Petition — National Shipping & Trading Corp. v. Interocean Shipping Co.

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| Supreme Yeurt, U. §,

a |

: : | | NOV/ 6 1975

MICHAEL RODAK, JR., CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1975

No. 75-673 {

In the Matter of

A Motion to Compel Arbitration

between

INTEROCEAN SuHripprnc ComPAny,

Respondent,

—

NATIONAL SHIPPING AND TRADING CORPORATION and

HELLENIC INTERNATIONAL SHIpPIne, S.A.,

Petitioners.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

SECOND CIRCUIT

Eur E..is

Davin I. GrucHrIst

Mark M. JAFFE

Joun H. Cieveranp IIT

Counsel for Petitioners

One World Trade Center

Suite 5215

New York, N. Y. 10048

INDEX

PAGE

Opinions Below 1

Jurisdiction ...... } 2

Questions Presented .. ih 2

Statutes Involved 2

Statement of the Case ................ 4

Reasons for Granting the Writ 13

1. The Decision Below Conflicts With The Federal

Arbitration Act, 9 U.S.C. $4, In That The Court

of Appeals Sanctioned The District Court’s

Holding On a Matter Not Properly Within The

Seope of Inquiry Under The Act ........................ 14

The Decision Below Is In Direct Conflict With

Applicable New York Substantive Law Relating

To Guarantees 16

Conclusion 21

Appendix

Opinion and Judgment of the Court of Appeals,

dated June 23, 1972 la

Excerpts from Trial Transcript ....................-..-.......-. 10a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J. dated

February 28, 1974 12a

Opinion of the Court of Appeals, dated June 24,

1975 36a

Citations

Cases:

Aberthaw Construction Co. v. Centre County Hospital,

366 F. Supp. 513 (M.D. Pa. 1973), aff’d without

opinion, 503 F.2d 1398 (3rd Cir. 1974) -.......0..........

Galt v. Libbey-Owens-F ord Glass Company, 376 F.2d

711 (7th Cir. 1967), 397 F.2d 439, cert. den., 393 U.S.

EEE AEE Soph TS an een eer ne sO

Hamilton Life Ins. Co. of N.Y. v. Republic National

Life Ins. Co., 408 F.2d 606 (2nd Cir. 1969) ..............

International U, of E., R. & M. W. v. Westinghouse

Elec. Corp., 48 F.R.D. 298 (S.D.N.Y. 1969) ............

National R.R. Passenger Corp. v. Missouri Pacific

R.R. Co., 501 F.2d 423 (8th Cir. 1974) ......................

Prima Paint v. Flood & Conklin Mfg. Co., 388 U.S.

I, RRR ERAT SNE EE RR a One

Reconstruction Finance Corp. v. Harrisons & Cros-

field, 204 F.2d 366 (2d Cir. 1953), cert. den., 346

AR eS ee

Salzman Sign Co. v. Beck, 10 N.Y. 2d 63; 217 N.Y.S.

| IEEE ee nee

Savoy Record Co. v. Cardinal Export Corp., 15 N.Y.

2d 1; 203 N.E. 2d 206; 254 N.Y.S. 2d 521 (1964) ......

Schenck v. Francis, 26 N.Y. 2d 466; 311 N.Y.S. 2d 841

ITI icesiha‘stiaaataletii stuns lideeailetcehnatataniaamiaadeaithiabiai Andiaesiiinions

Steelworkers y. American Mfg. Co., 363 U.S. 564

I iti etdaialiaiaseeai sient dtinlaeiememininienaldsuiunniaetiists

Swift Industries, Inc. v. Botany Industries, Inc., 297

ee BM RG AS ee

Trafalgar Shipping Co. v. International Milling Co.,

Oe BS ee

Warren Brothers Company v. Cardi Corporation, 471

6 GB kD I eceere

Weiss v. Wolin, 303 N.Y.S. 2d 940 (Sup. Ct. Special

SE TRIED eid iheceinsaiantatritsntnaninieniiaemnasennienenninniciainteiaasenes

World Brilliance Corp. v. Bethlehem Steel Co., 342

Se Se IIE TIE. GETIIEE exsecenntetieceernensiensieiinrnsionnninaiemeiates

PAGE

17, 20

IN THE

Supreme Court of the United States

OCTOBER TERM, 1975

No.

In the Matter of

A Motion to Compel Arbitration

between

INTEROCEAN Suipprne CoMPANY,

Respondent,

—_—_ =

NATIONAL SHIPPING AND TrapING CoRPORATION and

HELLENIC INTERNATIONAL SuHrpprine, §.A.,

Petitioners.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

SECOND CIRCUIT

The petitioners National Shipping & Trading Corpora-

tion and Hellenic International Shipping, S.A. respectfully

pray that a writ of certiorari issue to review the judgment

and opinion of the United States Court of Appeals for the

Second Circuit entered in this proceeding on June 24, 1975.

Opinions Below

The opinion of the Court of Appeals is not yet reported

officially, but may be found in the appendix and, unofficially,

at 1975 A.M.C. 1283. That Court’s prior opinion is re-

ported at 462 F.2d 673 (2d Cir. 1972) and is also set out in

full in the appendix. The opinion of the District Court has

not yet been reported, but is set out in full in the appendix,

Jurisdiction

The judgment of the Court of Appeals for the Second

Cireuit was entered on June 24, 1975. A timely petition for

rehearing was denied on August 8, 1975, and this petition

for certiorari was filed within ninety days of that date.

This Court’s jurisdiction is invoked under 28 U.S.C.

§ 1254(1).

Questions Presented

1. May a federal court, ruling on a motion to compel

arbitration under § 4 of the Federal Arbitration Act, after

finding that no agreement to arbitrate had been made by a

party, make any further finding as to that party?

2. May a Court of Appeals disregard state substantive

law as to the standard of proof required by the Statute of

Frauds to prove a guarantee in writing?

The first question affects only Petitioner National. The

second question affects both Petitioners.

Statutes Involved

United States Code, Title %:

§4. Failure to arbitrate under agreement; petition to

United States court having jurisdiction for order to

compel arbitration; notice and service thereof; hear-

ing and determination.

=e ee ee ee

ee eee

A party aggrieved by the alleged failure, neglect, or

refusal of another to arbitrate under a written agreement

for arbitration may petition any United States district

court which, save for such agreement, would have jurisdic-

tion under Title 28, in a civil action or in admiralty of the

subject matter of a suit arising out of the controversy

between the parties, for an order directing that such arbi-

tration proceed in the manner provided for in such agree- -

ment. Five days’ notice in writing of such application shall

be served upon the party in default. Service thereof shall

be made in the manner provided by the Federal Rules of

Civil Procedure. The court shall hear the parties, and upon

being satisfied that the making of the agreement for arbi-

tration or the failure to comply therewith is not in in issue,

the court shall make an order directing the parties to pro-

ceed to arbitration in accordance with the terms of the

agreement. The hearing and proceedings, under such agree-

ment, shall be within the district in which the petition for

an order directing such arbitration is filed. If the making

of the arbitration agreement or the failure, neglect, or re-

fusal to perform the same be in issue, the court shall pro-

ceed summarily to the trial thereof. If no jury trial be

demanded by the party alleged to be in default, or if the

matter in dispute is within admiralty jurisdiction, the court

shall hear and determine such issue. Where such an issue

is raised, the party alleged to be in default may, except in

eases of admiralty, on or before the return day of the notice

of application, demand a jury trial of such issue, and upon

such demand the court shall make an order referring the

issue or issues to a jury in the manner provided by the

Federal Rules of Civil Procedure, or may specially call a

jury for that purpose. If the jury find that no agreement in

writing for arbitration was made or that there is no default

in proceeding thereunder, the proceeding shall be dis-

missed. If the jury find that an agreement for arbitration

was made in writing and that there is a default in proceed-

ing thereunder, the court shall make an order summarily

directing the parties to proceed with the arbitration in

accordance with the terms thereof.

July 30, 1947, c. 392, 61 Stat. 671; Sept. 3, 1954, ¢. 1263,

$19, 68 Stat. 1233.

New York General Obligations Law: "

§ 5-701. Agreements required to be in writing

Every agreement, promise or undertaking is void, un-

less it or some note or memorandum thereof be in writing,

and subscribed by the party to be charged therewith, or by

his lawful agent, if such agreement, promise or under-

taking:

es e .

2. Isa special promise to answer for the debt, default or

msearriage of another person;

Statement of the Case

Interocean Shipping Company (hereinafter “Respond-

ent”) petitioned in The United States District Court for the

Southern District of New York to compel Petitioners to

arbitrate pursuant to the Federal Arbitration Act, 9 U.S.C.

§ 4.

Respondent alleged that a charter party between Re-

spondent, as owner of the vessel “Osweco RELIANCE, and

Petitioner, National Shipping and Trading Corporation

(hereinafter “National”) and Petitioner Hellenic Interna-

tional Shipping S.A. (hereinafter “Hellenic”), as charterers

of the said vessel, was entered into on March 17, 1971, that

the alleged charter party contained an arbitration clause

and that Petitioners had failed and refused to proceed to

arbitration.

Petitioners answered denying that a charter party had

been entered into and, thus, the making of an agreement to

arbitrate.

The District Court, without conducting a trial, found

that the making of the arbitration agreement was not in

issue and, on December 30, 1971, granted the petition.

On appeal, the United States Court of Appeals for the

Second Cirenit reversed the finding of the District Court

and held that the making of the arbitration agreement was,

indeed, in issue and remanded the matter for a summary

trial on that issue.

On remand, the District Court granted the petition as to

both Petitioners finding, inter alia, that National had

agreed to guarantee Hellenic’s performance of the charter

party and, thus, was a party to the charter party itself and

its arbitration agreement.

Petitioners again appealed to the Court of Appeals,

which modified the Order of the District Court by eliminat-

ing the direction that National proceed to arbitration and

affirmed the Order of the District Court, as so modified. In

its opinion, the Court of Appeals discussed with approval

and adopted the District Court’s finding that National was

a guarantor of Hellenic’s performance of the charter party

and let that finding stand even though it had held in

National’s favor on the only issue properly before it,

whether an agreement to arbitrate had been made by

National. Petitioners’ petition for rehearing was denied

by the Court of Appeals.

Thus, as matters stand, National has been held to be a

guarantor of performance under the charter party found

by the District Court to exist between Hellenic and Re-

spondent, even though the question whether it was a guar-

antor was not raised in the original petition to compel

arbitration nor was it properly before any court at any

time, except as it may have been used as evidence in decid-

ing the question whether National had made an agreement

to arbitrate.

The facts relevant here are as follows:

Discussions between Harry Theodoracopulos, Vice Pres-

ident of National, and Francis DeSalvo, an officer of

the chartering brokerage firm of Poten & Partners, Inc.,

respecting the “Osweco Re.iance” commenced at lunch on

March 17, 1971. It was contemplated that, provided terms

acceptable to both parties could be arranged, the vessel

would be chartered by Respondent to Hellenic. It was

understood that National was acting as Helienic’s agent.

DeSalvo communicated with one Anthony Germano, an

officer of an affiliate of Respondent, and, during the after-

noon, passed several messages between Germano and Theo-

doracopulos respecting the vessel and the terms the two

parties wanted included in any charter party that might

he arranged. DeSalvo testified that he was acting as broker

for both parties, which is not uncustomary in the ship

chartering business.

There was a dispute with respect to the guarantee that

Hellenic is alleged to have promised to obtain. It is undis-

puted that DeSalvo informed Theodoracopulos that Re-

spondent desired to have a guarantee owing to its un-

familiarity with the proposed charterer, Hellenic. It is also

undisputed that Theodoracopulos told DeSalvo that such a

guarantee “could” be obtained.®

* The District Court, however, found that Theodoracopulos had

said a guarantee “would” be given (16-17a) and the Court of Ap-

peals minimized this discrepancy in its opinion (footnote 10, 55a).

ta owe Os

Ce a eee eee

At approximately 5:30 P.M. on March 17th, DeSalvo

sent telexes, each containing the same text, to Respondent

and to Hellenic, the latter through National, commencing:

CONFIRM HAVING FIXED FOR YOUR ACCOUNT

TODAY AS FOLLOWS:

OWNER: INTEROCEAN SHIPPING COMPANY

CHARTERER: HELLENIC INTERNATIONAL SHIP-

PING S.A. OF PANAMA SUBSIDIARY OF NATIONAL

SHIPPING AND TRADING WITH APPROPRIATE

LETTER OF GUARANTEE.

The telex went on to list certain terms the alleged charter

was to include. (The full text of the telex is set out in the

appendix at 17-18a.) Some time after the telex was sent,

DeSalvo prepared a form of guarantee* and submitted it

to Respondent, on whose behalf Germano approved it.

However, the form of guarantee prepared by DeSalvo

shows Harry Theodoracopulos, personally, as guarantor

and not National. At no time was a personal guarantee of

Theodoracopulos discussed, nor was the form prepared by

DeSalvo and approved by Germano ever sent to National

or to Theodoracopulos because, according to DeSalvo, “we

never got to that point.” (Trial Transcript, p. 123.)

* DRAFT

Date

GUARANTY OF HARRY THEODORACOPULOS

Reference charter party dated March 17th, 1971, between Het-

LENIC INTERNATIONAL SHIPPING, S.A. OF PANAMA, and INTER-

OCEAN SHIPPING CoMPaANy, Owners of the “Osweco RELIANCE”

subject to terms and conditions of above mentioned charter party, I

hereby guaranty the performance of HELLENIC INTERNATIONAL

Surprinc S.A.

Harry Theodoracopulos

National ‘Shipping & Trading Corp.

Notwithstanding DeSalvo’s telex of March 17th, alleg-

edly confirming a “fixture,” negotiations between the parties

as to outstanding items actually continued until the morn-

ing of March 24th, when they were terminated by Petition-

ers owing to “the absence of meeting of the minds of the

parties regarding all details necessary to a completed

charter agreement * * *.” (44a)

On the first appeal the Court of Appeals stated:

The essential question on this appeal is whether,

within the meaning of the Federal Arbitration Act,

“the making of the arbitration agreement” was in

issue, thus requiring a trial of this question before

directing appellants to proceed with the arbitration

of a maritime dispute. [footnote omitted] (2a)

As to National, the issue, as stated by the Court of

Appeals was “whether National is a party to the charter

agreement and hence to the arbitration agreement con-

tained therein.” (8a) The Court went on to explain:

This question is placed in issue by the fact that

“ational is not accorded the same status in either

Interocean’s petition, the “Mobiltime” form charter

or the fixture note. The petition merely states that

Hellenic is a subsidiary of National, which fact

would not in itself be sufficient to make National

liable for breach of agreement to charter. More-

over, the “Mobiltime” form sent to Hellenic refers

to National as the charterer’s agent. Since Hellenic

was a disclosed principal, National’s acting as agent

would not make it a party to the charter agreement.

Restatement (Second) of Agency §320 (1958). Fur-

thermore, the fixture note, after referring to Hel-

lenic, adds “subsidiary of National Shipping &

Trading with appropriate letter of guarantee”.

Interocean now points to the fixture note as showing

that National was the guarantor under the charter.

If in fact National were a surety, however, it still

OO A Ca at Se

Se el ee EO WR

could not be held accountable for Hellenic’s breach of

the charter agreement. Merely agreeing to act as

surety for a charter party is not a maritime contract.

Pacific Surety Co. v. Leatham & Smith Towing &

Wrecking Co., 151 F. 440, 443-44 (7 Cir. 1907). See

also Kossick v. United Fruit Co., 365 U.S. 731, 735

(1961). This suretyship therefore would be subject

to the New York statute of frauds. Since National’s

alleged guarantee was not in writing, it would not

be enforceabie. N.Y. General Obligations Law $5-701

(2) (McKinney 1964).

Thus, while it is impossible to determine Nation-

al’s status on the basis of this confused record,

there was sufficient uncertainty to entitle National

to a trial on this issue. [Emphasis supplied.] (S8-9a)

At the triai in the District Court it was settled, in col-

loquy among counsel and the Court that the issues were

(1) whether “there ever came into existence that meeting

of the minds on all of the essential terms of the contract

so as to result in an enforceable contract,” and (2) if so,

whether National was bound by that contract (see colloquy

from trial transcript reproduced at 10-1la).

