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Jackson v. Government.

decided: November 10, 1949.


Author: Clark

Before L. HAND, Chief Judge, and SWAN and CLARK, Circuit Judges.

CLARK, Circuit Judge.

This is an action for breach of a contract for the carriage of goods by sea, entered into on November 7, 1941. Federal jurisdiction rests upon the diverse citizenship. of the parties. The defense for the conceded failure to transport the goods was based upon a contrary direction of the United States Maritime Commission. A further defense, added by permission of the court after the parties were at issue, was that of res judicata based upon a state court judgment exonerating the defendant's berth agent from liability to the plaintiff on this contract. After a trial to the court below, Judge Goddard rejected both defenses in an opinion reported in 83 F.Supp. 486, and gave judgment for the plaintiff for its loss of profits, together with interest and costs, in the total sum of $91,381.51. This appeal followed.

Although the action was brought against the Royal Norwegian Government's Director of Shipping, Oivind Lorentzen, the defense was assumed by the Government itself, which, during the period in question, steamship "Tropic Star." This it had earlier "Tropic Star." This it had earlier requisitioned from the ship's owners. In November, 1941, the vessel was undergoing repairs at Durban, East Africa. The Seas Shipping Co., Inc., an American company, was acting as berth agent to book cargo for the vessel on its expected voyage from Beira, East Africa. On November 7, 1941, the berth agent sent a letter to plaintiff's agent acknowledging a letter of the previous day and confirming "that we have booked 1,000 tons Copra, in bags, for the SS 'Tropic Star,' expected to be ready to load at Beira on November 25th, destination New York, rate $22.00 per 2240#, brokerage 1 1/4%." This somewhat informal document - reproduced in full at 83 F.Supp. 488 - is the contract here sued upon. It contained two further paragraphs, one that the agent was cabling its agents at Beira to arrange with the vendors for the delivery of the copra to the steamer and the other that it was understood that "the freight is collect and will be paid by your principals, Messrs. L. N. Jackson & Co., Inc., upon cable advice that the cargo has been loaded." And it showed that copies were going forward to "Mr. A. E. King, Asst. Director, Emergency Shipping, Maritime Commission, Washington, D.C.," as well as to representatives of defendant.

At this time there was in operation the system of ship warrants operated by the Maritime Commission pursuant to the Presidential Order of August 26, 1941, Executive Order 8871, 3 CFR, Cum.Supp., implementing the Ship Warrants Act of July 14, 1941, 55 Stat. 591, 50 U.S.C.A.Appendix, § 1281 et seq. This Act provided that the Maritime Commission might issue to American ships, and to such foreign ships as applied therefor, warrants entitling those ships to priority over merchant vessels not holding such warrants with respect to the use of facilities for loading, discharging, lighterage or storage of cargoes, the procurement of bunker fuel or coal, and the towing, overhauling, drydocking, or repair of such vessels. As a condition of these warrants, shipowners were required to file an undertaking accepting the orders of the Maritime Commission with respect to the trades in which a vessel might be employed, the voyages it should undertake, the class or classes of cargo or passengers to be carried, the fair and reasonable maximum rate of charter hire or equivalent, and such other matters as seemed necessary or expedient to the Maritime Commission. Disobedience of any order issued under the Ship Warrants Act entailed a fine of up to $5,000 or two years' imprisonment or both.

On October 4, 1941, more than one month previous to the booking in question, the Royal Norwegian Government had filed an application with the Maritime Commission for all of its ships which would or might come to United States ports. Although the actual warrants for the individual ships were not requested or issued until the ships were about to come within American jurisdiction, yet the trial court found defendant's intent to submit to the ship warrants system complete from the time of this application.

Due to war conditions the repairs to the steamer took longer than had been anticipated. The plaintiff was notified of the delays and continued to extend the time for loading at Beira. Meanwhile, on December 7, occurred the attack on Pearl Harbor and the precipitation of the United States into World War II. The combination of the delay in the repairs to the ship and these world events led to a re-evaluation of shipping conditions, and that, in turn, to the dislocation of this particular transshipment. On December 22, 1941, Mr. A. E. King, Assistant Director of the Division of Emergency Shipping of the United States Maritime Commission, telephoned Mr. S. J. Maddock, vice-president of Seas Shipping Co., Inc., that the 1,000 tons of copra, booked for the "Tropic Star," would have to be cancelled and wool substituted. Maddock objected vigorously; but King was firm that the copra could not be moved, and later that day King sent Seas Shipping a confirmatory telegram to the same effect. Immediately upon receiving King's telegram ordering cancellation of the shipment of copra, Seas Shipping notified plaintiff's brokers by telephone, and wrote them a letter formally cancelling the booking. The shipper apparently tried unsuccessfully to have King rescind his order; and Seas Shipping, on December 31, 1941, sent King a telegram with the same purpose, but received a reply on January 2, 1942, reiterating King's previous orders.*fn1 In consequence the "Tropic Star" transported the wool, instead of the copra; and the plaintiff, not obtaining other shipping accommodations, has made claim for its loss.

