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TEXACO Export Inc. v. Overseas Tankship Corp.

March 2, 1978

TEXACO EXPORT, INC., AND CHEVRON OIL SALES CO., PLAINTIFFS-APPELLANTS,
v.
OVERSEAS TANKSHIP CORP., DEFENDANT, AND GETTY TANKERS LTD., DEFENDANT-APPELLEE, AND UNITED STEAMSHIP CORP., DEFENDANT-THIRD PARTY PLAINTIFF-APPELLEE, V. GETTY OIL CO., THIRD PARTY DEFENDANT-APPELLANT



Appeals from a judgment of the United States District Court for the Southern District of New York, Edmund L. Palmieri, Judge, adopting the report of Special Master Herbert M. Lord in a damage suit resulting from the destruction of a ship and its oil cargo.

Mulligan, Oakes and Van Graafeiland, Circuit Judges.

Author: Oakes

OAKES, Circuit Judge

The transactions which form the basis of these appeals illustrate the Byzantine complexity of international oil dealings as practiced by the major oil companies, the so-called "Seven Sisters." Beneath the corporate mosaics, however, lie relatively simple damage claims which, in the case of the principal appeal, turn upon questions of contractual interpretation and, in the case of the third party appeal, are readily solved by well-recognized principles of damage calculation. On the principal appeal, we reverse and remand to the United States District Court for the Southern District of New York, Edmund L. Palmieri, Judge, with instructions to make, or to refer to the special master to make, specific factual findings on the terms of the two charters involved to determine whether appellants' damages include freight costs. With regard to the third party appeal, we affirm the award of lost voyage profits since they are not too speculative or remote.

I. THE COMMON FACTS

The S/T Wafra was stranded and subsequently destroyed pursuant to governmental authority off the coast of South Africa in February or March, 1971, resulting in a total loss of its cargo of crude oil in bulk. One-half of the cargo was owned by Chevron Oil Sales Co. (Chevron) and one-half by Texaco Export, Inc. (Texaco). They were the plaintiffs below and are the appellants here. The owner of the vessel, defendant-appellee (cross-claim defendant below) was Getty Tankers Ltd. (Getty Tankers). The Wafra was operating under a long-term time charter to Getty Oil Co. (Getty Oil), third party defendant-appellant. By a time charter dated April 7, 1970, Getty Oil subchartered the vessel to United Steamship Corp. (United), defendant below and third party plaintiff-appellee here, for five years. United, in turn, subchartered the Wafra to Overseas Tankship Corp. (Overseas), defendant below, under a twelve-month consecutive voyage charter. In January, 1971, Overseas as disponent owner entered into an oral subcharter with Chevron as charterer for the entire capacity of the vessel (Overseas/Chevron charter), for the carriage of a full cargo of crude oil from Ras Tanura, Saudi Arabia, to Capetown, South Africa. Thereafter, Chevron agreed to an oral charter for one-half of the vessel's carrying capacity with Texaco (Chevron/Texaco charter) at the same rate of freight that Chevron was obligated to pay Overseas under the Overseas/Chevron charter.

After suit was commenced, the parties reached a settlement on the merits in November, 1975. Getty Tankers agreed to pay 62.5% of the provable damages incurred by Chevron and Texaco from the loss of their cargo.*fn1 Additionally, Getty Tankers and Getty Oil agreed to pay United 62.5% of its provable damages. Herbert M. Lord was appointed special master to ascertain the damages sustained by Chevron, Texaco and United. The parties thereafter agreed on most of the damage calculations, with the exception of the two questions which constitute the issues on appeal.

The principal dispute centered on whether Chevron's and Texaco's damages included freight charges which they in fact paid to Overseas. Resolution of this issue, in turn, necessitated determination of another disputed question - whether the Overseas/Chevron or Chevron/Texaco charters, or both, provided that freight would be earned irrevocably upon loading. If both, Chevron was legally obligated to pay Overseas for the carriage of the entire cargo, and Texaco was legally obligated to pay Chvron for the carriage of Texaco's share of the cargo. With regard to the third party appeal, the parties disagreed on whether United was entitled to include in the calculation of its damages profits lost on the voyage in progress at the time of Wafra's destruction.

The special master found against Chevron and Texaco, recommending to the district court that the freights be excluded from their damage computations. Without a hearing, the district court approved the special master's conclusions in a memorandum decision. Accordingly, it awarded Texaco and Chevron $463,736.94 (representing 62.5% of the invoice value of the cargo ($737,129.89), plus 62.5% of the fees of a salvage master ($4,849.23)), which did not take into account the freights paid. The district court also followed the special master's report on the third party claim, and awarded United $187,871.01 (representing 62.5% of $164,326.71 lost profits plus 62.5% of $136,266.96 out-of-pocket expenses).

II. THE PRINCIPAL APPEAL

Chevron and Texaco urge that under the terms of both the Overseas/Chevron and the Chevron/Texaco oral charters the freights were earned and became nonreturnable once the cargo was loaded. That is, at the time of loading, Chevron was obligated to pay the freight charges to Overseas for the carriage of the entire cargo, whether or not the ship and its contents later arrived at the destination; similarly, Texaco was obligated to pay Chevron one-half of the freight charges. All parties agree that if the charters contained an earned prepaid freight provision,*fn2 the freights should be included in the computation of appellants' damages.*fn3 Conversely, in the absence of such an agreement freight is not earned until the cargo is delivered, and thus appellants' damages would not include freight. E.g., The Kimball, 70 U.S. (3 Wall.) 37, 44-45, 18 L. Ed. 50 (1865); Hellenic Lines, Ltd. v. United States, 512 F.2d 1196, 1203, 1209 (2d Cir. 1975); see The Nat Sutton, 62 F.2d 787, 790-91 (2d Cir. 1933).

A. The Overseas/Chevron Charter

Appellant's chief contention before the special master was that the Overseas/Chevron agreement is governed by two prior, formally executed contracts still in force. Both contracts incorporated an earned-on-loading freight provision, thereby making the freight actually paid to Overseas ($316,667.52)*fn4 an element of Chevron's damages. A complete understanding of the relationship between these prior agreements and the Overseas/Chevron charter requires a brief genealogical review of Standard Oil of California (Standard Oil) and some of its affiliates.

Chevron, whose function is to market crude oil outside of the United States, is a Standard Oil affiliate. A Standard Oil subsidiary formerly named California Transport Corp., now named Chevron Transport Corp. (California), is a tanker company. Overseas is also a Standard Oil subsidiary and a tanker company. Both of these tanker ...


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