The District Court granted Respondent’s petition to

compel arbitration and filed an opinion, which began:

A formal trial of this non-jury proceeding to

enforce arbitration was held by me following remand

from the Second Circuit Court of Appeals to deter-

mine whether a binding contract had been entered

into by the parties which, by its terms, requires them

to arbitrate the question of whether there was a

breach of the charter-party in suit by the defendants.

(12a)

The District Court described its understanding of its

mandate from the Court of Appeals as follows:

The Court of Appeals pointed out that a trial

should determine whether in all the conversations be-

tween the parties there was a meeting of the minds

which thereafter memorialized in a fixture letter or

memorandum by which NationaL was bound.

Specifically, with respect to the question whether

there was a meeting of the minds, the Court of Ap-

peals held that this trial should determine whether

the parties had agreed on drydocking, insurance and

delivery range, and if they had not, whether these

were such material items as to frustrate the exis-

tence of a contract; with respect to whether Nart-

IONAL was bound, that this trial should determine

whether the broker had authority to bind NaTionat.

NATIONAL was acting as agent for a disclosed prin-

cipal—the charterer, HELLENIc —or was a guarantor

of performance by Hellenic, the charter party, and,

if a guarantor, whether the fixture letter was suf-

ficient to satisfy the Statute of Frauds of New York

as to such guarantee (N.Y. General Obligations Law,

Section 5-701 (2), MecKinney’s 1964). [Emphasis

supplied.] (12-13a)

It appears that the District Court considered the resolu-

tion of the question whether National was a guarantor

collaterally necessary to any holding that National was a

party to the charter party and the arbitration agreement

and not a separate issue. For instance, the Court stated:

I also find that it was the understanding of the

parties, through DeSalvo and [Theodoracopulos]

that National would give a guarantee on behalf of

Hewienic and so bind itself to the charterparty.

[Emphasis supplied.] (27a)

In a footnote to that statement, the Court explained:

The guarantee was not recited in the charterparty

because it was no part of it; the guarantee of per-

formance was really a separate agreement. Dis-

cussion on this point is limited to whether National

should be a party to this suit as surety of the chart-

erparty made by HELLENICc, one of the issues raised

a re

by the Court of Appeals. But see Dover SS Co. v.

Summit Industrial Corp., 148 F.Supp. 206, holding

this to be a question for the arbitrator.* [Emphasis

supplied.] (27a)

The Court also stated:

I find that National was to be the surety for the

performance of Hetitentc and thus liable as a

respondent for the non-performance of HELLENIC;

this, irrespective of the role it may have played as

agent for HeLLEnic in negotiating the charterparty.

It was in the business of negotiating for its subsidi-

aries. [Emphasis supplied.] (29a)

The Court dismissed Petitioner’s argument that there

existed no guarantee of National enforceable under the

New York Statute of Frauds, held by the Court of Appeals

to be controlling, by declaring that:

([T]}he telex which contained the clause requiring

the guarantee was the contract between the parties;

I find that DeSalvo had authority to act for both;

and, since DeSalvo signed the telex, I conclude that

the guarantee was in writing signed by the agent

of the party to be charged, National. [Emphasis

supplied.] (30a)

Petitioners once more appealed to the Court of Appeals.

The Court of Appeals agreed with all that the District

Court had held, except for its holding that National was

a party to the charterparty and, thus, obligated to proceed

to arbitration. It stated:

While the court properly ordered Hellenic to arbi-

trate since Hellenic was a party to the charter agree-

* It should be noted that the Dover case does not remotely involve

suretyship or the guarantee of performance of a charter party by a

third person.

ment, we hold that it erred in ordering Nationa!

to arbitrate since National was only a guarantor

and not a party to the agreement. (55-6a)

The Court of Appeals explained that:

Whether a guarantor can be compelled to arbi-

trate on the basis of an arbitration clause in the

main contract must be considered separately from

the question of a party’s obligation to arbitrate.

The only indication that the district court con-

sidered this question is its statement:

“T .. . find that it was the understanding of the

parties, through DeSalvo and H.T., that Nationa.

would give the guarantee on behalf of HeLLenic

and so bind itself to the charter party... .”

(footnote omitted).

If this was meant to be a finding of fact that

National had bound itself to the charter party by

its acts, we find no support for it in the record.

The fixture telex stated:

“CHARTERER: HELLENIC INTERNATIONAL SHIPPING

S.A. or PANAMA SussrmpiarRy OF NATIONAL SHIPPING

AND TRADING WitH APPROPRIATE LETTER OF GuAR-

ANTEE.”

DeSalvo’s notes indicated only that Hellenic was a

subsidiary of National. The Mobiltime form which

National refused to execute refers to National only

as the charterer’s agent. There is no evidence that

National acted in any capacity except as a disclosed

agent for Hellenic. As we held on the prior appeal,

this is not enough to bind it to the arbitration clause

in the charter agreement. 462 F.2d at 678.

If the language of the district court quoted above

was meant to be a statement of law that National.

by agreeing to act as a guarantor, bound itself to

nb tant “Wh - m

metre see 6 ms at " "

the arbitration clause in the main agreement, we

hold it to be error. A mere guarantor of a aoe

party generally cannot be compelled to arbitrate on

the basis of an arbitration clause in the main agree-

ment since it is not a party to that contract. Taiwan

Navigation Co. v. Seven Seas Merchants Corp., 172

F.Supp. 721 (S.D.N.Y. 1959); see Import Export

Steel Corp. v. Mississippi Valley Barge Line Co.,

351 F.2d 503, 506 (2 Cir. 1965); Instituto Cubano

De Estabilizacion Del Azucar vy. T/V Golden West,

246 F.2d 802 (2 Cir.), cert. denied, 355 U.S. 884

(1957) ; Cia. Naviera Somelga, S.A. v. M. Golodetz

€ Co., 189 F.Supp. 90, 96 (D. Md. 1960). [Emphasis

supplied.] (56-7a)

Having found that National was not a party to the

charter, the Court of Appeals modified the District Court’s

order insofar as it directed National to proceed to arbitra-

tion, but did not dismiss the proceeding as to National, as

was required by § 4 of the Federal Arbitration Act.

Reasons For Granting the Writ

The Court of Appeals below has 1) decided an important

state question in a way in conflict with applicable state law,

2) has decided an important question of federal law which

has not been, but should be, directly settled by this Court

and 3) has decided a federal question in a way in conflict

with applicable decisions of this Court.

If the question of the existence of a guarantee was not

necessary (or only ancillary in an evidential sense) to a find-

ing that a charter and hence an arbitration agreement had

been made, then at least as to National the question of a

guarantee was never properly before the Courts below and

the petition to compel arbitration as to National should

have been dismissed. The mandate of the Courts below

under §4 of the Federal Arbitration Act was solely to

decide whether there was an agreement to arbitrate.

If, however, the Courts below considered the existence of

a guarantee to be a sine qua non of the charter, including

an agreement to arbitrate, then the petition to compel arbi-

tration should have been dismissed as to both petitioners

for the proof that a guarantee existed was insufficient as a

matter of controlling New York substantive law, which

required “clear and unequivocal” evidence “to be gathered

from the writing itself” that National intended to be so

bound. The Court of Appeals, in reviewing the District

Court’s findings as to a guarantee, applied the wrong test.

The proper test was not whether such findings were sup-

ported by “substantial evidence” (48a), but rather the much

more stringent substantive rule required by the New York

courts. In so doing, it allowed to stand the District Court

finding of a guarantee which was based in major measure

on parole evidence extrinsic to the “writing” said to evi-

dence the guarantee.

1. The Decision Below Conflicts With the Federal

Arbitration Act, 9 U.S.C. § 4, In That the Court

of Appeals Sanctioned the District Court’s Hold-

ing On a Matter Not Properly Within the Scope

of Inquiry Under the Act.

If the decision of the Court below is allowed to stand

it will affect not only National but also the judicial imple-

mentation and application of the Federal Arbitration Act

itself. It appears to be the first instance in which a holding

concerning a substantive right of a party has survived a

decision that such party had not made an arbitration agree-

nS Ht ree a nt DANO?

ment. Thus, this Petition seeks review of a novel and im-

portant question arising in connection with the Act. The

Act requires that “If the jury [the Court in this admiralty

case] find that no agreement in writing for arbitration was

made or that there is no default in proceeding thereunder

the proceeding shall be dismissed.” [Emphasis supplied.]

It has been properly held “that a federal court, in a suit

asking it to compel arbitration, should * * * deal with no

issues except (1) the making of an agreement to arbitrate,

and (2) the failure, neglect or refusal of the other party to

perform that agreement.” Reconstruction Finance Corp.

v. Harrisons & Crosfield, Limited, 204 F.2d 366, 368 (2d Cir.

1953) cert. den., 346 U.S. 854 (1953). See also Prima Paint

v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) ;

Steelworkers v. American Mfg. Co., 363 U.S. 564 (1960) :

National R.R. Passenger Corp. v. Missouri Pacific R.R. Co.,

001 F.2d 423 (8th Cir., 1974); Warren Brothers Company

v. Cardi Corporation 471 F.2d 1304 (1st Cir. 1973) ; Hamil

ton Life Ins. Co. of N.Y. v. Republic National TAfe Ins. Co.,

408 F.2d 606 (2nd Cir. 1969); Galt v. Libbey-Owens-Ford

Glass Company, 376 F.2d 711 (7th Cir. 1967) 397 F.2d 439,

cert. den., 393 U.S. 925 (1968); World Brilliance Corp. v.

Bethlehem Steel Co., 342 F.2d 362 (2nd Cir. 1965) ; Aber-

thaw Construction Co. v. Centre County Hospital, 366 F.

Supp. 513 (M. D. Pa. 1973) aff’d without opinion, 503 F.2d

1398 (3rd Cir. 1974) ; International U. of E., R. & M. W. v.

Westinghouse Elec. Corp., 48 F.R.D. 298 (S.D.N.Y. 1969) ;

Swift Industries, Inc. v. Botany Industries, Inc., 297 F.

Supp. 1056 (W. D. Pa. 1969).

Issues not bearing directly on the “making” of an agree-

ment to arbitrate may not properly come before a federal

court on a motion to compel arbitration under §4 of the

Federal Arbitration Act. To allow the me holding -

the guarantee to stand, a matter not within the purview o

the statute, would inevitably expand the jurisdiction and

scope originally intended for the federal court system

under the Act by the addition of a host of collateral mat-

8, issues and even parties.

ae to the effect enol the decision of the Court

below creates an intolerable situation. If National were to

allow the decision below to go unchallenged, and an arbitra-

tion proceeding were held between Respondent and Hel-

lenic in which Hellenic were held liable in damages,

National would undoubtedly be called upon, in the event of

Hellenic’s failure to respond in damages, to respond itself

even though it seems clear that the District Court had no

jurisdiction to decide that National was a guarantor. ‘Ne

tional might find itself precluded by a claim of res adjudt-

cata from obtaining its day in court for an ordinary and

i that issue.

ge agetr between the decision of the court below and

the plain meaning of the Federal Arbitration Act justifies

the grant of Certiorari to review the judgment below.

i i ict With

2. The Decision Below Is In Direct Conflict

Applicable New York Substantive Law Relating

To Guarantees.

The court below held in its first opinion that New habeas

law was controlling on the question of whether the “fixture

telex was sufficient to bind petitioner as a guarantor. §5-

701, of the New York General Obligations Law.*

i ing is void, unless it

ann greement, promise or undertaking is void, S

or stain tote al memorandum thereof be in writing, and ee

by the party to be charged therewith, or by his lawful agent, 1

agreement, promise or undertaking ; . . .

2. Isa special promise to answer for the debt, default or mis-

carriage of another person;”

Here, the question is whether the “fixture” telex (1) was

such a writing and (2) whether it was subscribed by peti-

tioner’s “lawful agent.” The substantive New York law

on the point, as stated in Savoy Record Co. v. Cardinal

Export Corp., 15 N.Y.2d 1, 6-7; 203 N.E. 2d 206 ; 254 N.Y.S.

2d 521, 525-6 (1964) is:

The obligation of a guarantor, is admittedly, a

heavy one and the courts should refrain from foist.

ing such an obligation upon a party, be he individual

or corporation, who simply signs as agent, absent

the requisite clear and unequivocal evidence, to be

gathered from the writing itself, that he intended

to assume such a liability. [Emphasis supplied].

It is apparent from the “writing itself,” the only source

from which the intent of the parties is to be divined, that

no such writing was either made or subscribed. The “fix-

ture” telex begins, “CONFIRM HAVING FIXED FOR

YOUR ACCOUNT TODAY * * *.” [Emphasis Supplied]

As National has been specifically held not to be a party

to that “fixture,” the language “FOR YOUR ACCOUNT”

can only refer to Hellenic. The only reference in the “fix-

ture” telex to the guarantee is in connection with the identi-

fication of the charterer, Hellenic.

CHARTERER: HELLENIC INTERNATIONAL

SHIPPING S.A. OF PANAMA SUBSIDIARY OF

NATIONAL SHIPPING AND TRADING WITH

APPROPRIATE LETTER OF GUARANTEE.

(17a)

Further, the only reasonable interpretation of the words

“WITH APPROPRIATE GUARANTEE? is that Hellenic

would undertake to procure a guarantee and the subsequent

preparation by the broker of a form of guarantee (not that

of National but of Harry Theodoracopulos personally) was

not, as the District Court found, merely to memoralize

something which had already been agreed to, but shows

that the parties intended that the guarantee would not

come into being until the identity of the guarantor and the

terms had been agreed to and it was subscribed so as to

be enforceable under the Statute of Frauds. Schenck v.

Francis, 26 N.Y.2d 466, 311 N.Y.S.2d 841 (1970).

The District Court’s opinion is not inconsistent with such

interpretation for that Court stated “The commitment to

supply the guarantee was but one of the details of the

fixture, not unusual in the shipping business. DeSalvo

had actual as well as apparent authority to bind the

charterer to it.” [Emphasis supplied.] (27a). But

Hellenic, not National, was the alleged “charterer.”

DeSalvo, therefore, can only reasonably be found to have

signed the “fixture” telex on behalf of Hellenic. No

“writing” that would have bound National as guarantor

was ever subscribed by anyone.

Moreover, the alleged “fixture” telex itself is silent as to

the terms of the guarantee, incorporates no other document

by reference and does not specifically state that the guaran-

tee would be that of National. Most importantly the words

“WITH APPROPRIATE GUARANTEE” in the telex do

not themselves constitute a guarantee.

Thus, even on the facts as found by the District Court

and approved by the Court below, the holding that the

“fixture” telex passes the stringent test required by the

New York Statute of Frauds must fall because it conflicts

with New York’s expressed statutory and judicial policy

regarding what constitutes a writing sufficient to support

a guarantee.

In New York, the Legislature has distinguished between

a writing necessary to support a guarantee and one suffi-

cient to indicate an agreement for the sale of goods or

securities. The degree of formality required by the Statute

of Frauds for a guarantee (§$5-701(2) of the General

Obligations Law) is very much greater. Weiss v. Wolin

303 N.Y.S.2d 940 (Sup. Ct. Special Term 1969). ;

In recodifying the statute of frauds the legislature

on the recommendations of the Law Revision Com-

mission and the Commission on Uniform State Laws

respectively, treated portions differently. Thus,

agreements not to be performed within one year,

guarantees, ete., and conveyances and contracts con-

cerning real property, etc., are found in the General

Obligations Law (§$§ 5-701, 5-703). These statutes

provide that any such agreement is void unless it or

some note or memorandum thereof is in writing

subscribed by the party to be charged therewith.

On the other hand, agreements for the sale of

goods or for the sale of securities were placed in

§ 2-201 and § 8-319 of the Uniform Commercial Code.

These sections declare that such agreements are not

enforceable unless there is some writing sufficient to

indicate that the agreement had been made, signed

by the party against whom enforcement is sought.

