Source: https://www.law.cornell.edu/supremecourt/text/293/21
Timestamp: 2019-10-14 11:22:16
Document Index: 40759705

Matched Legal Cases: ['§ 951', '§ 922', '§ 953', '§ 911', '§ 922', '§ 921', '§ 954', '§ 923', '§ 924', '§ 925', '§ 941', '§ 911', '§ 2', '§ 8']

THE THOMAS BARLUM. THE JOHN J. BARLUM. DETROIT TRUST CO. v. BARLUM S. S. CO. | US Law | LII / Legal Information Institute
THE THOMAS BARLUM. THE JOHN J. BARLUM. DETROIT TRUST CO. v. BARLUM S. S. CO.
293 U.S. 21 (55 S.Ct. 31, 79 L.Ed. 176)
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Argument of Counsel from pages 25-30 intentionally omitted
Prior to the enactment of the Ship Mortgage Act 1920, the admiralty had no jurisdiction of a suit to foreclose a mortgage on a ship. Bogart v. The Steamboat John Jay, 17 How. 399, 402, 15 L.Ed. 95; Schuchardt v. Babbidge (Ship Angelique), 19 How. 239, 241, 15 L.Ed. 625; People's Ferry Co. v. Beers, 20 How. 393, 400, 15 L.Ed. 961; The Lottawanna, 21 Wall. 558, 583, 22 L.Ed. 654; The Eclipse, 135 U.S. 599, 608, 10 S.Ct. 873, 34 L.Ed. 269; The J. E. Rumbell, 148 U.S. 1, 15, 13 S.Ct. 498, 37 L.Ed. 345. 1 If jurisdiction in the admiralty of the present suits is to be maintained it must be by reason of the application and validity of the provisions of the Ship Mortgage Act.
1. The application of the statute. The grant of jurisdiction is found in subsection K ( 46 U.S.C. 951 (46 USCA § 951)) which provides: 'A preferred mortgage shall constitute a lien upon the mortgaged vessel in the amount of the outstanding mortgage indebtedness secured by such vessel. Upon the default of any term or condition of the mortgage, such lien may be enforced by the mortgagee by suit in rem in admiralty. Original jurisdiction of all such suits is granted to the district courts of the United States exclusively.'
The grant is thus one of exclusive jurisdiction to enforce the lien of a 'preferred mortgage.' If the mortgage is a preferred mortgage within the definition of the Act, jurisdiction is granted; otherwise not. 'Preferred mortgages' are carefully defined in the detailed provisions of subsection D. 2 46 U.S.C. 922 (46 USCA § 922). The application of this term in the subsequent provisions of the Act, including the provision as to admiralty jurisdiction, is not left to inference but is explicitly stated in subdivision (b) of subsection D as follows: 'Any mortgage which complies in respect to any vessel with the conditions enumerated in this subsection is hereafter in this chapter called a 'preferred mortgage' as to such vessel.'
Subdivison (a) of subsection D provides that a 'valid mortgage,' which 'includes the whole of any vessel of the United States of 200 gross tons and upward,' shall have, in addition, 'in respect to such vessel and as of the date of the compliance with all the provisions of this subdivision, the preferred status given by the provisions of subsection M,' 3 46 U.S.C. 953 (46 USCA § 953). The term 'vessel of the United States' means any vessel documented under the laws of the United States; and, in the case of a mortgage 'involving a trust deed and a bond issue thereunder,' the term 'mortgagee' means the trustee. Subsection B, 46 U.S.C. 911 (46 USCA § 911). The 'preferred status' given by subsection M is that, on foreclosure and sale in admiralty, all pre-existing claims in the vessel are to be held terminated and thereafter are to attach to the proceeds of the sale, and the 'preferred mortgage lien' is to have priority over all claims against the vessel, except 'preferred maritime liens' and expenses, fees, and costs allowed by the Court. 'Preferred maritime liens' are those arising prior to the recording and indorsement of the mortgage as required, or '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.'
The requirements of subdivision (a) of subsection D (46 USCA § 922), which must be met in order to obtain this preferred status, are that the mortgage shall be indorsed upon the vessel's documents and shall be recorded; that an affidavit shall be filed with the record '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 or any lienor of the mortgaged vessel'; that the mortgage does not stipulate for a waiver of the preferred status; and that the mortgagee is a citizen of the United States. Subdivisions (c) and (d) of subsection D set forth the nature and manner of the required indorsement upon the documents of the vessel; and subsection C ( 46 U.S.C. 921 (46 USCA § 921)), to which subsection D refers, contains detailed provisions as to recording.
