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Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

CHASE MANHATTAN FINANCIAL SERVICES, INC., 

doing business as Chase Manhattan of 

Oklahoma, a Delaware Corporation, 

Plaintiffs-Appellees, 

v. 

DAVID J. MCMILLIAN, in personam; 

RUBY WALTERS; WAGONER LUMBER COMPANY INC., 

an Oklahoma corporation; LEROY SMITH, doing 

business as Circle L. Cabinet Shop; PATRIOT, 

HER ENGINES, TACKLE, APPAREL, ETC., in rem, 

Defendants-Appellants, 

VIRGIL WALTERS, 

Defendant-third-party-plaintiff-Appellant, 

v. 

OKLAHOMA HOUSEBOAT MANUFACTURERS, INC., 

Third-party-defendant, 

P & H SUPPLY; MUSKOGEE METAL FABRICATORS INC., 

Claimants-Appellants. 

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FEB 1 d 1990 

ROB.ERT L HOECKER 

Clerk 

No. 88-1832 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE EASTERN DISTRICT OF OKLAHOMA 

(D.C. No. 87-397-C) 

Submitted on the briefs: 

R. Dow Bonnell and David K. Hoel, Hoel, Bonnell, Edmison & 

Deuschle, P.A., Tulsa, Oklahoma, on the brief for the PlaintiffsAppellees. 

Jon Tom Staton, 436 Court, Suite D, Muskogee, Oklahoma, on the 

briefs for the Defendants-Appellants. 

Appellate Case: 88-1832 Document: 010110159084 Date Filed: 02/14/1990 Page: 1 
~efore HOLLOWAY, Chief Judge, and GARTH* and TACHAr Circuit 

Judges. 

TACHA, Circuit Judge. 

* Honorable Leonard I. Garth, United States Circuit Judge for 

the Third Circuit, sitting by designation. 

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Appellate Case: 88-1832 Document: 010110159084 Date Filed: 02/14/1990 Page: 2 
This appeal is from an order of the district court granting 

priority to the .claim of Chase Manhattan Financial Services, Inc. 

(Chase), as the holder of a preferred ship mortgage in the vessel 

Patriot. The appellants and competing claimants to the proceeds 

from the sale of the Patriot are the landlord of the boatyard and 

the suppliers of the raw materials and labor used to construct the 

Patriot. The appellants attack on various grounds the validity of 

Chas~'s preferred ship mortgage, and contend that, even if Chase 

has a valid preferred ship mortgage, their state statutory labor 

and materials liens have priority because these liens were created 

before the completion of construction and the launching of the 

Patriot. We affirm. 1 

I. History of the Case 

This case arose out of the original construction of the 

vessel Patriot by Oklahoma Houseboats Manufacturing, Inc. (OHM). 

On October 30, 1986, David McMillian {McMillian), the buyer and 

mortgagor; Chase, the mortgagee; and Russell Bickers (Bickers), 

the sales agent and secretary/treasurer of the seller OHM met to 

complete the documentation for the sale and financing transactions 

for the Patriot. At this meeting the partie~ completed and 

Bickers signed a manufacturer's statement of origin for the 

Patriot. Bickers signed a sales agreement form in blank, and the 

terms of the agreement were later filled in. 

1 After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. The case is therefore ordered 

submitted without oral argument. 

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Appellate Case: 88-1832 Document: 010110159084 Date Filed: 02/14/1990 Page: 3 
At the meeting Chase loaned $50,000 to McMillian to purchase 

the Patriot, which at that time was 90 percent complete, and 

McMillian executed a promissory note and security agreement in 

favor of Chase. The note and security agreement provided that the 

Patriot must be kept at Sequoyah Bay Marina, Muskogee, Oklahoma, 

unless Chase gave McMillian written consent to keep the Patriot 

elsewhere. Additionally, the note and security agreement provided 

that if McMillian failed to keep the terms of the agreement Chase 

could ·declare a default and demand immediate payment in full. 

McMillian also executed a power of attorney in favor of Carol 

Matthews of Carol Matthews Vessel Documentation, Inc. (Matthews), 

a professional vessel documentation service located in Houston, 

Texas. Matthews' services were necessary to facilitate Chase's 

application for a preferred ship mortgage with the United States 

Coast Guard (Coast Guard). 

Chase issued a check at the meeting in the amount of $50,000 

jointly to the borrower McMillian and the seller OHM in accordance 

with the routine practice in the consumer lending field. 

McMillian immediately endorsed the check over to OHM at the 

meeting. 

