Schilling v. A/SD/S Dannebrog, 363

• Decision Date: 05 July 1963
• Docket Number: Docket 28084.,No. 363,363
• Citation: 320 F.2d 628
• Parties: Edward SCHILLING, Trustee of North Atlantic and Gulf Steamship Company, Incorporated, and Nortropic Shipping Company, Incorporated, Debtors, in Reorganization pursuant to Chapter X of the Bankruptcy Act, Appellants, v. A/S D/S DANNEBROG et al., Appellees.
• Court: U.S. Court of Appeals — Second Circuit

320 F.2d 628 (1963)

Edward SCHILLING, Trustee of North Atlantic and Gulf Steamship Company, Incorporated, and Nortropic Shipping Company, Incorporated, Debtors, in Reorganization pursuant to Chapter X of the Bankruptcy Act, Appellants, v. A/S D/S DANNEBROG et al., Appellees.

No. 363, Docket 28084.

United States Court of Appeals Second Circuit.

Argued May 28, 1963.

Decided July 5, 1963.

Milton M. Bergerman, New York City (Bergerman & Hourwich, Joseph Calderon, Albert F. Reisman, New York City, of counsel), for appellant.

Richard T. O'Connell, Healy, Baillie & Burke, New York City, for appellees National Shipping & Trading Corp. and Arequipa Compania Naviera S. A.

Samuel Rosenbloom, New York City (Joshua Morrison, Sidney S. Goldstein, New York City, of counsel), for appellee Ocean Tramping Corp.

Paul F. McGuire, Kirlin, Campbell & Keating, New York City, for appellees Adra, etc.

Charles S. Haight, Jr., New York City (Haight, Gardner, Poor & Havens, John C. Moore, New York City, of counsel), for A/S D/S Dannebrog, Orvigs D/S A/S, I/S Norlindo, A/S D/S Neptun, D/S A/S Imica, and Rederi A/B Sigyn.

Before WATERMAN, FRIENDLY and SMITH, Circuit Judges.

FRIENDLY, Circuit Judge.

In an opinion reported in 204 F.Supp. 899, Judge Bryan laid down general principles to guide the resolution of a complex of claims by owners of vessels that had been time-chartered to the bankrupt, North Atlantic and Gulf Steamship Company (Norgulf), by stevedores who had rendered services to the chartered vessels, and by Norgulf's trustee in bankruptcy. The quality of his opinion, apparent from a reading of it, is even more impressively attested by the absence of appeal from any but two of the fourteen issues he decided.¹ Although both these issues are, so far as we have been able to discover, of novel impression, and they seem somewhat more difficult to us than they did to Judge Bryan, we think he reached the correct results.

I.

The time charters, which were the standard New York Produce Exchange Form, provided that charter hire should be paid semi-monthly in advance and, in Clause 18,

"That the Owners shall have a lien upon all cargoes, and all sub-freights for any amounts due under this Charter, including General Average Contributions, and the Charterers to have a lien on the Ship for all moneys paid in advance and not earned, and any overpaid hire or excess deposit to be returned at once."

The present question concerns cases where the vessels were turned back to the owner, prior to the filing of the petition in bankruptcy, after an installment of charter hire had come due and not been paid but before the semi-monthly period to which it related had expired. The owners claimed, and the District Judge held, that they were entitled to liens against the sub-freights for the full amounts of the unpaid installments. The trustee contends that the lien should be for only a fraction of the last unpaid installment, with the period of actual use by the debtor the numerator and the half-month the denominator. He relies on what he considers to be the equities, and on the authority of Jebsen v. A Cargo of Hemp, 228 F. 143, 149 (D.Mass. 1915), and Wehner v. Dene Steam Shipping Co. 1905, 2 K.B. 92, 101-02.²

These two decisions did reduce the lien for the last unpaid installment to an amount proportional to the period of the charterer's use. See also Italian State Railways v. Mavrogordatos 1919, 2 K.B. 305; Scrutton, Charterparties (16th ed. McNair & Mocatta, 1955), at 408; Carver, Carriage of Goods by Sea (10th ed. Colinvaux, 1957), at 272. But see Leslie Shipping Co. v. Welstead 1921, 3 K.B. 420, where an apparently inconsistent result was reached, without discussion. But all those cases differed from the instant one in a respect which the owners claim and Judge Bryan held to be vital. In each of them the owner had withdrawn the vessel for nonpayment of the installment, whereas here the already defaulting charterer took the initiative and returned the vessel prematurely, in breach of the charter. The language of the Wehner case, that the owner did not have "the right to retake possession in the middle of the half-month, and also to claim the hire for the whole of that period," and of the Jebsen case, that as a result of the owner's action, "the vessel was in fact withdrawn from the service of the charterer," is thus not exactly applicable; neither is the statement in Italian State Railways that "It would be strange if the law should allow the owner to withdraw his ship on January 11 and yet claim payment of a full month's hire in advance dating from 10 P.M. on the previous day."