The plaintiff first sued Seas Shipping Co., Inc., as the contracting party in the New York state court. The case was tried by Justice Irving L. Levey, sitting without a jury, in March, 1945; and his opinion dismissing the suit is reported as L. N. Jackson & Co. v. Seas Shipping Co., 185 Misc. 94, 56 N.Y.S.2d 501. Dismissal was on two grounds: (1) that the direct intervention of a governmental mandate worked such a frustration of the contract as to excuse without question nonperformance by the defendant; and (2) that Seas Shipping was the agent of a disclosed principal, and not therefore liable to the plaintiff. The judgment was affirmed by the Appellate Division, 270 App.Div. 830, 61 N.Y.S.2d 371, and by the Court of Appeals, 296 N.Y. 529, 68 N.E.2d 605, without written opinion in either court. Then plaintiff sought a rehearing because of the decision just rendered by this court in Baker Castor Oil Co. v. Insurance Co. of North America, 2 Cir., 157 F.2d 3, certiorari denied 329 U.S. 800, 67 S. Ct. 494, 91 L. Ed. 684 (also relied on by the plaintiff and by the court below in this action); but the motion for reargument was denied without opinion. 296 N.Y. 635, 69 N.E.2d 483.

Thereafter plaintiff instituted this action and obtained the judgment from which this appeal is taken. Defendant here, as below, relies on the defenses that the order of the Maritime Commission cancelling the booking of copra excused performance, or alternatively that the findings, conclusions, and judgment of the New York Supreme Court, to the effect that the telegram from the Maritime Commission requiring the cancellation of the copra booking was a complete legal excuse for the noncarriage of that copra, are res judicata here. In rejecting these arguments, the district court awarded plaintiff damages based upon the difference between the sale price of the copra in East Africa, plus transportation charges, and its market value in New York in February, when the vessel should have arrived after a normal voyage. This was $64.19 a ton. Hence the shipper's loss of profits was $64,190, which, together with interest and costs, made up the total judgment of $91,381.51. On this appeal we shall direct our attention to the first contention.

With every succeeding war in which this nation has engaged, the impact of conflict upon the civilian populace has been more demanding and more complex. The "total war" now affecting all citizens, even upon what is now significantly termed the "home front," is quite different from the far distant battles of the Army and Navy in the Spanish American War, or even the substantially greater effort at war production of the First World War. Now it has become a recognized function of government to regulate industry, business, and even the personal lives of all to advance the war effort; and necessarily courts must interpret, supervise, and enforce these controls. True, actual war had not come in the summer and fall of 1941, though we were steadily limping along toward preparedness, as the legislation discussed in this case shows.It was of course the attack on Pearl Harbor which finally startled all into a realization of the need of governmental directives toward a common goal. After that, and with the onset of the submarine war, uncontrolled shipping was unthinkable. Of such revolutionary events the law must take note; indeed, there is high authority for the view that the precedents from former wars are inadequate guides for the mammoth conflicts of the present era. Writing in prophetic strain in the lee of World War I, Professor Dodd had urged that "courts are free to regard the problems arising out of governmental interference in wartime as to a large degree sui generis, and that they need not adhere strictly in cases of this sort to the precedents which have been established in the law of impossibility of performance in general, but are at liberty to reach the results most consistent with justice and public policy, as long as these results can be attained with due regard to the more fundamental principles of the law of contracts." Dodd, Impossibility of Performance of Contracts Due to War-Time Regulations, 32 Harv.L.Rev. 789, 791. So Judge Rose expressed similar views, The Isle of Mull, D.C.Md., 257 F. 798, 809, though, ironically, his decision was reversed for more complete exoneration of the promisor in 4 Cir., 278 F. 131, certiorari denied 257 U.S. 662, 42 S. Ct. 270, 66 L. Ed. 423. An ultimate conclusion may well be the legislation which was passed during the recent crisis and which is urged to be widely applicable. Pedrick and Springfield, War Measures and Contract Liability, 20 Tex.L.Rev. 710; Frey, Contract Defaults and Cancellations in Wartime, 38 Ill.L.Rev. 167, 169.

But all this seems in truth more the application of older principles to the new circumstances than a definite change or reversal of precedent. For it is well settled that a contractual duty is discharged, in the absence of circumstances showing either a contrary intention or contributing fault on the part of the person subject to the duty, where performance is subsequently prohibited by an administrative order made with due authority by an officer of the United States. Restatement, Contracts § 458(b), 1932; Williston on Contracts §§ 1938, 1939, Rev.Ed.1938. And this, in turn, is but the analogue of the situation where performance cannot be had because of the destruction of the subject matter or the death of the promisor or like cause. Restatement, Contracts §§ 457, 459. A pat example is found in the law of shipping itself, where the loss of the ship, before the time of voyage, dissolves the contract of carriage. Texas Co. v. Hogarth Shipping Corp., 256 U.S. 619, 630, 631, 41 S. Ct. 612, 65 L. Ed. 1123; The Tornado, 108 U.S. 342, 349-351, 2 S. Ct. 746, 27 L. Ed. 747. Here the parties, the court below, and the state court have framed the issue in terms of the "frustration" of a contract; but that, as Professor Corbin has said, may be "only perpetuating the use of a bad term to state the result." Corbin, Frustration of Contract in the United States of America, 29 J.Comp.Leg. & Int.L., Pts. III and IV, pp. 1, 7.It is more than the situation where the objectives of a contract are no longer possible of achievement, for the performance itself has become impossible. See also McElroy, Impossibility of Performance 130, 131, 169 et seq., 194, 1941. And since the parties may have stipulated as to, or at least had in mind, the very occurrence, the issue becomes one as to the fairness and justice of excusing performance in the light of the circumstances affecting the parties at the time they made their contract.