On April 7, 1987, the Coast Guard issued the Patriot's 

certificate of documentation and its official number. On April 

13, 1987, Matthews completed the detailed application process and 

executed a first preferred ship mortgage on behalf of McMillian, 

the mortgagor, and in favor of Chase as mortgagee. The mortgage 

application was accompanied by the requisite affidavit of good 

faith executed by Matthews for McMillian .. Matthews was not aware 

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Appellate Case: 88-1832 Document: 010110159084 Date Filed: 02/14/1990 Page: 4 
of and had no knowledge of any existing liens on the Patriot at 

the time she executed the affidavit. On July 27, 1987, the 

Patriot's first preferred ship mortgage was recorded by the Coast 

Guard and the particulars of the mortgage were endorsed on the 

certificate of documentation. 

Meanwhile, in June 1987 Chase was first notified that 

McMillian was in default under the terms of the note and security 

agreement because the Patriot was no longer being kept at _the 

Sequoyah Bay Marina. Chase declared McMillian to be in default 

and filed this action based on the district court's admiralty 

jurisdiction, 28 U.S.C. § 1333 and 46 U.S.C. § 951, to enforce its 

preferred ship mortgage pursuant to the Ship Mortgage Act of 1920, 

ch. 250, § 30, 41 Stat. 1000 (codified as amended at 46 u.s.c. 

§§ 911-984) ( "SMA"). 2 Chase named as defendants the appellants in 

this case. The appellants and their respective state law lien 

claims are as follows: Virgil and Ruby Walters, the owners of the 

construction site, claim a lien on the Patriot for back rent; 

Leroy Smith, the cabinet maker and interior contractor for the 

Patriot, claims a labor and material lien; Wagoner Lumber Company 

claims a lien for materials ·furnished for the construction of the 

Patriotj Muskogee Metal Fabricators claims a labor and material 

lien for furnishing and bending steel for the Patriot's hull; and 

2 Congress has subsequently revised the Ship Mortgage Act. See 

Act of November 23, 1988, Pub. L. No. 100-710, 102 Stat. 4735 

(codified at 46 U.S.C. §§ 30101-31343); H.R. Rep. No. 918, 100th 

Cong., 2d Sess., reprinted in 1988 U.S. Code Cong. & Admin. News 

6104. However, these revisions do not apply to this civil action 

because the parties filed the case prior to January 1, 1989. See 

Act of November 23, 1988, Pub. L. No. 100-710, § 107, 102 Stat-.-

4735, 4752. 

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Appellate Case: 88-1832 Document: 010110159084 Date Filed: 02/14/1990 Page: 5 
P & H Supply, Inc. claims a lien for plumbing and fixtures 

provided to the Patriot. Defendant Virgil Walters also._filed a 

counterclaim against Chase and a cross claim against McMillian 

alleging fraud and conspiracy in obtaining the preferred ship 

mortgage. 

After a bench trial, the district court ruled that Chase had 

a valid preferred ship mortage under SMA section 922. The court 

specifically found that Chase did not know of the existence of any 

bad faith on the part of McMillian that would defeat the SMA 

section 922(a)(3) requirement that the mortgage be made in good 

faith and without any design to defraud any lienor or creditor of 

_the mortgaged vessel. Additionally, the court found that Virgil 

Walters had failed to establish fraud in connection with 

McMillian's and Chase's actions in obtaining the preferred ship 

mortgage on the Patriot. The court thus declined to award damages 

on Walters' counter and crossclaims. Finally, the district court 

held that Chase's preferred ship mortgage took priority over the 

appellants' claims under SMA section 953 because those claims were 

not preferred maritime liens. 

Appellants claim that the district court erred in: (1) 

finding that Chase had satisfied the documentation and title 

requirements for obtaining a preferred ship mortgage under SMA 

section 922; (2) finding that there was no ftaud in the 

documentation and execution of the mortgage and that Chase was 

unaware of the alleged fraudulent documentation; and (3) finding 

that the preferred ship mortgage had priority over their material 

and labor liens which were.created prior to the completion of 

construction and launching of the Patriot. 

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Appellate Case: 88-1832 Document: 010110159084 Date Filed: 02/14/1990 Page: 6 
II. "Maritime" Liens 

Before addressing appellants' arguments, we first must 

characterize the nature of appellants' claims as "maritime" or 

nonmaritime "dry land" liens. See G. Gilmore & c. Black, The Law 

of Admiralty 586-89 (2d ed. 1975) (outlining the significant 

differences between common law or state law statutory liens and 

"maritime" liens) [hereinafter Gilmore]. This characterization is 

fundamental to our subsequent analysis, because preferred maritim~ 

liens take priority over a preferred ship mortgage, see SMA 

§ 953(b), whereas a nonmaritime lien is subordinate, see id. and 

discussion infra pp. 18-21. 

