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TEXACO EXPORT v. OVERSEAS TANKSHIP CORP.

March 28, 1979

TEXACO EXPORT, INC. and CHEVRON OIL SALES CO., Plaintiffs, against OVERSEAS TANKSHIP CORP. and GETTY TANKERS LTD., Defendants, and UNITED STEAMSHIP CORP., Defendant and Third-party Plaintiff, against GETTY OIL CO., Third-party Defendant.


The opinion of the court was delivered by: PALMIERI

On February 12, 1971, the tanker Wafra left Ras Tanura, Saudi Arabia, bound for Capetown, South Africa, with a cargo of 472,513 barrels of crude oil. On February 28, the ship was stranded on a reef off the South African coast, and on March 12, South African authorities towed her away and sank her. The vessel and her entire cargo were lost.

After the plaintiffs sued in 1972 to recover damages for the loss of the cargo, a partial settlement was reached and an interlocutory judgment was entered on consent in November, 1975. Under the terms of the judgment, Getty Tankers Ltd. ("Getty"), the owner of the vessel, agreed to pay 621/2% of plaintiffs' provable damages. The ascertainment of these damages was referred to a Special Master later designated by the court acting upon the suggestion of counsel. *fn1" The Special Master, Hon. Herbert M. Lord, found that although those damages included the F.O.B. price of the cargo, a matter which Getty did not contest, they did not include the ocean freight:

I have concluded that the plaintiffs have not sustained the rather heavy burden of establishing that there was an enforceable oral agreement pertaining to the WAFRA shipments which committed them to pay freight irrevocably to Overseas. I therefore find on this record that Overseas had not earned freight on the WAFRA shipments prior to the casualty and that plaintiffs are not entitled to include such freight in their damage computation. *fn2"
 
In a memorandum opinion filed May 17, 1977, this court adopted the findings of the Special Master. Texaco Export, Inc. v. Overseas Tankship Corp., 477 F. Supp. 289 (S.D.N.Y.). *fn3"
 
On an appeal taken by plaintiffs, the Court of Appeals reversed the holding that defendant Overseas Tankship Corp. ("Overseas") had not earned freight on loading of the Wafra "§ cargo and remanded for additional findings of fact. 573 F.2d 717 (2d Cir. 1978). *fn4" The plaintiffs made contentions on their appeal to the effect that their oral charter arrangements incorporated the provisions of written contracts by which freight to the discharging port was earned on cargo as loaded. Id. at 720, 721. The remand for additional findings was made as a result of these contentions, which the Court of Appeals characterized as "plausible and reasonable enough to warrant the most serious consideration." Id. at 723. Mr. Lord was again appointed Special Master on March 10, 1978, for the purpose of making these additional findings. *fn5"
 
Three of the four witnesses *fn6" who had testified at the 1976 hearings gave additional testimony, and new exhibits were received in evidence. No new witnesses were called by either party. Getty submitted no testimonial evidence at either the first or second set of hearings, and only one exhibit at the first hearing, unrelated to this matter. This is not surprising, since it can be fairly assumed that Getty had no evidence on the issue of plaintiffs' and Overseas' agreements, which allegedly formed the basis for the "freight earned on loading" provision of the oral charter asserted by plaintiffs.
 
The Special Master's second report *fn7" again found that Overseas had not earned freight on loading. Oral argument was heard by this court on February 22, 1979, on plaintiffs' motion to reject the report and to increase the amount of the judgment entered in their favor so as include the cost of the ocean freight, and defendants' cross-motion to adopt the report and to enter final judgment in accordance with this court's earlier judgment entered on June 7, 1977.
 
The crucial issue before us on this remand, therefore, is whether freight was irrevocably earned by Overseas when the cargo was loaded, so that the freight constituted part of the value of the lost cargo and thus part of plaintiffs' damages. 573 F.2d at 723. It is common ground that only if Overseas earned the freight on loading is it includable in the plaintiffs' damages.
 
We hold that the plaintiffs have not sustained their burden of proving that the freight was earned on loading. Therefore, the common-law rule that freight is not earned until delivery of the cargo must apply. See G. Gilmore & C. Black, The Law of Admiralty § 4-7, at 210 (2d ed. 1975); W. Poor, American Law of Charter Parties and Ocean Bills of Lading § 28, at 77 (5th ed. 1968). *fn8" It follows that the freight is not an element of plaintiffs' damages and not recoverable as part of the loss incurred by the plaintiffs.
 
I. Background
 
The Wafra "§ cargo of crude oil had been consigned to Caltex South Africa, a subsidiary of California Texas Oil Corp. ("Caltex"), the stock of which is held by joint venturers Standard Oil of California ("Standard Oil") and Texaco, Inc., which are also the parent companies respectively of plaintiffs Chevron Oil Sales Co. ("Chevron") and Texaco Export, Inc. ("Texaco"). Under the terms of a 1970 preliminary agreement between Standard Oil and Texaco, Inc., sales of crude oil to Caltex in South Africa were to be on a "destination sales" (C.I.F.) basis, and title would not pass until delivery of the cargo at its destination. When the Wafra "§ cargo was lost, therefore, title still remained in plaintiffs, each of which had an undivided half-interest in it.
 
Because of the plaintiffs' contention that in January, 1971, Overseas supplied the vessel under an oral charter to plaintiff Chevron, which allegedly, in turn, orally subchartered half her cargo space to plaintiff Texaco, it became necessary for the Special Master to consider evidence of the ownership and control of the Wafra herself at the time of her loss. This contention required the examination of several charter and subcharter agreements. The vessel's actual owner was defendant, Getty, which supplied her under a long-term time charter agreement dated October 1, 1961, to third-party defendant Getty Oil Co. ("Getty Oil"). On April 7, 1970, Getty Oil provided the vessel under five-year head charter to defendant (and third-party plaintiff) United, which supplied her under a twelve-month consecutive voyage charter, dated June 22, 1970, to defendant Overseas, a subsidiary of Standard Oil.
 
California Transport Corp. (since renamed Chevron Transport Corp.) ("California"), a tanker company, had agreed in writing on April 1, 1959, to supply oil tankers to Standard Oil and its affiliates, including Chevron. On May 1, 1967, California also agreed in writing to supply tankers to Caltex. In a written contract dated June 1, 1970, Overseas agreed to supply California with the tankers it needed to supply Standard Oil and Caltex under California's two earlier contracts. Both California's 1959 and 1967 agreements and Overseas' 1970 agreement with California expressly incorporated by reference *fn9" the terms of Part II of the "Warshipoilvoy" form of tanker voyage charter, *fn10" under which freight is fully and "irrevocably" earned on loading, "ship and/or cargo lost or not lost."
 
The alleged agreement of charter between defendant Overseas and plaintiff Chevron, acting in effect on behalf of both itself and Texaco, was assertedly an oral one, as was the alleged agreement between the two plaintiffs themselves. The plaintiffs contend that Overseas' oral charter of the vessel to Chevron was governed by two earlier, written agreements, just described: California's agreement of April 1, 1959, to supply tankers to Standard Oil and its affiliates, and Overseas' agreement of June 1, 1970, to provide California with tankers to fulfill California's obligations to Standard Oil and Caltex. According to the plaintiffs, the Wafra was chartered pursuant to the terms of the 1970 agreement, which expressly incorporated the 1959 contract, including the freight-earned-on-loading term of the Warshipoilvoy charter form.
 
The evidence adduced at the hearings before the Special Master consists primarily of documents relating to draft and final transportation agreements between the plaintiffs' corporate parents, and between the plaintiffs themselves, *fn11" dealing with destination sales such as the one contemplated in this case, and providing that freight would be earned on loading; testimony relating to the plaintiffs' alleged agreement with Overseas; and evidence of ...

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