CHAPTER VIII

LIABILITIES AND LIMITATIONS

=1. Liabilities of Ship.=--As elsewhere observed, the ship resembles a person in maritime law and has a corresponding liability. In general, she is responsible for every benefit received and every wrong done as well as for every breach of governmental regulations. Particular instances may furnish exceptions to this general rule, but they will be only occasional exceptions. The ship should be considered as a juristic person and her liabilities like those of an ordinary corporation, quite apart from those of the natural persons in charge of her operations or interested in her ownership. The liability of a vessel arising out of contract is discussed elsewhere. The principle governing her liability for torts is laid down in the brig Malek Adhel, 2 How. (U. S.) 210:

The ship is also by the general maritime law held responsible for the torts and misconduct of the master and crew thereof, whether arising from negligence or a willful disregard of duty; as, for example, in case of collision and other wrongs done upon the high seas or elsewhere within the admiralty and maritime jurisdiction, upon the general policy of that law, which looks to the instrument itself, used as the means of the mischief, as the best and surest pledge for the compensation and indemnity to the injured party.

The liability ordinarily extends to the entire ship and all the appurtenances.[17] It may include the freight money and collision damage; it does not include the insurance; and it may be diminished by statutes like the Harter Act or by special agreements in the contract of carriage or similar stipulations.

=2. Liabilities of Owner.=--While it has been said that the liability of the ship and of the owner were convertible terms, the statement is hardly accurate in many cases. The owner may have so chartered the ship as to release him from personal responsibility; he may be wrongfully deprived of her possession; his liability may be limited by law or special agreement to her value. In other words, the ship is frequently liable and the owner is not; and the owner can usually confine his liability to the value of the ship and otherwise go free from her obligations.

=3. Liabilities of Charterer.=--Where a vessel is so hired that the charterer has the exclusive possession, control and management, appointing the master and hiring the crew, there is said to be a demise of the ship and a temporary ownership in the charterer. He then becomes responsible for her obligations as if he were the real owner and has similar rights of limitation. The law provides that where a charterer mans, victuals and navigates the ship at his own expense, he shall be considered as owner within the provisions of the statutes limiting liability, and that the ship shall be liable, when so chartered, as if navigated by the owner (Rev. St. § 4286).

=4. Liabilities of Mortgagee.=--These depend upon his possession of the ship. Where he takes possession and operates the ship for his own benefit, he assumes all the responsibilities of ownership but without the right to limit his liability to the value of his interest in the ship. Thus he may become personally liable for wages, supplies and repairs as well as for damages done by negligence. He may, by special arrangements, confine contract liabilities to the ship and, being lawfully in possession, he may create maritime liens upon her. A mortgagee out of possession is not considered as the owner even when he holds the record title under a bill of sale absolute on its face. He may still show that his title was by way of security only and so exempt himself from personal liability for repairs done or supplies furnished for the contracts or negligence of the mortgagor or other person having real ownership of the boat.

=5. Liabilities of Underwriters.=--The insurers are ordinarily strangers to the ship as far as concerns any authority to instruct the master or incur obligations on her account. Only in case of an abandonment of the vessel to them, when the loss is total or constructively total, and when they have accepted such an abandonment, does such authority arise. An abandonment when properly made, or accepted, vests the property in the underwriter and the master then becomes his agent. The underwriter is then the real owner and has all an owner's liabilities and limitations. There is, however, a very large intermediate class of disasters where the underwriters decline an abandonment and yet take possession of the ship and cargo for the purpose of rescue and repair. Large expenses are thus created for which the damaged ship and cargo may be adequate security. The underwriters are personally liable, in the absence of special contract, for the contracts of their agents, although the nature of the business is such that it is often a practical difficulty to ascertain who were the insurers actually making the engagements and what was the real authority of those assuming to represent them. These questions are usually not raised during the exigencies of salvage operations but may become important when the work is unsuccessful and the expenses are unpaid.

