CONTRACTS OF AFFREIGHTMENT, BILLS OF LADING AND CHARTER PARTIES
=1. Definitions.=--Contracts of affreightment are for the carriage of
goods in vessels. This definition is sufficiently comprehensive to
include contracts evidenced by bills of lading and charter parties. In
practice the expression, "contracts of affreightment," is commonly used
in a somewhat narrower sense to indicate those cases in which a vessel
is operated by her owners on their own account, contracting directly
with the shippers.
A bill of lading is the document issued for carriage of goods which form
only a part of the cargo; it is both a receipt and a contract of
carriage.
A charter party is a contract in writing by which the shipowner lets the
ship in whole or in part. It corresponds to a lease of lands or
buildings. The name comes from the fact that it was formerly prepared on
a card which was then cut into two parts from top to bottom (_carta
partita_) and each of the parties retained one for production when
required and thus prevented counterfeiting.
By an order dated October 1, 1920, made pursuant to the provisions of
the Merchant Marine Act (see Appendix), the Shipping Board requires two
certified copies of every charter or contract of affreightment made on
American or foreign steam or sailing vessels leaving continental United
States to be filed with the Chartering Executive Committee, 45 Broadway,
New York, which will then issue a certificate of filing. Unless this is
done, clearance will be refused the vessel; but where there is not time
to file certified copies before sailing, a letter or telegram to the
Committee, giving all details of the contract, will answer the purpose.
General cargo and passenger vessels, those in ballast and those carrying
cargo for owners are not subject to this regulation.
Freight is the price of the carriage of goods by sea under a bill of
lading, and also the sum agreed on for the hire of the ship under a
charter party.
Before discussing the particular features of these contracts it will be
well to observe certain elements which enter into substantially all
contracts for the carriage of goods for hire. These are the warranty of
seaworthiness, the obligation against deviation and the exemption of the
carrier from liability on account of the perils of the sea.
In the Chapter, "Liabilities and Limitations," § 10, will be found a
discussion of the Harter Act. This must be taken into consideration in
connection with these subjects.
=2. Seaworthiness.=--The warranty of seaworthiness underlies all
contracts between the vessel and the shipper. It is an implied warranty
on the part of the owner that the vessel is seaworthy, and sufficient
for the use to which she is to be devoted. This warranty may be modified
between the parties as they see fit by express agreement or necessary
implication; a man may hire an unseaworthy boat and agree to put her in
good condition; a charterer who examines and accepts a ship whose
condition is defective cannot complain of an injury to the cargo caused
by such defects. Otherwise the warranty subsists and the charterer
cannot be held liable to the owner for depreciation in the ship
resulting from unseaworthiness and has also the right to cancel the
charter on the same ground. He may also hold the owner for such damages
as he is obliged to pay third parties on account of unseaworthiness.
This warranty, unless restricted by agreement, extends to latent or
hidden defects, since it requires that the ship be seaworthy at the
commencement of the voyage and is not satisfied by the fact that the
shipowner does not know her to be unseaworthy or has used his best
efforts to make her seaworthy. It runs up to the time she breaks ground
for the voyage, but is modified by the results of subsequent excepted
perils until it is reasonably practicable to repair them.
In Bowring _v._ Thebaud, 56 Fed. 520, it was held:
The shipowner in every contract of affreightment impliedly engages with
the shipper of the goods that his ship on the commencement of her
voyage is seaworthy for that voyage and supplied with a competent crew.
And the following statement of the law, from Carver on _Carriage by
Sea_, was approved:
The warranty of seaworthiness for a voyage must be satisfied at the
time of sailing with the cargo. It is not sufficient that the ship was
fit for the voyage while the cargo was being taken on, if she became
unfit before she started. The warranty in truth appears to be a double
one, viz., that the ship shall be fit to receive the cargo when
receiving it and shall be fit to sail at the time of sailing.
The Court proceeded:
The warranty that the vessel is tight and fit for the employment for
which she is offered,--that is, for the contemplated voyage on which
she is to carry cargo,--is the very foundation and substratum of the
contract of charter. The exception in a charter party as to dangers of
the seas and navigation is not applicable to the perils and dangers
which arise from the breach of the owner's obligation. Consequently it
does not apply to the warranty of seaworthiness. Undoubtedly in cases
where, under the language of the charter party, the warranty is
satisfied if the vessel is seaworthy at the commencement of a voyage
preliminary to her being laden, the shipowner is relieved by the
exception from liability for any peril of the seas or navigation which
are subsequently encountered without fault or negligence on his
part.... In all of these adjudications, the question was as to the
meaning of the contract of the parties. This must be decided in each
case by applying the rules of interpretation to the contract on hand.
