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EXXON Corp. v. Burbank

decided: January 31, 1975.


Appeal from a judgment of the Hon. Robert L. Carter, United States District Court for the Southern District of New York, awarding a recovery to plaintiff from defendant-appellant, and dismissing the latter's cross-claim against defendant-appellee.

Feinberg and Mulligan, Circuit Judges, and Bryan,*fn* District Judge.

Author: Mulligan

MULLIGAN, Circuit Judge:

On or about March 5, 1965 Exxon Corp. and A. L. Burbank and Co., Ltd., operating agent for various seafaring vessels, entered into a contract which provided that Exxon would sell fuel oil to Burbank for the remainder of the calendar year 1965. Accordingly, in October 1965 a quantity of fuel oil was delivered by Exxon in Venezuela to the S. T. Atlas, for which vessel Burbank was acting as operating agent. The amount due Exxon for this oil delivery, $22,006.00, was never paid, and this arrears has prompted the instant litigation.

The registered owner of the Atlas from August 27, 1958 until her judicial sale on March 10, 1966 was at all times Tankers & Tramps Corp. (Tankers). The Atlas was constructed pursuant to Title XI of the Merchant Marine Act, 46 U.S.C. ยง 1271 et seq., whereby the United States government, acting through its Maritime Administrator (Maritime), insured payment of the unpaid balance of the vessel's purchase price. More specifically, this meant that the first preferred mortgage and its accompanying promissory note, held by the Bowery Savings Bank, were insured by the federal government.

On September 26, 1960 this mortgage was transferred to the Irving Trust Co. (Irving); simultaneously, Tankers issued to Irving additional bonds, to replace the original promissory note, and these bonds too were federally insured.

On August 9, 1963 Tankers gave the government a new promissory note, in consideration of a government loan constituting the amount of a mandatory redemption of its bonds; to secure payment of this note, Tankers executed in the government's favor a second preferred mortgage on the Atlas.

On November 4 of the same year Tankers and the government's Military Sea Transportation Service (MSTS) entered into a written charter agreement, signed by defendant Burbank as agent for Tankers, whereby the Atlas was chartered to the United States for a minimum of 5 years; this charter was in force at the time of the fuel-oil sale that is the subject of this action. Under the terms of the charter the anticipated rate for fuel oil was included in a freight rate to be paid by MSTS; in case of a rise in fuel-oil prices, a corresponding rise in the freight rate was provided for.

On July 1, 1964 Tankers and Burbank entered into an agency agreement concerning the Atlas's operation. Pursuant to this agreement an account was established at Irving ("payment account") to receive the earnings of the vessel, i.e., freight paid by the government under the charter, and from which Burbank could withdraw the funds needed to pay the Atlas's operating expenses, including, naturally, fuel oil.

Approximately a year later, Tankers, being unable to make the payment necessary to redeem certain bonds due, successfully applied to Maritime for an advance loan of $276,000.00, and to Irving for an advance loan of $325,000.00. Consequently, on July 26, 1965, contracts were executed between Tankers and Maritime (contract No. MA-3927), and Tankers, Irving, and the government (contract No. MA-3928). The latter is excerpted in significant part in the margin.*fn1

In accordance with the latter contract a "cash collateral" account was set up at Irving to receive the earnings of the Atlas, out of which the advances from Irving and Maritime could be repaid. Burbank, as the ship's agent, had no authority to withdraw funds from this account for the ship's operating expenses, but rather had to submit statements for expenses to Maritime for approval; if approval was forthcoming, funds would be transferred from this account to the other "payment" account at Irving, discussed supra, from which Burbank could make payment. There was testimony which indicated that Maritime's approval was routinely given for operating expenses.

In October 1965 Irving was repaid in full for its advance to Tankers.

In December of the same year Burbank sought transfer of $40,948.65 from the "collateral" account to the "payment" account, so that Burbank could pay off certain operating expenses, including the fuel-oil bill from plaintiff. However, on January 6, 1966 and without prior notice to Burbank, Maritime withdrew $210,000.00 from the collateral account to be applied toward repayment of the still-outstanding Maritime advance. This withdrawal so depleted the collateral account that insufficient funds remained to pay off the operating expenses charged, including plaintiff's fuel-oil bill.

Exxon sued both Burbank and the federal government in order to secure payment for the oil. The case was tried before the Hon. Robert L. Carter in the Southern District of New York, who, on March 14, 1974, rendered judgment for plaintiff against Burbank for $31,111.00, inclusive of interest, plus costs; plaintiff's suit against the ...

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