The choice of language in each instance must be

regarded as significant * * *. It is not straining to

assume that the distinction was made between void

contracts in the one case and “unenforceable” con-

tracts in the other because the first dealt with

contracts which should be prepared with greater

formality while the latter treated of agreements

made daily in the market place. Weiss v. Wolin

supra, at 942-3,

Thus, the proper standard to be applied to the findings of

the District Court in regard to the existence of a guarantee

was whether there was clear and unequivocal evidence to

be gathered from the writing itself of an intention by

National to assume such liability. Savoy, supra, and Salz-

man Sign Co. v. Beck, 10 N.Y.2d 63, 217 N.Y.S.2d 55 (1961).

Moreover, under controlling New York substantive law

the requirement of “clear and unequivocal evidence” cannot

be supplied by parole evidence extrinsic to the writing as

was done below. Such evidence must have existed within

the four corners of the “fixture” telex itself.

Such interpretation is confirmed by the testimony of

DeSalvo that the guarantee “was an item which would

have to be agreed upon after he [DeSalvo] had passed

some form of guarantee to [Theodoracopulos] to study,”

and that the draft guarantee was never sent to either Na-

tional or Theodoracopulos because “we never got to that

point” (Trial transcript, p. 123).

The District Court, counsel and DeSalvo all concurred

during the course of the trial that he was not the agent of

either party and that his agency was definitely not in issue

in the case (Trial transcript, pp. 151-5). After the trial,

however, in order to find that a guarantee by Nationa!

came into existence, the District Court held that DeSalvo

was National’s agent for purposes of subscribing a writing.

The finding that a charter broker, despite his wholehearted

disclaimer of any such authority, is “an agent” empowered

to execute a guarantee on behalf of one of the parties in

charter negotiations without express written authority to

do so, if allowed to stand, would introduce into New York

charter negotiations the precise risks the New York Legis-

lature and Court of Appeals have sought to preclude.

Respectfully submitted,

Eur Ex.is

Dav I. Grucunist

Manx M. Jarre

Joun H. Cievetanp IIT

Counsel for Petitioners

One World Trade Center

Suite 5215

New York, N. Y. 10048

INDEX

PAGE

Opinion of Court of Appeals Decided June 23, 1972

(462 F.2d 673) la

Excerpts From Trial Transcript - 10a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J. dated

February 28, 1974 agin 12a

Opinion of Court of Appeals Decided June 24, 1975 .... 36a

Opinion of Court of Appeals Decided June 23, 1972

(462 F.2d 673)

UNITED STATES COURT OF APPEANMSN

For tHe Seconp Circuit

No. 749—-September Term, 1971.

(Argued May 23, 1972 Decided June 23, 1972.)

Docket No. 72-1150

Interocean Surpprne Company,

Petitioner-A ppellec.

NationaL SHipptnc anp Traprnc Corporation and

Hewienic InternationaL Sairrine, S.A.,

Respondents-A ppellants.

Before:

Frrenpiy, Chief Judge, and

Feinserc and Timbers, Circuit Judges.

Appeal from an order of the District Court for the

Southern District of New York, Dudley B. Bonsal, Dis-

trict Judge, directing appellants to arbitrate petitioner’s

claim for breach of a charter party, pursuant to ¢4 of the

Federal Arbitration Act, 9 U.S.C. §4 (1970).

Reversed and remanded.

—+- oe

Davin I, Gr curist, New York, N.Y. (Eli Ellis,

Mark M. Jaffe and Hill, Betts & Nash, New

York, N.Y., on the brief), for respondents-

appellants.

Opinion of Court of Appeals Decided June 23, 1972

(462 F.2d 673)

James M. Estasroox, New York, N.Y. (Joseph

R. Kelley, Jr., Lennard K. Rambusch and

Haight, Gardner, Poor & Havens, New

York, N.Y., on the brief), for petitioner-

appellee,

‘Timbers, Circuit Judge:

The essential question on this appeal is whether, within

the meaning of the Federal Arbitration Act, “the making

of the arbitration agreement” ' was in issue, thus requiring

a trial of this question before directing appellants tv pro-

ceed with the arbitration of a maritime dispute.

in July of 1971 Interocean Shipping Company, acting

pursuant to the Federal Arbitration Act,* filed a petition

in the «istrict court to compel arbitration of a dispute

arising under a charter party allegedly entered into by

Tnterocean and appellants National Shipping and Trading

Corporation and Hellenic International Shipping, S.A.

The petition alleged that on March 17, 1971, National and

licllenic agreed to charter Interocean’s vessel, the Oswego

Reliance, for a period of approximately one vear pursuant

to the terms of the “Mobiltime” form charter, which in-

cluded a clause providing for arbitration of “any dispute

arising under [the] charter ... .” Interocean further

alleged that National and Hellenie repudiated this agree-

ment on March 24, 1971. Appellants’ answer denied the

material allegations of the petition and demanded a trial.

National's president, in an affidavit attached to the answer,

stated that there had never been a meeting of the minds

as to all the essential elements of a charter party. On

December 30, 1971, without conducting a trial, the district

1 $4 of the Federal Arbitration Act, 9 U.S.C. §4 (1970).

2 9 U.S.C. §$1-14 (1970).

Opinion of Court of Appeals Decided June 22, 1973

(462 F.2d 673)

court concluded that the making of the arbitration agree-

ment was not in issue and granted the petition.’ For the

reasons stated below, we reverse and remand for a trial

pursuant to §4 of the Federal Arbitration Act, 9 U.S.C.

§4 (1970).

Interocean relied primarily on a fixture note dated

March 17, 1971 to show that National and Hellenic had

agreed to charter Interocean’s vessel. This fixture note

was prepared by Poten & Partners, Inc., charier brokers,

aud was sent to the parties on March 17. It indicated that

Hellenic, a subsidiary of National, had agreed to charter

the Oswego Reliance for approximately one year in ac-

cordance with the terms of a “Mobiltime” form charter.

excluding clauses 9, 12(a) (ii), 12(b) (ii) and 12(b) (iii) and

subject to a suitable dry-dock clause to be worked out for

November dry-docking. The charter was to begin with the

delivery of the vessel to Hellenic in the Persian Gulf be-

tween March 31 and April 15, 1971.

To substantiate its claim that a charter agreement ex-

isted, Interocean also attached to its petition a copy of an

unexecuted “Mobiltime” form prepared by the broker on

March 17 and sent to the parties. This charter party was

intended to reflect the terms of the fixture note allegedly

agreed upon by all the parties on March 17. However,

while the broker had deleted the clauses referred to in the

fixture note, it also had deleted that clause of the “Mobil.

time” form pertaining to insurance coverage for the vessel.

This charter party also set forth a dry-dock clause which

3 An order compelling arbitration under §4 of the Federal Arbitration

Act is a final order and is appeaslable under 28 U.S.C. §1291 (1970).

Hellenic Lines, Lid. v. Lowis Dreyfus Corporation, 372 F.2d 753, 754

(2 Cir. 1967) ; Chatham Shipping Co. v. Ferter 8.8. Corp., 352 F.2d 291,

294 (2 Cir. 1965).

Opinion of Court of Appeals Decided June 23, 1973

(462 F.2d 673)

would have required Hellenic to dry-dock the vessel in

Spain, Portugal or Japan in November of 1971. Moreover,

unlike the fixture note, which, after referring to Hellenic,

added “subsidiary of National Shipping & Trading . . .”,

the charter party which was sent to Hellenic mentioned

National as charterer’s agent.

Following the receipt of the March 17 fixture note, there

ensued a series of communications between Interocean and

Hellenic concerning the terms of the charter party which

{nterocean contends were finalized en March 17. While it

is not entirely clear upon which terms these negotiations

focused, an examination of the telex messages attached to

Interocean’s petition reveals that Hellenic did request the

inclusion of the Red Sea within the delivery range of the

vessel. Hellenic also raised questions regarding Inter-

ocean’s intention to enter its vessel in the Tanker Owners

Voluntary Agreement against Liability for Oil Pollution

(Tovalop) and the allocation of the costs of such insurance.

Finally, on March 24, 1971, Hellenic broke off negotiations

with Interocean, contending that there had never been agree-

ment as to all the essential terms of a charter party.

After National and Hellenic refused to proceed with the

arbitration of Interocean’s claim for $1.4 million in dam-

ages for appellants’ breach of the charter party allegedly

entered into on March 17, 1971,‘ Interocean filed the instant

petition to compel arbitration.

II.

Section 4 of the Federal Arbitration Act provides in

relevant part that “[i]f the making of the arbitration

4 We hold that “the failure, neglect, or refusal to perform” the arbitra-

tion agreement is not in issue. 9 U.S.C. §4 (1970). Accordingly, ap-

pellants are not entitled to a trial on this issue.

Opinion of Court of A ppeals Decided June 23, 1979

(462 F.2d 673)

agreement . .. be in issue, the court shall proceed sum-

marily to the trial thereof.” °

In the instant case, National and Hellenic deny the ex-

istence of the charter party which contains the arbitration

clause upon which Interocean’s petition relies. There can be

no doubt that the question of the very existence of the

charter party which embodies the arbitration agreement is

encompassed within the meaning of “the making of the

arbitration agreement.” As we said in In Re Kinoshita

é Co., 287 F.2d 951, 953 (2 Cir. 1961), “if it was claimed

that . .. there had at no time existed as between the parties

any contractual relation whatever, .. . a trial of this issue

would be required before an order could be issued direct-

ing the parties to proceed to arbitration.” See also Kulu-

kundis Shipping Co. v. Amtorg Trading Corp., 126 F.2d

978, 985-86 (2 Cir. 1942); Superior Shipping Company v.

Tacoma Oriental Line, Inc., 274 F.Supp. 25, 26 (S.D.N.Y.

1967) ; Sinva, Inc. v. Merrill, Lynch, Pierce, Fenner & Smith,

Inc., 253 F.Supp. 359, 364-65 (S.D.N.Y. 1966). Accordingly,

if the making of the charter party was in issue, within

the meaning of § 4 of the Arbitration Act, the district court

should have proceeded to trial of this question.

In deciding whether the making of the charter party

was in issue, the principles enunciated in Almacenes Fer-

nandez, S.A. v. Golodetz, 148 F.2d 625 (2 Cir. 1945), are

controlling. There, in discussing what a party must show

in order to place the making of an arbitration agreement

in issue, we said:

“To make a genuine issue entitling the plaintiff to a

trial by jury, an unequivocal denial that the agree-

ment had been ‘nade was needed, and some evidence

should have been produced to substantiate the denial.”

148 F.2d at 628.

5 9 UBC. $4 (1970).

Opinion of Court of «lppeals Decided June 23, 1972

(462 F.2d 673)

Accord, Ocean Industries, Inc. vy. Soros Associates Inter-

national, Inc., 328 F.Supp. 944, 948 (S.D.N.Y. 1971).

Ilere we believe that National and Hellenic satisfied the

test articulated in Almacenes Fernandez, S.A. v. Golodetz,

supra, Their answer to Interocean’s petition categorically

‘lenied entering into a charter party with Interocean. More-

over, while appellants might be faulted for not presenting

their arguments to the district court in a more coherent

fashion, affidavits and exhibits attached to the petition and

auswer did tend to subsiantiate appellants’ deniai of the

existence cf contractual relations.

In particular, the fixture note, the “Mobiliimc” form

charter and the telex messages exchanged between inter-

ecean and Hellenic on March 24, 1971 were sufficient to

jlace in issue the question whether there had been a meet-

ing of the minds as to all essential terms of a charter party

on March 17. Under the genera] principles of eontract

law.’ there is no contract if the parties fail to azree on

all the essential terms or if some of the terms are too

indefinite to be enforceable. See V’Soske vy. Barwick, 404

F.2d 495, 500 (2 Cir. 1968), cert. denied, 394 U.S. 921

(1969) ; Ginsberg Machine Co. v. J. & H. Label Processing

Corp., 341 F.2d 825, 828 (2 Cir. 1965). Here Interocean

concedes, us it must in light of the fixture note, that no

agreement was reached ou a dry-dock clause, but denies

that such a elause is an essential term of a charter party.

'f this were the on!y issne in the case, we might be in-

ciined to affirm the order of the district coart. See Re-

-tatement (Second) ot Contracts 432(3), Illustration 11

‘Tent. Draft No. 1, 1964). However, the telex messages

ef Mareh 24 tend to show that Interocean and Hellenic

-—--

6 A charter party is merely a contract and hence is subject to all the

rules and requirements of contract law. Gilmore and Black, The Law

of Admiralty 172 (1957).

Opinion of Court of Appeals Decided June 22, 1972

(462 F.2d 673)

had failed to reach agreement on March 17 on several

items which might well be integral elements of a charter

party. Thus, Interocean’s message of March 24 indicates

that Hellenic wanted the delivery range of the vessel to

include the Red Sea. Furthermore, the fixture note of

March 17 indicated that the insurance clause of the “Mobil-

time” form would be part of the charter agreement. This

clause, however, was deleted from the “Mobiltime” form

which the brokers sent to Hellenic. When this deletion

is considered in conjunction with Interocean’s telex mes-

sage of March 24 referring to the difficulties in reaching

agreement over Interocean’s participation in Tovalop, there

is enough to place in issue the question of whether the

parties agreed upon insurance coverage for the vessel.

Whether the parties ever had a meeting of the minds as

to the “delivery range” and insurance terms of the charter

party and whether these terms, in addition to the drydock

clause, can be considered essential terms of a charter

party, present issues of fact which can only be determined

after a hearing where evidence is received. Cf. El Hoss

Engineer & Transport Co. v. American Independent Oil

Co., 289 F.2d 346, 351 (2 Cir.), cert. denied, 368 U.S. 837

(1961); Hellenic Lines, Ltd. v. Leuis Dreyfus Corp., 249

F.Supp. 526, 527 (S.D.N.Y. 1966), aff'd, 372 F.2d 753 (2

Cir. 1967).

We also believe that appellants are entitled to a trial

pursuant to §4 of the Arbitration Act on whether Poten

& Partners, Inc., the charter brokers, had authority to

act for National and Hellenic. Appellants’ answer denied

the material allegations of paragraph five of the petition,

which alleged that appellants had entered into a charter

agreement with Interocean on March 17 through Poten

& Partners, Inc. This denial is broad enough to encompass

the question of Poten’s authority to act for National and

Hellenic. Moreover, a close examination of the fixture

Opinion of Court of Appeals Decided June 23, 1972

(462 F.2d 673)

note lends some suppert to appellants’ denial that Poten

was authorized to act for them. This note, which was pre-

pared by Poten and addressed to Interocean, confirmed

“having fixed for your account today ...” a charter agree-

ment with Hellenic. (Emphasis added). This quotation

indicates that Poten may have been acting solely for Inter-

ocean. In any event, appellants presented enough to place

in issue the scope of Poten’s authority. The resolution of

this issue requires a hearing where evidence can be re-

ceived not only on the relationship between the various

parties, but also on the customary practice of the charter

brokerage business.

Finally, it is well established that whether a person is

a party to the arbitration agreement also is included

within the statutory issue of “the making of the arbitra-

tion agreement.” Pan American Tankers Corp. v. Republic

of \Vtetnam, 296 F.Supp. 361, 367 (S.D.N.Y. 1969); Tubos

De Acero de Mexico, S.A. v. Dynamic Shipping, Inc., 249

F.Supp. 583, 587 (S.D.N.Y. 1966); Instituto Cubano De

Estab. Del Azucar v. The Theotokos, 153 F.Supp. 85, 86

(S.D.N.Y. 1957). Here we believe there is enough in the

record to place in issue the question of whether National

is a party to the charter agreement and hence to the arbi-

tration agreement contained therein.

This question is placed in issue by the fact that National

is not accorded the same status in either Interocean’s pe-

tition, the “Mobiltime” form charter or the fixture note.

The petition merely states that Hellenic is a subsidiary of

National, which fact would not in itself be sufficient to

make National liable for breach of agreement to charter.