=3. Deviation.=--The ship must cover the proposed voyage without
deviation. Deviation is defined to be "a voluntary departure without
necessity or reasonable cause, from the regular and usual course of a
voyage" (Hostetter _v._ Park, 137 U. S. 30). Deviation makes the carrier
liable for losses occasioned thereby as an insurer notwithstanding any
limitation of liability in the contract of carriage. It may be excused
for the purpose of saving life or avoiding perils if the master acts in
accordance with sound judgment, and it is excused if it be the custom of
the trade to put in at a particular port on similar voyages. The
consignee, if he intends to insist upon the deviation as a defense to
his liability for freight, should refuse to receive the cargo.
An instructive discussion of the rule with regard to deviation is found
in the case of the Indrapura, 171 Fed. 929, where a vessel bound from
Hong Kong to Portland, Oregon, was placed on a drydock at Hong Kong
without maritime necessity and there caught fire, whereby the cargo was
injured. The owners of the cargo libeled the ship for their damages,
alleging that the unnecessary docking of the ship was a deviation. The
Court said:
The term "deviation" in the law of shipping has at the present day a
varied meaning and wide significance. It was originally employed no
doubt, for the purpose its lexicographical definition implies, namely,
to express the wandering or straying of a vessel from the customary
course of voyage; but it seems now to comprehend in general every
conduct of a ship or other vehicle used in commerce tending to vary or
increase the risk incident to a shipment. Thus delay in starting a
shipment when unreasonable or unexcused came to be regarded as a
deviation, not because the vehicle employed departed from the usual
route of travel, but because the risk of shipment was changed or
increased, and became, in effect, not the same as the one with
reference to which the parties contracted.
And in Bulkley _v._ Insurance Co., Fed. Cas. No. 2,118, it was said:
The shortness of time or distance of deviation is immaterial if
voluntary and without necessity, and not justified by usage.
The contract of carriage frequently purports to give the ship liberty to
make deviation. This is construed strictly against the owner of the
vessel. She may make only "reasonable deviation." She may call at a port
lying directly on the route of her voyage, but may not go out of her way
to any considerable degree, and if she does so and the shipper is
damaged the exemption will not avail to protect her owner.
=4. Perils of the Sea.=--Almost every contract in respect of employment
of the ship contains an express or implied exception of perils of the
seas. This provides an exemption of liability on account of losses
caused by these perils. These casualties cannot be accurately defined.
The expression denotes accidents peculiarly incident to navigation,
whether on lake, river, or the deep sea, not attributable to any human
agency or intervention. It is rather more comprehensive than the "acts
of God," but by no means includes all the dangers which may occur while
journeying on the sea. Collision is a peril of the sea if it occurs
without fault of either ship but not if by reason of the negligence of
the carrying ship. Tempests, rocks, shoals, icebergs and other obstacles
are within the expression; so are incursions of sea water, which damage
the goods, as well as such bad weather as prevents ordinary ventilation
and causes the cargo to heat and sweat. Where the peril is the proximate
cause of the loss, the shipowner is excused.
=5. Fire.=--Sec. 4282, U. S. Rev. St., is as follows:
No owner of any vessel shall be liable to answer for or make good to any
person any loss or damage which may happen to any merchandise
whatsoever, which shall be shipped, taken in, or put on board any such
vessel, by reason or by means of any fire happening to or on board the
vessel, unless such fire is caused by the design or neglect of such
owner.
It will be noticed that while this statute provides complete protection
against fire on shipboard it does not protect against liability for
damage by fire occurring on shore. To cover this it is common to insert
in the contract of carriage an exemption from loss "before loading in
the ship or after unloading." Such an exception is upheld by the courts
where fire is not attributable to the neglect of the owner of the ship.
Such a case was that of Constable _v._ National Steamship Co., 154 U. S.
51, where goods were delivered on the pier of the Steamship Company and
injured by fire before they were laden. The Court held that the clause
in the bill of lading, excepting loss by fire "before loading in the
ship or after unloading," was a valid defense.