A maritime lien arises for contract or tort claims against a 

maritime res for goods and services supplied to it or injury 

caused by it. See Gilmore at 587-89; 2 S. Friedell, J. Geraghty, 

S. Bellman & J. Loo, Benedict on Admiralty§ 31, at 3-1 to 3-2 

(7th ~d. 1988) [hereinafter 2 Benedict]. Mariti~e liens generally 

are "secret" in that neither possession nor notice through filing 

is required to establish their validity. See Gilmore at 588; 

Comment, The Federal Maritime Lien Act: A Review and a 

Prospectus, 20 Hous. L. Rev. 861, 864 n.17 (1983) [hereinafter 

Comment, 20 Hous. L. Rev.]; Comment, Developments in the Law of 

Maritime Liens, 45 Tul. L. Rev. 574, 575 (1971) [hereinafter 

Comment, 45 Tul. L. Rev]. Only an admiralty court acting in rem 

can foreclose a maritime lien, because admiralty law engages in 

the fiction that the ship itself is the "person" who committed the 

offense and is legally responsible for the consequences. See 

Gilmore at 588-94; Hebert, The Origin and Nature of Maritime 

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Appellate Case: 88-1832 Document: 010110159084 Date Filed: 02/14/1990 Page: 7 
Liens, 4 Tul. L. Rev. 381, 382-392 (1930) [hereinafter Hebert, 4 

Tul. L. Rev. ] ; Note, Priorities of Maritime Liens, 69 Harv. L. 

Rev. 525, 525-27 (1956) [hereinafter Note, 69 Harv. L. Rev.]; 

Comment, 20 Hous. L. Rev. at 864 & nn.20-21. 

In American admiralty law the existence of a maritime lien is 

synonymous with the scope of admiralty jurisdiction. See Gilmore 

at 622; H. Baer, Admiralty Law of the Supreme Court 464-65 (3d ed. 

1979) [ hereinafter Baer]; Robinson, "Contract" Jurisdiction in 

Admiralty, 10 Tul. L. Rev. 359, 360-62 (1936) [hereinafter 

Robinson, 10 Tul. L. Rev.]; Note, 69 Harv. L. Rev. at 526. It is 

an established principle of American admiralty law that contracts 

for building a ship, or supplying materials for the original 

construction of a ship, are not "maritime" contracts within the 

province of admiralty jurisdiction. See Gilmore at 16; Baer at 

464-65; 1 S. Friedell, Benedict on Admiralty§ 186, at 12-30 to 

12-31 (7th ed. 1988) [hereinafter 1 Benedict]; Black, Admiralty 

Jurisdiction: Critique and Suggestions, 50 Colum. L. Rev. 259, 

264 ( 1950); Robinson, 10 ·Tul. L. Rev. at 361. "The Supreme Court 

so held in 1857 in People's Ferry Co. v. Beers, [61 U.S. (20 How.) 

393 (1857)], and has followed that ruling both in dicta and 

decision in every subsequent case in which the subject has been 

presented or reference to it made." 1 Benedict§ 186, at 12-30 

(footnotes omitted) (citing in part East River S.S. Corp. v. 

Transamerica Delaval, Inc., 476 U.S. 858, 872 n.7 (1986); Kossick 

~ United Fruit Co., 365 U.S. 731, 735 (1961); New Bedford !2..£.Y 

Dock Co.~ Purdy, 258 U.S. 96, 99 (1922); Thames Towboat Co.~ 

The Schooner "Francis McDonald'', 254 U.S. 242, 243 (1920); The 

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Appellate Case: 88-1832 Document: 010110159084 Date Filed: 02/14/1990 Page: 8 
Winnebago, 205 U.S. 354, 363 (1907); Edwards:!..:_ Elliott, 88 U.S. 

(21 Wall.) 532, 553 (1874)). 

The necessary corollary to this principle is that contracts 

for building or supplying materials for the original construction 

of ships do not create "maritime" liens because such contracts are 

not "maritime" contracts. See Gilmore at 630 n.98; 1 Benedict 

§ 125, at 8-18; Hebert, 4 Tul. L. Rev. at 398-99; Ray, Maritime 

Contract Liens, 47 Tul. L~ Rev. 587, 606 (1973) [hereinafter Ray, 

47 Tul. L. Rev.]. Even after a ship has been launched, but before 

it is sufficiently advanced to function as designed, any labor, 

materials, or equipment furnished to the ship that are necessary 

for its completion do not give rise to "maritime" liens. -~-~-SL:..r 

The Francis McDonald, 254 U.S. at 245; The Winnebago, 205 U.S. 

