Case Name: THE THOMAS BARLUM. THE JOHN J. BARLUM
Court: United States Court of Appeals for the Second Circuit
Jurisdiction: United States
Decision Date: 1934-02-05
Citations: 68 F.2d 946
Docket Number: Nos. 175, 176
Parties: THE THOMAS BARLUM. THE JOHN J. BARLUM.
Judges: 
Reporter: Federal Reporter 2d Series
Volume: 68
Pages: 946–952

Head Matter:
THE THOMAS BARLUM. THE JOHN J. BARLUM.
Nos. 175, 176.
Circuit Court of Appeals, Second Circuit.
Feb. 5, 1934.
See, also, 56 F.(2d) 455.
George E. Brand, of Detroit, Mich., and Burke & Desmond, of Buffalo, N. Y., for appellants.
Miller, Canfield, Paddock & Stone, of Detroit, Mich., and Stanley & Gidley, of Buffalo, N. Y., for appellees.
Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

Opinion:
MANTON, Circuit Judge.
These suits in admiralty, tried together, were instituted to foreclose two ship preferred mortgages on appellant's vessels, the Thomas Barium and John J. Barium, each for $200,000. Eabh was a preferred mortgage, executed in the form required and filed pursuant to the Ship Mortgage Act (46 US CA § 911-984). The foreclosure of the mortgage lien was taken pursuant to section 30, subsec. K (46 USCA § 951).
The Barium Steamship Company is a West Virginia corporation and owned these steamers plying the Great Lakes. There were fourteen stockholders of the corporation. Of a total of 3,200 shares, 2,561 were held by John J. Barium. -This shareholder was interested in real estate holdings which were held in separate corporations. The steamship company had no stock interest or assets in any of these real estate corporations.
In February, 1929, the appellee, through its vice president, negotiated and consummated a loan of $200,000 secured by the mortgage on the Thomas Barium now in suit, guaranteed by John J. Barium. A document setting forth the agreement between the parties showed that $50,000 of the loan secured by this mortgage was to pay a note then outstanding, secured by a previous mortgage on the ship, $1,225 to pay interest, attorney's fees, fees due the trustee, cost of printing the bonds, and $100,000 to take up a debt of that amount owed by John J. Barium and Thomas Barium & Sons. The balance of about $42,775 was to be used for repairs and refitting the steamers Thomas Barium and John J. Barium for the seasons of 1929. The $100,-000 debt of Barium and Thomas Barium & Sons had no relation to the appellant or its vessels. The officer of appellee was fully informed of the details of the debt and that it was contemplated that it should be paid as stated. The mortgage was executed and delivered March 22, 1929, when the vessel was laid up. The appellant's home office was in Detroit, Mich., and an application, prepared by the appellee, was filed with the Securities Commission of that state stating that refinancing was the purpose of this issue. The sum of $42,896.44 given to the Barium Steamship Company was placed in the bank account "Steamer John J. Barium" at the National Bank of Commerce. There was paid out of it about $22,000 of the accounts relating to the John J. Barium and $20,000 of the balance was transferred to the bank account "Steamer Thomas Barium" at another bank, out of which were paid accounts allocated to the Thomas J. Barium on aeeount-of its previous season's operations. A written authorization was given by the appellant to appellee to dispose in this manner of the proceeds of the bonds thus sold.
The mortgage on the John J. Barium was executed January 5, 1928, after being prepared by the appellee's attorneys. It was understood that $82,281.25 was to be withheld by the appellee to pay $50,000 principal and $32,281.25 interest on a $1,250,000 bond issue and mortgage executed by John J. Barium and his wife to the appellee trust company on individual real estate and leaseholds held by them and also $10,000 was to be retained by the trust company and applied to the payment of an individual note executed by Barium for a personal loan from appellee. The appellant had no connection with these items of expense, and allowances to the trustee and the attorney, which were withheld according to the agreement. From the remainder there was paid to the engineer of the Thomas Barium $500; $500 was paid to the captain of the John J. Barium; $2,000 was transferred to the account "Steamer John J. Barium"; and the balance was used to pay off loans made to Barium and his companies other than appellant. Thus, out of the entire proceeds of the issue, but $2,500 was transferred to the account of the John J. Barium or used in connection with it.
It is admitted that there was a default in each of the mortgages, which contained provisions for foreclosure by seizure and sale without legal process.
Appellant contends that subsection K of the Ship Mortgage Act (section 30, subsec. K, Merchant Marine Aet of 1920, 46 USCA § 951) allowing foreclosure of the vessels' preferred mortgages in admiralty, does not apply. And if subsection K does apply, it is contended that it is unconstitutional and not within Art. 3, § 2, of the Constitution, providing that the judicial power shall extend to all cases of admiralty and maritime, jurisdiction. Congress, by section 9 of the Judiciary Aet of 1789, conferred such jurisdiction on the District Courts saving to suitors in all cases the right to a common-law remedy where the common law is competent to give it (28 USCA § 41, subd. 3).
, The Merchant Marine Act of June 5,1920, section 30 of which is called the Ship Mortgage Act, had as its purpose, expressed in section 1 of the aet (46 USCA § 861), the development of a merchant marine and the disposal of the vessels and shipping property held by the United States Shipping Board, l'n furtherance'of that purpose, section 30 of the aet (46 USCA § 911 et seq.) provided generally for the recordation of ship mortgages and especially for the creation and enforcement of a class of preferred mortgages in order that the rights of both mortgagees and others dealing with United States vessels might be clearly defined. It was hoped that regulation of ship mortgages would attract capital to shipping. Senate Reports, vol. 1, 66th Congress, 2d Session. These preferred mortgages were utilized as the security taken by the Board in the form of purchase-money mortgages in eases of sales of vessels by the Board. Morse Drydock & Repair Co. v. Northern Star, 271 U. S. 552, 46 S. Ct. 589, 70 L. Ed. 1082; The Oconee (D. C.) 280 F. 927.
Subsection D of section 30 (46 USCA § 922) provides how a valid mortgage may obtain a preferred status. Subsection K (46 USCA § 951) provides for enforcing the mortgage by ;a suit in rem in admiralty.
Appellant argues that these mortgages, as the record establishes, were so devoid of connection with maritime purposes and subjects, that the statute should not be construed to confer and cannot confer original jurisdiction of foreclosure in admiralty. It is not disputed that Congress may legislate to confer such jurisdiction as to true maritime hens (Morse Drydock & Repair Co. v. Northern Star, supra; Crowell v. Benson, 285 U. S. 22, 52 S. Ct. 285, 76 L. Ed. 598; The Nanking [D. C.] 292 F. 642), but Congress has no power to confer jurisdiction in admiralty to litigate a nonmaritime contract. The J. E. Rumbell, 148 U. S. 1, 13 S. Ct. 498, 37 L. Ed. 345; The Lottawanna, 21 Wall. (88 U. S.) 558, 22 L. Ed. 654; Schuchardt v. The Angelique, 19 How. (66 U. S.) 239, 15 L. Ed. 625; People's Ferry Co. v. Beers, 20 How. (61 U. S.) 393, 15 L. Ed. 961; Bogart v. The Steamboat John Jay, 17 How. (58 U. S.) 399, 15 L. Ed. 95; The Genesee Chief, 12 How. (53 U. S.) 443, 13 L. Ed. 1058; Pillsbury Flour Mills Co. v. Interlake S. S. Co., 40 F.(2d) 439 (C. C. A. 2). And Congress did not intend to conflict with the rights of the state tribunals to enforce contracts governed by their own laws and not strictly of a maritime nature.
If it were established that these mortT gages were given to support an issue of bonds "to develop and encourage the maintenance of such a merchant marine" and therefore in accord with the objects of the Ship Mortgage Act, the admiralty jurisdiction to foreclose would be unquestionable. We need not decide Whether or not a loan made for maritime purposes secured by a mortgage on a ship will become nonmaritime if the borrower, contrary to the agreement of the mortgage, diverts the money to nonmaritime purposes, nor need we consider what effect any estoppel in such a case would have. We are not called upon to say whether or not Congress could in any event extend the admiralty jurisdiction to a matter so closely related to transportation by navigable waters as to provide for the exclusive enforcement in admiralty of a mortgage on a ship actually engaged in such transportation. It is sufficient to point out here that the mortgagor and mortgagee both knew in advance of making these mortgages that the moneys advanced were not to be used for such purposes, but were intended for and actually were used for nonmaritime purposes. This was fully disclosed at the trial. In the absence of an express provision, the Ship Mortgage Act will not be construed to extend to such a case.
It has been recognized that the determination of what is a maritime contract depends upon the nature of the contract which means its substance. North Pac. S. S. Co. v. Hall Bros. Machine Ry. & Shipbuilding Co., 249 U. S. 119, 39 S. Ct. 221, 63 L. Ed. 510. Contracts of a mixed nature are not cognizable in the admiralty courts, and, where the principal subject-matter cf the controversy belongs to the jurisdiction of a court of'common law or of equity, the incidental matters must always be relegated to the appropriate jurisdiction, although of themselves they may be cognizable in admiralty. The Pennsylvania, 154 F. 9 (C. C. A. 2). The whole contract must be maritime in its character, and, when the performance is partly maritime and partly terrene, a court of admiralty will not assume jurisdiction over it unless the nonmaritime features be inconsiderable. Pillsbury Flour Mills Co. v. Interlake S. S. Co., supra; The Poznan, 9 F.(2d) 838 (C. C. A. 2); The Richard Winslow, 71 F. 426 (C. C. A. 7). In Crowell v. Benson, 285 U. S. 22, 55, 52 S. Ct. 285, 294, 76 L. Ed. 598, it was said: "In amending and revising the maritime law, the Congress cannot reach beyond the constitutional limits which are inherent in the admiralty and maritime jurisdiction. Unless the injuries to which tho act relates occur upon the navigable waters of the United States, they fall outside that jurisdiction. Again, it cannot he maintained that the Congress has any general authority to amend the maritime law so as to establish liability without fault in maritime cases, regardless of particular circumstances or relations."
It was not the intention of Congress, by the mere grant of jurisdiction under the terms of the Ship Mortgage Act, to confer jurisdiction on the federal court to foreclose a mortgage lien placed on the vessel which was not made a maritime lien for navigation or shipiping purposes within the statute. In granting such jurisdiction, Congress could have intended only a valid preferred mortgage thus authorized to be made under the terms of tho Ship Mortgage Act. It must be a transaction which relates to navigation and things maritime.
It is not enough to say that they were mortgages with due formalities placed upon the vessels. As soon as it appeared at the trial, and it did so beyond question, that the loan was not made to he used for purposes of navigation or relating to things maritime, the court should have declined jurisdiction. In The Winnebago, 141 F. 945, 949 (C. C. A. 6), the court said: "The owner of a ship may make a nonmaritime contract and mortgage his ship to secure it, or it may he seized on mesne or final process; and in both eases the ship may be sold for the satisfaction of tho debt on the order of a common-law court without recourse to the admiralty jurisdiction." And this alone can be the remedy of the mortgage once its nonmaritime character is disclosed.
The act, to be sure, does not say anything about how this loan secured by the mortgage, is to be used. But a maritime use or some use aiding the purpose of the statute was contemplated, and, when the parties negotiate a loan foreign to that purpose, the mortgage securing the loan is not within the act, even though the formalities are observed so far as admiralty jurisdiction is concerned for for-closure. Nowhere in the Merchant Marine Act or the Ship Mortgage Act is it anywhere shown that Congress intended that ship mortgages given by owners to support outside operations such as real estate ventures or to pay past debts not arising in maritime transactions were in contemplation. Mortgage loans of this character are foreign to the idea of maritime operations. The mortgages in question having been shown to be nonmaritime in intent and character, the admiralty court did not have jurisdiction, and the application to dismiss the suit should have been granted.
Decree reversed.