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Sun Oil Co. v. Carisle

September 4, 1985


On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civil No. 81-4021)

Author: Sloviter

Before: HUNTER and SLOVITER, Circuit Judges, and COHEN, District Judge*fn*


SLOVITER, Circuit Judge.



This appeal represents another skirmish in the long battle between shippers, who send their goods by sea, and carriers, whose vessels transport the goods. The issue, briefly stated, concerns the existence and validity of a trade custom relieving the carrier of the responsibility for delivering 0.5% of crude oil delivered to it for transport. It is one of first impression for an appellate court.

The parties have stipulated that the Sun Oil Company of Pennsylvania and Sun International, Ltd. (jointly "Sun") chartered the M/T Carisle to transport Zarzatine crude oil from La Skhirrah, Tunisia to Marcus Hook, Pennsylvania. The ship loaded the oil on October 13, 1980, and measurements showed 540,401 barrels on board. When it arrived at Marcus Hook on October 31, measurements showed 537,566 barrels on board. Sun then filed a complaint in admiralty against the ship in rem and against Ore Sea Transport, S.A. of Panama, the time charter owner,*fn1 in personam, later amended to include Tradax Gestion, S.A., the owner, in personam, seeking damages for the missing 2835 barrels of oil.

The present case is one of four similar cases filed by Sun in 1980 and 1981 in the same district court. In each case, one of the defendants raised the affirmative defense that by custom and practice the carrier has a 0.5% trade allowance, which was an implied term in the charter party contract. Pursuant thereto, unexplained losses of less than 0.5% do not give rise to any claim against the carrier, and unexplained losses of more than 0.5% give rise to claims only for the amount by which the loss exceeds that figure. Thus, the carrier would be obligated to deliver only 99.5% of the oil loaded unless the loss was due to some specific, known cause, such as a collision, in which case the allowance would not apply.

Pursuant to a stipulation of counsel for all parties, approved by the three district court judges to whom these cases were assigned, the four cases were consolidated for an evidentiary hearing before a panel consisting of those three judges. App. at 268-71. After hearing the testimony and receiving the documentary evidence submitted on the alleged trade custom, the judges ruled that a custom as alleged was proven and was an implied term in the contracts at issue. Sun Oil Co. of Pennsylvania v. M/T Mercedes Maria, 1983 A.M.C. 718 (E.D. Pa. 1982) (as amended January 24, 1983).*fn2 The cases were then severed, and returned to the individual judges for disposition.*fn3

Cross motions for summary judgment were filed in this case. The district court, finding the "oil shipping industry's customary 0.5% trade allowance [to be] controlling," App. at 127, gave summary judgment for the defendants. Sun was awarded recovery only for 133 barrels of oil, the amount by which its loss of 2835 barrels of oil exceeded 0.5% of the cargo.

In its appeal, Sun argues first that the Carriage of Goods by Sea Act, 46 U.S.C. §§ 1300 et seq. (1982) (COGSA), precludes the implication of the alleged custom into the contract; second, that certain factual determinations of the district judges were clearly erroneous; and third, that the judges erred in the legal standards they applied to the facts in determining that the custom alleged was an implied term in the contract. We first summarize the holding of the district court and then turn to Sun's COGSA argument, which we find dispositive.


The Holding of the District Court

The district court judges explained that the 0.5% customary trade allowance in the bulk oil transportation industry developed because of inexact measurement and inevitable loss associated with the transportation of liquid cargoes. 1983 A.M.C. at 719. To measure the amount of oil in a tanker, one drops a tape measure into each tank to determine the "ullage," i.e., the degree to which the tank is not full. The measurement may be imprecise because of factors such as human error, rolling of the vessel, its failure to lie level in the water, physical changes in the dimensions of the cargo tanks, and variation of the volume of the oil with temperature.*fn4 Although the court noted that ships generally employ conversion tables that correct for the degree to which the ship is not level and for the variations in temperature, it characterized measurement as an art rather than an exact science. Id. at 720. It also explained that actual loss of cargo may occur due to clingage, settlement, sedimentation and evaporation, which results from the inherent properties of oil as a cargo. Id. at 720-21.

The court stated that under the measurement techniques and transport methods in existence at the earliest days of bulk oil carriage by sea, "sound reasons . . . did exist" for the custom of a trade allowance. Id. at 721, 727.*fn5 The court did not directly meet Sun's contention that improved methods of measurement have made application of the custom unreasonable now. It stated merely that, "it would be desirable if more sophisticated and exact cargo measurement technology might be available to the industry in the future, so that disputes of this type might be avoided." Id. at 727.

The court determined that there was an enforceable customary trade allowance by applying legal standards from the Uniform Commercial Code § 1-205(2) and the Restatement (Second) of Contracts § 222(1).*fn6 Although these are not controlling in a federal maritime case such as this, the court held that because of their broad acceptance, they were appropriate standards to be used in what is essentially a commercial dispute. Both sources require a finding of "regularity of observance" sufficient to "justify an expectation" that a usage of trade "will be observed." The court found sufficient evidence to meet this standard, primarily in the testimony of the expert witnesses. 1983 A.M.C. at 724. The court also relied on evidence of attempts by Sun to negotiate "a 0.25% allowance as an express written contract term in its charter parties" to show "the degree to which the 0.5% allowance has been accepted and treated by those in the industry as a custom and usage of trade." Id. at 725 (emphasis in original).*fn7


COGSA: History and Relevant Provisions

COGSA "was lifted almost bodily from the Hague Rules of 1921, as amended by the Brussels Convention of 1924." Robert C. Herd & Co. v. Krawill Machinery Corp., 359 U.S. 297, 301, 3 L. Ed. 2d 820, 79 S. Ct. 766 (1959). The Hague Rules were themselves based in part on the Harter Act of 1893, 46 U.S.C. §§ 190-196 (1982), now largely superseded by COGSA, which was passed in 1936. For accounts of the history leading to the passage of COGSA, see, e.g., G. Gilmore & C. Black, The Law of Admiralty 139-44 (2d ed. 1975); 2A Benedict on Admiralty §§ 11-16 (6th ed. 1985); A. Knauth, The American Law ...

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