David Crystal, Inc. v. Cunard Steam-Ship Co. ( 1964 )

KAUFMAN, Circuit Judge.

Our problem on this appeal, not devoid of reticulate aspects, is to determine which one of four parties shall bear the loss for the misdelivery of twenty-eight cases of shirts: the buyer and owner David Crystal, Inc., the carrier Cunard Steam-Ship Co. Ltd., the carrier’s stevedore John T. Clark & Son, or the buyer’s customs broker Penson & Co. After a trial in admiralty, the District Court granted Crystal recovery from Cunard and recovery over by Cunard from Clark, but denied Crystal direct recovery from Clark and dismissed Crystal’s and Clark’s claims against Penson for lack of admiralty jurisdiction. Crystal, Cunard, and Clark appeal from those portions of the decree adversely affecting their respective interests. We uphold the decree placing the ultimate responsibility for the loss upon Clark and find it unnecessary, because of this result, to reach the jurisdictional questions raised by the claims against Penson.

The basic facts may be stated simply enough although the resolution of liability is quite complex. Clark unloaded the shirts from Cunard’s vessel to a pier in Brooklyn, N. Y., and then misdelivered them upon the presentation of a forged Penson delivery order, obtained through the complicity of one of Penson’s employees.

For a full understanding of the ramifications of this case, however, a further exposition of the facts is in order. On October 31, 1957, Cunard received the shirts purchased by Crystal at Le Havre, France, for shipment aboard its vessel, the SS Trelyon. The bill of lading named Penson, Crystal’s customs broker, as consignee. On November 14, after Penson received Cunard’s arrival notice and obtained clearance from Customs, the file folder relating to the shipment was given to one Jose Perez, its traffic clerk. Perez prepared and signed a delivery order naming a trucker, Arrow Carriers, as agent to accept delivery at the pier. He affixed the order to the outside of the folder and placed it on his desk with other completed orders destined for the outgoing mail basket.

But shortly after Perez performed this task, the chain of events intended to effect proper delivery of the shirts to Crystal was cut at one of its most vital links. It appears that as Perez momentarily left his desk, Louis Segarra, a fellow employee who had been plotting with outsiders to steal the valued shirts, surreptitiously took the delivery order, together with a blank form. He gave the original and blank orders to Rigley, a confederate, who together with one Orlando, filled out the blank order, inserting the name of a fictitious trucker, C & L Trucking Co., in place of Arrow. They also forged Perez’ signature on the new delivery order and destroyed the original.

The next morning Rigley and Orlando appeared at the pier where Clark’s stevedores were unloading the Cunard vessel. They presented the forged delivery order to Keane, Clark’s chief delivery clerk, and then waited until late in the afternoon while the documents were checked and the shirts loaded on their truck.¹

Crystal soon discovered its loss and commenced this suit by filing its libel against Cunard for breach of the contract of ocean carriage. Cunard then impleaded Clark seeking indemnity for breach of its stevedoring contract. Clark, in turn, impleaded Penson claiming negligence on its part. Both Clark and Penson answered the libel although Crystal did not assert causes of action against either until amendments to the libel were permitted by the judge upon conclusion of the trial.

The District Court held, as we have already indicated, that Cunard was fully liable to Crystal, but was entitled to be indemnified by Clark. We turn now to examine each phase of that conclusion.

I. Crystal v. Cunard

Because Crystal’s claim against Cunard was for breach of the contract of ocean carriage, we must look first to the bill of lading to determine the parties’ rights and duties. The District Court was of the opinion that the bill of lading became inoperative once the cargo was discharged. We believe, however, that it is more precise to say that although the bill continued to govern the parties’ relationships after discharge, its terms did not insulate Cunard from liability. It is true that the bill provided that Cunard’s responsibility would cease when delivery was made from the ship’s deck and that if the consignee did not immediately receive the goods, Cunard could simply abandon them on the wharf. But these clauses were clearly null and void under the Harter Act’s restrictions against certain stipulations seeking to relieve carriers from liability. 46 U.S.C. § 190.

The bill of lading also provided that Cunard had the option to land or store the cargo “at the sole expense and risk of Consignee in the Warehouses provided for that purpose.” But it is clear that Cunard did not take advantage of that option, for it discharged the goods in the custody of its stevedore on a pier and did not deposit them in a warehouse.

Since the bill of lading did not specify Cunard's obligations when it discharged the shirts to Clark, the law steps in to fill the lacuna; this it does by properly characterizing Cunard’s status as a bailee. Cf. The Italia, 187 F. 113 (2d Cir. 1911); Standard Brands, Inc. v. Nippon Yusen Kaisha, 42 F.Supp. 43 (D.Mass. 1941). And there is no sound reason to alter its bailee status simply because it landed the shirts on Clark’s pier. Absent a valid contract to the contrary, a bailee remains liable for the safety of the goods in whatever hands he may place them; exceptions that may arise when a consignee fails to accept the goods have no relevance to this case. Cf. The Eddy, 5 Wall. 481, 72 U.S. 481, 495, 18 L.Ed. 486 (1867).

