912 F. 2d 468 - All Car Leasing Service Company v. R Campbell J

MEMORANDUM***

The controlling issue on this appeal is whether the parties' 1979 contract for the use of a vessel was in substance a sale governed by state law, or a maritime lease governed by admiralty law. The district court ruled it was a sale, governed by California law, and rendered judgment accordingly for a breach of contract. The court denied plaintiff's claim for deficiency because the jury in answering a special interrogatory found that defendants were not given sufficient written notice of the private sale. The appellant argues that the agreement was a maritime lease, governed by admiralty law, and that it is entitled to damages based on a breach of lease. We affirm essentially for the reasons stated in the district court's order of February 11, 1986, with the following comments.

The plaintiff and defendant entered into a contract concerning the vessel LADY LEE. The contract gave defendant the beneficial use of the vessel in exchange for an initial payment of $500 and eighty-four monthly payments of $5,940. The contract included a clause giving defendant the right to purchase the vessel at the conclusion of the contract period for $30,000. After defendant defaulted on the payments, plaintiff retook and sold the vessel, and seeks money damages. The measure of damages turns on whether the contract was a sale or a maritime lease. If a lease, plaintiff would be entitled to enforce the agreement according to its terms, collecting all monies that would have come due for the remainder of the lease term. If a sale, California law would apply, rendering the agreement a mere security device whose enforcement would be limited according to Uniform Commercial Code principles.

Although a jury found the agreement was a maritime lease, the district court entered a judgment notwithstanding the verdict for defendant on the ground that it was a sale under California law. Even though the court, not a jury, should decide admiralty issues, the district court had decided that submitting the case to the jury was appropriate because proper characterization of the agreement turned not only on the agreement itself, but also on extrinsic evidence concerning the surrounding circumstances. The court then found that the jury's verdict was contrary to the only verdict a reasonable jury could have reached.

Plaintiff asserts that in granting JNOV, the district court simply ignored the choice-of-law provision in the parties' agreement which specifically provided that it would be governed by admiralty law. Assuming that to be so, the court in applying admiralty law, however, would be required to do exactly what the district court did in this case: determine whether the agreement was a sale or a maritime lease. Annotation, Comment Note--Admiralty Jurisdiction in Matters of Contract, 29 A.L.R.Fed. 325 Sec. 25 (1976). The issue on this appeal is the correctness of that decision.

The admiralty rule provides that a contract for the sale of a ship is not a maritime contract subject to admiralty jurisdiction. Cary Marine, Inc. v. Motorvessel Papillon, 872 F.2d 751, 755 (6th Cir.1989) ("the breach of a contract for the sale of a vessel is not a maritime contract and does not give rise to a maritime lien"); Richard Bertram & Co. v. Yacht WANDA, 447 F.2d 966, 967 (5th Cir.1971) ("the prevailing rule has been that a contract for the sale of a ship is not a maritime contract"); Flota Maritima Browning de Cuba v. Snobl, 363 F.2d 733 (4th Cir), cert. denied, 385 U.S. 837 (1966) ("Although subjected to recent criticism, the prevailing rule has been that a contract for the sale of a ship is not a maritime contract. The charter of a vessel, however, is maritime"). See Simon v. Intercontinental Transport (ICT) B.V., 882 F.2d 1435, 1441-42 (9th Cir.1989) (Admiralty jurisdiction extends to claims that arise from contract if the subject matter of the contract (1) is wholly maritime in nature, (2) includes non-maritime obligations that are merely incidental to the primary maritime nature of the contract, or (3) includes maritime obligations that can be severed from the non-maritime obligations and adjudicated separately without prejudice to the parties).

Plaintiff asserts that the district court failed to recognize evidence concerning the parties' pre-dispute conduct. The district court summarized and dealt with this evidence as follows:

For its part, Plaintiff points out that the bareboat charter agreement was actually negotiated by Defendants' counsel, that counsel referred to the agreement as a lease in a letter to Plaintiff concerning the agreement, and that Defendants expressly approved this letter. Plaintiff points out that testimony was received that Plaintiffs intended the agreement to be a lease and treated it as such for tax purposes. Plaintiff argues that it mortgaged the vessel and gave Crocker National Bank a security agreement, that Plaintiff held itself out as owner to the Coast Guard, and that Defendant Campbell also represented Plaintiff to be owner of the vessel to the Coast Guard. True and accurate as all of the foregoing may be, none of the foregoing detracts from that evidence which the Court instructed the jury to consider in determining whether the transaction was intended to be a demise charter or a secured sale.

More importantly from the standpoint of whether Defendants are entitled to a directed verdict, the evidence argued by Plaintiff does not, as a matter of law, have a bearing on the characterization of the bareboat charter agreement.

(D.Ct.'s Order granting JNOV at 11-12).

Unquestionably, in the garden-variety contract-interpretation case, a court must accord great weight to the interpretation that the parties themselves have given the contract as manifested by their conduct prior to the advent of controversy. Topliff v. Topliff, 122 U.S. 121, 131 (1887); Cordingley v. Allied Van Lines, 563 F.2d 960, 964 n. 9 (9th Cir.1977); Acheson v. Falstaff Brewing Co., 523 F.2d 1327, 1330 (9th Cir.1975); Julius Goldman's Egg City v. United States, 697 F.2d 1051, 1058 (Fed.Cir.), cert. denied, 464 U.S. 814 (1983). In this case, however, the district court properly recognized that evidence of the labels the parties gave the agreement was of limited legal significance, because the focus is upon the substance of the parties' agreement. Western Enterprises v. Arctic Office Machines, 667 P.2d 1232 (Alaska 1983) (with respect to whether a purported lease is in fact an agreement for purchase of the property, labels used by the parties to characterize the transaction are not determinative; it is substance that controls); see also In re J.A. Thompson & Son, Inc., 665 F.2d 941 (9th Cir.1982).

AFFIRMED.