Where leases of real estate are involved, the tenant's surrender of the premises, even when it is accepted by the landlord and hence terminates the lease, does not relieve the tenant from liability for an installment of rent which has previously come due in advance for a period extending beyond the acceptance of the surrender. Sperry v. Miller, 8 N.Y. 336 (1853); Barkley v. McCue, 25 Misc. 738, 55 N.Y.S. 608 (1899); Hampton v. Flesser, 133 Misc. 705, 232 N.Y.S. 641 (1929); Petrelli v. Kagel, 37 Misc. 2d 246, 235 N.Y.S.2d 383 (N.Y.C.Civil Ct. 1962). But in contrast to a demise charter, see Gilmore and Black, Admiralty (1957), 215, the landlord and tenant analogy is not entirely apt as applied to an ordinary time charter, where, as pointed out in the Italian State Railways case, supra, the vessel has always been under the direction of the owner's master. It might be argued that, if a time charter is thus treated as a simple bilateral contract rather than as a lease, the breach of contract resulting from a turn-back of the vessel "merges" the past-due installment of charter hire into an over-all claim for damages in the amount of the excess of the hire for the unexpired term of the charter, starting with the date when the installment was due, over the value of the use of the vessel to the owner for the same period — an unliquidated claim not contended by the owners to be comprehended within Clause 18. Compare Freights of the Kate. 63 F. 707, 723 (S.D.N.Y.1894). However, as pointed out in 4 Corbin, Contracts (1951), §§ 955-57, the rule against "splitting a cause of action" should not be applied in a mechanical fashion and without regard to the reasons that underlie it. Here the owner had contracted for a lien against subfreights for unpaid installments of charter hire; we see no reason why the law should force him to forego that remedy and merge his secured claim for an installment that accrued before the turnback with his unsecured claim for damages arising from the charterer's later complete breach — even when, unlike the owners in the Jebsen, Wehner and Italian State Railways cases, he has taken no affirmative action that might be thought to evidence an election to forego his claim for charter hire from the date of such action and to rely solely on his claim for damages but has simply accepted a return of the vessel voluntarily tendered by the charterer, which he could not well refuse. The result might be different if, from rechartering the vessel or otherwise, the owner realized more than the total amount remaining due under the charter, including the unpaid installment. Cf. S & W Holding Co. v. Kuriansky, 317 F.2d 666 (2 Cir. 1963). But no one asserts this to be such a case. Still another question is whether the amount of the lien for an unpaid installment should be reduced if the owner got some value out of the vessel during the period covered by the installment. If the facts here present that issue, we do not understand Judge Bryan's opinion to have ruled upon it.

Our ruling here is in no way inconsistent with our recent decision in S & W Holding Co. v. Kuriansky, supra, that the landlord of a bankrupt could not apply a security deposit to the entire amount of the rent that became due on the first day of the month in which bankruptcy occurred, in a situation where he was entitled to recover from the trustee for use and occupancy from the date of bankruptcy and suffered no damages from breach of the lease. We held long ago in a case cited with approval in S & W Holding Co., that where a trustee had ceased to occupy the premises leased by the bankrupt, the lessor was entitled to apply a security deposit against rent accruing even after bankruptcy but before acceptance of a surrender. In re Sherwoods, 210 F. 754, 761 (2 Cir. 1913).

II.

Clause 3 of the charters provided that "the Owners, at the port of re-delivery, shall take over and pay for all fuel remaining on board the vessel at the current prices in the respective ports * *." In cases where the redelivery was subsequent to the bankruptcy, Judge Bryan upheld the trustee's contention that since the fuel on board was his property, the owners' obligation to pay for it ran to him and could not be set off, under § 68 of the Bankruptcy Act, against the owners' unsecured claims; this ruling has not been appealed. However, the judge reached an opposite conclusion and allowed such set-off as to fuel on board vessels redelivered prior to the bankruptcy; from that ruling the trustee appeals. The question for our decision is stipulated to be:

"Is the value of fuel on board a chartered vessel at the time of the vessel\'s premature return by the charterer to the ship-owner, in breach of the charter party, an offset against the amount of the maritime lien of the shipowner; or is it an offset against the shipowner\'s claim for damages for breach of charter?"

The "maritime lien of the shipowner," as the context makes clear, is the lien we have just discussed — the one given by Clause 18 against cargoes and subfreights for charter hire unpaid at the time of redelivery.

The trustee does not contend, as we understand him, that if the claim for fuel under Clause 3 was unsecured, he would be entitled to apply it in reduction of the owners' secured claim for charter hire under Clause 18; his contention is rather that the...