Austin Nichols Company v. The Isla De Panay Sanchez/Opinion of the Court
These are proceedings in rem against the Isla de Panay to recover for damage to merchandise brought by her from Cadiz, Spain. They present the same issues and were heard on the same proof. It will suffice to refer to the facts disclosed in number 199.

December 21, 1917, in the United States District Court, Southern District of New York, Austin Nichols & Co., a corporation, filed a libel and complaint against the respondent steamship.

It alleged: Ownership of the damaged merchandise. Presence of the vessel within the court's jurisdiction. That 'on October 27, 1917, Rowlett Y. Pyman shipped and placed on board the steamship Isla de Panay, then lying at the port of Cadiz, Spain, 227 packages of olives in good order and condition, to be carried by the said steamship Isla de Panay as a common carrier from the port of Cadiz to the port of New York, and there to be delivered in like good order and condition as when shipped to your libelant, in accordance with the terms of bills of lading then and there issued for the said shipment and in consideration of an agreed freight. Thereafter the said steamship Isla de Panay sailed from the port of Cadiz and arrived at the port of New York in the month of November, 1917, and there discharged her cargo, not in like good order and condition as when shipped, but badly damaged.' Consequent damages amounting to about $11,000.

It prayed: For process according to the course and practice in causes of admiralty and maritime jurisdiction to issue against the steamship, her engines, boilers, etc. That a decree be granted for the damage sustained, and the steamer condemned and sold to satisfy the same.

The Compania Trasatlantica claimed the vessel as sole owner, obtained her release, and answered, denying liability. It admitted receipt of the goods and alleged their carriage and delivery as required by the bills of lading. It specifically admitted and alleged: 'That on or about the 6th day of November, 1917, there were shipped on board the steamship Isla de Panay, then at the port of Cadiz, Spain, and bound for the port of New York, 227 casks said to contain olives; the weight and contents of said casks and their quality, however, being stated to be unknown to the claimant, which expressly declined to be responsible therefor. * * * That it was agreed that the merchandise should be transported for a stipulated freight to the port of New York and there be delivered to the order of the libelant, subject to the conditions and exceptions from liability contained in the bills of lading issued for said merchandise at Seville, Spain, from which port said merchandise was shipped in the first instance. * * * That thereafter the steamship Isla de Panay sailed from the port of Cadiz, Spain, and arrived in due course at the port of New York in the month of November, 1917, and that it thereafter delivered at the port of New York all of the above mentioned merchandise which it received on board the ship at Cadiz in pursuance of and in compliance with the terms and conditions of the bills of lading hereinabove referred to.' That the bills of lading expressly exempted the vessel from responsibility for damage resulting from breakage of the articles and fragile containers. The ship was in all respects seaworthy, properly manned, equipped, and supplied for the voyage. If the merchandise suffered loss or damage, the ship was relieved from liability by the bills of lading, particularly that clause concerning breakage and fragile containers; also by the Harter Act, approved February 13, 1893. 27 Stat. 445, 446, c. 105 (Comp. St. §§ 8029-8035).

Upon the indicated issues evidence was taken and the cause went to hearing.

The agent of the owner of the Isla de Panay stationed at Seville, Spain, there accepted the casks of olives (each of them weighed 1,500 pounds of more) and delivered to the consignors bills of lading. These recited:

'M. Rowlett & Pyman has shipped on board the Spanish steamer      Isla de Panay, its captain M_, with destination to New      York and consigned to Austin Nichols, the effects declared on      back on the following conditions, * * * gnoring weight and      contents.'

They said nothing concerning order or condition of the merchandise and contained exemption clauses as stated in the answer.

The casks were carried down the river Guadalquivir 75 miles to Cadiz, on a small steamer belonging to the owner of the Isla de Panay, and were there delivered to her. They were loaded, stored, transported and landed at New York without negligence or default by the vessel; but the casks broke and the olives were damaged. That the casks were old, weak, and quite liable to break was observed by the owner's agent at Seville, and because of this he declined to accept them until the shippers gave the following agreement to secure against loss:

'Sevilla, November 5, 1917.

'Compania Trasatlantica, Sevilla-My Dear Sirs: With reference      to the shipment of 227 casks of olives that we are making by      the steamer Isla de Panay to New York, we understand that      that company considers the containers insufficient and that      it does not accept responsibility for the damages that they suffer as      natural consequences of the voyage, and as guarantee of that      company we sign the present, as you have delivered us clean      bills of lading.

'Yours very truly, Rowlett & Pyman.'

The captain of the Isla de Panay did not see the bills, nor did he know of the letter of guaranty until after the voyage had been completed. He observed the bad condition of the casks before accepting them at Cadiz, and their imperfection was noted on the accompanying shipping orders.

It appears that Austin Nichols & Co. had directed their bankers at Seville to pay the agreed purchase price for the olives upon presentation of clean bills of lading. The bankers accepted the bills presently under consideration and paid the stipulated price to the consignors. There is nothing to show that the ship or her owner knew of the particular arrangement between buyer and seller.

Libelants now insist that a trade usage prevailed at Seville under which bills without notation were regarded as receipts for merchandise in apparent good order and condition, and to establish this usage they rely upon an answer in the testimony of the vessel's captain. When asked by respondents' counsel, 'Why are these letters of guaranty given in Seville?' he replied:

'If the bills of lading are issued with a note on them, the      insurance companies or the bankers in Spain will not accept      that bill of lading on account of the condition in which the      goods are; but if they have no clause on it they will pass it      to a banking house and the insurance company that they have      been shipped by the shipper in apparent good order and      condition, although they have issued a letter of guaranty      relieving the company of any responsibility whatsoever for      the condition of the packages.'

Eduardo Benjumea, the owner's agent at Seville, who issued the bills, testified: 'In view of the above, and as was usually done in such   cases, according to custom and at the request of the   shippers, in order that their goods might not be   prejudiced more than was necessary, and at the same time   to relieve the company which I represent from   responsibility, I ordered the acceptance of the letters   of guaranty. * * * The custom of demanding letters of   guaranty by steamship companies from shippers, to   protect themselves from possible claims for the arrival   in bad condition of the shippers' goods at the port of   destination, is old and well established and based on   the following: (1) The decided opposition on the part of   the shippers to notations being placed on the bills of   lading which unnecessarily prejudices their goods and   leaves everything to the good faith of the receivers.   (2) Due to the general character that would necessarily   have had to be given to the notations on the bills of   lading, and it being practically impossible to examine   carefully all the casks one by one both on account of   economy and fixed dates on which the mail boats of the   Compania Trasatlantica had to depart from Cadiz for the   states. We could make, with such notations, greater   damage than would be justifiable, which, considering the   honorable practices of the Compania Trasatlantica, we   naturally tried to avoid. (3) Although letters of   guaranty were always requested for the above stated   reasons, an exceptional use of these letters was made   during the European war, as a consequence of the general   bad quality of the packing, which, during that time, was   presented for shipment. This bad quality of the packing   was due to the lack of containers in good condition and   an enormous demand for containers of this class which it   was impossible to meet. What took place was the use of   all available containers notwithstanding their sometimes   inferior quality; that is, chestnut wood was accepted in   place of oak in spite of the fact that old oak   containers are stronger than new ones of chestnut. I have been 16 years in the shipping business as shipping      agent, and have had a great experience in matters thereto      pertaining, derived from the years so spent.'

The District Court dismissed the libel. It said:

'The great weight of evidence is to the effect that the      chestnut casks containing the olives were old and      insufficient at the time the merchandise left Seville for      transshipment to claimant's vessel at Cadiz. * * * The      libelants paid drafts accompanying the bills of lading      without knowledge that the containers were old and      insufficient. If there is any liability here for damages it      is upon the theory that by failing to note in the bills of      lading any insufficiency in the containers, the steamship      misled the libelants in their injury and is now estopped      under the doctrine of Higgins v. Anglo-Algerian Steamship      Co., 248 F. 386, 160 C. C. A. 396, to claim that the      containers were insufficient. In that case, however, there      was in the bill of lading an express representation that the      merchandise itself was in apparent good order and condition,      when it was known to be injured by rain water. Here the      parties believed doubtless that the olives would go through,      but the ship's agents were not willing to take the risk of      any liability which might arise from old casks. No case has      gone so far as to hold that a bill of lading containing no      words representing the condition of the containers would give      rise to an estoppel. The Harter Act expressly provides that      the vessel shall not be liable for any 'insufficiency of      package."

The Circuit Court of Appeals affirmed the decree of dismissal. Having pointed out that the proceedings were in rem against the vessel and not in personam against the owner; that the libel alleged the merchandise was placed on board 'in good order and condition,' and was not discharged 'in like good order and condition'; that the bills were not signed by the captain; that the containers were weak when received, etc.-that court expressed inability to discover any ground upon which the libel could be sustained. It found:

'In the instant cases the damage to the merchandise came      within the exemptions of the bill of lading, which declared      that the shipowners were not responsible for breakage. That      many of the casks were broken is undisputed. The burden of      proof rested upon the libelants to establish negligence on      the part of the claimant, and this burden we have no      hesitation in saying was not sustained. On the contrary, it      has been established by the over-whelming weight of evidence      that whatever damage the merchandise suffered in the cases      now before the court was due, not to the negligence of the      ship, but to the old and insufficient containers in which the      goods were shipped.'

And it held that the ship was not estopped to set up the bad condition of the casks by anything done at Seville or under the Harter Act, and that Higgins v. Anglo-Algerian S. S.C.o., 248 F. 386, 160 C. C. A. 396, was not controlling.

Counsel for petitioners maintain: That with corrupt purpose, and as part of a scheme to defraud petitioners, the ship issued bills of lading designed to conceal the bad condition of the casks, knowing that the shippers intended to obtain money upon them according to the local usage. That under the Seville usage bills of lading without notations impliedly acknowledged receipt of the merchandise in apparent good order and condition, and the ship could not repudiate this representation. That, considering this local trade usage, it was the positive duty of the ship to disclose the bad condition of the casks. Failure therein made the fraud upon petitioners possible, and 'where one of two innocent parties must suffer he must bear the loss whose act put it into the power of the third party to commit the wrong.' That section 4 of the Harter Act (Comp. St. § 8032) imposed the positive duty to disclose the containers' bad condition. And, finally, that the doctrine approved in Higgins v. Anglo-Algerian S. S.C.o. is applicable and controlling.

Evidently the libels were drafted with the expectation of showing that the merchandise suffered damage from bad handling. Petitioners' witnesses testified that the casks reached New York in good condition but were negligently unloaded. The manager for Austin Nichols & Co. said:

'The casks were satisfactory containers.'

'I do not claim that the casks were bad.' 'Our claim is that      these casks were handled in a bad way, by bad methods.' 'I do      not make any claim about the casks, but we are making a claim      about the manner in which they were handled.'

The courts below, correctly, we think, have found that the overwhelming weight of evidence shows the casks were in bad condition when received at Cadiz, but were loaded, carried, and discharged without negligence or fault.

Petitioners did not allege fraud or any peculiar trade usage at Seville, and there is no sufficient evidence to establish either of these things. The mere statement by the ship's captain referred to above is not enough to show a peculiar trade usage at Seville, there commonly known and acted upon, and it does not appear that the bank which accepted the bills of lading lacked full information concerning the circumstances attending their issue. The argument of counsel proceeds mostly upon assumption not supported by the record. Bowling v. Harrison, 6 How. 248, 259, 12 L. Ed. 425; Adams v. Otterback, 15 How. 539, 545, 546, 14 L. Ed. 805; Oelricks v. Ford, 23 How. 49, 61, 62, 16 L. Ed. 534. And see Carver on Carriage of Goods by Sea (6th Ed.) § 181 et seq.

'Sec. 4. It shall be the duty of the owner or owners,      masters, or agent of any vessel transporting merchandise or      property from or between ports of the United States and      foreign ports to issue to shippers of any lawful merchandise      a bill of lading, or shipping document, stating, among other      things, the marks necessary for identification, number of      packages, or quantity, stating whether it be carrier's or shipper's weight, and apparent order or      condition of such merchandise or property delivered to and      received by the owner, master, or agent of the vessel for      transportation, and such document shall be prima facie      evidence of the receipt of the merchandise therein described.

'Sec. 5. For a violation of any of the provisions of this act      the agent, owner, or master of the vessel guilty of such      violation, and who refuses to issue on demand the bill of      lading herein provided for, shall be liable to a fine not      exceeding two thousand dollars. * * *'

Comp. St. §§ 8032, 8033.

In the present case the bills of lading were issued as agreed by the parties; no demand was made for bills with different recitals. According to the long-established rule, bills like those before us do not affirmatively represent good order and condition (Atchison, Topeka & S. F. Ry. v. Harold, 241 U.S. 371, 36 S.C.t. 665, 60 L. Ed. 1050), and we find nothing in the Harter Act which requires that they be given a different effect, either through construction or by estoppel.

Higgins v. Anglo-Algerian S. S.C.o., supra, is essentially different from the present cause. There the bill of lading expressly recited that the merchandise had been received in good order and condition, and the ship was seeking to escape liability by setting up its own wrongful action.

The decrees below must be affirmed.

Mr. Justice SUTHERLAND, dissenting.

I am unable to agree with the opinion just delivered. It seems to be conceded, but in any event I think it must be conceded, that if the bills of lading had contained a recital that the merchandise was received in good condition the ship would have been estopped from asserting that in fact it was in bad condition. Higgins v. Anglo-Algerian S. S.C.o., 248 Fed. 386, 160 C. C. A. 396. Here, I think, the circumstances are such as to make the omission of a recital upon the subject the equivalent of a statement of good condition.

The shipment was accepted and the bills of lading issued by the ship's agent,  who testified that he was aware of the bad condition of the merchandise and that the letters of guaranty were taken with the understanding that no notation to that effect would be made on the bills. They were what are known as 'clean bills,' which meant, in this case at least, according to the evidence, bills which 'a banker will accept and attach to a draft and on which he will make payment against a letter of credit, and which indicates that the merchandise was in good condition when it was received from [by] the steamship company.' Without going into detail, I think it is fairly to be deduced from the evidence that the usages of the trade required a notation, and the evidence is clear that a notation of bad condition would have been made except for the letters of guaranty. The master of the Panay testified:

'If a letter of guaranty is given me relieving me or the ship      of all responsibility, as was done in this case, no notation will be put on the bill of lading,      but if there is no letter of guaranty given, then a notation      will be put on the bill of lading.'

Consignees had instructed their bankers in Spain to pay the purchase price of the goods only upon presentation of clean bills of lading, and there is evidence to the effect that if bills are issued with a notation of bad condition they will not be accepted by insurance companies or bankers in Spain, but if such note be omitted they will pass, upon the assumption that the goods have been shipped in apparent good order and condition. Upon this assumption, the bills were passed and payment made. Under these circumstances, the omission of the notation in respect of the condition of the goods was nothing short of a suppression of the truth in order to further the fraudulent designs of the shippers. Upon every principle of fair dealing it should be regarded as the equivalent of a false notation of good condition which the ship is estopped to deny as against the claims of the consignees who relied upon it. To hold otherwise is to permit the wrongdoer to take advantage of his own misconduct, which a court of admiralty cannot allow with due regard for those equitable principles by which it is governed.

I am authorized to say that the CHIEF JUSTICE and Mr. Justice VAN DEVANTER concur in this dissent. 

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