Moreover, the “Mobiltime” form sent to Hellenic refers to

National as the charterer’s agent. Since Hellenic was a

disclosed principal, National’s acting as agent would not

make it a party to the charter agreement. Restatement

Opinion of Court of Appeals Decided June 23, 1972

(462 F.2d 673)

(Second) of Agency $320 (1958). Furthermore, the fix-

ture note, after referring to Hellenic, adds “subsidiary of

National Shipping & Trading with appropriate letter of

guarantee.” ‘Interocean now points to the fixture note as

showing that National was the guarantor under the char-

ter. If in fact National were a surety, however, it still

could not be held accountable for Hellenic’s breach of the

charter agreement. Merely agreeing to act as surety for

a charter party is not a maritime contract. Pacific Surety

Co, v. Leatham & Smith Towing & Wrecking Co., 151 F.

440, 443-44 (7 Cir. 1907). See also Kossick v. United Fruit

Co., 365 U.S. 731, 735 (1961). This suretyship therefore

would be subject to the New York statute of frauds. Since

National’s alleged guarantee was not in writing, it would

not be enforceable. N.Y, General Obligations Law 45-701

(2) (McKinney 1964),” Thus, while it is impossible to de-

termine National’s status on the basis of this confused

record, there was sufficient uncertainty to entitle National

to a trial on this issue.

We emphasize that we do not decide today whether a

valid charter agreement existed and whether National was

a party to that agreement. We merely hold that appellants

have shown enough to entitle them to a trial of these issues

pursuant to §4 of the Arbitration Act. As in El Hoss En-

gineer & Transport Co. v. American Independent Oil Co.,

supra, 289 F.2d at 351:

“[T here would appear to be issues of fact .. . . These

issues should not be determined on affidavits, but

rather a full trial should be had.”

Reversed and remanded for further proceedings not

inconsistent with this opinion.

10a

Excerpts from Trial Transcript

[126] The Court: All right.

The question at issue here, as I understand, gentlemen,

is whether or not there was in fact a contract made for the

chartering of this ship as alleged in the pleadings here.

Mr. Estabrook: That is right. We are claiming an arbi-

tration clause on or about March 17th.

The Court: That is the issue in this case and I take

it that is the only issue I am here to decide.

Do you agree that is the only issue in this case, Mr.

Gilchrist?

Mr. Gilchrist: I think there are two issues, your Honor,

at least.

The Court: When are they? Is that the first? Do you

concede that that is one of the issues? Is that one of the

issues; ves or no?

Mr. Gilchrist: I prefer the Court of Appeals’ formula-

tion.

The Court: I hold then it is one of the issues.

Mr. Gilchrist: Whether there was a meeting of [127] the

minds on all the essential terms.

The Court: On whether or not there was a contract

created by the telex messengers. I hold that it’s a matter

of law, and I so rule. If you differ with me take your

exception now.

Mr. Gilchrist: That is the issue.

The Court: That is one of the issues.

Mr. Gilchrist: Well, your Honor—

The Court: Either agree or take your exception. What

do you do?

lla

Colloquy

Mr. Gilchrist: I think I have to take an exception to

the way it has been phrased, your Honor.

The Court: How would you phrase it?

Mr. Gilchrist: I would phrase it this way: I would say

that the first issue in this case is whether in all of the

conversations had between principals and the matters in

writing exchanged between them there ever came into ex-

istence that meeting of the minds on all of the essential

terms of the contract so as to result in an enforceable

contract.

The Court: I will accept your phraseology. It is tanta-

mount to what I said. I will accept it.

Mr. Gilchrist: The second issue in this case, your Honor,

involves the role of National, because your [128] Honor

could conceivably conclude that a fixture had been done

but that it is not binding on National and without trying

to get into it, I think the evidence emerging on that is a

separate issue in the case.

The Court: I accept that as a second issue.

Any objection, Mr. Estabrook?

Mr. Estabrook: No.

The Court: And I would accept the two issues as stated

by Mr. Gilchrist as being the only two issues before the

court at this time on this trial.

Do you agree, Mr. Estabrook?

Mr. Estabrook: Yes, your Honor.

The Court: Do you agree?

Mr. Gilchrist: I will accept that formulation.

The Court: At least we know where we are headed,

what we have to decide.

12a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

Haicut Garpner Poor & Havens, Esgs., New York, New

York, Attorneys for Petitioner (James M. Estaprook

and Lennarp R. Ramssuscu, Esgs., of Counsel).

Hm. Betrs & Nasu, Esgs., New York, New York, At-

torneys for Respondents (Davm GitcHrist and Mark

JaFFE, Esqs., of Counsel).

Ryan, J.:

A formal trial of this non-jury proceeding to enforce

arbitration was held by me following remand from the

Second Circuit Court of Appeals to determine whether a

binding contract had been entered into by the parties

which, by its terms, requires them to arbitrate the ques-

tion of whether there was a breach of the charterparty in

suit by the defendants. See Interocean Shipping Com-

pany v. National Shipping & Trading Corporation and

Hellenic International Shipping, S.A., 462 F. 2d 673 (C.A.

2, 1973).

Petitioner herein had successfully moved in the Dis-

trict Court for an order compelling arbitration, put, on

appeal by respondents, the Court of Appeals remanded

the proceeding and directed the District Court to deter-

mine whether there was a charterparty in effect between

the parties which would require them to arbitrate their

dispute... The Court of Appeals pointed out that a trial

1 Federal Arbitration Act, 9 U.S.C. 4. Section 4: “If the mak-

ing of the arbitration agreement or the failure, neglect, or refusal

to perform the same be in issue, the court shall proceed summarily

to the trial thereof. If no jury trial be demanded by the party

alleged to be in default, or if the matter in dispute is within ad-

miralty jurisdiction, the court shall hear and determine such

issue. * * *”

13a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

should determine whether in all the conversations be-

tween the parties there was a meeting of the minds which

thereafter memorialized in a fixture letter or memorandum

by which NationaL was bound.’

Specifically, with respect to the question whether there

was a meeting of the minds, the Court of Appeals held

that this trial should determine whether the parties had

agreed on drydocking, insurance and delivery range, and

if they had not, whether these were such material items

as to frustrate the existence of a contract; with respect

to whether Nationa was bound, that this trial should

determine whether the broker had authority to bind

NationaL. National was acting as agent for a disclosed

principal—the charterer, HELLENIC—or was a guarantor

of performance by Hellenic, the charter party, and, if

a guarantor, whether the fixture letter was sufficient to

satisfy the Statute of Frauds of New York as to such

guarantee (N.Y. General Obligations Law, Section 5-701

(2), McKinney’s 1964).

Petitioner urges that there was a binding charterparty

under which NationaL was bound as guarantor and as

parent of HELLENICc; respondents dispute this.

The overwhelming evidence, both testimonial and docu-

mentary, is that there was a charterparty agreement en-

tered into by the parties, the essential terms of which

were contained in the fixture letter which bound both, and

that performance by the charterer HELLENIC was guar-

anteed by NationaL, and that the guarantee was set forth

in the fixture letter signed by the broker, who was the

agent for both parties. I find that, on March 17, 1971 the

facts were as follow:

l4a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

Petitioner was a Liberian corporation and a wholly

owned subsidiary of Bethlehem Steel Corporation, and

the owner of the Liberian flag oil/ore carrier Oswerco

Rewiance, a tank vessel of 49,283 dead weight tons;

Anthony Germano was an employee of Steamship Service,

Inc., a wholly owned subsidiary of Bethlehem Steel Cor-

poration, which acted as the house broker for vessels

owned by Bethlehem Steel Corporation or its subsidiaries;

Respondent Nationa, a New York corporation, was in

the business of operating and chartering tankers on be-

half of various principals. The stock of Nationa, was

held in trust for the benefit of Harry Theodoracopulos,

its Vice-President; Thomas Spears was President of

NationaL; Respondent HeLLenic was a Panamanian cor-

poration, the stock of which was owned by Hellenic Ship-

ping & Industries, Ltd., of Greece. The principal share-

holder of Hellenic Shipping & Industries, Ltd., of Greece

was John Theodoracopulos, the father of Harry Theo-

doracopulos; the firm of Poten & Partners was a ship-

brokerage firm in New York; Francis DeSalvo, presently

Chief Executive Officer of Poten & Partners, was a

broker employed by said firm; prior to joining Poten &

Partners, DeSalvo had had five years’ experience doing

chartering work for Amoco.

Petitioner’s principal witness, DeSalvo, testified that he

had known Harry Theodoracopulos (H.T.) for many

years and had had close business associations with him

in the chartering of ships; that on March 17, 1971 he had

lunch with H.T. at the latter’s invitation, at which time

they discussed the availability of a specific tanker and the

general tanker market; that, upon DeSalvo’s return to

his office, he received a telephone call from H.T. inquir-

ing as to the availability of the tanker and that he,

15a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

DeSalvo, then called Germano at Steamship Service to

ascertain whether the Osweco Re.iance was available;

that, upon being informed that it was, he relayed this

message to H.T. and, upon asking him whether he was

interested, H.T. replied in words to the effect, of “Yes,

bring a firm offer in.” DeSalvo then called Germano,

requesting a firm offer which Germano did not give im-

mediately because he wanted to look into the question of

a guarantee from Nationat as he did not know HELLENIC;

upon inquiry from Germano as to the identity of the

charterer, DeSalvo had said it was “represented” by

NationaL; Germano said that it would be necessary to

see what arrangements could be given for guarantees and

promised to call DeSalvo, which he did shortly after,

offering the Osweco Re.iance to DeSalvo “for reply 4:55

today”; DeSalvo’s contemporaneous notes show as fol-

lows:

“Bethlehem Steel

National Shipping & Trading Reply 4:55 today

o0/o Oswego Reliance

49,283 DWT 39 5/8”

16-1/2 knots 100 ¢ cubic 1,968,842 98%

crude oil/or DBB max 3 grades net seg. max 135

coiled wing tanks only

“Del. 1 safe PG ex FA at charterers’ option

Lay day March 31/April 15 ETA April 1

Redel. 1 safe PG owner’s option

WW with IWL ex China, N.Vietnam, N. Korea,

Cuba, Israel and all other commie countries

Overtime and petties—$750/mo.

Rate: $5.75/ DWT/NW

Suitable drydock clause (scheduled Nov. 15 days)

l6a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

1 year + 15 days

Mobil time sub-details

1-1/4 P & P 1 1/4 steam ship service”

DeSalvo relayed Germano’s offer to H.T. at about 4 PM

on March 17, 1971; H.T. made several counter offers oral-

ly on the telephone to DeSalvo, also “for reply 4:55 pm”,

which were relayed to Germano, who accepted some and

rejected some, and these, in turn, DeSalvo relayed to H.T.

DeSalvo’s notes, made at the time of the telephone calls,

reflect what the offers and counter offers were. The items

which were being negotiated were charterhire, which H.T.

proposed at $5.50 (Germano at $5.75); terms of the char-

ter, 1 year plus or minus 30 days (Germano, 1 year, 15

days); and overtime and petties $500 (Germano, $750).

H.T. also proposed that the Mobiltime form charter would

exclude paragraphs 9, 12(a)II, 12(b)IT and 12(b)ITI, and

that a suitable drydock clause be worked out with suffi-

cient advance notice. DeSalvo’s notes also reflect that the

charterer was to be Hetienic, which H.T. had described

to DeSalvo as a subsidiary of Nationa. H.T. at the time

also inquired into the pumping capacity of the vessel;

proposed a review of performance every six months; and

inquired into the nature of the last two cargoes. All this

took place at about 4 PM on March 17, 1971. H.T.’s coun-

ter offers were accepted by Germano with the exception

of charterhire, which Germano quoted at $5.65 and $750

for petties to which H.T. countered with $5.55 hire and

$6 for petties; Germano came back with $5.60 charter-

hire and $750 for petties. At about 4:45 p.m., DeSalvo

transmitted this offer to H.T., who said in words to the

effect “You are confirmed.”

During these conversations DeSalvo had informed H.T.

that Germano required a guarantee to which H.T. replied

17a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

that “appropriate guarantees” would be given and that

HELLENIC was a subsidiary of Nationat. Following the

conversations that same afternoon DeSalvo, through Poten

and Partners, sent telexes to both parties confirming the

fixture of the Osweco Rexiance as follows: The telexes

were identical except for the addressee and the statement

of the commissions payable by Iyrerocean to Poten and

Partners.

“THEOTRAN NY (or BETHLEHEM NYC)

POTEN AND PARTNERS INC. MAR 17 1971

ATTEN:

MR. H. THEODORACOPULOS (or MR. TONY GER-

MANO)

CONFIRM HAVING FIXED FOR YOUR ACCOUNT

TODAY AS FOLLOWS:

OWNER: INTEROCEAN SHIPPING COMPANY

CHARTERER: HELLENIC INTERNATIONAL SHIP-

PING S.A. OF PANAMA SUBSIDIARY OF NA-

TIONAL SHIPPING AND TRADING WITH APPRO- |

PRIATE LETTER OF GUARANTEE

‘OSWEGO RELIANCE’

49,283DWT 39 FT 5/8 INCHES DRAFT CUBIC 9%

PERCENT 1,968,842

3 PUMPS 1300 TWPH EACH

16.5 KNOTS ON 100 BUNKER C PER DAY

DELIVERY/REDELIVERY PG EXCLUDING FAO

AND ABADAN LAYCAN MARCH 31/APRIL 15 1971

ETA APRIL 1 1971 CRUDE AND/OR DPP MAX 3

GRADES WITHIN NATURAL SEGREGATIONS

MAINTAINING HEATING 135 DEG F

COILED WING TANKS ONLY

TRADING WORLDWIDE WITHIN 1 WL EXCLUD-

ING COMMUNIST COMMUNIST CONTROLLED

CHINA, NORTH VIETNAM, NOR KOREA, CUBA

PERIOD ONE YEAR PLUS OR MINUS 30 DAYS

MOBILTIME EXCLUDING CLAUSES 9, 12AII, 12BII,

12BIII

18a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

“SUITABLE DRYDOCK CLAUSE TO BE WORKED

OUT FOR NOVEMBER DRYDOCKING ABOUT 15

DAYS WITH PROPER NOTICE

PERFORMANCE REVIEW EVERY SIX MONTHS

OVERTIME AND PETTIES $750. PER MONTH

RATE 5.60 PER DWT PER MO PAYABLE U S

DOLLARS IN NEW YORK

THANK YOU FOR THE OPPORTUNITY TO CON-

CLUDE THIS BUSINESS

THEOTRAN NY” (or BETHLEHEM N.Y. plus Com-

missions )

The telex to Theotran was received in the office of Na-

TIONAL at 5:36 P.M. and studied by H.T. and Spears. On

the trial, both testified that they understood it. H.T. also

testified that he understood the word “fixed” to mean the

conclusion of a negotiation; neither H.T. nor Spears called

or telexed Poten & Partners back, commenting on or cor-

recting the fixture telex.

On the following day, DeSalvo and Germano drew up a

working copy of the charterparty and language for a dry-

docking clause; DeSalvo sent this copy of the charterparty

to InrerRocEAN and Nationat on March 19; on March 18

or 19, DeSalvo inquired of H.T. if he wanted to offer the

Osweco Reuiance for subcharter, to which H.T. replied

that he did for a single voyage at a certain rate to Chev-

ron. DeSalvo was informed that Chevron would not con-

sider the Osweco Re.iance unless she had Tovalop insur-

ance, which Bethlehem Shipping did not have at the time.”

DeSalvo inquired of Germano if he would approach the

? Tanker Owners Voluntary Agreement concerning liability for

oil pollution.

19a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

owners about entering the tanker into Tovalop. Germano

told DeSalvo that this would require the entry of the en-

tire fleet of Bethlehem in Tovalop; that, since it was Fri-

day, it was too late to contact their insurers in London;

and that he could have no answers from his principals

until Monday, March 22. All of these negotiations were

had with the knowledge of H.T., who had been the one

to request of Germano, through DeSalvo, to provide such

coverage for .he Osweco Retiasxce. This was the first time

that this insurance had been discussed or even mentioned.