=6. Restraint of Princes.=--The contract usually contains a provision
exempting the shipowner from liability for damage due to "restraint of
princes." This quaint phrase means any kind of governmental action which
interrupts the voyage, or otherwise prevents the performance of the
contract. These restraints occur most often during war, although they
may happen in time of peace, as in the case of detention in quarantine.
If the restraint results from some action taken by the shipowner, such
as the taking on of contraband goods, the clause will not relieve him
from liability.
A simple illustration of the restraint of princes clause appears in
Allanwilde Transport Corp. _v._ Vacuum Co., 248 U. S. 377, where a
sailing vessel, the _Allanwilde_, was chartered to the libellants for
the transportation of a cargo of oil and nails to Rochefort, France. The
freight was prepaid. She started on the voyage and while she was at sea
the government prohibited sailing vessels departing from the United
States on voyages which would carry them through the war zone. The
vessel ran into bad weather and was obliged to put back to the United
States for repairs. By reason of the governmental order she did not
resume her voyage. The owners of the cargo libeled the vessel to recover
the prepaid freight. They also presented a claim for damages. The Court
held that the restraint of princes clause of the charter party was a
valid defense to the suit. Thus the vessel retained the freight which
had been prepaid, although the voyage did not take place, and the
cargo-owners did not recover their damages.
=7. Freight.=--(a) _Dead Freight._--In case the charter party provides
for the shipment of a full cargo by the charterer and compensation to
the owner of the ship is payable per unit of cargo, the shipowner will
be entitled to recover from the charterer the amount of freight which
would have been payable by so much cargo as could have occupied the
space left vacant. This is called dead freight.
On the other hand cases arise in which the owner has to pay dead freight
to the charterers. This occurs where the compensation for the ship is a
lump sum and the owner fails to load a full cargo.
(b) _When Freight is Earned._--Freight is earned when the goods have
been carried to their destination and not until then. If it be paid in
advance and the goods do not arrive at destination it must be refunded.
Of course, the parties may by their express stipulations in charter
parties, bills of lading and other forms of agreement change these
rules, and frequently do so. For example it is sometimes provided that
prepaid freight shall be considered earned on the shipment of the goods,
or if the ship be lost the freight shall not be refunded. Such bargains
are, of course, entirely legal and will be enforced by the courts
according to their tenor.
Charters sometimes provide for the carrying of cargo out and back. Here
the terms of the contract with reference to the outbound and
homeward-bound voyage are inseparable. No freight is earned until the
ship returns with the homeward-bound cargo. But if the contract can be
construed so as to regard each voyage separately, the freight for the
outbound voyage will be earned at destination whether the ship returns
with cargo or not.
=8. Contracts of Affreightment.=--Where the contract is not plainly a
demise of the ship, i.e., a conveyance which turns over her full
operation and control, it will not be so interpreted, and the owner will
be in a position of a carrier of goods or as himself contracting for
such other service by the ship as the charter requires, that is to say,
the contract is one of affreightment.
Thus in Hagar _v._ Clark, 78 N. Y. 45, it was held:
If it remains doubtful whether the charterers were to have sole
possession and control of the vessel during the voyage or were to be
constituted owners _pro hac vice_, then the general owners must be
deemed such for their rights and authority continue until displaced by
some clear and definite transfer of them. The legal presumption is in
favor of continuance of ownership and against any transfer of the ship
to the charterer for the voyage, and is said to be so strong that, if
the end sought to be effected by the charter party can conveniently be
accomplished without the transfer of the vessel to the charterers,
courts of justice are not inclined to regard the contract as a demise
of the ship, although there may be express words of grant in the formal
part of the instrument.
The master remains the agent of the owner under any contract falling
short of a demise, and the owner is bound by all his acts and omissions
within the scope of his authority as in the ordinary relation of
carriage by sea. If the instrument amounts to a demise, the master is
the charterer's agent, and not that of the owner. Bills of lading or
other contracts of affreightment signed by the master bind the owner or
the owner _pro hac vice_ on the theory of the master's agency. This
subject is discussed in the case of Freeman, 18 How. 182, quoted
extensively in Chapter III, § 10, _supra_. Charter parties frequently
contain a clause whereby the charterer agrees to indemnify the shipowner
against any liability arising from the signature of bills of lading by
the master. Probably this clause would be implied in a charter party if
not expressed therein. This gives the owner of the ship a right of
action over against the charterer on account of any liability to which
the shipowner or ship may have been subjected at the hands of the
shipper. Thus if the charter party contained covenants for the
protection of the shipowner under certain circumstances and the bill of
lading issued by the master did not contain these restrictions and the
shipper recovered under the bill of lading against the ship or her
owner, the latter in turn could recover against the charterer (Field
Line _v._ South Atlantic Co., 201 Fed. 301).
=9. Bills of Lading.=--The forms differ greatly in contents and legal
effect but have the common features of an acknowledgment of the receipt
of the goods; a description by which they may be identified; an
agreement to carry to destination and deliver; the rate of freight and
an exception of certain perils. In addition to these features it has
been usual to include more or less elaborate provisions tending to a
diminution or limitation of the ship's liability, sometimes extended to
great length in small or illegible type, and the attempt to take
advantage of these is sometimes described as "fine print and coarse
work." These stipulations, in so far as they attempt to exempt the
shipowner from the consequences of his own or his servants' negligence
are not enforced in courts of the United States on grounds of public
policy. They probably, however, have some value as deterrents of claims
and litigation but should be studied in connection with the Harter Act
(7 Comp. St. §§ 8029-8035). (See Chapter VIII, p. 119.) The common
carrier by sea is subject to the same rules of extraordinary liability
as the common carrier by land but this liability is controlled by the
admiralty law of limited liability (Liabilities and Limitations, Chapter
VIII, p. 112) and the provisions of the Harter Act. Like the land
carrier, he may also enlarge or diminish his liability by special
contract; such a contract must be clear and plain, based upon a meeting
of minds, due consideration or mutuality, and conformity with law; it
will not, however, protect against negligence on the part of the
carrier. An example is found in the Guildhall, 58 Fed. 796, where a
cargo was damaged in a collision occasioned by improper navigation. The
owners of the ship based their defense on a provision in the bill of
lading, which attempted to exempt from liability for "any neglect or
defaults of the master, mariners, or others in the service of the
owners, collision, perils of the seas," etc. It was held:
These stipulations are valid by the law of Rotterdam (the port of
departure), and of England. But the obligation of the steamer, as a
common carrier, was to deliver her cargo safely in this country, at the
port of New York. As against the consignee and owner here, she can not
commit torts on the high seas against his property with immunity, nor
justify such torts, except by some valid contract, proved according to
the law of the forum. By numerous decisions of the Supreme Court of the
United States, stipulations like these, inserted by a common carrier in
a bill of lading, are, first, void as against public policy; and
secondly, they are not evidence of any contract to that effect on the
part of the shipper and consignee; because unreasonable and not having
the necessary element of voluntary assent.
See also Compania de Navigacion La Flecha _v._ Brauer, 168 U. S. 104:
Exceptions in a bill of lading or charter-party, inserted by the
shipowner for his own benefit, are unquestionably to be construed most
strongly against him.
In this case the cargo consisted of cattle, and the bill of lading
contained this:
On deck at owner's risk; steamer not to be held accountable for
accident to or mortality of the animals from whatever cause arising....
It is also mutually agreed that the carrier shall not be liable for
loss or damage occasioned by ... accidents of navigation, of whatsoever
kind, even when occasioned by the negligence, default or error in
judgment of the pilot, master, mariners or other servants of the
shipowner.
The vessel was improperly ballasted and rolled over on her beam
ends. Some of the cattle were injured and in order to right the
ship a number of them were thrown overboard, no discrimination
being exercised between sound animals and those which had been
injured. The court after laying down the general principles
above quoted, further held:
The bill of lading itself shows that all the cattle to be carried under
this contract were to be on deck. The words "on deck at owner's risk"
cannot have been intended by the parties to cover risks from all causes
whatsoever, including negligent or willful acts of the master and crew.
To give so broad an interpretation to words of exception, inserted by
the carrier and for his benefit, would be contrary to settled rules of
construction, and would render nugatory many of the subsequent
stipulations of the bill of lading.
The wrongful jettison of the sound cattle by the act of the carrier's
servants cannot reasonably, or consistently with the line of English
authorities already cited, or with our own decisions, be considered
either as an "accident or mortality of the animals," or as a "loss or
damage occasioned by causes beyond his control, by the perils of the
sea, or other waters," or yet as a loss or damage "by collisions,
stranding, or other accidents of navigation." There having been no
collision, stranding, or other accident of navigation, there was
nothing to which the only stipulation in the bill of lading against the
consequence of negligence, default, or error in judgment of the master
and crew could apply.
