It’s not every day that the Supreme Court weighs in on a contract dispute. That happened yesterday in a maritime case in which an oil tanker, in the last 900 feet of its 1,900-mile journey, ran over a submerged anchor abandoned on the floor of Delaware River, puncturing the tanker’s hull and resulting in an oil spill of some 246,000 gallons — with cleanup costs of more than $135 million. CITGO Asphalt Refining Co. v. Frescati Shipping Co., 589 U.S. _, No. 565 (Mar. 30, 2020) (Sotomayor, J.).
The decision itself was not especially surprising: The Court granted cert to resolve a circuit split — siding with the Second and Third Circuits, the Court held that the safe-berth term in question was an express warranty with strict liability. See id., slip op. at 5. The contract apparently was governed by maritime law and thus by general principles of contract law. See id.
For contract drafters, here are some key points of interest in the Court’s decision; again, they’re unsurprising, but it could be a nice teaching case:
- The term “warranty” encompasses a statement of fact about a material matter: “It is well settled as a matter of maritime contracts that statements of fact contained in a charter party agreement relating to some material matter are called warranties, regardless of the label ascribed in the charter party.” Id. at 7 (cleaned up).
- Materiality can sometimes be determined on summary judgment: See id. at 7-8 & n.4.
- The word “warranty” isn’t necessary: Under the tanker charter agreement, the party that chartered the tanker was required to select a “safe” berth for the ship — and even though the provision didn’t use the terms warrant or warranty, that was the legal effect. Id. at 6-7.
- Breach of contract is a strict-liability matter: “Under elemental precepts of contract law, an obligor is liable in damages for breach of contract even if he is without fault.” Id. at 9 (cleaned up, citation omitted).
- Expressio unius est exclusio alterius: Other provisions of the contract expressed limited the breaching party’s liability; that weighed against interpreting the “safe berth” provision as likewise being one of limited liability. Id. at 9-10.
Justice Thomas dissented, joined by Justice Alito, “conclud[ing] that the plain meaning of the safe-berth clause does not include a warranty of safety.” Dissent at 2.
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The tanker’s unfortunate accident so close to the end of its journey brought to mind the 1983 grounding in San Francisco Bay of my former ship, the USS Enterprise, a mere half-mile from its home pier, after a months-long overseas deployment. That was several years after I’d left the ship and the Navy to attend law school.