=6. Theories of Limitation.=--The general maritime law has always been that an owner was not personally liable for the obligations of his ship as distinguished from his own agreements or delinquencies. It regards the ship as a distinct individuality similar to a corporation. The common law, on the contrary, considers the ship like any other kind of personal property and holds the owner correspondingly liable because his agents were in charge and he is liable for whatsoever they do within the scope of their agency. The maritime law retains an earlier notion of the common law, that it is against all reason to put blame or fault upon a man for the negligence of others and declines to hold him personally for what he cannot personally control. It also recognizes the fact that men of means will not invest in ships unless they can be protected against the unlimited liability of the common law. It holds that such a liability is inherently unjust when applied to the shipowner and it also accepts the situation in which the capitalist declines to invest in shipping unless that injustice is averted. Hence came the rule that the owner is not liable on account of the ship beyond the value of his interest therein and her freight pending and the corollary that he might absolve himself from all liability by abandoning the ship to her creditors. The theory is (at least as applied to torts) that:

If you surrender the offending vessel you are free, just as it was said by a judge in the time of Edward III, "If my dog kills your sheep and I freshly after the fact tender you the dog you are without recourse to me."[18]

This rule is in abrupt conflict with the theories of the common law and, while it has been expressed in statutory form in most maritime countries, the courts have been so far influenced by common law doctrines in its application that it does not prevail in its original integrity either in this country or in England. Congress has endeavored to restore it in the United States but the courts, so far, have declined to follow the plain language of the statute.

=7. Contract Limitations.=--To a considerable extent there may be an effective limitation of liability by special contract between the parties. The courts hold, generally, that limitations of liability in a contract must be reasonable if they are to be valid and they regard clauses which exempt the shipowner from liability for his own or his servants' negligence as unreasonable and also as contrary to public policy. At the same time, when the ship is not professing to be a common carrier and the contract is plain and on adequate compensation, such clauses may be, and are, enforced. Their efficiency will depend largely upon the contract itself and there is no hard and fast rule which prevents the private carrier from obtaining such limitations as he requires if the other party will agree thereto.

An illustration is found in the case of the Royal Sceptre, 187 Fed. 224, where the charter provided:

The ship is to be in no way liable for any consequences of ... perils of the sea, ... collisions, stranding, or other accidents or errors of navigation even when occasioned by the negligence, default, or error in judgment of the pilot, master, mariners, or other servants of the shipowners.

Judge Hough said:

The quoted charter provision delimits the obligations of the ship, in so far as it goes, when reasonably interpreted. If therefore the proximate cause of this loss be a peril of the sea (or river), a stranding, an error of the pilot or negligence of the master, it may be assumed that libellant cannot recover; for, without any written limitation of liability, all that the bailor-libellant could require or expect from the bailee-claimant was the use of ordinary care and skill and that expectation has been (in part) bargained away for a consideration presumably expressed in the rate of charter hire.

=8. The Federal Statutes.=--The original law was enacted in 1851 (Rev. St. §§ 4284-4286; Comp. St. 1916, 8020-8027); that provided an absolute protection against loss by fire unless caused by the design or neglect of the owner, and in case of practically all losses which might occur without the "privity or knowledge" of the owner, his liability was limited to the value of his interest in the ship and freight pending; provision was made for a general average of creditors and transfer to a trustee; in 1872 the Supreme Court promulgated rules of practice under which its benefits might be more efficiently applied by the admiralty courts. It was held that these statutes were enacted to restore the old doctrine of the maritime law, to encourage shipbuilding and the employment of ships in commerce, and for the public benefit. Hence they must be liberally construed in favor of shipowners. In a series of great decisions, commencing about 1870, the Supreme Court held the law constitutional; that foreign shipowners were entitled to its benefits; that the valuation of the owner's interest might be made as of the termination of the voyage or immediately after the disaster so that if the loss is total the liability is practically nil; that insurance was no part of the owner's interest in the ship or freight and need not be surrendered; and that the protection of the act extended to underwriters to whom the ship had been abandoned.

The original law had been passed with much difficulty and its language, as the result of compromise and concession, was subjected to much criticism as uncertain and ambiguous. The shipping interests of the country continued to decline and among the reasons assigned were the responsibility and liabilities left open or undefined by the law. About 1880, in connection with a vigorous attempt to revive the merchant marine, the entire subject received full consideration by Congress. The Act of June 26, 1884, was subsequently passed, and, expressly repealing all laws in conflict therewith, declared in a few words that "the individual liability of a shipowner shall be limited to the proportion of any and all debts and liabilities that his individual share of the vessel bears to the whole, and the aggregate liabilities of all the owners of a vessel on account of the same shall not extend the value of such vessel and freight pending." An amendment seeking to insert the condition that such debts must have been incurred without the owner's privity or knowledge was deliberately rejected. The courts, however, have declined to enforce the law according to its terms and held that Congress really intended to insert the condition as to privity or knowledge in spite of the omission of the words and the rejection of the amendment which sought to insert them. The result is that the owner is still liable without limit for all obligations which arise out of matters of contract, according to the rules of the common law and in many instances of negligence on the part of his employees the same result seems to follow. His liability can not be limited where "privity or knowledge" is imputable to him and no accurate definition of these terms is yet available.

