Business Law 13th Edition by Frank Cross, Kenneth Clarkson, Roger LeRoy Miller

Exercise 1

COMPANY PROFILE
NYKCool A.B., based in Stockholm, Sweden, provides maritime transportation for hire. It is a subsidiary of NYKReefers Limited, which operates as a subsidiary of Nippon Yusen Kabushiki Kaisha, one of the world's largest shipping companies. NYKCool has a fleet of more than fifty ships and offices in Argentina, Brazil, Chile, Ecuador, Japan, New Zealand, South Africa, the United Kingdom, and the United States. NYKCool focuses on transporting perishables, especially fruit. To reduce the number of empty containers, the firm disperses its large fleet around the globe in cost-efficient patterns and carries other cargoes on its vessels' return trips.
BACKGROUND AND FA CTS Pacific Fruit, Inc., exports cargo from Ecuador. NYKCool and Pacific entered into a written contract with a two-year duration, under which NYKCool agreed to transport weekly shipments of bananas from Ecuador to California and Japan. At the end of the period, the parties agreed to extend the deal. Due to a disagreement over one of the terms, a new contract was never signed, but the parties' trade continued. After nearly four more years of performance between 2005 and 2008, a dispute arose over unused cargo capacity and unpaid freight charges. An arbitration panel of the Society of Maritime Arbitrators found that Pacific Fruit was liable to NYKCool for $8,787,157 for breach of contract. NYKCool filed a petition in a federal district court to confirm the award. Pacific Fruit appealed the judgment in NYKCool's favor, contending that the arbitration panel "manifestly disregarded" the law when it concluded that the parties had an enforceable contract.
IN THE la nguag e OF THE COURT
Robert A. Katzmann, Barrington D. parker and Richard C. wesley , Circuit Judges
* * * * On appeal, Pacific Fruit first contends that the arbitration panel manifestly disregarded the New York contract law by concluding that Pacific Fruit * * * entered into an oral contract with NYKCool, under which NYKCool agreed to transport weekly shipments of [Pacific Fruit's] bananas from Ecuador to California and Japan for the period between 2005 and 2008. In order to vacate an arbitration award for manifest disregard of the law, a court must conclude that the arbitrator knew of the relevant legal principle, appreciated that this principle controlled the outcome of the disputed issue, and nonetheless willfully flouted the governing law by refusing to apply it. This rigorous standard ensures that awards are vacated on grounds of manifest disregard only in those exceedingly rare instances where some egregious [shocking] impropriety on the part of the arbitrator is apparent. As such, the standard essentially bars review of whether an arbitrator misconstrued a contract.
Here, we detect no manifest disregard of the law in the arbitration panel's conclusion that the parties had entered into a binding oral contract for the period between 2005 and 2008. In particular, we agree with the panel's conclusion that the parties' substantial partial performance on the contract weighs strongly in favor of contract formation. It is undisputed that in 2005 and 2006 NYKCool transported 30 million boxes of cargo for [Pacific Fruit] on over 100 voyages, for which it received $70 million dollars in payments even though there was no written contract in place. Moreover, the parties' behavior during 2005 and 2006 strongly suggests that they believed themselves subject to a binding agreement. Notably, the parties engaged in extensive renegotiation of the terms of the contract when [Pacific Fruit] began facing difficulties meeting its cargo commitments. In these circumstances, the panel cannot be said to have engaged in egregious impropriety in concluding that the parties intended to enter a binding oral agreement. [Emphasis added.]
* * * * For the foregoing reasons, the Order of the district court confirming the arbitration award is hereby AFFIRMED.
DECISION AND REMEDY The U.S. Court of Appeals for the Second Circuit affirmed the judgment of the lower court. The appellate court reasoned that "the parties' substantial partial performance on the contract weighs strongly in favor of contract formation."
THE legal environment DIMENSION?What circumstance in this case demonstrates most strongly that Pacific did not truly believe that it did not have a contract with NYKCool? Explain.
The Economic Dimension?How can a carrier avoid losses under a contract that obligates it only to transport cargo one way and not on the return voyage?