362; Nilo Barge Line, Inc.:!..:.. The M/V Bayou DuLarge, 584 F.2d 841, 

842-43 (8th Cir. 1978); The Boat La Sambra :!..:.. Lewis, 321 F.2d 29, 

29-31 (9th Cir. 1963); Hatteras of Lauderdale, Inc.:!..:.. Gemini 

Lady, 662 F. Supp. 1525, 1527 (S.D. Fla. 1987), aff'd, 853 F.2d 

848 (11th Cir. 1988); see also 1 Benedict§ 186, at 12-31 & n.5; 

Robinson, 10 Tul. L. Rev. at 364-66; Comment, 45 Tul. L. Rev. at 

602-03. 

Appellants admit that their claims are for materials, labor, 

and services rendered prior to the completion of construction on 

the Patriot. The district court made a finding of fact that the 

Patriot was ninety-nine percent complete on January 7, 1987. The 

record shows that all of appellants' materials and labor were 

furnished long before this approximate date of completion. 3 We 

3 Muskogee Metal Fabricators, Inc. has the most recent claim, 

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Appellate Case: 88-1832 Document: 010110159084 Date Filed: 02/14/1990 Page: 9 
therefore hold that appellants' claims constitute nonmaritime 

liens. 

III. Requirements for a Preferred Ship Mortgage 

We next determine whether Chase has a valid preferred ship 

mortgage entitling it to first priority to the proceeds from the 

sale of the Patriot. A short review of the history of the SMA is 

in order. 

Prior to the passage of the SMA, the Supreme Court in Bogart 

v. The John Jay, 58 U.S. (17 How.) 399 (1854), held that a 

mortgage on a ship was not a maritime contract and therefore not 

within admiralty jurisdiction. See Gilmore at 688. As a 

consequence of this decision, the value of a mortgagee's security 

interest was greatly reduced. As a nonmaritime claimant the . 

mortgagee could not initiate foreclosure proceedings in admiralty. 

If a maritime lien claimant initiated foreclosure proceedings in 

admiralty, the ship would be sold and first priority given to all 

maritime claims, including those arising after the mortgage. See 

Merchants Nat'l Bank Y....:.... Ward Rig No. 2, 634 F.2d 952, 955 (5th 

Cir. 1981); Gilmore at 688-90; Gyory, Security at Sea: A Review 

of the Preferred Ship Mortgage, 31 Fordham L. Rev. 231, 232-34 

(1962) (hereinafter Gyory, 31 Fordham L. Rev.]; Smith, Ship 

Mortgages, 47 Tul. L. Rev. 608, 608-09 (1973) (hereinafter Smith, 

47 Tul. L. Rev.]. 

The primary purpose of the SMA was to stimulate private 

investment in 'the shipping industry by offering greater protection 

which is for metal brackets furnished to the Patriot on August 8, 

1986. 

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Appellate Case: 88-1832 Document: 010110159084 Date Filed: 02/14/1990 Page: 10 
to investors. See Smith, 47 Tul. L. Rev. at 608. The SMA granted 

the holder of a preferred ship mortgage the right to proceed in 

admiralty with a preferred status over all claims except certain 

maritime liens and expenses, and fees and costs fixed by the 

court. See Merchants Nat'l Bank, 634 F.2d at 955; Gilmore at 695-

805; Gyory, 31 Fordham L. Rev. at 234-37; Smith, 47 Tul. L. Rev. 

at 610-13. 

The ijtatutory requirements f6r a preferred ship mortgage are 

contained in 46 U.S.C. section 922(a), which provides in relevant 

part: 

A valid mortgage which at the time it is made, 

includes the whole of any vessel of the United States 

... , shall, in addition, have, in respect to such 

vessel and as of the date of the compliance with all the 

provisions of this subsection, the preferred statys 

given by the provisions of section 953 of this title, 

if -

(1) The mortgage is endorsed upon the vessel's 

documents in accordance with the provisions of this 

sectio~; 

(2) The mortgage is recorded as provided in 

section 921 of this title, together with the time 

and date when the mortgage is so endorsed; 

(3) An affidavit is filed with the record of such 

mortgage to the effect that the mortgage is made in 

good faith and without any design to hinder, delay, 

or defraud any existing or future creditor of the 

mortgagor of any lienor of the mortgaged vessel; 

(4) The mortgage does not stipulate that the 

mortgagee waives the preferred status thereof; and 

(5) The mortgagee is 

United States. 

a citizen of the 

46 U.S.C. § 922(a). Title 46 of the Code of Federal Regulations 

subpart 67.37 adds the additional requirement that the mortgagor 

must actually hold legal title to the vessel at the time of the 

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Appellate Case: 88-1832 Document: 010110159084 Date Filed: 02/14/1990 Page: 11 
execution and recordation of the mortgage. 46 C.F.R. § 67.37-

5(c); see also C.I.T. Corp.~ Oil Screw Peggy, 424 F.2d 767, 768 

(5th Cir. 1970) (per curiam) (preferred ship mortgage did not 

attach to radar equipment leased by shipowner/mortgagor in which 

mortgagor did not have an ownership interrest); ITT Indus. Credit 

Co.~ The M/V Richard f, 617 F. Supp. 761, 764 (E.D. La. 1985) 

("It is further obvious that a [preferred ship] mortgage cannot 

attach to property not owned by the mortgagor."). 

A. SMA Filing Requirements 

Appellants first argue that Chase has not satisfied the 

requirement of SMA section 922(a) because the Patriot was not a 

"vessel" or a "vessel of the United States" at the time of the 

execution and recordation of the mortgage. This argument plainly 

fails on the facts of this case. The trial court found that the 

Patriot was ninety-nine percent complete on January 1, 1987. The 

Patriot therefore was a "vessel" as of this date. See 1 u.s.c. 

§ 3; discussion supra p. 8 and infra pp. 20-21. The Patriot 

became a "vessel of the United States" on April 7, 1987, when the 

Coast Guard issued the Patriot's certificate of documentation and 

its official number. See 46 U.S.C. §§ 911(1), (2), (4); 46 C.F.R. 

§ 67. 01-1, par. ( 4) ( "Documented vessel means a vessel for which a 

valid Certificate of Documentation is outstanding."). 

Approximately one week afterward, on April 13, 1987, Matthews 

executed the preferred ship mortgage on the Patriot, and on July 

27, 1987, the Coast Guard recorded the mortgage. 

Appellants also argue that Chase's preferred ship mortgage is 

invalid because the required documentation was "inadequate." 

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However, appellants have failed to demonstrate the existence of a 

single defect in the actual documentation that warrants ·rendering 

the mortgage invalid. The district court made specific findings 

on the Patriot's mortgage documentation, ruling that: (1) 

Matthews had gathered the necessary documentation and forwarded it 

to the Coast Guard; (2) on April 7, 1987, the Coast Guard issued 

the Patriot's certificate of documentation; and (3) on July 27, 

1987 the Coast Guard recorded the Patriot's preferred ship 

mortgage and endorsed the particulars of the mortgage on the 

Patriot's certificate of documentation. These findings are not 

clearly erroneous. 

Given the strength and specificity of the district court's 

factual findings regarding the documentatio~ for the Patriot's 

preferred ship mortgage, it is evident that the true nature of 

appellants' inadequate documentation argument is a veiled 

collateral attack on the district court's conclusions that 

"[t]here was no showing that [Chase] knew of the existence of any 

bad faith on the part of McMillian so as to taint the derivative 

good faith requirement imposed on [Chase that would] defeat the 

attainment of the preferred status provided by [section] 922(a)," 

and that "[appellant] Walters has failed to sustain his burden of 

establishing fraud in connection with [Chase's] and McMillian's 

actions in obtaining the preferred ship mortgage status for the 

Patriot." The essence of appellants' argument is that Chase 

"acted in reckless disregard of the truth of the substance of the 

documents" because the mortgage documents were signed in blank by 

McMillian at the October 30, 1986 sale and financ~ng meeting and 

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Matthews later filled in the contents when she executed the 

mortgage without independently verifying the information given to 

her by McMillian. 

Section 922(a)(3) requires that the mortgagor file an 

affidavit with the mortgage "to the effect that the mortgage is 

made in good faith and without any design to hinder, delay, or 

defraud any existing or future creditnr of the mortgagor or any 

lienor of the mortgaged vessel." 46 u.s.c. § 922(a)(3); see 46 

C.F.R. § 67.37-l(a)(3) (1988) (mortgagor is the party required to 

file affidavit of good faith); see generally Gilmore at 712-13. 

The mortgagee also has a ''derivative" good faith requirement under 

section 922(a)(3). The Seventh Circuit described this 

"derivative" good faith requirement described in In re Meredosia 

Harbor~ Fleeting Service, Inc., 545 F.2d 583 (7th Cir. 1976), 

cert. denied, 430 U.S. 967 (1977): 

The banks would have us construe Section 922(a)(3) 

in a proforma manner, viz.: once the affidavit is 

made the Section's requirement is met without more. 

If the affidavit is fraudulent, the appellants 

argue that recourse should be had against the 

affiant rather than the mortgagee. We disagree. 

The Section 922(a)(3) affidavit requirement demands 

assurance that the "mortgage is made in good 

faith." The good faith requirement applies to the 

mortgage transaction. This creates, in turn, a 

derivative good faith requirement for the 

mortgagee. Upon a showing that the mortgagee knew 

of the mortgagor's bad faith, such knowledge will 

trigger Section 922(a)(3). Since each of the 

requirements of Section 922(a) is independently 

necessary for a ship's mortgage to attain preferred 

status, the mortgagee's bad faith will defeat a 

mortgage's aspiration towards preferred status. 

Id. at 587-88. Absent circumstances of fraud, however, the SMA 

imposes no affirmative duty on lenders to inquire as to the 

existence of prior liens before accepting the mortgagor's 

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.affidavit of good faith. See Pascagoula Dock Station~ Merchants 

~ Marine Bank, 271 F.2d 53, 54-55 (5th Cir. 1959); ITT Indus. 

Credit Co.~ The M/V Richard f, 617 F. Supp. 761, 766 (E.D. La. 

1985); cf. Mastan Co. v. Steinberg, 418 F.2d 177, 178-79 (3d Cir. 

1969), cert. denied, 397 U.S. 1009 (1970) (upholding "imprudent" 

but not "fraudulent" affidavit of good faith where parties entered 

into mortgage in subjective good faith, even though mortgagor was 

insolvent at the time of execution of the mortgage). 

We agree with.the district court's determination that there 

was no evidence of fraud in connection with Chase's and 

McMillian's actions in obtaining the preferred ship mortgage. 

Given that fraud was not involved in the obtaining of the 

mortgage, and that Chase hap no knowledge of bad faith on the part 

of McMillian, Chase's failure to verify independently the 

information given by McMillian does not render the affidavit of 

good faith void under SMA section 922(a)(3). 

B. Transfer of Title 

Appellants argue that the district court erred in concluding 

that title to the Patriot passed to McMillian on October 30, 1986 

when the parties met to complete the sale and financing 

transaction for the Patriot. Chase must prove McMillian's 

ownership of the Patriot as part of its burden of establishing a 

valid preferred ship mortgage. See C.I.T. Corp., 424 F.2d at 768; 

ITT Indus. Credit Co., 617 F. Supp. at 765. State law defines 

what constitutes legal title because contracts for the sale of a 

ship are not "maritime" and thus admiralty jurisdiction does not 

apply. See S.C. Loveland, Inc. v. East West Towing, Inc., 608 

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F.2d 160, 164 (5th Cir. 1979), cert. denied, 446 U.S. 918 (1980); 

see also St. Paul Fire & Marine Ins. Co. v. Vest Transp. Co., 666 

F.2d 932, 938 (5th Cir. 1982) (per curiam) (adopting district 

court opinion); ITT Indus. Credit Co., 617 F. Supp. at 765; see 

generally Gilmore at 26 & n.90 (contracts for the sale of vessels 

are not within admiralty jurisdiction). We thus look to the law 

of Oklahoma to determine when title transferred. 

Chase's evidence of McMillian's title consisted of those 

documents presented at the sale and financing meeting on October 

30, 1986: (1) the builder's certificate; (2) the manufacturer's 

statement of origin; and (3) the sales agreement. The record 

indicates that Bickers, a sales agent and the secretary/treasurer 

of OHM, signed the sales agreement form in blank at the closing. 

The parties did, however, complete the manufacturer's statement of 

origin at the closing, and Bickers signed it in his capacity as 

the secretary/treasurer of OHM. 

As appellants correctly point out, the builder's certificate 

is prima facie, but not conclusive, evidence of title because it 

is part of the paperwork required by the Coast Guard for the 

certificate of documentation process. See 46 U.S.C. § 12104(3) 

(certificate of documentation is not conclusive evidence of 

ownership where ownership is in issue); St. Paul Fire~ Marine 

Ins. Co., 666 F.2d at 938 (ship's documentation of title is prima 

facie but not conclusive evidence of ownership). However, we find 

that the manufacturer's statement of origin and the sales 

agreement together constitute a valid contract and establish that 

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under Oklahoma law title to the Patriot passed to McMillian at the 

sale and financing meeting on October 30, 1986. 

Section 2-401 of title 12A of the Oklahoma statutes governs 

when the seller of a good conveys title to the buyer. Section 2-

401 provides in relevant part: 

(1) Title to goods cannot pass under a contract 

for sale prior to their identification to the contract 

(Section 2-501), and unless otherwise explicitly agreed 

the buyer acquires by their identification a special 

property as limited by this Act .... Subject to these 

provisions and to the provisions of the Article on 

Secured Transactions (Article 9), title to goods passes 

from the seller to the buyer in any manner and on any 

conditions explicitly agreed on by the parties. 

(3) Unless otherwise explicitly agreed where 

delivery is to be made without moving the goods, 

(a) if the seller is to deliver a document of 

title, title passes at the time when and 

the place where he delivers ~uch 

documents; or 

( b) if the goods are at the time of 

contracting already identified and no 

documents are to be delivered, title 

passes at the time and place of 

contracting. 

Okla. Stat. Ann. tit. 12A, § 2-401 (1963). Section 2-501 

governing the identification of goods states in relevant part: 

(1) The buyer obtains a special property and an 

insurable interest in goods by identification of 

existing goods ' as goods to which the contract 

refers ... Such identification can be made at any time 

and in any manner explicitly agreed to by the parties. 

In the absence of explicit agreement identification 

occurs . 

Id. § 2-501. 

(b) if the contract is for the sale of future 

goods • when goods are shipped, 

marked or otherwise designated by the 

seller as goods to which the contract 

refers .... 

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Appellants focus their argument on section 2-401(3)(a) and 

contend that under Oklahoma law the manufacturer's statement of 

origin does not constitute a "document of t1.tle 11 because Bickers 

failed to complete the endorsement form stating all liens or 

encumbrances on the Patriot. Section 804.4B of title 63 of the 

Oklahoma statutes requires for a valid certificate of title that: 

B. In the event of the sale or transfer of the 

ownership of any vessel, boat, motorboat, or motor 

therefor, the holder of such certificate of title and 

registration issued under provisions of this section 

shall endorse on the form provided on the back of said 

title a complete assignment thereof with a statement of 

all liens or encumbrances on such vessel, motorboat or 

motor and such signature of the transferor shall be made 

under the penalties of perjury. 

Okla. Stat. Ann. tit. 63, § 804.4B (1984). Assuming arguendo that· 

the unendorsed manufacturer's statement of origin was not a 

"document of title" for purposes of section 2-401(3)(a), we turn 

to section 2-401(3)(b). 

Bickers signed both the completed manufacturer's statement of 

origin and the incomplete sales agreement at the mortgage closing. 

Chase issued a check for $50,000, the balance of the purchase 

price for the Patriot after McMillian's down payment, jointly to 

McMillian and OHM. McMillian immediately endorsed the check over 

to OHM at the October 30, 1986 meeting, and Bickers accepted it. 

The appellants do not dispute the purchase price of the Patriot or 

any other terms of the sale. Rather they contend that the sales 

agreement signed by Bickers at the October 30th meeting could not 

convey title under section 2-401(3)(b) because it did not 

specifically identify the Patriot. Although the sales agreement 

itself did not specifically identify the Patriot as the good being 

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sold, OHM's manufacturer's statement of origin, signed by Bickers 

at the closing in his capacity as the secretary/treasurer of OHM, 

clearly did: 

The undersigned MANUFACTURER hereby certifies that 

the new boat or motor described below, the property of 

said MANUFACTURER, has been transferred this 30th day of 

Oct., 1986 on Invoice No. 1001 to David J. McMillian 

whose address is Rt. 2 Box256, Wagoner, Okla. 74467. 

YEAR 1986 MODEL Houseboat 14 x 62 ft. 

TRADE NAME Patriot SERIAL NO. OKHOKHolF6 

We hold that the manufacturer's statement of origin and the 

sales agreement taken together satisfy the requirements of section 

2-501, and conclude that under section 2-401(3)(b) title to the 

Patriot passed to McMillian on October 30, 1986. We therefore 

hold that Chase has satisfied all the statutory requirements of 

SMA section 922 and holds a valid preferred ship mortgage on the 

Patriot. 

IV. Priorities Under SMA Section 953 

Having determined the status of the parties, as nonmartitime 

claimants and the holder of a preferred ship mortgage, we look to 

SMA section 953 to ascertain who has priority to the proceeds from 

the sale of the Patriot. SMA section 953(b) states: 

Upon the sale of any mortgaged vessel by order of a 

district court of the United States in any suit in rem 

in admiralty for the enforcement of a preferred mortgage 

lien thereon, all preexisting claims in the vessel, 

including any possessory common-law lien of which a 

lienor is deprived under the provisions of section 952 

of this title, shall be held terminated and shall 

thereafter attach, in like amount and in accordance with 

their respective priorities, to the proceeds of the 

sale; except that the prefe~red mortgage lien shall have 

priority over all claims against the vessel, except (1) 

preferred maritime liens, and (2) expenses and fees 

allowed and costs taxed by the court. 

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46 U.S.C. § 953(b). Section 953(a) defines a preferred maritime 

lien as: 

(1) a lien aris'ing prior in time to the recording 

and indorsement of a preferred mortgage in accordance 

with the provisions of this chapter; or (2) a lien for 

damages arising out of tort, for wages of a stevedore 

when employed directly by the owner, operator, master, 

ship's husband, or agent of the vessel, for wages of the 

crew of the vessel, for general average, and for 

salvage, including contract salvage. 

46 U.S.C. § 953(a). Although the section 953(a) definition itself 

does not include the word "maritime," the preferred lien arising 

prior in time unquestionably must be a maritime lien. See In re 

Alberto, 823 F.2d 712, 717 n.8 (3d Cir. 1987); United States v. 

Pacific Far East Lines, Inc., 809 F.2d 1435, 1437 (9th Cir. 1987) 

(adopting district court opinion in part); Gulf Coast Marine Ways 

v. The J.R. Hardee, 107 F. Supp. 379, 385 (S.D. Tex. 1952); Gyory, 

31 Fordham L. Rev. at 258. 

As discussed above, the claims of the appellants for 

materials and labor used in the construction of the Patriot are 

nonmaritime dry land liens. See discussion supra pp. 6-9. Under 

SMA section 953(b), it is universally recognized that a preferred 

ship mortgage has priority over nonmaritime liens. ~, In re 

Alberto, 823 F.2d at 717 n.8 (a valid preferred ship mortgage 

prevails over all no·nmaritime liens); Pacific Far East Liens, 

Inc., 809 F.2d at 1438 (only maritime liens result in 

subordination of preferred ship mortgage); Gulf Coast Marine Ways, 

107 F. Supp. at 385 (nonmarine lien cannot take priority over SMA 

preferred mortgage); se~ also 2 Benedict§§ 51-52, at 4-1 to 4-12; 

Connor, Maritime Lien. Priorities: Cross Currents of Theory, 54 

Mich. L. Rev. 777, 815 (1956); Ray, 47 Tul. L. Rev. at 606; 

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Varian, Rank and Priority of Maritime Liens, 47 Tul. L. Rev. 751, 

764 (1973); Willard, Priorities Among Maritime Liens, 16 Cornell 

L.Q. 522, 527 n.22 (1931); Note, 69 Harv. L. Rev. at 531; see 

generally Gilmore at 733-806 (discussing priorities of maritime 

liens and ship mortgages). In spite of the voluminous authority 

to the contrary, appellants contend that their nonmaritime liens 

should take priority over Chase's preferred ship mortgage because 

their liens "attached" prior to the time the Patriot was completed 

and came into existence as a "vessel" capable of being mortgaged 

under section 922 of the SMA. To support their argument 

appellants rely on North Pacific Steamship Co.~ Hall Brothers 

Marine Railway~ Shipbuilding Co., 249 U.S. 119 (1919) for the 

proposition that "a ship is born when she is launched," id. at 127 

(quoting Tucker~ Alexandroff, 183 U.S. 424, 438 (1902)), and 

argue essentially that because their materials and labor were 

furnished before the Patriot was launched, the Patriot was not yet 

a "vessel" eligible for a preferred ship mortgage, and therefore 

the principle of first in time, first in right, should. govern. 

Appellants' argument is fundamentally flawed. As explained 

previously, it is precisely because their claims are for materials 

and labor furnished prior to the completion4 of the Patriot as a 

4 We note that the Supreme Court in Thames Towboat Co. v. The 

Schooner "Francis McDonald", 254 U.S. 242 (1920), rejectedth~ 

appellants' argument that the definitive point in time for 

determining the maritime nature of a contract is the launching of 

the vessel. In The Francis McDonald, the Supreme Court expressly 

held that a contract to furnish the materials and labor for the 

completion of a ship, made and performed after the ship was 

launched, but before it was sufficiently advanced to perform the 

functions for which it was intended, was nonmaritime. Id. at 243-

44; see· also cases cited supra p. 8. 

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vessel that their liens are nonmaritime and thus subordinant to a 

preferred ship mortgage. We therefore reject appellants argument 

and hold that Chase's preferred ship mortgage gives Chase priority 

to the proceeds from the sale of the Patriot over the competing 

nonmaritime claims of the appellants. 

The judgment of the district court is AFFIRMED. 

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