not too important, however, if it resulted in a stiff judgment on a penal bond. But the Statute of Fines and Penalties (8 & 9 Wm. III c. 11,...