In fact that is the very issue to which the state court and the district court addressed themselves, though they reached opposing results. We agree that this is the sole issue on this branch of the case, notwithstanding the vigorous arguments of the plaintiff that supervening impossibility of performance was not shown. To us the overriding power of the American government seems so clear that the plaintiff's stress on this point suggests some sense of weakness on the main issue. Neither court was impressed by the claim that the governmental mandate here was not a real one; nor are we. Plaintiff's argument that Mr. King did not have the authority vested in the Maritime Commission is belied by the proof as to the duties he performed, the showing of the nature of his formal appointment, and the explicit testimony of his superior officer; the findings of his authority are more than justified. The same is true as to the findings that defendant intended to submit itself to the Ship Warrants system from October 5, 1941, on, notwithstanding that a warrant was not actually issued to this vessel, and in fact was not needed by it until it came later into American waters.

Finally the assertion that defendant, as a sovereign power, was not bound to obey the commands of an ally overlooks the realities of defendant's position, as well as the terms of its own commitment. This was a year and a half after the German invasion of Norway. Defendant was then a government in exile. Neither then nor later did it give sign of lack of loyalty to the allied cause; and it was one of the twenty-six countries which on January 2, 1942, subscribed to the "Declaration by the United Nations," as a pledge to pursue a common purpose against a common foe and to cooperate with each other in their common struggle. It was not likely, therefore, that it would join with the three countries of known Fascist sympathies - Argentina, Portugal, Spain - against the vast body of the world's neutral merchant marine, in refusing to accept the Ship Warrants system. Had it done so, the President's power to requisition foreign merchant vessels in American waters had already been granted by the Act of June 6, 1941, c. 174, 55 Stat. 242, 50 U.S.C.A.Appendix, § 1271, and was available for as effective use here as was its operation against, for example, the Danish vessels. Actually no question of that kind arose, for defendant clearly intended to accept the burdens of the Ship Warrants system and to carry out its obligations under it. The testimony by defendant's representatives, to the general purport that no dispute of power had occurred or would occur, bore this out rather than the contrary as plaintiff would have us believe. There is not the slightest doubt that Congress, in authorizing this system, intended it to have coercive effect; indeed this is stated by no means indirectly.*fn2 In fact, much less show of immediate and direct coercion would, it seems, have been adequate in law as a showing of impossibility by governmental command. Moore & Tierney, Inc., v. Roxford Knitting Co., D.C.N.D.N.Y., 250 F. 278, affirmed 2 Cir., 265 F. 177, 11 A.L.R. 1415, certiorari denied 253 U.S. 498, 40 S. Ct. 588, 64 L. Ed. 1032; Hulton & Co. v. Chadwick & Taylor, 34 T.L.R. 230; Dodd, supra at 767. And the reality of the coercion upon the defendant to carry the wool, instead of the copra, is not subject to doubt upon this record.

Hence we shall turn to the controlling question whether the defendant's promise was so without exception in law that, notwithstanding the governmental coercion, it must pay the plaintiff's lost profits on the transaction. In approaching this question the court below quoted in substance from an annotator in 157 A.L.R. 1446 in stating that the "doctrine of commercial frustration" is directed to affording relief "where the parties could not provide themselves by the terms of the contract against the happening of subsequent events, but it does not apply where the intervening event was reasonably foreseeable and could and should have been controlled by provisions of such contract." 83 F.Supp. at page 490. It carries forward this idea by asserting that this defendant, after making its "contract with the United States Government under the conditions of the Ship Warrants Act" then "knew or should have known that its future contracts for carriage were subject to the conditions and potential limitations" of that act and under such circumstances "cannot claim that the orders of the Maritime Commission were not foreseeable." And finally the act of the Maritime Commission "was not an exercise of vis major, but merely the exercise of a contractual right granted to it by the defendant." Id., 83 F.Supp. at pages 490, 491. This approach practically puts the burden upon the promisor to show non-foreseeability. Carried to its logical limits such a view would practically destroy the doctrine of supervening impossibility, notwithstanding its present wide and apparently growing popularity. Certainly the death of a promisor, the burning of a ship, the requisitioning of a merchant marine on the outbreak of a war could, and perhaps should, be foreseen. In fact, the more common expression of the rule appears to be in terms which tend to state the burden the other way, e.g., that "the duty of the promisor is discharged, unless a contrary intention has been manifested" or "in the absence of circumstances showing either a contrary intention or contributing fault on the part of the person subject to the duty." Restatement, Contracts §§ 457, 458; 6 Williston on Contracts § 1953, pp. ...

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