Subdivision (e) of subsection D provides that a mortgage which includes property other than a vessel 'shall not be held a preferred mortgage' unless there is provision for the separate discharge of such property by the payment of a specified portion of the mortgage indebtedness; subdivision (f) of subsection D makes provision for the case of a mortgage covering more than one vessel. And where a mortgage covers property in addition to vessels the Act is not to be construed as authorizing a proceeding in rem in admiralty to enforce the rights of the mortgagee in respect to such property. Subsection N, 4 46 U.S.C. 954 (46 USCA § 954).
Subsection E ( 46 U.S.C. 923 (46 USCA § 923)) imposes the duty upon the mortgagor to keep on board the mortgaged vessel a certified copy of the mortgage and to cause it and the vessel's documents to be exhibited by the master to any person having business with the vessel which may give rise to a maritime lien or to a transfer or mortgage of the vessel. Subsection F ( 46 U.S.C. 924 (46 USCA § 924)) requires the mortgagor to disclose to the mortgagee, upon his request, the existence of any maritime lien, prior mortgage, or other obligation or liability of the vessel, that is known to the mortgagor, and prohibits the mortgagor, after the mortgage is executed and before the mortgagee has had reasonable time to record it and to have the necessary indorsements made upon the vessel's documents, from incurring 'any contractual obligation creating a lien upon the vessel,' other than those liens which are made 'preferred maritime liens' as above stated. Provision is also made for the record of notices of claims of lien on the mortgaged vessel, for certificates of discharge of liens, and for the inspection of records and obtaining copies. Subsections G and I ( 46 U.S.C. 925, 927 (46 USCA §§ 925, 927)). Penalties are provided for failure to exhibit documents and for violation of the Act in other respects; and provision is also made for recovery, by suits in the district courts of the United States, against collectors of customs and mortgagors, or masters of vessels, of damages caused by failure to perform the duties imposed upon them. Subsection J ( 46 U.S.C. 941 (46 USCA § 941)).
We see nothing in the general purpose of the act which can be deemed to restrict the natural meaning and effect of its language. Rather, the general purpose emphasizes that meaning and effect. The Ship Mortgage Act is a part of the Merchant Marine Act 1920 ( 41 Stat. 988). Its declared purpose is 'to provide for the promotion and maintenance of the American merchant marine.' The Congress, in its wisdom, decided upon the means to achieve that object and set forth its conclusions in the terms of the statute. The legislative history of the statute shows the controlling considerations. The report of the Senate Committee on Commerce pointed out that 'mortgage security on ships' was 'practically worthless'; that it was proposed to 'make it good except as to certain demands that should be superior to everything else, such as wages'; and that it was desired to have 'our people and capital interested in shipping and shipping securities.' Sen. Rep. No. 573, 66th Cong., 2d Sess., p. 9. The bill, with this purpose, was developed in conference. The managers on the part of the House of Representatives, in their statement accompanying the report of the Committee of Conference, observed that by the enlarged provisions of the bill 'the mortgagee under a mortgage upon a vessel of the United States is made more secure in his interest in the vessel than he is under existing admiralty law,' and, referring to the plan of 'creating a preferred mortgage,' added that 'the preferred status arises upon the recording of the mortgage as a preferred mortgage and its indorsement upon vessel's documents.' There is no suggestion of any requirement as to the use, intended or actual, of the moneys borrowed upon the faith of the mortgage security. H.R. No. 1102, 66th Cong., 2d Sess., p. 34; H.R. No. 1107, 66th Cong., 2d Sess., p. 31. 5 The measure was enacted in the terms thus proposed.
In placing ship mortgages upon a stronger basis as securities, the Congress had in mind, and expressly included, trust deeds securing issues of bonds to the public. Subsection B ( 46 U.S.C. 911 (46 USCA § 911)). It is plain that the fundamental purpose to promote public confidence in such securities, and their extended use as investments, would have been frustrated if purchasers of bonds had to discover at their peril the application of the proceeds of the secured loans, or if their rights depended upon such knowledge as their trustee might have, rather than upon the satisfaction of the statutory conditions and the disclosures, as required, by indorsement on the vessel's documents and recording. But, while contemplating such bond issues, with their obvious practical incidents, the Congress did not set up a special rule for them, or for purchasers of bonds without notice as to the application of proceeds. The Congress made simple, clear, and definite conditions as to all ship mortgages otherwise valid, and when these were performed the mortgages were to have the status prescribed.
