Freight Insurance. Rules Defining the Time When Freight is Considered Earned.

    Most foreign nations follow the principle of allow- ing payment of so-called " pro rata " or " distance " freight, i. e., freight proportionate to the mileage of the voyage actually performed. In other words, if causes beyond the control of the owner or charterer of a vessel make the completion of the voyage impossible, freight will be allowed to said owner or charterer for the portion of the contract actually fulfilled. In some cases even full freight is allowed.

    In England and the United States, however, the common law does not recognize this principle of " distance " freight. Payment of freight, in the absence of special agreement to the con- trary, is conditioned upon the full completion of the contract of carriage, and no compensation is due for a partial completion of the voyage. And this is true even though the failure to bring the goods to destination is due to circumstances beyond the control of the owner or charterer of the vessel or his representatives. Templeman states the principle as follows : " English law recognizes no payment of freight for the partial performance of the voyage, known as pro rata or distance freight. If owing to perils of the sea, the ship owner is prevented from delivering the cargo at the port of destination, he cannot require the mer- chant to pay anything for the portion of the voyage which the vessel has performed."

The hardship to vessel owners resulting from the application of this principle may be at times very great. Thus let us assume the shipment of a cargo from New York to Buenos Aires, and the voyage terminating at Rio Janeiro for reasons over which the owner of the vessel had no control. Owing to the failure of the owner or charterer to complete his part of the contract, the cargo owner is under no obligation to pay any part of the agreed freight money. Yet the vessel owner or charterer, it is clear, will have incurred by far the largest part of the total expenses involved in completing the contem- plated voyage, such as wages, fuel, food and other provisions. These expenses must be met despite the fact that the vessel owner or charterer will receive no return whatever and will also lose all his profit, or the " net freight " as it is customarily called. Clearly the vessel owner or charterer should have an insurable interest in the freight so as to entitle him to secure protection against the contingency of losing on the expenses incurred in case of failure to earn his freight owing to some unavoidable peril. If the nature of the goods permits, the owner or charterer might seek to have them forwarded to the agreed destination by some other vessel. But such forwarding may, again, involve an expenditure so large as to result in a loss to the vessel owner or charterer. Clearly, the owner or charterer should be entitled to effect insurance which will reimburse him for the loss incurred in endeavoring, by forwarding, to complete his contract of affreightment.

But while the common law does not recognize payment for a partial performance of the voyage, it does not follow that an arrangement to that effect cannot be provided for by express agreement between vessel and cargo owners. It may be arranged by agreement that the owner of the cargo may obtain the same at a port short of destination upon payment of an agreed amount of freight for the completed portion of the voyage. This practice is often advantageous in that there is an immediate release of the goods, whereas otherwise the vessel owner or charterer is entitled to hold the same for a reasonable time to enable him to earn his freight by making arrangements for the forwarding of the cargo to the agreed destination. Manifestly the vessel owner's or charterer's right to the goods for a reason- able period ought not to be questioned; otherwise the cargo owner would possess an unfair advantage in that he could take the goods at a place but slightly distant from the final destination and deprive the vessel owner or charterer of all opportunity to earn any freight whatever. Upon payment of an agreed amount, however, it might be arranged to have the vessel owner waive his right to hold the goods for a reasonable time, thus bringing about their immediate release and avoiding the loss of time connected with their forwarding.