It formed no part of the Mobiltime Form Charter since

this insurance did not come into effect until 1969 and the

Mobiltime Form was printed in 1967. The Mobiltime Form

was suggested by DeSalvo who, from his experience in

fixing ships with H.T., knew that H.T. was familiar with

it. The Mobiltime Form contained the arbitration clause,

the words “sub-details” (i.e., subject to details in the

telex), which DeSalvo testified meant in the industry “fill-

ing in the blanks”, to supply the details of completing

the charterparty form, e.g., the description of vessel, her

fuel oil content, her speed, RPMs, the insurance valuation,

in short, to fit the form to what had been orally agreed

on so that “sub details” could vary from charter to char-

ter depending on what details the parties had left to be

filled in after agreement. DeSalvo testified quite clearly

that, while the “details” might vary, “sub details” cer-

tainly did not mean subject to reviewing the whole nego-

tiation again.

On March 23, Bethlehem Steel, because of the request of

H.T. to obtain Tovalop for the Osweco Re.iance, entered

its entire fleet into Tovalop, according to the requirements

of that insurer, and so notified DeSalvo, who informed

H.T. of this, stating that it would be at charterer’s ex-

20a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

pense. H.T. did not agree to this and “stood fast” on its

being at owner’s expense.

On or about March 18 or 19, Germano suggested word-

ing for the drydock clause, which the fixture letter had left

open for discussion, and DeSalvo inserted it into the copy

of the charterparty. At that time, DeSalvo had asked

H.T. to suggest some acceptable language, but he never

did. A copy of the charterparty containing the following

language was sent to both parties on March 19 and re-

ceived by them at the latest on March 22:

“11(b). Vessel requires drydock November 1971. It

is the intention of the owners to drydock the vessel

in Portugal, Spain or Japan and charter guaran-

tees to place the vessel in position to drydock in

any one of these countries.”

As they had agreed in the fixture letter and as H.T. had

uested Paragraph 12(a)II and (b)II and Paragraph 9

had been deleted. Paragraph 12(b)III recited the agreed-

on $750 for petties; delivery was fixed at a Persian Gulf

Port excluding Fao and Abadan at owner’s option; clause

23 which provided that owner would provide Protection

and Indemnity Insurance (P & I) at its own expense, had

been stricken; trading was limited to non-Communist con-

trolled countries (Paragraph 3b).

Upon receipt of the charterparty on March 22, H.T.

called DeSalvo and asked him to modify two clauses; to

broaden delivery range to the Red Sea, which was agreed

to by owner; and to permit trading with Communist China,

which could not and was not agreed to by owner because

the crew of the vessel was Nationalist China. H.T. made

no comment about the language of the dry docking clause.

21a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

About noon of March 23, 1971, H.T. went on vacation.

During that afternoon, Spears told DeSalvo that the dry-

docking language was not acceptable because he was un-

willing to guarantee the position of the vessel in No-

vember. Although DeSalvo asked him for language that

he could pass on to the owners, it was not until 5:15 P.M.

that Spears called DeSalvo with proposed language for

the dry docking clause as follows:

“Vessel requires drydocking about November, 1971,

charterers will do all possible to position the vessel

for discharge in the UKC MED or Far East area

so that drydocking can be accomplished between

October 15 and December 15, 1971.”

In Spears’ own words, this was language the charterer

thought it “could live with” and he asked DeSalvo to

transmit it to Germano. This was the exact language

which appeared on DeSalvo’s contemporaneous notes.

At 9 A.M. on March 24, Spears called DeSalvo and

asked him if he had conveyed the proposed drydocking

clause to Germano. When DeSalvo said he had not be-

cause he had received it after business hours, Spears told

him not to pass it on.

Later that morning, DeSalvo called Spears and in-

formed him that the owner had entered its fleet in Tov-

alop and that the cost of such coverage for the Osweco

Rewiance would be at the owner’s expense as insisted

upon by H.T.; and that it agreed to the language of char-

terer’s drydocking clause.

About 11 A.M. of the same morning, Spears telexed

DeSalvo repudiating the charter “due to the absence of

meeting of the minds of the parties regarding all details

necessary to a completed charter agreement.”

22a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

Later the same day, Poten & Partners sent a telex to

charterers quoting a message from the owners to the ef-

fect that they were holding the charterer to the charter

and that they considered the Osweco Re.iance chartered,

as follows:

“IN RESPONSE TO YOUR TELEX OF MARCH 24,

PLEASE ADVISE CHARTERERS THAT WE CON-

SIDER THE OSWEGO RELIANCE CHARTERED

TO THEM AND SHALL HOLD THEM LIABLE

FOR ANY DAMAGES THAT MAY RESULT FROM

A BREACH OF THIS CHARTER. WE DISAGREE

THAT THERE WAS NO MEETING OF THE

MINDS RATHER AS IN NORMAL PRACTICE WE

WERE ATTEMPTING TO ARRIVE AT MUTU-

ALLY SATISFACTORY LANGUAGE FOR TWO

RELATIVELY MINOR POINTS. AS YOU KNOW

THE ITEM WHICH CAUSED THE MOST DELAY

WAS TOVALOP. TOVALOP WAS SUBJECT THAT

CAME UP A DAY OR TWO AFTER THE FIX-

TURE. THIS FIXTURE AS INDICATED IN YOUR

TELEX CONFIRMATION OF MARCH 17 WAS

FIXED ON THE BASIS OF MOBILTIME WHICH

MAKES NO MENTION OF TOVALOP. AFTER

YOU ADVISED THAT CHARTERERS WOULD

HAVE DIFFICULTY WITHOUT TOVALOP, WE,

IN THE SPIRIT OF COOPERATION—REGIS-

TERED THE OSWEGO RELIANCE AND THE BAL-

ANCE OF OUR ORE/OIL FLEET IN TOVALOP

FOR A PERIOD OF FIVE YEARS. WE ASSUMED

THAT THE CHARTERER WOULD AT LEAST

BEAR THE ONE YEAR TOVALOP COST OF THE

OSWEGO RELIANCE. AT NO TIME WAS ANY

LIMITATION PUT ON OUR EXCHANGES AND

WE BELIEVE DISCUSSIONS PROCEEDED BET-

TER THAN NORMALLY FOR A CHARTER OF

THIS DURATION.

23a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

“IN ACCORDANCE WITH OUR VERBAL ADVICE

PLEASE PREPARE THE CHARTER FOR OUR SIG-

NATURE IMMEDIATELY. AS WE ADVISED VER-

BALLY, YOU MAY ADD TO THE MOBILTIME

DRYDOCKING CLAUSE THE ADDITION PRO-

POSED BY CHARTERER ON MARCH 22 AND WE

AGREE TO PAY COST OF TOVALOP. FURTHER,

YOU MAY ADD THE RED SEA AS A DELIVERY

RANGE AS PER CHARTERERS EXPRESSED DE-

SIRE ON MARCH 23 AND OUR AGREEMENT ON

THAT DATE. THE OSWEGO RELIANCE IS DUE

IN THE RED SEA AND/OR THE PERSIAN GULF

ON APRIL 1. PLEASE IMPRESS UPON THE

CHARTERER THAT WE SHALL PURSUE THIS

MATTER VIGOROUSLY AND TO A CONCLUSION

AND DO ANY AND ALL THINGS NECESSARY TO

PROTECT OUR INTEREST.

“INTEROCEAN SHIPPING COMPANY”

On March 25, 1971, Nationau replied by Telex:

“WE HAVE PASSED ON THE CONTENTS OF IN-

TEROCEANS MESSAGE OF MARCH 24, 1971 TO

OUR PRINCIPALS AND HAVE BEEN INSTRUCT-

ED TO REPLY AS FOLLOWS:

INTEROCEANS STATEMENTS ARE CLEARLY

SELF SERVING, CONTRADICTORY TO THE CON-

CLUSIONS WHICH THEY PURPORT TO ESTAB-

LISH AND CERTAINLY NOT CONSISTENT WITH

ELEMENTARY PRINCIPALS OF CONTRACT LAW.

INTEROCEAN ADMITS THAT THERE REMAIN

POINTS WHICH WERE NOT AGREED UPON BY

THE PARTIES. HELLENIC INTERNATIONAL

DID NOT CONSIDER THESE POINTS MINOR.

HELLENIC INTERNATIONAL CONSIDERED

THESE OUTSTANDING POINTS AS INTEGRAL

PARTS OF A PROPOSED AGREEMENT TO

WHICH BOTH PARTIES MUST MUTUALLY

24a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

AGREE IN ORDER TO HAVE A CONTRACT. THE

SUBSEQUENT ATTEMPTS OF INTEROCEAN TO

REVIVE THE NEGOTIATIONS BY OFFERING BE-

LATED UNILATERAL AGREEMENT TO CERTAIN

OF THE OUTSTANDING POINTS CERTAINLY

ARE NOT CONTRACTUALLY EFFECTIVE. HEL-

LENIC INTERNATIONAL RESPECTFULLY BUT

VERY STRENUOUSLY REITERATES THAT

THERE WAS NO MUTUAL MEETING OF THE

MINDS ON ALL THE TERMS OF THE PROPOSED

AGREEMENT, CONSEQUENTLY THERE IS NO

CONTRACT. HELLENIC INTERNATIONAL AS-

SURES INTEROCEAN AND IMPRESSES UPON

INTEROCEAN THAT IT IS COMMITTED AND IS

READY, WILLING AND ABLE TO MOUNT A VIG-

OROUS DEFENSE TO PROTECT ITS PROPER IN-

TERESTS.

NATIONAL SHIPPING AND TRADING CORP.

AS AGENT FOR HELLENIC INTERNATIONAL.”

A copy of this telex was sent by it to counsel.

On March 24, 1971 Poten & Partners sent the charter-

party form to the owners who executed it—but charterer

refused to do so.

The formal charterparty form differed from the work-

ing copy in the three respects which had been the sub-

ject of the post fixture requests by H.T.:

1. To Paragraph 3(a) had been added that deliv-

ery could be “or Red Sea at Charterer’s option

provided no extra deviation involved.”

2. Paragraph 11(b) had been added “vessel re-

quires drydocking 4th quarter 1971 for approxi-

mately 15 days. Charterers will give owners as

much advance notice as possible so as to posi-

25a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

tion vessel in order to coordinate drydocking

this period.”

3. A new Paragraph 38 had been added: “It is

hereby agreed that the owner will register with

Tankers Owners Voluntary Agreement concern-

ing liability for Oil Pollution (Tovalop) with

all costs pertaining to such to be for Owners

account.”

This was the charterparty which charterer refused to

sign.

Between the date of the fixture and March 24, the

tanker market fell drastically from $5.60 to $3.00 per ton.

The fixture described as “consummated” of the Oswerco

Rewiance had been published in two shipping publica-

tions listing vessels for the trade; this information had

not been published at owner’s request. One publication

was dated March 13, 1971/March 20, 1971 the other,

March 12, 1971/March 19, 1971. Respondent did not ex-

plain how the information of the fixture came to be re-

ported.

It is clear that, if the fixture letter contained all the

necessary elements on which the parties had agreed and

if DeSalvo, who signed it, had authority on behalf of both

parties, a binding contract came into effect at that time

and it was not necessary that the parties execute a for-

mal charterparty to be bound to all its terms including

arbitration. Kulukundis Shipping Co. v. Amtorg Trad-

ing Corp., 126 F. 2d 978 (C.A. 2, 1942); Fisser v. Inter-

national Bank, 282 F. 2d 231 (C.A. 2, 1960).

DeSalvo was an independent broker, who had done

business for many years with H.T. and who, although he

26a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

stood to earn a good commission from the owner, was

not employed by it. His testimony, which was consistent

and perfectly credible, was supported by his contempo-

raneous notes, as well as by a sworn statement which

had been taken of him by counsel for owners on April

6, 1971 when events were fresh in his mind. I find his

testimony that he had been authorized by both parties

to close the deal through the fixture letter, after negotia-

tions on all major points had been concluded, substan-

tiated by the evidence and the custom and practice of

the shipping business.

DeSalvo’s authority to deal on behalf of charterers

as well as owners was established from the language of

the fixture letter sent to each “for your account”; from

the numerous offers and counter offers transmitted

through him to each, including the attempted repudia-

tion; from his past business association with H.T. when

he had,“fixed” ships for National or Hetienic; from the

request of H.T., “bring me a firm offer”, as well as from

his statement, “You are confirmed”. I also find it estab-

lished by the custom of the trade.

An integral part of the negotiations for the fixture was

the letter of guarantee to secure performance of the

charter by HeELLENic, a charterer with whom INTEROCEAN

had had no prior dealings. This was a prudent condi-

tion in light of subsequent events. No limit was placed

on DeSalvo’s authority in this respect; in fact, he ex-

pressly stated in the fixture letter that this was part of

the agreement to which H.T. had not only made no objec-

tion but had answered that an appropriate guarantee

would be given. This is admitted by Respondent. De-

Salvo had, in the past on a previous fixture acting for

this charterer, procure’ a guarantee of HELLENIC’s per-

formance.

27a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

The commitment to supply the guarantee was but one

of the details of the fixture, not unusual in the shipping

business. DeSalvo had actual as well as apparent au-

thority to bind the charterer to it. Christman v. Maris-

tella Compania Naviera, 349 F. Supp. 845, 851; aff’d 468

F. 2d 620 (1972); Restatement of the Law of Agency,

2nd Series, Sec. 34; Carver, Carriage by Sea, 12th Ed.,

Vol. 1, See. 335. |

I also find that it was the understanding of the par-

ties, through DeSalvo and H.T., that Nationa, would

give the guarantee on behalf of Hetienic and so bind

itself to the charterparty.* It is true that the fixture

letter did not specifically state that the guarantee would

be given by Nationa, but the testimony is clear that

this was the only guarantor which the parties had in

mind. The fixture letter did read: “Charterer: Hellenic

International Shipping S.A. or Panama, Subsidiary of

National Shipping and Trading. With Appropriate Let-

ter of Guarantee.” DeSalvo’s notes stated that HELLENIC

was a subsidiary of NationaL. It is uncontradicted that

H.T. (who was Nationa.) agreed to give an appropriate

guarantee. The testimony and the record disclose that

DeSalvo, who had known H.T. for many years, consid-

ered him to be Nationa as he was the “owner” and its

principal stockholder. H.T.’s father was the principal

stockholder of Hetienic. Heiienic had no office here,

* The guarantee was not recited in the charterparty because it

was no part of it; the guarantee of performance was really a sep-

arate agreement. Discussion on this point is limited to whether

NATIONAL should be a party to this suit as surety of the charter-

party made by HELLENIC, one of the issues raised by the Court of

Appeals. But see Dover SS Co. v. Summit Industrial Corp., 148

F. Supp. 206, holding this to be a question for the arbitrator.

28a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

but all business and correspondence went through Na-

TIONAL’s offices and H.T. was HELiLEnic’s attorney in fact.

Although NationaL denies that it was the parent of

Hewtienic, the fixture letter, DeSalvo’s notes, and his

sworn statement all describe this relationship. H.T., upon

receipt of the fixture letter, did not correct this state-

ment and, in fact, DeSalvo’s notes evidence that this in-

formation was supplied to him by H.T. H.T. testified:

“T ... probably did tell Mr. DeSalvo that the char-

terer would be either National Shipping or Hellenic

International”.

“T told him the charterer would be National Ship-

ping, implying that we would have authority by an-

other subsidiary company to do so, or Hellenic In-

ternational.”

The Court: “But you didn’t say anything about

another subsidiary, did you?”

The Witness: “Not to my recollection... .”

Spears testified, on cross-examination:

“A. It was my understanding that Bethlehem Steel

or the owners, I should say, wanted a guarantee of

National Shipping & Trading Corporation.”

The form of guarantee, which DeSalvo prepared but

which was never sent by him to H.T. because, as he testi-

fied, it could await the execution of the charter, was simi-

lar to one that had been used on a prior charterparty

obtained by DeSalvo for Hetientc, executed by John The-

odoracopulos on behalf of Hetienic, and attached to a

letter agreement on letterhead of both Hetienis and Na-

tional, signed by H.T. as attorney in fact for HELLenio,

29a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

who had also signed that prior charterparty on behalf of

HELLENIC.

The letter guarantee prepared by DeSalvo was for exe-

eution by “Harry: Theodoracopulos, National Shipping &

Trading Co.”

I find that Narionat was to be the surety for the per-

formance of Hetxenic and thus liable as a respondent for

the non -performance of He.enic; this, irrespective of

the role it may have played as agent for Hetienic in

negotiating the charterparty. It was in the business of

negotiating for its subsidiaries.

I also find that the fixture note represented this under-

standing by the parties and that it was sufficient to bind

NationaL to a guarantee through its agent, DeSalvo, even

though the formal guarantee was never executed.

Certainly in the modern business world and particularly

in the shipping business where speed of negotiations is of

the essence (here the Osweco Retiance was to be de-

livered on April 1), telecommunications and particularly

telexes (used so regularly in the shipping world) are a

sufficient “note or memorandum in writing to answer for

the default of another.” Christman vy. Maristella Com-

pania Naviera, supra; Sec. 5-701, General Obligations

Law; Trevor v. Wood, 36 N.Y. 307 (1867).

“Telegrams and teletype messages, too, are sufficient,”

says Professor Williston in his Treatise on Contracts, 3rd

Ed., Sec. 468. The California Court, applying a statute of

frauds similar to the New York statute took judicial notice

of the extensive use of teletype machines being used among

business brokers and found that such a message satisfied

the required writing. Joseph Denumzio Fruit Co. v. Crane,

30a

Opinion of Hon. Sylvester J. Ryan, U.S.DJ.

dated February 28, 1974

79 F. Supp. 117 (S.D., Cal., 1948), 188 F. 2d 569 (9th

Cir., 1949) cert. den. 342 U.S. 820.

I find that the telex which contained the clause requir-

ing the guarantee was the contract between the parties; I

find that DeSalvo had authority to act for both; and, since

DeSalvo signed the telex, I conclude that the guarantee

was in writing signed by the agent of the party to be

charged, NATIONAL.

The fact that the fixture letter had left the drydoeking

clause to be worked out does not mean that the parties

had not reached a mecting of the minds on this charter.

The testimony of both sides on this point makes it clear

that both considered this a point subject to acceptable solu-

tion at the proper time. In fact, it was owners who wanted

to reach a firm decision on the detail of the drydocking

and who suggested the language which was eventually

negotiated, and not He u.enic. It was not until after the

principal negotiator, H.T., had gone on vacation and not

until the close of business on March 23 that Spears com-

municated to DeSalvo language he thought they “could live

with”. The language suggested by Germano was in the

working copy of the charterparty form sent both parties,

which was received by IL.T. on March 22; and, although he

requested two changes, he made no comment about the

drydocking clause and never suggested any modification

of it.

The testimony of DeSalvo was that, in his experience,

this was a clause, the details of which could be and often

were worked out in the future by the parties; and that the

essential facts, such as duration of drydocking and the

approximate date, which were important to the trading

range, of the vessel had been agreed upon. Petitioner’s

3la

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

experts, both highly qualified men in the shipping and

brokerage business, testified that any deviation in getting

the ship to drydock was at owner’s expense; in fact, the

charterparty so provided here in Paragraph 11(a); that

it was not unusual to leave that clause to be worked out

at a later time, depending on where the vessel might find

herself; and that the clause proposed by owners—Europe

or Japan—would not seriously affect the trading range of

the Osweco Rexiance since both of these countries were

on the route usually plied by oil tankers which traveled

Persia Gulf-Murope or Persia Gulf-Japan. It was also

their testimony that they had never known of a charter-

party to fall apart over drydocking, and that the charterer

can arrange his voyage to his profit so that, at about the

time the vessel must be in drydock, it is carrying cargo

en route.

The testimony of Repondent’s expert was to the same

effect: that the “custom under the clause would have been

for the charterers and owners to discuss some time before

November the probable place of drydocking for the char-

terer to give the owner an idea as to the intended trades

so that they would know about where the vessel would be

in November.”

H.T.’s testimony was that drydocking is worked out

“after you know where the ship is going to be about that

time”, “the place, the exact date is negotiated after the

employment of the ship is known.” It appears from the

testimony that H.T. preferred not to work out a drydock-

ing clause at that time because he testified he could not

schedule his ship to be in a certain place eight months

hence. Since the choice was his and since the cost was

owner’s, he was in no hurry to make definite arrange-

ments for drydocking. He also admitted that “sub-details”

Opinion of Hon. Sylvester J. Ryan, U.S.DJ.

dated February 28, 1974

was a common expression in fixtures, and that DeSalvo,

on the telephone on March 17 prior to preparing the fix-

ture, had read to him the details of the vessel, etc., as

noted in DeSalvo’s contemporaneous notes.

Neither Spears nor H.T. had any handwritten notes or

diary entries relating to the numerous communications and

telephone calls with DeSalvo on this and other business

which totalled about 500 calls a year. In fact, H.T. testi-

fied that he had made notes about the Osweco RELIANCE

in a book which contained notes about numerous other

matters but that he had thrown them out even though

the matter had been referred by him to counsel as early

as March 24. H.T. testified that the word “fixed” in De-

Salvo’s telex meant to him the “conclusion of a negotia-

tion”. Spears found the clause relating to drydocking

“clear”, in fact everything clear except the description of

HELLENIC as subsidiary; but made no comment to DeSalvo

about this confusion.

I conclude that the drydocking clause was firmly agreed

on by the fixture; that it was to the owner’s interest to

settle it at the time; that, as far as respondent was con-

cerned, he was perfectly content to leave the details to be

worked out at a later time depending on where the vessel

was; that this was performance which was not to take

place for eight months but that the essential terms of the

performance had been agreed upon leaving for the future

only more precise terms.

In V’Soske v. Barwich, 404 F. 2d 495 (C.A. 2, 1968),

cert. den. 394 U.S. 921 (1969), the Court held that a con-

tract for the sale of a business was not defeated because

the parties had not agreed on the valuation of the net

worth of the business to be sold, because the term had an

established meaning and could be worked out by the par-

ties.

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

“If the contract cannot be performed without settle-

ment of the undetermined point, each party will be

bound to agree to a reasonable determination of the

unsettled point in order that the main promise may

be enforced.” Williston on Contracts, 3rd Ed., See.

48, p. 157.

So long as the undecided matter is not so essential as

to frustrate the purpose of the charter, the charter will

aes Aaby v. States Marine Corp., 181 F. 2d

The question of insurance never came up between the

parties until charterer attempted to sub-charter the vessel,

an act entirely inconsistent with its claim that it never

had a charter on the Osweco Retiance. The evidence re-

lating to Clause 23, which had been deleted from the

Mobiltime Form charter in the working copy as well as in

the original, was that P & I was totally unnecessary in

view of the fact that Bethlehem Steel was a self-insurer

in a more than adequate amount to protect charterer. The

deletion of Clause 23 was never discussed by the parties;

they both knew it was not applicable. Certainly had the

charterer not known that insurance was provided by

Bethlehem Steel, it would have raised that important point

immediately upon receipt of the copy of the charterparty,

when it saw that Clause 23 had been deleted. The conclu-

sion is inescapable that Hettenic and Nationau both knew

the facts about the insurance carried by Bethlehem Steel.

That it had a good reputation for solvency and financial

responsibility, was conceded by Respondent’s expert.

Tovalop was a different matter. It was not the usual

P & I insurance and would never have been discussed

but for the fact that Nationat or HELLENIC could not sub-

charter the Osweco Re.iance without having Tovalop.

34a

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

At no time during the conversation with DeSalvo from

lunchtime on through that afternoon of March 17, when

offers and counter offers on matters were going back

and forth through DeSalvo, through the time that De-

Salvo sent the fixture, and the following day, March 19,

was Tovalop or any insurance ever mentioned. It was

only when H.T. authorized DeSalvo to subcharter the

Osweco Rexiance for He.uenic that, for the first time,

he requested DeSalvo to seek Tovalop from the owners.

It was not a condition precedent, nor even a condition

subsequent, that Hetuenic be able to subcharter the

Osweco Rewuiance. DeSalvo testified, and this Court

agrees, that, even if Bethlehem Steel had refused to ob-

tain Tovalop, he considered that there was a charter on

the Osweco Retiance. The fact that HeLLenic could not

profit from a subcharter at that time was of no concern

to owners. When owners procured Tovalop and even

went so far as to agree to pay for it, they were doing

more than the charter required, obviously in the interests

of good will which meant good business and undoubtedly

also because DeSalvo had intimated that, without Tov-

alop, Hettenic would not perform the charter. The sub-

charter to Chevron, which H.T. authorized DeSalvo to

offer on March 18 or 19, coupled with the insistence that

owners procure Tovalop, is evidence that HELLENIC con-

sidered itself bound under the charter and wanted to

profit from it by the subcharter. Beech Aircraft Corp: v.

Flexible Tubing, 270 F. Supp. 548. Spears testified “we

had to conclude the sub-charter.” Both experts for Re-

spondent testified that it was not good practice to sub-

charter a vessel until you have a charter; that it was

like selling stock which one does not own. Bethlehem

Steel would probably not have requested Tovalop cover-

Opinion of Hon. Sylvester J. Ryan, U.S.D.J.

dated February 28, 1974

age with such urgency and on such short notice unless it

considered to have chartered the Osweco Reuiance. It

was not only the Osweco Re.iance that it covered, but

its entire fleet under the provisions of Tovalop.

The fact that it did add Clause 35 to the charterparty,

which was an addition of substance, was had to save a

business deal; was done at the insistence of the charterer;

and may not be turned around now to attack the fixture

for vagueness.

Parties to a contract are always free to make changes

or endeavor to make things more comfortable or profit-

able for each other, withont risking attack on the contract

as a contract. 1 Corsrn on Conrracts, Sec. 85, 1936 Ed.;

1 Wiuiston on Contracts, See. 79 (1957 Ed.).

The fixture letter contained all the essential terms of

the contract which had been orally agreed on. It is bind-

ing on all parties. It incorporated the Mobiltime Form

charter, which contained the arbitration clause which is

binding on all the parties. Kulukundis Shipping Co. v.

Amtorg Trading Corp., supra; Dover Steamship Co. v.

Summit Industrial Corp., supra.

The petition to compel arbitration is granted; and the

parties are directed to forthwith settle an order desig-

nating arbitrators.

Dated: New York, New York

February 28, 1974.

Syivester J. Ryan,

United States District Judge.

Opinion of Court of Appeals

Decided June 24, 1975

UNITED STATES COURT OF APPEALS

For tHe Seconp Circuit

—+or

No. 223—September Term, 1974.

(Argued November 26, 1974 Decided June 24, 1975.)

Docket No. 74-1713

InteroceaN Surpprne Company,

Petitioner-Appellee,

Nationa, Suippinc anp Trapinc CorporaTIoN and

Hevienic InrernaTIonaL Surprrne, S.A.,

Respondents-Appellants.

Before: :

CiarK, Associate Justice,* and

Moore and Timsers, Circuit Judges.

Se nee

Appeal from order entered in the Southern District of

New York, Sylvester J. Ryan, District Judge, granting

vessel owner’s petition pursuant to the Federal Arbitra-

tion Act to compel arbitration of its claim for breach of

of a charter party.

Order modified and affirmed.

—+or—

Davip I. Gucurtst, New York, N.Y. (Eli Ellis,

Mark M. Jaffe and Hill, Betts & Nash, New

Retired, sitting by designation.

37a

Opinion of Court of Appeals Decided June 24, 1975

York, N.Y., on the brief), for Respondents-

Appellants.

James M. Estaproox, New York, N.Y. (Len-

nard K. Rambusch, Stephen R. Remsberg

and. Haight, Gardner, Poor & Havens, New

York, N.Y., on the brief), for Petitioner-

Appellee.

Timbers, Circuit Judge:

On this appeal from an order entered April 15, 1974

after a four day hearing in the Southern District of New

York, Sylvester J. Ryan, District Judge, pursuant to the

remand ordered in our prior decision, Interocean Ship-

ping Co. v. National Shipping and Trading Corp., 462

F.2d 673 (2 Cir. 1972), to determine whether there existed

a valid charter party which contained a provision requir-

ing the parties to arbitrate whether there was a breach

of the charter party, the essential questions are:

(1) Whether the findings of fact of the district court

that a valid charter party did exist were clearly

erroneous.

(2) Whether the findings of fact of the district court

that De Salvo, the charter broker, had authority

to act for appellants were clearly erroneous.

(3) Whether the district court erred in ordering Na-

tional Shipping and Trading Corporation, the

guarantor of the charter party, to arbitrate.

For the reasons below, we affirm the district court’s

findings of fact with respect to questions (1) and (2) as

not clearly erroneous; but, with respect to question (3),

we modify its arbitration order by eliminating the direc-

38a

Opinion of Court of Appeals Decided June 24, 1975

tion that National proceed to arbitration. We affirm the

district court’s arbitration order as modified.

I. Facts anp Prior PRocEEDINGS

This is the second time in three years that this petition

to compel arbitration pursuant to Section 4 of the Fed-

eral Arbitration Act, 9 U.S.C. §4 (1970), has been before

us. On the instant appeal, the essential issues are (1)

the correctness of the district court’s findings of fact pur-

suant to the remand ordered in our prior decision, and

(2) the scope of its direction to arbitrate.

In view of the comprehensive statement of facts set

forth in the district court’s opinion,' we shall summarize

only those facts necessary to an understanding of our

rulings on the issues stated above.

The dramatis personae includes:

Appellee Interocean Shipping Company (Inter-

ocean) was a Liberian corporation and a wholly-owned

subsidiary of Bethlehem Steel Corporation (Bethle-

hem). Interocean owned the tanker, the Oswego Re-

liance, which is the subject of the aborted charter

party here at issue.

Anthony Germano was an employee of Steamship

Service, Inc., another wholly-owned subsidiary of

Bethlehem, which acted as house broker for vessels

owned by Bethlehem and its subsidiaries.

Appellant National Shipping and Trading Corpora-

tion (National) was a New York corporation engaged

in chartering and operating tankers on behalf of var-

ious principals. The stock of National was held in

j The district court's opinion dated February 28, 1974 is not officially

reported.

We assume familiarity with the facts and prior proceedings set forth

in our prior opinion. 462 F.2d 673.

39a

Opinion of Court of Appeals Decided June 24, 1975

trust for the benefit of Harry Theodoracopulos (H.T.),

its vice-president. Thomas Spears was president of

National.

Appellant Hellenic International Shipping, S.A.

(Hellenic), was a Panamanian corporation which was

wholly-owned by Hellenic Shipping & Industries, Ltd.,

of Greece. The principal shareholder of the latter was

John Theodoracopulos, the father of H.T.

Francis De Salvo was a broker employed by the

ship brokerage firm of Poten & Partners, Inc., in New

York City. De Salvo had known H.T. for many years

and through him had negotiated several previous char-

ters with National.

On March 17, 1971, H.T. invited De Salvo to lunch to

discuss the tanker market. A specific unnamed vessel was

discussed. This apparently was the Oswego Reliance. Af-

ter lunch, H.T. called De Salvo and asked him to check on

the vessel’s availability for charter.

De Salvo then contacted Germano of Steamship Service

concerning the Oswego Reliance. De Salvo relayed to H.T.

the message that it was available for charter. H.T. told

De Salvo “to bring a firm offer in.”

De Salvo again contacted Germano who was hesitant to

give a firm offer since he was not familiar with Hellenic,

the proposed charterer. Germano told De Salvo that it

would be necessary to determine what arrangements could

be made for a guarantee from National, that he would

have to check with his people, and that he would call hack

De Salvo.

