A collision occurred in New York Harbour on 24 November 1942 between the SS Nathaniel Bacon, owned by the United States, and the MV Esso Belgium, owned by Belgian Overseas Transport SA. Both vessels and the cargo on the Nathaniel Bacon were damaged. Liability was apportioned one-third to Nathaniel Bacon and two-thirds to Esso Belgium.

The United States, as owner and bailee of the Nathaniel Bacon and its cargo, sued Esso Belgium for damage to both ship and cargo. The cargo insurers, having paid for the losses, intervened to assert subrogated rights against Esso Belgium. The Esso Belgium cross-claimed, seeking recovery from the United States for its own damages, including the portion payable to the cargo owners of the Nathaniel Bacon.

The United States impleaded the cargo owners under the 'both-to-blame collision clause' in the bills of lading, seeking indemnity for any liability arising from the collision.

Held: The appeal by the cargo owners was allowed.

The Court of Appeals overturned the District Court and held that carriers cannot use the both-to-blame collision clause to force cargo owners to indemnify them for amounts recouped indirectly through divided-damages actions. Although the clause was designed to correct the perceived anomaly that cargo interests can recover fully from a negligent non-carrier, the Court ruled that only Congress, not private contract terms, may alter these long-settled rules. The clause undermines strong public policy against carriers limiting their liability and contradicts statutory prohibitions in the Harter Act and the Carriage of Goods by Sea Act. Given the unequal bargaining power between shippers and carriers and the clause's sweeping impact, the Court refused to permit such a contractual innovation without explicit legislative authorisation.