## Facts

- On June 24, 1960, Sulphur Export Corporation (Sulexco) entered into a written voyage charter party with Carribean Clipper Lines, Inc. (Carribean) for carriage of about 9,500 tons of bulk sulphur from a Gulf port to a European channel port on the S/S KIM “or substitute vessel acceptable to charterer.”
- The charter was on Sulexco’s form, negotiated in New Orleans, and executed by Carribean’s president and secretary and by Sulexco’s president.
- The charter required Carribean to give Sulexco notice of the vessel’s readiness to load at least 10 days in advance. Laydays were to commence no earlier than July 25, 1960 and end at 5:00 p.m. on August 5, 1960; the readiness notice was due by July 27, 1960.
- Sulexco timely nominated loading and discharge ports and was ready and able to load within the contractual window. Timely arrival in Europe mattered to Sulexco’s August 1960 sales commitments.
- Sulexco required Carribean to obtain a $50,000 performance bond tied to the freight; Carribean agreed but never produced the bond. The court found the bond issue did not control the breach question.
- On July 15, 1960, the parties executed an addendum substituting the S/S HOEGH SILVERCREST for the S/S KIM. The substitute was expected at Port Sulphur, Louisiana around July 26–28, 1960, and the declared cargo quantity became 9,025 tons; other charter terms remained unchanged.
- On July 25, 1960, Sulexco learned the HOEGH SILVERCREST was “fixed elsewhere” and could not perform. Carribean mentioned other possible substitutes, but they were unacceptable to Sulexco or were not presented by addendum.
- Carribean did not submit the required notice of readiness on July 27, 1960. Carribean’s president admitted Carribean never had a vessel “fixed” to perform the charter.
- On July 28, 1960, Sulexco notified Carribean that it considered the charter breached, that it was seeking a replacement vessel, and that it would hold Carribean responsible for resulting losses.
- On July 29, 1960, to meet August delivery commitments, Sulexco chartered the S/S DEMOSTHENES D (a larger and more expensive vessel) as substitute tonnage; it was the only available ship that would meet the schedule.
- Sulexco sued Carribean for breach, seeking up to $23,533.50 (reflecting increased charter hire). Sulexco also sued Weeks Harrison, Charles C. Justice, Jr., and John L. Paquette individually.
- Carribean’s articles of incorporation stated the corporation would not begin business until $1,000 in cash capital was paid in. Carribean nonetheless entered the charter transaction before receiving that capital.
- Harrison, Justice, and Paquette were Carribean’s officers/directors; each participated in Carribean’s pre-capital transaction of business and none recorded dissent in corporate records.
- Carribean participated in the lawsuit for years before expressly invoking the charter party’s arbitration clause.

## Issues

1. Did Carribean breach the voyage charter party by failing to have a vessel fixed and by failing to provide timely notice of readiness to load?
2. Was Carribean entitled to rely on the charter party’s arbitration clause after participating in litigation for years?
3. What damages could Sulexco recover for the breach, including the increased charter hire for the substitute vessel and attorney’s fees under the charter language?
4. Are Carribean’s officers/directors personally liable under La. R.S. 12:9(A)(2) for obligations incurred when the corporation transacted business before receiving the minimum stated capital, without recorded dissent?

## Decision

- The court found the June 24, 1960 charter party (as modified by the July 15 addendum) was valid and enforceable, and that Sulexco was ready and able to perform its obligations.
- The court held Carribean breached the charter party by failing to have a vessel fixed for the charter and by failing to submit the required notice of readiness by July 27, 1960.
- The court rejected Carribean’s attempt to invoke arbitration, holding Carribean waived any right to arbitrate by participating in litigation for about 5½ years; the arbitration clause could not be used as a contractual time bar under these circumstances.
- The court found Sulexco acted reasonably to reduce loss by promptly obtaining substitute tonnage and that Sulexco’s market efforts did not obstruct Carribean’s efforts because Carribean never had a vessel fixed.
- The court awarded Sulexco $23,533.50 in damages, representing the increased charter hire paid for the S/S DEMOSTHENES D, plus interest.
- Under the charter party’s provision for recovery of “proven and reasonable legal expenses,” the court awarded reasonable attorney’s fees.
- Applying La. R.S. 12:9(A)(2), the court held Harrison, Justice, and Paquette personally liable along with Carribean because the corporation transacted business before receiving the $1,000 minimum capital stated in its articles, the individuals participated, and none recorded dissent.

## Legal Principles

- A voyage charter is breached when the chartered owner fails to have a vessel fixed for the contract and fails to give timely notice of readiness required by the charter.
- A party may waive a contractual arbitration right by substantially participating in court litigation for an extended period before asserting arbitration; an arbitration clause is not treated as a substitute statute of limitations in that setting.
- When a charter is breached, the non-breaching charterer may obtain substitute tonnage and recover the resulting difference in charter hire if the cover charter is reasonable and the loss is shown.
- Contract language requiring the breaching party to pay proven and reasonable legal expenses may be read to include attorney’s fees where the clause is written broadly enough to show that intent.
- Under La. R.S. 12:9(A)(2), directors/officers who participate in corporate business before the minimum capital stated in the articles is paid in, and who do not record dissent, are personally liable for obligations incurred during that period.

## Conclusion

The district court entered judgment for Sulexco, finding Carribean breached the voyage charter by failing to fix a vessel and to give timely notice of readiness, holding Carribean waived arbitration by long participation in litigation, awarding $23,533.50 in cover damages plus interest and reasonable attorney’s fees under the charter’s legal-expense clause, and imposing personal liability on Carribean’s participating, non-dissenting officers/directors under La. R.S. 12:9(A)(2) for pre-capitalization business transactions.


Sulphur Export Corp. v. Carribean Clipper Lines, Inc., 277 F. Supp. 632 (1968)