The bill of lading may be both a receipt and a contract and where the
shipper accepts it at the time of delivering his goods, he is presumed
to have agreed to its stipulations so far as they are reasonable and
just. Such a contract merges all prior and contemporaneous negotiations
and precludes parole evidence to vary its terms, but the subsequent
delivery of a bill of lading will not necessarily affect a prior
agreement, written or verbal, for the carriage; in other words, when a
contract has been already made, the carrier cannot change it by a bill
of lading without the shipper's consent.
If the holder of the bill of lading is also the charterer the rights and
obligations of the parties will ordinarily be governed by the charter
party. Where the bill of lading incorporates the charter party by
reference to it, of course the holder of the bill of lading is bound by
the terms of the charter party. Where the charter party provides that
bills of lading are to be made subject to the provisions of the charter,
the rights of the holder of the bill of lading are subject to the
charter party if he had knowledge or notice of it.
A suit in which a conflict arose between a bill of lading issued by a
charterer and master, and a charter party of prior date, was the early
case of Gracie _v._ Palmer, 8 Wheat. 605. The owners of the ship
_America_ chartered her at Philadelphia for a long voyage, the whole
charter hire to be paid on the return of the ship to Philadelphia, but
before the discharge of cargo. The owners appointed the master. In
Calcutta, the charterer, who was on board, with the master's consent,
got an advance of money from Palmer & Company, a Calcutta firm, and gave
Palmer & Company a bill of lading which stipulated for the delivery of
the cargo free of freight to Palmer & Company's agent in Philadelphia,
who were to sell the goods and collect the amount of the advance out of
the proceeds, unless the charterer's drafts for the amount of the
advance, drawn in Palmer & Company's favor on a Philadelphia house,
should be honored, in which event Palmer & Company's agents should
deliver the goods to the charterer. The master signed the bill of lading
given to Palmer & Company in Calcutta, which contained the clause,
"Freight for the said goods having been settled here." The drawee
refused to accept the charterer's drafts, and Palmer & Company's
Philadelphia agent accordingly demanded the goods on the arrival of the
ship. It was held, sustaining the contention of Daniel Webster, who
represented the owners, that the shipowner had a lien on the cargo for
the charter hire, the Court saying:
On what principles rests the general lien of goods for freight? The
master is the agent of the shipowner, to receive and transport; the
goods are improved in value, by the costs and cares of transportation.
As the bailee of the shipper, the goods are in the custody and
possession of the master and shipowner, and the law will not suffer
that possession to be violated, until the laborer has received his
hire. But this is literally the effect of that provision in the charter
party which deprives the charterer of the right of landing the cargo
until the stipulated hire be paid; or rather it would seem to go beyond
it, and impose a liability beyond what the common law exacts. It may,
therefore, be fairly construed into a stipulation, that the charterer
should, under no circumstances, dispense with the legal lien of the
shipowner.
* * * * *
That the shipowner would not confide in the charter to land his goods
without buying off his right to detain, is expressly proved by the
contract. That contract was accessible to the foreign shipper, and
ought to have been looked into to determine the extent of the power
vested in the charterer.... The charterer has contracted with the
shipper to do an act, which he could not perform without violating his
own contract to the shipowner, and must therefore be considered as
having entered into a contract, subordinate in its nature to that
previously existing between the owner and charterer.
On-the other hand, it is held that the innocent _bona fide_ endorsee of
a bill of lading, which makes no reference to the charter party, and
contains nothing to put him on notice or inquiry as to the existence of
the charter party, is liable for freight only according to the terms of
the bill of lading.
=10. Statements in Bills of Lading.=--The bill of lading commonly
contains a statement of the number of packages or the weight of the
goods or other representations with regard to the quantity shipped.
There are several rules applicable to the effect of such statements.
Where they appear in bills of lading covering shipments in interstate
commerce or shipments from the United States to foreign ports, the
effect of such statements is governed by the Federal Bill of Lading Act,
approved August 29, 1916 (39 St. at L. 538). Under this act (§ 20) if
the goods are laden by the _carrier_ he is bound to count the packages,
or ascertain the kind and quantity of bulk cargo. He is forbidden to
insert in the bill of lading or in any other document relating to the
ship any expression such as "shipper's weight, load and count," or any
language indicating that the goods were loaded by the shipper and the
description of them made by him. Where the goods are loaded by the
_shipper_ the act provides: