Appeal from a judgment and order of the United States District Court for the Southern District of New York (Kevin T. Duffy, Judge ), which denied defendant-appellant the right to limit its liability for lost cargo, under the Carriage of Goods by Sea Act, 46 U.S.C. § 1304(5), to two pallets of goods. Reversed.
Before Moore and Newman, Circuit Judges, and Tenney, District Judge*fn*
This appeal calls into question the package liability limitation imposed by section 4(5) of the Carriage of Goods by Sea Act ("COGSA"), 46 U.S.C. § 1304(5). The defendant, Yang Ming Marine Transport Corporation ("Yang Ming"), a Taiwanese company, is the owner and operator of the S.S. Yang Ming, on which was shipped a cargo of screws, bolts, nuts, studs, and washers, to be delivered to its purchaser, the plaintiff Allied International American Eagle Trading Corporation ("Allied"). The cargo was never delivered, for which the defendant concedes liability, but the parties disagree on the proper damage limitation. The missing goods were packed on two pallets, one holding nine cartons, the other holding ten drums of cargo. The defendant contends that the pallets should be considered "packages" within the meaning of the statutory $500 limitation, while the plaintiff argues that each carton and drum should be considered a "package." After a one-day bench trial, the district court made findings of fact and conclusions of law in the plaintiff's favor. Accordingly, the defendant was held liable for the loss of 19 packages, which were valued at $8500. We reverse and hold that, under the circumstances of this case, the two pallets should be considered "packages" under the statute, thus subjecting the defendant to a maximum liability of $1000.
In this case, under the heading "No. of Containers or P'kgs.," the bill of lading listed eighteen pallets, two cases, and ten drums, with a total listed as "30 Packages." Under the heading "Description of Packages and Goods," there is a parenthetical listing of the number of cartons, cases and drums on each pallet, as well as the point of origin and a general legend reading "Screws, Bolts, Nuts, Studs." Below all of this information, a printed line requires the parties to fill in the "Total Number of Packages or Units (in words)," after which is typed "Thirty (30) Packages Only." In the opinion below, the court considered the parenthetical descriptions to come under the heading "No. of Containers or P'kgs." We disagree,*fn1 but even if they had, we are convinced that the case is controlled by the explicit statements in the bill of lading that the total number of packages was thirty. In order to reach a total of thirty, one must count the pallets as "packages."*fn2
Although we find this case to be governed by a straight-forward contract analysis, it may be helpful for us to review the legal history of "the troublesome conundrum: When is a package not a package?" Mitsubishi Int'l Corp. v. S.S. Palmetto State, 311 F.2d 382, 383 (2d Cir. 1962), cert. denied, 373 U.S. 922, 83 S. Ct. 1523, 10 L. Ed. 2d 422 (1963). The statute turns on the meaning of "package," but nowhere defines the term. Because of the capaciousness of the word, we are left with an overabundance of candidates for informing the standard, "package."*fn3 Black's Law Dictionary defines "package" as "(a) bundle put up for transportation or commercial handling; a thing in form to become, as such, an article of merchandise or delivery from hand to hand.... As ordinarily understood in the commercial world, it means a shipping package." This definition confirms our intuition about what a package is, but it does little to establish a satisfying legal standard. First, we must discount the phrase, "from hand to hand," for "Paul Bunyan himself would have had difficulty in delivering three 321/2 ton crates "hand to hand.' " Mitsubishi Int'l Corp. v. S.S. Palmetto State, supra, 311 F.2d at 383. But more generally, Black's does not explain how to set liability when a carton on a pallet is loaded onto a container ship-a bundle within a bundle within a bundle, each "put up for transportation or commercial handling." The qualification, "(a)s ordinarily understood in the commercial world," adds a note of common sense, but once the cargo is lost, one finds that the only thing ordinary is that a dispute about how to interpret the package limitation will ensue. And despite the number and length of this court's opinions on the subject, we still find pockets of legitimate disagreement, presenting appealable issues, in an area where Congress intended to foster certainty and security in the shipping business. Cameco, Inc. v. S.S. American Legion, 514 F.2d 1291, 1297 (2d Cir. 1974).
Starting with the dictionary, "a source of interpretation not to be wholly disregarded although by no means controlling," Nichimen Co. v. M. V. Farland, 462 F.2d 319, 334 (2d Cir. 1972), this court has derived a working definition of the term, "package," as "a class of cargo, irrespective of size, shape or weight, to which some packaging preparation for transportation has been made which facilitates handling, but which does not necessarily conceal or completely enclose the goods." Aluminios Pozuelo Ltd. v. S.S. Navigator, 407 F.2d 152, 155 (2d Cir. 1968). Beyond the common sense application of the term, "package," the liability limitation must be interpreted in light of section 4(5)"s dual purposes: to limit liability, but to "(make) null and void any agreement reducing the carrier's liability below that level." Mitsui & Co. v. American Export Lines, Inc., 636 F.2d 807, 814 (2d Cir. 1981) (footnote omitted). "No doubt the drafters had in mind a unit that would be fairly uniform and predictable in size, and one that would provide a common sense standard so that the parties could easily ascertain at the time of contract when additional coverage was needed, place the risk of additional loss upon one or the other, and thus avoid the pains of litigation." Standard Electrica, S.A. v. Hamburg Sudamerikanische Dampfschifffahrts-Gesellschaft, 375 F.2d 943, 945 (2d Cir.), cert. denied, 389 U.S. 831, 88 S. Ct. 97, 19 L. Ed. 2d 89 (1967) (footnote omitted) (hereinafter "Standard Electrica"). In short, COGSA sought to remedy the inadequate coverage often found in carriers' adhesion contracts, while establishing a contractual setting which would "ensure uniformity in the basic rights and responsibilities arising out of bills of lading." Mitsui & Co. v. American Export Lines, Inc., supra, 636 F.2d at 815.
Many decisions through the years have considered whether large pieces of cargo should be deemed "packages" because of wrappings, boards, or skids attached to them to facilitate transportation and/or to protect them during shipping. The results of these cases varied. See, e.g., Hartford Fire Ins. Co. v. Pacific Far East Line, Inc., 491 F.2d 960, 965 (9th Cir.), cert. denied, 419 U.S. 873, 95 S. Ct. 134, 42 L. Ed. 2d 112 (1974) ("Any distinction based upon the subjective purpose for which the skid was attached should not be the test for resolving the issue.... To hold that somehow a "package' evolved from the mere attachment of the machine to a wooden skid seems a highly unreasonable result."); Aluminios Pozuelo Ltd. v. S.S. Navigator, supra, 407 F.2d at 155 (three-ton toggle press, bolted to a skid and described as "ONE (1)" package in the bill of lading, held to be a "package"); and cases collected therein. Generally, "regardless of size, where cargo is fully crated or boxed, reported cases have held that the items are "packages' within the meaning of COGSA.... Difficulties have arisen only in the few cases where the items shipped are partially packaged, and the cases have gone both ways." Aluminios Pozuelo Ltd. v. S.S. Navigator, supra, 407 F.2d at 155 (collecting cases). In this case, neither side disputes that the cargo was packaged; the issue is whether the cartons or the pallets should be considered "packages." The machinery cases are pertinent insofar as they indicate that the parties' expressed agreement is an important, if not controlling, factor.
The use of containers to ship goods created another area of contention. Containers are very large, oblong metal boxes, resembling trucks without wheels or cabs. Indeed, "(i)n some instances an entire trailer may be uncoupled from its tractor-truck on the pier and placed aboard the carrier." Standard Electrica, supra, 375 F.2d at 945. Naturally, carriers and their insurers attempted to turn this technological advance into a financial one too, by arguing that containers are "packages" for which shippers can recover only $500. The courts, however, rejected this attempt, holding that they could not "escape the belief that the purpose of § 4(5) of COGSA was to set a reasonable figure below which the carrier should not be permitted to limit his liability and that "package' is thus more sensibly related to the unit in which the shipper packed the goods and described them than to a large metal object, functionally a part of the ship, in which the carrier caused them to be "contained,' " Leather's Best, Inc. v. S.S. Mormaclynx, 451 F.2d 800, 815 (2d Cir. 1971) (footnote omitted) (emphasis supplied). Expanding upon the distinct characteristics of containerization, this court has written:
The container revolution added a new dimension to the problem. See generally Schmeltzer & Peavy, Prospects and Problems of the Container Revolution, 1 JML&C 203 (1970). In contrast to the wooden pallets in Standard Electrica, which were 39 in length, 33 in width and 42 in height and carried only six cartons each, containers are large metal boxes resembling truck trailers save for the absence of wheels, roughly 8' high, 8' wide and with lengths up to 40', see Simon, The Law of Shipping Containers, 5 JML&C 507, 510 (1974), capable of carrying hundreds of packages in the normal sense of that term. Unlike the pallets in Standard Electrica, which were provided by the shipper, containers are typically supplied by the carrier, must be returned to the carrier by the consignee, and are used and reused hundreds of times. Many ships, including the S.S. Red Jacket, are so constructed that shipments must be made in containers. The shipper normally pays for the weight of the pallet but not for that of the container.... The Supreme Court has observed, in a different but not unrelated context, that "the container is a modern substitute for the hold of the vessel." Northeast Marine Terminal Co., Inc. v. Caputo, 432 U.S. 249, 270, 97 S. Ct. 2348, 2360, 53 L. Ed. 2d 320 (1977).
Mitsui & Co. v. American Export Lines, Inc., supra, 636 F.2d at 816.
After the decision in Leather's Best, Inc. v. S.S. Mormaclynx, supra, this circuit began to pursue a "functional economics test," which dictated that where the shipper's units are functional as packages, the container is presumptively not a package unless the carrier proves otherwise. Cameco, Inc. v. S.S. American Legion, supra; Royal Typewriter Co. v. M/V Kulmerland, 483 F.2d 645 (2d Cir. 1973). In Mitsui & Co. v. American Export Lines, Inc., supra, however, this court firmly retreated from the "functional economics test," noting that "(t)his opinion (abandoning the Kulmerland analysis) was circulated to all active judges of the Court prior to filing." 636 F.2d at 821 n. *. Instead, the court reaffirmed its holding in Leather's Best, Inc. v. S.S. Mormaclynx, supra: "at least when what would ordinarily be considered packages are shipped in a container supplied by the carrier and the number of such units is disclosed in the shipping documents, each of those units and not the container constitutes the "package.' " Mitsui & Co. v. American Export Lines, Inc., supra, 636 F.2d at 817. The rationale for this rule is that the "functional economics test" would force the parties to guess about their COGSA status and therefore would cause shippers to "incur the wasteful expense of supplying packaging unnecessary for container shipment simply to avoid having the container deemed the package." Id. at 818.
The opinion in Leather's Best, Inc. v. S.S. Mormaclynx, supra, left unanswered "what the result would be if (the shipper) had packed the (cargo) in a container already on its premises and the bill of lading had given no information with respect to the number of (units)." 451 F.2d at 815. In Leather's Best, the bill of lading indicated the "Number and kind of packages" to be "1 container i§ (said to contain) 99 bales of leather." 451 F.2d at 804. (A bale consisted of a carton 4' by 2' by 11/2' with steel straps around it.) Given the contractual descriptions of the cargo, and the fact that the carrier supplied the container and had an employee observe its loading, the court held that each bale constituted a package. The opinion, however, admitted "the possibility that there might be some instances where a container might be the package, e.g., when the shipping documents, like those in Standard Electrica, gave the carrier no information as to the contents." Mitsui & Co. v. American Export Lines, Inc. supra, 636 F.2d at 817.
In those cases which made use of "the possibility that ... a container might be a package," a departure from the general rule was justified by one or more of several factors: the contractual terms in the bill of lading, the lack of notice of the container's contents, and/or the absence of another unit to consider a package. For example, in Rosenbruch v. American Export Isbrandtsen Lines, Inc., 543 F.2d 967 (2d Cir.), cert. denied, 429 U.S. 939, 97 S. Ct. 353, 50 L. Ed. 2d 308 (1976), the court found "about as clear a (case) as we have seen for holding that the container constituted a package for the purposes of Section 4(5) of COGSA." Id. at 970. There, the shipper stated on the bill of lading that the "No. Of Cont. Or Other Pkgs." was "1" and described the cargo as "used household goods," representations which were considered "of particular importance." Id. at 969 n.3. In addition, the goods were not separately packed or labelled, and, "absent a container, would not have been shipped in separate packages. They would have been shipped in a large wooden crate or container approximating the size of the metal container that was actually used." Id. at 970. Furthermore, despite the discussion of the "functional economics test" in Royal Typewriter Co. v. M/V Kulmerland, supra, the outcome of that case is fully consistent with Leather's Best, Inc. v. S.S. Mormaclynx, supra, and with Rosenbruch v. American Export Isbrandtsen Lines, Inc., supra. In Kulmerland, under the heading "Number and kind of packages; description of goods," the bill of lading represented each of three containers as " "1 Container said to contain Machinery,' without any reference to the number of cartons of adding machines or to the fact that the "Machinery' consisted of adding machines." 483 F.2d at 646.
Since Leather's Best Inc. v. S.S. Mormaclynx, supra, the cases holding that containers were not "packages" have turned on the parties' contractual understanding, the appropriateness of the shipping units within the container as "packages," and the carrier's awareness of those commercially ordinary units. In Cameco, Inc. v. S.S. American Legion, supra, for instance, the court held that 270 cartons and four pallets should be considered the "packages," rather than the container in which they were shipped. Under the heading, "Number and Kind of Packages-Description of Goods," the bill of lading said "-1- container said to contain:" and then listed the number of cartons and pallets, specifying the number of tins and weights contained in ...