It is interesting that there is no direct precedent in the law of admiralty establishing the standard of responsibility of a bailee who misdelivers cargo. Because of this void and mindful that maritime law draws on many sources, the able District Court judge in order to shape the appropriate maritime law properly, resorted to state decisional law, see 1 Harper & James, Torts 156 (1956), various uniform acts, including the Federal Bills of Lading Act, 49 U.S.C. §§ 81-124, as well as the Uniform Commercial Code, and finally fastened appropriately on the rule articulated in the Restatement, Torts § 234 (1934).

The Restatement rule suggests that a bailee is absolutely liable for misdelivering cargo, unless his mistake as to the person entitled to receive the goods was induced by the bailor. We agree with the District Court that considerations of uniformity and the need for certainty in commercial transactions justified application of this widely accepted rule to maritime transactions. It is not prudent to have a rule which varies a bailee’s liability depending upon his proximity to the sea and susceptibility to admiralty’s jurisdiction. At the same time, the rule of absolute liability represents a sound allocation of responsibility for the bailee is in a better position than the bailor to establish procedures to minimize the risk of misdeliveries and to insure against the few misdeliveries that will inevitably occur despite the most careful precautions.

Cunard was therefore absolutely liable for the misdelivery unless (a) certain bill of lading provisions not yet considered eliminated or reduced such liability or (b) the misdelivery was induced by Crystal or Penson, acting in its behalf. One of these provisions, the exception for acts of “thieves,” seems to us inapplicable because the loss of the cargo here is more appropriately characterized as due to misdelivery rather than theft. It is true that under New York law a taking by false pretenses is larceny, Penal Law, McKinney’s Consol.Laws, c. 40, § 1290, but we do not believe that the broad definition of theft in the criminal law should be extended to a commercial contract. See Freedman v. George W. Bush & Sons Co., 284 Pa. 16, 130 A. 263 (1925). The law already recognizes this distinction for a warehouseman is absolutely liable for misdeliveries but is responsible in trespassory theft cases only where he has been negligent. See North American Smelting Co. v. Moller S.S. Co., 204 F.2d 384 (3d Cir. 1953). These differing standards are based on sound policy considerations since it is proper that a warehouseman should bear a greater responsibility for being duped by false pretenses than for thefts that cannot be avoided despite the exercise of ordinary care.

Cunard’s attempt, elsewhere in the bill of lading, to limit its liability to £20 per package also must fail. This clause was clearly void while the goods were at sea, for the Carriage of Goods by Sea Act (COGSA), 46 U.S.C. § 1304(5), does not permit limitations under $500. It seems to us that once the law declared this clause void it should remain void forever. It would be unfair to permit the void clause to spring to life once the goods reached land, for by then Crystal had justifiably relied on the clause’s inapplicability in making its decision on adequate cargo insurance. Moreover, the limitation provision in the bill of lading does not explicitly cover post-arrival damage. Furthermore, the £20 limitation, when contrasted with COGSA’s $500 figure, is such an arbitrai’ily small sum that it should be void as contrary to public policy. Cf. Isbrandtsen Co. v. United States, 201 F.2d 281 (2d Cir. 1953).

We turn, finally, to what is for us the most troublesome question on this phase of the case: whether Crystal is es-topped from recovering because the misdelivery was induced by Penson’s alleged negligence. The law is clear that if Penson’s negligence caused the misdelivery, Crystal would be barred from recovery. MacAndrews & Forbes Co. v. United States, 23 F.2d 667 (3d Cir. 1928). Indeed, the chain of estoppel is firmer and shorter here than in MacAndrews, where an owner of furs was estopped from recovering from a carrier by imputing to the owner the negligence of a trucking firm employed by his customs broker. We are not inclined to upset the District Court’s holding that Penson could not be faulted for its office procedures or for hiring and retaining Segarra. The key issue on this question is whether Segarra was acting within the scope of his authority when he took the valid delivery order and the blank form from Perez’ desk.

As we read the record, Segarra’s authority to prepare and sign delivery orders and hand them to truckmen did not extend to the commercial shipment involved in this case. Segarra was allowed to take delivery orders from Perez’ desk but only for temporary use in answering inquiries and not for delivery to truckmen. While it is true that by trusting Segarra to this limited extent Penson may have facilitated the plot, we are unwilling to stretch the tenuous line of causation and say that Penson “proximately caused” the misdelivery. See Saugerties Bank v. Delaware & Hudson Co., 236 N.Y. 425, 141 N.E. 904 (1923). Similarly, despite Se-garra’s authority to take the blank form, it seems clear that this authority did not extend to completing the form; a forgery by a mere custodian of documents is not binding on the principal. See, e. g., Ehrich v. Guaranty Trust Co., 194 App.Div. 658, 186 N.Y.S. 103 (1921), aff’d, 233 N.Y. 637, 135 N.E. 950 (1922); Manhattan Life Ins. Co. v. Forty-Second & Grand St. Ferry R. R. Co., 139 N.Y. 146, 34 N.E. 776 (1893).

A sound reason stands behind our holding that Segarra was not acting within the scope of his employment in the circumstances present here. If an employer were to be held liable every time an employee took advantage of a general authority to move freely about his offices, he would be placed in the role of an absolute insurer without the ability to protect himself. Instead, the law limits vicarious liability to situations where the wrongdoing can be traced to abuse of a more carefully defined authority. Here, it is clear that Segarra’s actions were not sufficiently related to his delegated authority and for that reason Penson cannot be charged with responsibility for the misdelivery.

II. Cunard v. Clark

We also agree with the District Court’s holding that Clark must indemnify Cunard because the misdelivery was a breach of its implied warranty of workmanlike service. The Supreme Court recently indicated, in Italia Societa per Azioni di Navigazione v. Oregon Steve-doring Co., 376 U.S. 315, 84 S.Ct. 748, 11 L.Ed.2d 732 (1964), that the implied warranty may be breached even where, as here, there has been no showing of negligence on the stevedore’s part. Surely, Clark was in a far better position to prevent the misdelivery than Cunard and liability should properly fall upon the party who is best situated to adopt protective measures.

It is true that Clark’s contact with Cunard disclaimed responsibility for “losses resulting from possible theft or errors in delivery.” But such disclaimers are not favored by the courts and must be strictly construed. See 2 Harper & James, Torts § 28.25 (1956); 78 Harv.L.Rev. 191 (1964); cf. Pettus v. Grace Line, Inc., 305 F.2d 151, 155 (2d Cir. 1962). Somewhat similar considerations of strict construction led us to hold that a theft exception in Cunard’s bill of lading, also found in the Clark-Cunard agreement, did not apply to the facts of this case. And because, as between Cunard and Clark, strong policy considerations favor placing responsibility for the misdelivery on Clark, any attempt to escape from that responsibility should be unequivocally expressed. We are not disposed to extend the agreement’s exemption of “errors in deliveries” to “misdeliveries.” A “misdeliv-ery” in maritime practice is a technical term of art applied where there is a complete failure to deliver goods to the owner, consignee, or other authorized holder of a bill of lading. Although the term “errors in delivery” is unfamiliar in this context, we are inclined to limit it to delays, incomplete deliveries, or deliveries of the wrong cargo that are ultimately rectified. Indeed, the very novelty of the expression explains our reluctance to treat it as synonymous with “misdeliveries,” the term that naturally leaps to mind to characterize what happened here.

We believe Cunard is also entitled to reimbursement from Clark for attorneys’ fees and disbursements incurred in defending against Crystal’s claim. See Paliaga v. Luckenbach S.S. Co., 301 F. 2d 403 (2d Cir. 1962). We cannot accept the stevedore’s suggestion that Cunard should be denied recovery because it could have avoided these expenses by asking Clark to defend the action on its behalf. Crystal sued Cunard only and when Cunard impleaded Clark it invoked the personal defenses already discussed against Cunard. Because those defenses were substantial and might have succeeded, Cunard’s only safe course was to defend against Crystal’s claims. Having forced Cunard into this position, Clark cannot now be heard to say that it should not be charged for litigation expenses unnecessarily incurred.

III. Crystal v. Clark

In light of the foregoing dispositions, which we have approved, the District Court judge saw no need to consider Crystal’s direct claim against Clark, added by post-trial amendment. We recognize that because we affirm Crystal’s judgment against Cunard and Cunard’s against Clark, the question whether Crystal should be allowed to recover against Clark as well becomes academic. Indeed, because the issue lacks practical significance in this case, we accept without detailed analysis and discussion the authorities that impose jurisdictional obstacles to such direct recovery, see 1 Benedict, Admiralty, § 2, at 2 & n. 4 (6th ed. Knauth 1940); 3 Moore, Federal Practice ff 14.20, at 669-70, and ff 14.27 [1], at 721 & n. 1 (2d ed. 1963), despite our observation that adherence to those precedents often needlessly fragments law suits and might deserve further consideration in the appropriate case.

IV. Crystal v. Penson; Clark v. Penson

In view of the conclusions we have reached, which are founded in part on Penson’s freedom from responsibility for the misdelivery, the issues raised by the claims against Penson become wholly academic. Accordingly, we see no need to discuss the District Court’s disposition of the jurisdictional problems raised by those claims.

The interlocutory decree is affirmed.

1 . Although Glark followed customary procedures in delivering the shirts, hindsight indicates that if its employees had been more alert, the conspiracy would have been foiled. For example, although Keane had never before seen a delivery order naming O & L Trucking, ho made no inquiry of this and other suspicious circumstances and did not attempt to verify the indecipherable forged signature on the delivery order.