Shortly thereafter. Germano called De Salvo as prom-

ised. He offered the Oswego Reliance “for reply 4:55 to-

day”. De Salvo wrote down Germano’s terms and relayed

them to H.T. by telephone. There followed several offers

and counter-offers by H.T. and Germano, all relayed

40a

Opinion of Court of Appeals Decided June 24, 1975

through De Salvo. At 4:45 P.M. that day, in response to

one of Germano’s counter-offers relayed to H.T. through

De Salvo, H.T. said to De Salvo in substance, “You are

confirmed.”

Throughout these and the subsequent negotiations, De

Salvo kept notes which were received in evidence. De

Salvo’s notes indicate that the terms being negotiated

through him were charterhire, the length of the charter,

and overtime and petties; that the charterer would be

ITellenic; that the Mobiltime form charter “sub details” ’

would be used, excluding certain clauses; and that a suit-

able drydock clause would be worked out with sufficient

advance notice. Other terms also were reflected in the

notes.

During the negotiations, De Salvo informed H.T. that

Germano required a guarantee. H.T. replied that “ap-

propriate guarantees” would be given and that Hellenic

was a subsidiary of National.

Following the negotiations, De Salvo sent telexes to

both parties confirming the fixture of the Oswego Reli-

2 Clause 37 of the Mobiltime form contained the arbitration clause

which Interocean seeks to enforce:

“Any dispute arising under this Charter shall he settled by arbi-

tration in New York/London. The party requesting arbitration

shall serve upon the other party a written demand for arbitration

with the name and address of the arbitrator appointed by it, and

such other party shall within twenty (20) days thereafter appoint

an arbitrator, and the two arbitrators so named, if they cannot

agree, shall appoint a third, and the decision or award of any two

shall be final and binding upon the parties. Should the party upon

whom the demand for arbitration is served fail or refuse to ap-

point an arbitrator within twenty (20) days. the single arbitrator

shall have the right to decide alone, and his decision or award shall

be final and binding upon the parties. The arbitrators shal! have

the discretion to impose the cost of the arbitration upon the losing

party, or divide it between the parties on any terms which may

appear just. Any decision or award rendered hereunder may he

made and entered as a rule or judgment of any Court, in any

country, having jurisdiction.”

4la

Opinion of Court of Appeals Decided June 24, 1975

ance and setting forth the agreed upon terms (the fixture

telex).'

The telex was received by National at 5:36 P.M. It

was studied by H.T. and Spears. Both testified that they

understood it, including its use of the term “fixed” which

meant the conclusion of a negotiation. Neither H.T. nor

3 The telexes were identical except for the addressees and a notation

concerning commissions payable by Interocean to Poten & Partners:

“THEOTRAN NY [or BETHLEHEM NYC]

POTEN AND PARTNERS INC MAR 17 1971

ATTEN:

MR. H. THEODORACOPULOS [or MR. TONY GERMANO}]

CONFIRM HAVING FIXED FOR YOUR ACCOUNT TODAY

AS FOLLOWS:

OWNER: INTEROCEAN SHIPPING COMPANY

CHARTERER: HELLENIC INTERNATIONAL SHIPPING

8.A. OF PANAMA SUBSIDIARY OF NATIONAL SHIPPING

AND TRADING WITH APPROPRIATE LETTER OF

GUARANTEE.

‘OSWEGO RELIANCE’

49,283 DWT 59 FT 5/8 INCHES DRAFT CUBIC 98 PERCENT

1,968,842

3 PUMPS 1300 TWPH EACH

16.5 KNOTS ON 100 BUNKER C PER DAY

DELIVERY/REDFELIVERY PG EXCLUDING FAO

AND ABADAN LAYCAN MARCH 31/APRIL 15 1971

ETA APRIL 1, 1971 CRUDE AND/OR DPP MAX 3

GRADES WITHIN NATURAL SEGREGATIONS

MAINTAINING HEATING 135 DEG F

COILED WING TANKS ONLY

TRADING WORLDWIDE WITHIN IWL EXCLUDING

COMMUNIST COMMUNIST CONTROLLED CHINA,

NORTH VIETNAM, NOR KOREA CUBA

PERIOD ONE YEAR PLUS OR MINUS 30 DAYS

MOBILTIME EXCLUDING CLAUSES 9, 12AII, 12BII 12BIII

SUITABLE DRYDOCK CLAUSE TO BE WORKED

OUT FOR NOVEMBER DRYDOCKING ABOUT 15

DAYS WITH PROPER NOTICES

PERFORMANCE REVIEW EVERY SIX MONTHS

OVERTIME AND PETTIES $750. PER MONTH

RATE 5.60 PER DWT PER MO PAYABLE U 8

DOLLARS IN NEW YORK

THANK YOU FOR THE OPPORTUNITY TO

CONCLUDE THIS BUSINESS

THEOTRAN NY [or BETHLEHEM NYC plus Commissions]”

42a

Opinion of Court of Appeals Decided June 24, 1975

Spears contacted Poten & Partners to comment on or to

correct the fixture telex.

All of the above events took place on the afternoon of

March 17, 1971. No direct communication between H.T.

and Germano ever took place. All negotiations were con-

ducted through De Salvo.

On the next day, March 18, De Salvo and Germano

drew up a working copy of the charter party and a pro-

posed drydock clause. This clause required the charterer

to guarantee to place the vessel in a position so that it

could be drydocked in November 1971 in Portugal, Spain

or Japan. These documents were sent to Interocean and

National the following day.

H.T. received the proposed charter party on Monday,

March 22. He called De Salvo and asked him for two

modifications: (1) to broaden the delivery range from the

Persian Gulf to include the Red Sea; and (2) to permit

trading with Communist China. Interocean agreed to the

first modification but could not agree to the second be-

cause the crew was Nationalist Chinese. H.T. made no

mention of the drydock clause.

Backing up for a moment, on March 18 or 19, De Salvo

had asked H.T. if he wanted to subcharter the Oswego

Reliance. H.T. replied that he wanted to subcharter the

vessel to Chevron for a single voyage. Chevron, however,

would not consider the vessel unless she had Tovalop‘

insurance which she did not. H.T. requested De Salvo to

ask Germano to obtain such coverage for the Oswego

Reliance.

This was the first time Tovalop had been mentioned.

The Mobiltime form charter was printed in 1967. It did

not refer to Tovalop which did not come into effect until

1969.

4 Tovalop is an acronym for Tanker Owners Voluntary Agreement

which relates to liability for oil spills.

43a

Opinion of Court of Appeals Decided June 24, 1975

De Salvo relayed H.T.’s request to Germano on Friday,

March 19. Germano informed De Salvo that the entry of

the Oswego Reliance into Tovalop would require the en-

try of Bethlehem’s entire fleet and that he would have to

check with his principals.

On Tuesday, March 23, Bethlehem acceded to H.T.’s re-

quest and entered its entire fleet into Tovalop. Germano

so informed De Salvo who relayed the information to

H.T. Bethlehem stated that the cost was to be at charter-

er’s expense but H.T. insisted that it be at owner’s expense.

Returning to the drydock clause, it was not until the

afternoon of March 23, after H.T. had gone on vacation,

that Spears informed De Salvo that this clause was un-

acceptable because he was unable to guarantee the posi-

tion of the vessel in November 1971. De Salvo then asked

for a counter-proposal to give to the owners. Spears

did not give De Salvo a proposed clause until about 5:15

P.M. That proposed clause provided that the charterer

would “do all possible” to place the vessel “in the UKC

MED or Far East area” for drydocking between October

15 and December 15, 1971.

Although Spears had told De Salvo that this clause

was one which Hellenic “could live with,” at 9 A.M. the

next morning, March 24, he called De Salvo and asked

him whether he had conveyed the clause to Germano as

yet. De Salvo said that he had not because it had been

received after business hours the previous day. Spears

then told De Salvo not to transmit the clause to Inter-

ocean, that the deal was finished, that there was no agree-

ment to charter the Oswego Reliance and that it was too

late for an agreement.

Nevertheless, later that same morning, De Salvo called

Spears and informed him that Interocean had agreed to

bear the cost of Tovalop as H.T. had insisted and that

dtu

Opinion of Court of Appeals Decided June 24, 1975

Interocean had agreed to the language of Spears’ drydock

clause.

At about 11 A.M. on March 24, National telexed De

Salvo as follows:

“YOU HAVE BEEN PREVIOUSLY ADVISED

THAT DUE TO THE ABSENCE OF MEETING

OF THE MINDS OF THE PARTIES REGARD-

ING ALL DETAILS NECESSARY TO A COM-

PLETED CHARTER AGREEMENT NEGOTIA-

TIONS HAVE BEEN TERMINATED WITHOUT

MUTUAL AGREEMENT.”

The telex further stated that De Salvo’s last attempt to

agree belatedly to disputed contractual details “in no way

is binding or agreeable to our principals since negotia-

tions terminated earlier.” De Salvo telexed this message

to Germano.

Later that same day, Interocean sent a telex to Poten

& Partners to be relayed to National. This telex stated

that Interocean considered the Oswego Reliance chartered

and intended to hold the charterers to the charter party.

It rejected National’s claim that there was no meeting

of the minds:

“RATHER AS IS NORMAL PRACTICE WE WERE

ATTEMPTING TO ARRIVE AT MUTUALLY

SATISFACTORY LANGUAGE FOR TWO RELA-

TIVELY MINOR POINTS.”

The telex went on to state that the “item which caused

the most delay was Tovalop” which “came up a day or

two after the fixture” which did not mention Tovalop.

The telex noted that in the “spirit of cooperation” Beth-

lehem had entered its entire fleet in Tovalop, and added:

45a

Opinion of Court of Appeals Decided June 24, 1975

“AT NO TIME WAS ANY LIMITATION PUT ON

OUR EXCHANGES AND WE BELIEVE DISCUS-

SIONS PROCEEDED BETTER THAN NORMALLY

FOR A CHARTER OF THIS DURATION.”

Interocean directed Poten & Partners to prepare for Inter-

ocean’s signature the charter party which was to include

National’s proposals concerning delivery and drydocking.

On March 25, 1971, National replied by telex that it had

transmitted Interocean’s message to its principals and had

been “instructed to reply” that Interocean’s statements

were self-serving and contrary to elementary contract law,

that Hellenic had reiterated that there had been no meet-

ing of the minds and that the unsettled points were not

minor:

“HELLENIC INTERNATIONAL CONSIDERED

THESE OUTSTANDING POINTS AS INTEGRAL

PARTS OF A PROPOSED AGREEMENT TO

WHICH BOTH PARTIES MUST MUTUALLY

AGREE IN ORDER TO HAVE A CONTRACT.”

The telex was signed “National Shipping and Trading

Corp. as agents for Hellenic International.” National sent

a copy of this telex to its counsel.

On March 24, Poten & Partners had sent the charter

party which it had prepared to Interocean which executed

it. When it was presented to National and Hellenic, they

refused to execute it.°

5 It is significant to note that this cbarter party dispute probably is

attributable to the state of the tanker market at the time of these

events. Between March 17 and March 24, 1971, the tanker market fell

drastically from $5.60 (the rate for this charter) to $3.00 per deadweight

ton per month. If Hellenic planned, as it apparently did, to subcharter

the tanker, which was to be delivered between March 31 and April 15,

1971, it was destined to sustain a substantial loss if forced to adhere

46a

Opinion of Court of Appeals Decided June 24, 1975

By letter dated May 20, 1971, Interocean demanded that

Hellenic and National proceed to arbitration in accordance

with the terms of the charter party alleged to have been

agreed to on March 17, 1971. They refused to do so. On

July 28, 1971, Interocean filed a petition in the Southern

District of New York to compel arbitration pursuant to

the terms of the Mobiltime charter party, and claimed

$1.4 million damages caused by appellants’ alleged breach

of the charter party. Appellants’ answer denied that any

agreement existed and demanded a trial.

On December 30, 1971, the district court held, on the

basis of affidavits alone, that the making of the arbitration

agreement was not in issue and granted Interocean’s peti-

tion.

On June 23, 1972, we reversed the district court’s order

and remanded for further proceedings. 462 F.2d 675. We

concluded that the making of the arbitration agreement

was in issue within the meaning of Section 4 of the Fed-

eral Arbitration Act, 9 U.S.C. §4 (1970). 462 F.2d at 676-78.

In reaching this conclusion, we found that there was enough

evidence in the record to entitle National and Hellenic to

a trial on whether a valid charter agreement existed and

whether National was a party to that agreement. 462 F.2d

at 678. We held that there were essentially three issues of

fact to be determined: °

(1) Whether there was a meeting of the minds of the

parties with respect to the essential terms of a

charter party. 462 F.2d at 676-77.

(2) Whether Poten & Partners had authority to bind

National and Hellenic to the charter party. 462

F.2d at 677.

to this charter party. On the other hand, the charter party was ex-

tremely favorable to Interocean under prevailing market conditions.

Understandably, Hellenie wanted out. Interocean wanted in.

47a

Opinion of Court of Appeals Decided June 24, 1975

(3) Whether National was a party to the charter party

and hence a party to the arbitration agreement

contained therein. 462 F.2d at 677-78.

On remand, the district court held a four day eviden-

tiary hearing in April and May 1973. On March 4, 1974

it filed a comprehensive opinion in which it concluded:

“The overwhelming evidence, both testimonial and

documentary, is that there was a charterparty agree-

ment entered into by the parties, the essential terms

of which were contained in the fixture letter which

bound both, and that performance by the .charterer

HELLENIC was guaranteed by NATIONAL, and

that the guarantee was set forth in the fixture letter

signed by the broker, who was the agent for both

parties. .. .”

The court granted the petition to compel arbitration and

directed both National and Hellenic to proceed to arbitra-

tion in accordance with the Mobiltime charter arbitration

clause.

The instant appeal by National and Hellenic followed.

Il. Existence oF tHE CHARTER Party

The principal question of fact before the district court

on remand was whether a valid charter party existed, i.e.

whether there was a meeting of the minds on its essential

terms. 462 F.2d at 676-77. The court answered this ques-

tion in the affirmative. It found that there was an oral

meeting of the minds on March 17, 1971, which was reflected

in the fixture telex sent to both parties by De Salvo on the

same day. We agree.

Whether there was a meeting of the minds is a question

of fact. Appellants urge that we set aside the findings of

48a

Opinion of Court of Appeals Decided June 24, 1975

fact of the district court as clearly erroneous under Fed.

R. Civ. P. 52(a). We decline to do so. The factual deter-

minations were made by an able and experienced trial judge.

Our careful review of the entire record satisfies us that

Judge Ryan’s findings that a valid charter party existed

were not clearly erroneous. They were supported by sub-

stantial evidence.

Issues of Credibility

The court’s findings were based in large measure on its

resolution of issues of credibility with respect to witnesses

called by both sides. The task of resolving conflicting testi-

mony is peculiarily within the province of the trial court.

In the Matter of Grace Line Inc., —— F.2d —— (2 Cir.

1975), slip op. 3601, 3604 (May 19, 1975) ; Kulukundis Ship-

ping Co. v. Amtorg Trading Corp., 126 F.2d 978, 980 (2

Cir. 1942). For example, the trial court was in the best

position to evaluate H.T.’s destruction of his notes concern-

ing this transaction even after he had notified his attorneys

of the impending dispute. And all of the testimony appro-

priately was weighed in light of the falling tanker market.

See note 5, supra.

Differences Between Telex and

Working Copy of Charter Party

Many of appellants’ claims of error are directed at dif-

ferences between the telex and the working copy of the

charter party prepared by De Salvo and Germano and sent

to H.T. on March 19. They relate to such details as trad-

ing limits, speed, performance, penalties and mode of pay-

ment. We believe that the terms of the telex or De Salvo’s

notes embodying the proposal which were relayed by De

Salvo to H.T. during the course of the negotiations should

be viewed as having merged in the subsequent written docu-

49a

Opinion of Court of Appeals Decided June 24, 1975

ment, whether favorable to one side or the other. The party

that wanted a provision which was omitted or altered could

have pressed for its inclusion in the final written instru-

ment. Christman v. Maristella Compania Naviera, 349

F.Supp. 845, 854 (S.D.N.Y. 1971), aff'd om district court

opinion, 468 F.2d 620 (2 Cir. 1972). The differences upon

which appellants focus on appeal did not vitiate the agree-

ment which the district court found the parties had reached

through De Salvo on March 17. Orient Mid-East Lines v.

Albert E. Bowen, Inc., 458 F.2d 572, 574 (2 Cir. 1972);

Gardner v. The Calvert, 253 F.2d 395, 398-99 (3 Cir.),

cert. denied, 356 U.S. 960 (1958). Similarly, the claimed

inconsistencies between De Salvo’s notes and the telex were

mere clerical errors, not evidence of lack of agreement.

Christman v. Maristella Compania Naviera, supra, 349

F.Supp. at 854-57. We hold that the district court was not

clearly erroneous in minimizing the weight to be given to

such variations.

Interpretation of Phrase “Mobiltime sub details”

In like vein, the district court as the trier of the facts

was entirely justified in its interpretation of the phrase

“Mobiltime sub details” as used in De Salvo’s notes to

specify the basic charter party document to be used by

the parties. Appellants contend on appeal, as they did

below, that the phrase meant that the parties had placed

a condition on the negotiations, i.e. that they had agreed

on the printed Mobiltime form but that the charter party

was still subject to agreement as to the details of that

form. H.T. so testified.

The court rejected this interpretation and credited De

Salvo’s testimony to the effect that “sub details” meant

placing the agreed terms of the fixture in the form and

eliminating the inapplicable ones. De Salvo further tes-

50a

Opinion of Court of Appeals Decided June 24, 1975

tified that the phrase contemplated filling in the form with

the various technical specifications of the chartered ves-

sel. In short, according to De Salvo, “sub details” meant

filling in the blanks—not reviewing the whole negotiations

again.

The resolution of this conflicting testimony as to the

meaning of “sub details” in the negotiations for the charter

of the Oswego Reliance was the function of the district

court as trier of the facts, not the function of this Court.

Our role is limited to holding, as we do, that our review

of the testimony satisfies us that the district court was

not elearly erroneous in finding that “sub details” did

not mean that a charter party had not been agreed upon.

Delivery Range and Insurance

In our opinion on the prior appeal, we directed the dis-

trict court’s attention to two terms of the charter party

—delivery range and insurance—and suggested that it make

findings as to whether there was a meeting of the minds

on these terms and whether they were essential to the

charter party. 462 F.2d at 677. Appellants contend that

the district court was clearly erroneous in finding that

there was a meeting of the minds as to both terms.

The Persian Gulf was indicated as the delivery range

hoth in De Salvo’s notes which were relayed to H.T.

during the telephone negotiations on March 17 and in the

fixture telex. H.T. did not object to this term at that

time. It was not until he received the working copy of

the charter party on March 22 that he asked De Salvo

to ask Germano to modify the delivery range to include

the Red Sea. This was too late. Hellenic already was

bound by the agreement of March 17. We find no support

for appellants’ contention that there was no meeting of

the minds as to delivery range. In any event, Interocean

eventually agreed to H.T.’s new demand in this respect.

5la

Opinion of Court of Appeals Decided June 24, 1975

Appellants’ contention that there was no meeting of

the minds as to insurance presents a closer question. The

matter of insurance was not raised in the De Salvo nego-

tiations and was not mentioned in the telex. It first arose

when the working Mobiltime form agreement was sent to

H.T. Clause 23 of this form which required a Protection

and Indemnity (P&I) entry was deleted because Beth-

lehem was a self-insurer. The district court found that,

although National and Hellenic had never dealt with Inter-

ocean before, knowledge of Bethlehem’s self-insurance (and

hence Interocean’s) could be imputed to National and Hel-

lenic.

There was ample basis in the record to support the

inference drawn by the district court in this respect. H.T.

and Spears were thoroughly experienced in the field. Ap-

pellants’ experts conceded Bethlehem’s repctation for sol-

vency and the fact that some large ship owners were self-

insured. As the district court pointed out, moreover, if

appellants had had any doubt as to the insurance to be

provided by Interocean, they certainly would have raised

the point immediately upon receipt of the working Mobil-

time form agreement witii the insurance clause deleted.

Tovalop

As to Tovalop, this issue was never raised by appel-

lants until they attempted to subcharter the vessel. In

1971, Tovalop was still relatively new. It was not included

on the Mobiltime form which was specified both in the tele-

phone negotiations and the telex. Appellants’ belated at-

tempt to raise the Tovalop issue after March 17 did not

necessarily mean that there was no agreement with respect

to it, but more likely that it was outside the scope of the

agreement. As the district court found:

52a

Opinion of Court of Appeals Decided Jume 24, 1975

“It was not a condition precedent, nor even a condi-

tion subsequent, that HELLENIC be able to subcharter

the OSWEGO RELIANCE. De Salvo testified, and

this Court agrees, that, even if Bethlehem Steel had

refused to obtain Tovalop, he considered that there

was a charter on the OSWEGO RELIANCE... .”

In any event, Bethlchem eventually did agree to obtain

Tovalop at its own expense. Indeed, it registered its en-

tire fleet with Tovalop in order to comply.

Drydocking

In our prior opinion, we noted that Interocean had con-

ceded that no agreement was reached on March 17 as to

drydocking and suggested that the district court determine

whether this was an essential term of a charter party.

462 F.2d at 676-77. On remand, the court held that the

fact that the fixture telex had left the drydock clause to be

worked out in the future* did not indicate a lack of agree-

ment on the charter of the Oswego Reliance.

The most accurate description of the negotiations with

respect to drydocking is that there was an agreement on

March 17 not to agree on this term. The testimony indi-

cated that drydocking customarily was accomplished solely

at the owner’s expense. The owner paid the cost of dry-

docking and the cost of any deviation in getting the ship

to drvdock, while the charterer was relieved from payment

of hire during this period. Indeed, Paragraph 11 of the

Mobiltime form so specified.

The district court concluded that it was to appellants’

benefit and not an uncommon business practice to leave

6 The fixture telex provided:

“SUITABLE DRYDOCK CLAUSE TO BE WORKED OUT FOR

NOVEMBER DRYDOCKING ABOUT 15 DAYS WITH PROPER

NOTICES.”

53a

Opinion of Court of Appeals Decided June 24, 1975

the drydock provision open until the position of the vessel

could be approximated for the period drydocking was re-

quired. The district court was not clearly erroneous in

finding that lack of agreement on March 17 as to the speci-

fications of the drydock clause was not fatal to agreement

on the charter party.

We hold that the district court’s findings that there was

a valid charter party which contained all essential terms

were not clearly erroneous and were supported by substan-

tial evidence.

III. De Satvo’s Avurnority

Another major question we left for the district court on

remand was that of De Salvo’s authority to act for Na-

tional and_Hellenic. We indicated, on the record before us

on the prior appeal, that we had some doubt as to whether

De Salvo was authorized to act for Hellenic and National

or whether he acted solely for Interocean.’ We suggested

that resolution of this issue would require evidence on the

relationship between the various parties as well as on the

customary practice of charter brokerage. 462 F.2d at 677.

On remand, the court found that DeSalvo was author-

ized to act on behalf of both Hellenic and National, as well

as Interocean. These findings were based on the language

“for your account” in the fixture telex which was sent to

both National and Interocean;* the entire course of nego-

7 See note 8, infra.

8 Our prior opinion questioned whether the statement in the fixture telex

“Confirm having fixed for your account today ....” indicated that

De Salvo was acting solely for Interocean. 462 F.2d at 677. The dis-

triet court, however, found this to be one item that established his

authority. This finding is not contrary to our prior opinion.

The comment in our prior opinion was based on the rather confused

state of the record then before us. At that time it appeared that the

fixture telex was addressed solely to Interocean. The fact is that the

identical telex (except for addressees and a notation on Interocean’s

d4a

Opinion of Court of Appeals Decided June 24, 1975

tiations which took place entirely through De Salvo; his

past business dealings with H.T.; H.T.’s request to “bring

me a firm offer”; his statement to De Salvo to the effect

that “You are confirmed”; and the custom of the trade.

The court considered precisely those factors which we

indicated in our prior opinion were relevant, plus the actual

events of the specific transaction in question. On the basis

of H.T.’s conduct, the relationship of the parties and the

custom of the industry, the court correctly drew the in-

ference that H.T. had authorized De Salvo to act for Na-

tional and Hellenic. See Restatement (Second) of Agency

§£15, 26, 34 (1958). It is immaterial that De Salvo thought |

of himself as a “broker” and not an “agent” of Hellenic

or National or Interocean, or that H.T. did not intend to

make De Salvo an agent. Ageney is a legal concept which

depends on the manifest conduct of the parties, not on their

intentions or beliefs as to what they have done. Restate-

ment (Second) of Agency $1, comment b (1958).

We hold that the district court correctly analyzed the

relevant factors and properly concluded that De Salvo had

authority to act for Hellenic and National as well as for

Interocean.”

IV. Scope or tHe District Covrr’s Orper

The district eourt’s findings that De Salvo had author-

ity to act for Hellenic and National meant that the signa-

ture of Poten & Partners on the fixture telex was sufficient

copy as to commissions owed by Poten & Partners) was sent to National

and Interocean. Notwithstanding our comment, therefore, the «istrict

court clearly was correct in regarding this phrase as one item supportirg

De Salvo's authority to aet for National and Hellenic.

Hy) The reliance by the district court on the same factors to establish

De Salvo's authority to bind both National and Hellenie was propes,

since it is clear that throughout the negotiations H.T. acted in two

capacities: one, as a representative of National as agent for Hellenic;

the other, as a representative of National qua National.

55a

Opinion of Court of Appeals Decided June 24, 1975

to bind them to the contents of the telex. The court

correctly pointed out that the telex served a dual function:

on the one hand, it was the contract between Interocean

and Hellenic; on the other, it evidenced a guarantee in

writing subscribed by the agent of the party to be charged,

National, and thus was enforceable under the New York

statute of frauds, N.Y. General Obligations Law §5-701(2)

(McKinney 1964), which we held applicable to this trans-

action in our prior opinion. 462 F.2d at 678.°° See La Mar

Hosiery Mills, Inc. v. Credit and Commodity Corp., 28

Mise. 2d 764, 216 N.Y.S.2d 186 (N.Y. City Ct., 1961) (tele-

gram held sufficient to comply with the statute of frauds).

We hold that the district court’s conclusion was correct in

both respects.**

This brings us to the only part of the district court’s

decision with which we disagree. We believe that the court

erred in failing to differentiate between the discrete roles

that Hellenic and National respectively played in the nego-

tiations. While the court properly ordered Hellenic to arbi-

trate since Hellenic was a party to the charter agreement,

10 Although appellants stress the purported discrepancy between De

Salvo’s testimony that H.T. said a letter of guarantee could be civen

and the district court's statement that H.T. said that a letter would

be given, we regard the difference as trivial. The intent that a letter

of guarantee be given clearly is present under either version. It is that

intent which governs. Savoy Record Co. v. Cardinal Export Corp., 15

N.Y.2d 1, 4-5, 203 N.E.2d 206, 254 N.Y.8.2d 521, 524 (1964); Salzman

Sign Co. v. Beck, 10 N.Y.2d 63, 66-67, 176 N.E.2d 74, 217 N.Y.S.2d

55, 57 (1961); Mencher v. Neiss, 306 N.Y. 1, 4, 114 N.E.2d 177, 179

(1953). H.T.’s subsequent statement to De Salvo that “You are con-

firmed” properly was construed by the district court to mean that II.T.

was committing National to give the guarantee.

11 The comment in our prior opinion, 462 F.2d at 678, that National's

guarantee was not in writing, like the comment referred to in note 8,

supra, was based on the incomplete record before us at that time in

which the authority of De Salvo to act for National was unclear. On

remand, the district court found that authority and correctly conclude’

that the telex was a writing which satisfied the New York statute of

frauds. N.Y. General Obligations Law §5-701(2) (McKinney 1964).

56a

Opinion of Court of Appeals Decided June 24, 1975

we hold that it erred in ordering National to arbitrate since

National was only a guarantor and not a party to the

agreenient.,

There can be no question that if a charter party existed

(and we have held above that it did), Hellenic properly was

ordered to proceed to arbitration. We do not understand

appellants to claim the contrary. The telex, signed by

Poten & Partners, embodied the Mobiltime agreement

which contained an arbitration provision. Accordingly,

there was a written arbitration clause enforceable under

Section 4 of the Federal Arbitration Act by an order re-

quiring Hellenic, a party to the agreement, to proceed to

arbitration.

National, however, was not a party to the charter agree-

ment but a mere guarantor. Whether a guarantor can be

compelled to arbitrate on the basis of an arbitration clause

‘1 the main contract must be considered separately from

the question of a party’s obligation to arbitrate.

The only indication that the district court considered

this question is its statement:

“J... find that it was the understanding of the

parties, through De Salvo and H.T., that NATIONAL

would give the guarantee on behalf of HELLENIC and

so bind itself to the charter party. . . .” (footnote

omitted).

If this was meant to be a finding of fact that National

had bound itself to the charter party by its acts, we find

no support for it in the record. The fixture telex stated:

“CHARTERER: HELLENIC INTERNATIONAL

SHIPPING S.A. OF PANAMA SUBSIDIARY OF

NATIONAL SHIPPING AND TRADING WITH

APPROPRIATE LETTER OF GUARANTEE.”

De Salvo’s notes indicated only that Hellenic was a sub-

sidiary of National. The Mobiltime form which National

57a

Opinion of Court of Appeals Decided June 24, 1975

refused to execute refers to National only as the char-

terer’s agent. There is no evidence that National acted

in any capacity except as a disclosed agent for Hellenic

As we held on the prior appeal, this is not enough to

bind it to the arbitration clause j

in th

ment. 462 F.2d at 678. Pare ciel

If the language of the district court quoted above was

meant to be a statement of law that National, by agreeing

to act as a guarantor, bound itself to the arbitration

clause in the main agreement, we hold it to be error A

mere guarantor of a charter party generally cannet be

compelled to arbitrate on the basis of an arbitration

clause in the main agreement since it is not a party to

that contract. Taiwan Navigation Co. v. Seven Seas A

chants Corp., 172 F.Supp. 721 (S.D.N.Y. 1959); see Im-

port Export Steel Corp. v. Mississippi Valley Barge Tine

Co., 351 F.2d 503, 506 (2 Cir. 1965) ; Instituto Cubano De °

Estabilizacion Del Azucar v. T/V Golden West, 246 F.2d

802 (2 Cir.), cert. denied, 355 U.S. 884 (1957) . Cia Na.

viera Somelga, S.A. v. M. Golodetz & Co., 189 F.Supp

90, 96 (D. Md. 1960). Although it might be said that

National agreed to arbitrate since its guarantee was in

the fixture telex and thus was in the same document as

the main agreement, that would be a fiction since the ar-

bitration clause is in the Mobiltime agreement, not am the

fixture telex. The district court itself pointed out:

“The guarantee was not recited in the charter-party

because it was not part of it; the guarantee of per-

formance was really a separate agreement.”

True, the mere fact that a party did not sign an ar-

bitration agreement does not mean that it cannot be

held bound by it. Ordinary contract principles determine

who is bound. In an appropriate situation, the corporate

58a

Opinion of Court of Appeals Decided June 24, 1975

veil may be pierced and a party may be held bound to

arbitrate as the signatory’s alter ego. Fisser v. Interna-

tional Bank, 282 F.2d 231, 233-34 (2 Cir. 1960). In view

of the close familial relationship between Hellenic and

National, this might be said to be a tempting case to hold

National bound by the arbitration clause. But even if

we viewed Hellenic as having no mind of its own, i.e.,

that it was completely dominated by H.T. and National,

there is no evidence in the record before us that such

control was used to perpetrate a fraud or something akin

to fraud. Such a showing is a sine qua non to holding

a non-signatory bound by an arbitration agreement. Fis-

ser v. International Bank, supra, 282 F.2d at 238-40.

We modify the order of the district court by eliminating

the direction that National proceed to arbitration.

As modified, the order of the district court is affirmed.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.