It is also to be noted that the jurisdiction granted to the admiralty by the Ship Mortgage Act is exclusive. If a mortgage is within the Act, there can be no suit to foreclose it in a state court; 6 if the mortgage is not within the Act, there can be no suit for foreclosure in the admiralty. It cannot be doubted that the Congress recognized the importance of basing the jurisdiction, as thus sought to be conferred, upon precise statutory conditions. We find no warrant for leaving it to be tested by extrinsic criteria, raising a host of questions as to the application of the proceeds of loans, in the solution of which the statute affords no aid.
2. The validity of the grant of jurisdiction. The Congress rested its authority upon the constitutional provisions extending the judicial power 'to all cases of admiralty and maritime jurisdiction' and conferring upon the Congress the power to make all laws which shall be 'necessary and proper' for carrying into execution all powers 'vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.' Article 3, § 2; article 1, § 8, par. 18. 7 This authority was not confined to the cases of admiralty and maritime jurisdiction in England when the Constitution was adopted. Waring v. Clarke, 5 How. 441, 457, 458, 12 L.Ed. 226. The limitations which had been imposed upon the high court of admiralty in the course of its controversy with the courts of common law were not read into the grant. But the grant presupposed a 'general system of maritime law' which was familiar to the lawyers and statesmen of the country, and contemplated a body of law with uniform operation. The Lottawanna, 21 Wall. 558, 574, 575, 22 L.Ed. 654. The Constitution did not undertake to define the precise limits of that body of law or to lay down a criterion for drawing the boundary between maritime law and local law. Id. Boundaries were to be determined in the exercise of the judicial power in recognition of the purpose of the grant. 'No State law can enlarge it, not can an act of Congress or rule of court make it broader than the judicial power may determine to be its true limits.' The St. Lawrence, 1 Black, 522, 527, 17 L.Ed. 180. The framers of the Constitution did not contemplate that the maritime law should remain unalterable. The purpose was to place the entire subject, including its substantive as well as its procedural features, under national control. From the beginning the grant was regarded as implicitly investing legislative power for that purpose in the United States. When the Constitution was adopted, the existing maritime law became the law of the United States 'subject to power in Congress to alter, qualify or supplement it as experience or changing conditions might require.' Panama Railroad Co. v. Johnson, 264 U.S. 375, 385—387, 44 S.Ct. 391, 393, 68 L.Ed. 748. The Congress thus has paramount power to determine the maritime law which shall prevail throughout the country. The Lottawanna, supra, page 577 of 21 Wall., 22 L.Ed. 654; Butler v. Boston Steamship Co., 130 U.S. 527, 557, 9 S.Ct. 612, 32 L.Ed. 1017; Ex parte Garnett, 141 U.S. 1, 13, 11 S.Ct. 840, 35 L.Ed. 631; Southern Pacific Co. v. Jensen, 244 U.S. 205, 215, 37 S.Ct. 524, 61 L.Ed. 1086, L.R.A. 1918C, 451, Ann. Cas. 1917E, 900; Crowell v. Benson, 285 U.S. 22, 39, 52 S.Ct. 285, 76 L.Ed. 598; United States v. Flores, 289 U.S. 137, 148, 149, 53 S.Ct. 580, 77 L.Ed. 1086. But in amending and revising the maritime law, the Congress necessarily acts within a sphere restricted by the concept of the admiralty and maritime jurisdiction. The Belfast, 7 Wall. 624, 641, 19 L.Ed. 266; Panama Railroad Co. v. Johnson, supra; Crowell v. Benson, supra, page 55 of 285 U.S., 52 S.Ct. 285, 76 L.Ed. 598.
Of special significance, in relation to the present question, are the Acts of 1884 and 1910, supra. By the former, the admiralty jurisdiction in limitation proceedings was enlarged so as to embrace the liability for a nonmaritime tort. Although the damaged structure was on land, the injury was due to the operation of the vessel, and it could not be said that the Congress had stepped beyond the limits of its authority to amend the law in furthering its policy to encourage investments in ships. Richardson v. Harmon, supra. Compare The Blackheath, 195 U.S. 361, 367, 368, 25 S.Ct. 46, 49 L.Ed. 236. The Act of 1910 created a lien to be enforced in rem for repairs or supplies to vessels in their home ports. The state of the law as it existed be fore that enactment was fully described in The J. E. Rumbell, supra. For repairs or supplies furnished to a vessel in a foreign port, a lien was given by the general maritime law and could be enforced in admiralty, but for repairs or supplies in the home port, no lien existed, or could be enforced in admiralty under the general law, independently of local statute. When the statute of a State gave a lien to be enforced by process in rem against the vessel for repairs or supplies in her home port, that lien, being similar to the lien arising in a foreign port under the general law, was deemed to be in the nature of a maritime lien and therefore could be enforced in admiralty, and, in such case the enforcement of the lien was within the exclusive jurisdiction of the courts of the United States sitting in admiralty. The result was that where necessaries were furnished to a vessel in her home port, the vessel could not be sued in the federal courts under the general maritime law, for that law was not deemed to confer a lien, and could not be sued in a state court for that court could not enforce the lien created by the state law, but the lien so given might be enforced in admiralty. 8 The Act of 1910 abolished the artificial distinction between repairs and supplies in a home port and those in a foreign port. While it created a lien where, in the absence of local provision therefor, none had theretofore existed, the change was not deemed to be inconsistent with the general principles of the maritime law and it effected a substitution of a single federal statute for the conflicting state statutes. Piedmont Coal Co. v. Seaboard Fisheries Co., supra. The Act of 1910 also provided that it should not be necessary 'to allege or prove' that credit was given to the vessel; previously, supplies furnished to the vessel at the home port, or on the owner's order, were presumed to be furnished upon his personal credit and created no lien. Id.
Respondent, in attacking the grant of jurisdiction by the Ship Mortgage Act, relies strongly upon the reasoning of the Court in Bogart v. The Steamboat John Jay, supra, which denied, under the former law, jurisdiction in admiralty to enforce payment of a mortgage upon a vessel. The Court there said that neither in England 9 nor in the United States had the admiralty courts exercised jurisdiction in questions of property between a mortgagee and the owner; that the foundation of the rule was 'that the mere mortgage of a ship, other than that of an hypothecated bottomry,' was a contract 'without any of the characteristics or attendants of a maritime loan' and was made 'without reference to navigation or perils of the sea'; that it was a security 'to make the performance of the mortgagor's undertaking more certain'; that, while the mortgagor continued in possession of the ship, the mortgagee was disconnected 'from all agency and interest in the employment and navigation of her, and from all responsibility for contracts made on her account'; that there was nothing maritime in the contract; and that from the organization of courts of admiralty and their modes of proceeding they cannot secure to the parties to the mortgage 'the remedies and protection which they have in a court of chancery.'
The enlargement of the cognizance of mortgages of ships, in the admiralty courts in England, nearly one hundred years ago, to which the Court referred in the Bogart Case, was to remedy an evil which had been found to exist. The purpose was 'to enable the Court to exercise its ordinary jurisdiction to the full extent.' 10 That Act applied whenever the ship was 'under arrest by process issuing from the high court of admiralty' or the proceeds of a ship so arrested had been brought into the registry of the court, and the court was invested with 'full jurisdiction to take cognizance of all claims and causes of action of any person in respect to any mortgage of such ship or vessel, and to decide any suit instituted by any such person in respect of any such claims or causes of action respectively.' 3 & 4 Vict., c. 65, secs. 3, 4. These provisions were expanded by later legislation. The admiralty court in England has jurisdiction in respect of any mortgage duly registered according to the provisions of the Merchant Marine Act 1894, 'whether or not the ship or proceeds are under the arrest of the Court, and such jurisdiction may be exercised by an action in rem or in personam.' Roscoe's Admiralty Practice (5th Ed.) p. 51.
This response 'to the exigencies of commerce' has had its counterpart in the legislation of other European States. It may be said that the 'general maritime law' takes cognizance of mortgages of ships, provides for their registration, and establishes rules with respect to priorities. 11
The constitutional validity of the grant of jurisdiction by the Ship Mortgage Act has been sustained in The Oconee (D.C.) 280 f. 927, in The Nanking (D.C.) 292 F. 642, and in The Lincoln Land (D.C.) 295 F. 358. 12 We find no reason for reaching a contrary conclusion in the instant cases.