Under the present law, the voyage is the unit in respect to which limitation may be granted. Probably the shipowner may claim the benefit of the law at any time before he pays a final judgment in favor of the damage creditors, but he must account for the value of the ship as it was at the termination of the voyage on which the liability was created. The courts will not permit him to continuously operate the ship at the expense of her creditors and then finally abandon her to them loaded with the liens of many voyages. The rule is only a practical one and in special cases may work injustice to shipowners, as where ships make a continuous number of short trips between contiguous points. Part-owners are only liable according to the proportion of their shares, and the personal fault or privity of one does not necessarily implicate the others. It is not necessary that they should join in the same proceeding. The exemption is several and may be claimed by each without reference to the others.

=9. "Privity or Knowledge."=--Limitation of liability can not be had against any loss or obligation unless incurred without the privity or knowledge of the shipowner. These words, by judicial construction, still remain as a condition or qualification of the law and it is unfortunate that no plain definition of their meaning has been yet supplied. The words have been discussed in many cases and there are many decisions in particular instances granting or denying the benefit of the law, but the expression is still undefined and perhaps is incapable of accurate legal definition. Some judges have held that "privity or knowledge" means the shipowner's own willful or negligent acts as distinguished from those of his agents or employees. This gives the broad and liberal construction of the law which the Supreme Court directed in its earlier decisions on the subject. On the other hand, judges of equal learning have been inclined to treat the matter by the standards of the common law and held that the acts or faults of agents or servants are those of the principal and that he must be as personally liable as if he had done them himself. These would limit the protection of the law to the acts of the master of the ship when beyond control of the owner and give it a close construction against the shipowner. This has been the tendency of the later decisions of the Courts of Appeals and the Supreme Court has so far acquiesced in them. There has also been a development of a doctrine to the effect that there can be no limitation against the enforcement of the shipowner's personal contracts, and engagements made by various employees and managing owners have been held to be within this class. This rule depends on the theory of privity or knowledge, as, of course, there can be no such thing as a contract relation without privity or knowledge of its subject-matter. Thus in the recent case of Luckenbach _v._ McCahan Sugar Ref. Co., 248 U. S. 139, decided December 9, 1918:

But the liability of the owners sought to be enforced here is one resting upon their personal contract; and to such liabilities the limitation acts do not apply.

Similarly in another recent case, Pendleton _v._ Benner Line, 246 U. S. 353:

The contract was between human beings, and the petitioner, by his own act, knowingly made himself a party to an express undertaking for the seaworthiness of the ship. That the statute does not limit liability for the personal acts of the owners, done with knowledge, is established by Richardson _v._ Harmon, 222 U. S. 96. It was said in that case, p. 106, that § 18 leaves the owner "liable for his own fault, neglect, and contracts."

* * * * *

It is said that the owners did their best to make the vessel seaworthy, and that if it was not so the failure was wholly without the privity or knowledge of the petitioner. But that is not the material question in the case of a warranty. Unless the petitioner can be discharged from his contract altogether he must answer for the breach, whether he was to blame for it or not.

In the case of corporate shipowners it is said that the privity or knowledge must be that of the managing officers, but there is no definition of who the managing officers are and the term is not capable of accurate definition. The law of limitation of liability of shipowners in the United States is not now plain or simple nor is it in harmony with the general maritime law or that of other commercial countries. Where the owner can prove that the loss occurred without his privity or knowledge he will obtain protection, but just what facts or ignorance of facts he must prove to reach this result can not be stated at the present time.

=10. Harter Act.=--This law was enacted by Congress in 1893, and corresponds to a similar English statute of about the same date. It may be found in 7 Comp. St., 1916, §§ 8029-8035. The text of the act follows: