Case Name: LLOYD vs. M'MASTERS & AL.
Court: Louisiana Supreme Court
Jurisdiction: Louisiana
Decision Date: 1819-12
Citations: 7 Mart. (o.s.) 249
Docket Number: 
Parties: LLOYD vs. M‘MASTERS & AL.
Judges: 
Reporter: Martin (Louisiana Term Reports)
Volume: 7
Pages: 249–268

Head Matter:
LLOYD vs. M‘MASTERS & AL.
potulcated ⅞ her"out^on^ the freight len-tliorised to in-⅛ provided that siiaii be^abie ⅛⅛™ b'c; soid*hewili thehaiidsofth” expeiis^s of the homeward
The petition stated, that the plaintiff lent the defendant, M‘Masters, 13,000 dollars, for the purpose of fitting out his ship, and received for the security of the loan a mortgage and hypothe-cation of her; that 85865, 61 of the said sum remain due and unpaid — he obtained a pro sory writ of seizure, and prayed judgment against M‘Masters.
The deed of hypothecation, annexed to the petition, provided that the ship should proceed to Liverpool, and be consigned to Barclay, Salkeld and co., and on her arrival there the said sum of 13,000 dollars should become due and payable ; and the ship with her appurtenances and the whole freight, accruing or to accrue on the voyage, were tobe bouud for the loan : all disbursements> commission, costs and charges, whatever incun'e(l and necessary on said vessel or her ou ^e intended voyage, either at New- or Liverpool, to be borne by M‘Masters ; with all costs of exchange, as. well as those of effecting insurance, which the plaintiff was authorised to procure. He was further author-ised, by himself or assigns, to collect the freight and place it to MOdaster’s credit, in liquidation of the said 13,000 dollars and expenses aforesaid. Further, it was agreed that the ship and her appurtenances should remain liable till full payment was made.
The ship having in the mean while been sold by M< Masters to James Martin, subject to the hypothecation, the latter was made a defendant.
M‘Masters pleaded the general issue.
Martin pleaded his property in the ship; that the hypothecation was invalid, and that, if it was valid, for a part of the claim, that part was paid. He further pleaded the general issue.
Jt appeared in evidence, that the plaintiff’s claim was composed of three items, viz; sum loaned and interest — the expenses of the ship till her cargo was unloaded at Liverpool and the freight received — lastly, the expenses in Liverpool in preparing for her return voyage.
The district court was of opiniou; that the hy-pothecation of the ship extended only to the security of such expenses as were incurred on the outward voyage, ending when the ship was unladen a\ Liverpool, and that any expenses incurred afterwards weré not covered by the deed of hypothecation : and gave judgment for these expenses only, amounting to 8587, 38 The plaintiff appealed.
Workman, for the defendants.
Is the act of hypothecation, on which this action is founded, a valid one ?: — This, to say the least, is very doubtful. When a vessel is pledged by the owners, it is called an hypothecation : when by the master a bottomry. But no other distlnctio;-. than in name, exists between those contracts. Whatever is necessary in a bottomry made by the master, is indispensable in every hypothecation made by the owners.
One of the essential conditions of every such contract is a stipulation that the debt shall be discharged and annulled, if the vessel be lost. Such a clause is found in every bottomry bond ** * or bill to be met with in the books of precedents* Without such a clause it is expressly declared by the best authorities that the bond would be void. Abbot, American Edit. 98. Parle, 410. Jacobson, 11.
But the instrument on which this suit is founded contains no such condition or stipula-, tion. Therefore it is void as a maritime hy-pothecation. The boná fide third possessor, Martin, cannot be affected by it; and the plaintiff must be left to his recourse against tfee defendant M‘Masters, as for a mere personal obligation.
We may test this opinion unequivocally, by the following case: suppose this vessel, the Ajax, had been lost in her voyage to Liverpool? If the hypothecation be a good one, the debt would then of course be annihilated. But, what is there in the deed which could lead to such a conclusion? Not a word : nor can its silence be supplied by any inference. Were an action, after the loss of the vessel, to be brought against M‘Masters, by the plaintiff for the money, advanced by him, Gould he be told that the debt was extinguished ? He would reply, with the instrument in his hand, that it contained no such provision; but that though void as a maritime hypothecation, it was still valid and binding as a personal contract.
If the hypothecation were a valid one, the debt secured by it must he considered as destroyed, to within a very small amount. That hypothecation was made to secure a debt of 12,000 dollars. Now by the account annexed to the plaintiff’s petition, it appears, from the three articles on the creditor’s side, that the plaintiff has already received the sum of 11,055 dollars, J5 cents, the amount of freight, &c. These payments must first be imputed to the debt Secured by mortgage before they can he applied to the chirographical or simple contract debts, according to the well known maxims of the civil law, explained and illustrated by 2 Pothier’s Obligations, n. 530; and recog nised and reinforced by our statute. Civ. Code, 290, art. 156. But it appears on record, from the testimony of Capt. Carson, that a large portion of the expenses of the vessel at Liverpool with which the defendants are charged, were incurred and disbursed for the sole purpose of fitting and preparing the vessel for her homeward passage from Liverpool to New-Orleans. Whereas the contract of hypothecation, or whatever it may be, stipulates only for a voyage from New-Orleans t,o Liverpool. The words of the deed, (near the commencement) are “ in order ..... . , to enable him to it out and provide said vessel for an intended voyage to the port of Liverpool.”
Surely a contract made for the purpose of securing the expenses to be incurred on such a voyage cannot be extended to secure the expenses disbursed for any other and subsequent voyage. Were then both the preceding points to be decided against the defendants they would evidently be entitled, on this last ground, to an affirmance of the judgment of the court below. It was in fact upon this ground that the judgment of that court was rendered.
Grymes, for the plaintiff.
The objection, taken by the defendant to the validity of the hy-pothecation by the owner, is certainly without foundation.
There is no distinction more clearly estab-. lished than that which exists between a simple loan and a maritime loan on bottomry, or res-pondentia.
In the first case the money is at the risk of the borrower, and only legal interest can be reserved. In the second, it is at the risk of the lender, and marine interest to an indefinite amount may be reserved as a compensation for that risk, and can only be resorted to in case of great necessity. 2 Mars, on Ins. 736, 748, 9. 7+1 (in note )Emerigon ('Hall’s translation J 36.
But both description of loans are equally susceptible of being secured by hypothecation.
Mortgages upon ships are familiarly spoken of in all the books. 8 Johns. Rep. 159- Lex. Merc. Am. 73, 4. Emerigon (Hall’s translation ) 217. Id- Cm note.)
In all the cases referred to, mortgages to secure simple loans or pre-existing debts are alluded to because they speak of prior mortgages having the preference, which could not be in respect to marine loans or bottomry; because in such cases the last lender is preferred on the principle that he furnishes money to preserve the common pi edge. Weslcet on Ins. 56.
By the laws of Spain, every thing that is a subject of commerce, and in which a man had any property can be hypothecated. Febrera Escrib. n. 57; and our own statute, in exempting personal property from mortgage, specially exempts ships and vessels. Civ. Code, 468, art. 88; and by the Roman law, the very act of lending money for the outfit of & ship created a loan. ''A.
Inquiry, upon this subject, however, may be superfluous, as the district court has by itsjudg-iment supported the validity of the mortgage,, re,luced the plaintiff’s claim by a construetion of the instrument; and from this judgment the defendants have not appealed.
It then only remains to examine the .second point made by the defendants, upon the construction of the act itself: and in doing this, it will be necessary to lose sight of the defendant, Martin, and first, see how the instrument would stand between the plaintiff and the defendant M‘Masters, the mortgagee and mortgagor.
It appears that the ship arrived at the port of Liverpool, in the voyage mentioned in the act of hypothecation. That the freight was received by the consignees ; a large portion of.it applied to the use of the ship in paying the necessary port charges, &c. and the balance carried to the credit of the plaintiff’s debt.
The defendants contend, that after paying the chai’ges alone necessary to get her into port and discharge her cargo, that all the rest should have been applied to the extinguishment of the hypothecary debt; and they cite Pothier and our code. But the irrelevancy of these authorities becomes obvious from the least attention. They are based upon the supposition of the existence of several debts due by the same debtor, to the same creditor; here there was but the oiie debt existing; between them, and the expert-ses ot the ship while on voyage were necessary to the preservation of the thing hypothecated : incidental to its nature are the freight, the most , O’. natural and proper fund for supporting it. See judge Washington’s opinion, in note, % Mar. on In. 741, and the payment was for the mutual advantage of mortgagor and mortgagee.
But supposing the principles quoted from Po-thier and the Civil Code to be applicable, and, that this case is to be tested by them, the result must be the same.
Pothier says that, when imputation is neither made by the debtor nor the creditor, it ought to be made to that debt which it is most for the interest of the debtor to pay. The Code says the same. Compare it with the circumstances of this case. The ship Ajax is an American ship; she is described in the act of hypothecation as the ship Ajax of this port; New-Orleans. The master, in his testimony tells us that M‘Masters gave him no instructions to apply" elsewhere for money, for the use of the ship* while in Liverpool, or to bring her home, bul-to the consignees, Barclay, Salkeld & co. and that he does not think he could have procured money in Liverpool on .VI‘Masters’ of any other person’s personal credit. It does not .appear that M‘Masters had any other fund in Barclay, Salkeld & co’s. hands, but that arising from .tire ' ‘⅛ freight earned by the ship. It is clear he had not, because if he had, Barclay, Salkeld & co, who were the agents of the plaintiff, would have preferred extinguishing his debt and charging the disbursements to M‘Masters’ account, than to appropriate the fund hypothecated for the plaintiff’s reimbursement. And it is no where pretended or alledged that he (MtMasters) had any such funds.
In this state of things, Wither the ship must have remained in the port of Liverpool, perished, or be seized and sold for the debts contracted there; or the master must have raised money by bottomry or pledge of the ship, and subjected the owner (the defendant MkMasters) to a heavy marine interest. The plaintiff’s debt bore no interest; none is reserved in the act.
Hence the inference is clear, that it was most for the interest of the debtor that the freight should be first applied to the payment of the ship’s disbursements than to the extinguishment of the plaintiff’s debt.
It would have been improper, and an act of bad faith, on the part of the consignees to have, with this freight in their hands, driven the mas ter to snob extremities, they being the agents of both parties and bound to protect the interest of both. Washington’s opin. 3 Mar. on Ins. 741. fin note,.)
The plaintiff cannot be accused of making this application of the freight from interested views, or from a disposition to injure the interest of the defendant. His debt was payable in Liverpool, it was manifestly his interest to have it paid there, and as soon as possible; for as has been shewn he was receiving no interest for the protracted payment. According to the defendant’s own doctrine he might have seized upon the freight appropriated to the discharge of his debt, and left the ship to provide for herself in a foreign port.
He has furnished the means of bringing her home in a state of present usefulness, a capacity to earn future freights; at the risk of losing his security by perils of the sea, without any interest for the delay or compensation for the risk; and this is alledged as a reason why he should not now recover his just debt; and this reason is urged by the defendant MlYIasters, who alone has profited by it.
But the purposes for which this money was borrowed, as set forth in the act of hypothecation, are invoked to the defendant’s aid. It is said be to enable him to fit her out on a voyage to Liverpool. It is totally immaterial for what purposes hecborrowed the money ; it was unnes-sary to state it in the deed.
He borrowed At on the pledge of the ship ; if he afterwards chose to send her to Liverpool he must pay the expenses of the voyage, and whether he sent money to pay with, or whether he borrowed it there, or whether paid out of the freight, ought to be totally immaterial to him, as he was to pay at all events; he had the whole control of the ship, she was in his possession, and if, after the loan and hypothecation, he had ordered the captain to go to China, instead of Liverpool, we might with the same propriety be told that the mortgage was cancelled, because she never went on the voyage mentioned.
The defendant has totally failed to shew that he has received any injury whatever, from the manner in which the freight money was applied ; there is, therefore, no principle of equity that can entitle him to be sustained in the ground he now takes.
The intention of the parties, as it is fairly to be gathered from the act, has been fully complied with.
It i* there stipulated “ that all disbursements, commissions, costs and charges which shall bo incurred by Mm, or be necessary to the said vessel on her freight on said intended voyage, either in this port or in the port of Liverpool, aforesaid, shall be borne,” &c. Again, “ the said Greorge Lloyd or his assigns are hereby fully authorized tó collect the said freight, and to place the same to the credit of Samuel M‘Masters in liquidation of the said SIS,000 and expenses aforesaid.” The words of the first clause are sufficiently ample to cover all the expenses of the ship, incident to her entering the port, and while she was there, and in the second the appropriation of the freight to that purpose is expressed ; that the parties so intended it is evident, not only from the whole tenor of the circumstances heretofore detailed, but it comes more clear ás we advance with the instrument itself. It will be observed, that in the clause» immediately preceding the first above quoted,, the ship and freight are clearly pledged and hy-pothecated for the payment of the loan, and this was amply sufficierft for all the purposes of the parties, if they contemplated the application of the whole freight to this debt and its extinguishment at Liverpool. "But, in the clause imi-mediately . succeeding the one last quoted, it is said (and lastly, §c.) “ the said ship shall be merit Of the said 13:000 dolíais until full páy- , • , „ . , : 1 J meat is made. ’ ⅜ ••
From this, it is clear, that the partiés coatehí-plated a balance would he due. after appropriating the freight that could l»e spared from the expenses. That l&ey- contemplated the ship’s return , rom this voyage, and her being at all tsraes and places, where found, bounl fot? that balance ; and, that the defendant, Monsters, could not have contemplated being left to provide money for her maintenance while ⅛ ^Liverpool,' and bring her home from other 80⅜ ces ; because it is in evidence, that he made no such provision, nor can it be presumed that the plaintiff could have contemplated the necessity of such provision; since it could only be procured do his great injury, weakening his securityby incumbering the ship with a bottomry which ■#ould take precedence of his mortgage for the amount of the sum necessary, with the additioA of a heavy marine interest. — All contracts of this nature are to have a favourable construction, and where there is obscurity; such a& will best answer the intentions mf the partiéS» W^eskét on hits, 130. átll proitóses ⅛⅛ to ⅛⅛ taken most strongly-against the promisor.
The only repiaining subject of discuss’on is, as to tile rights of Martin, the Other defendant, who elaims tbis shin unde* a parchase from 1 r M-'Mastcrs, the other defendant.
The facts are these : the act of hypothecation from M‘Masters eé the plaintiff, is dated June the §⅛, 1819 ; at this time M*Masters was the sole o#ner, Martin had no interest whatever. On the l6tb of April, 1819, Martin purchased of M'Masters for the price of 84000. The only circumstance that could possibly give him any equitable right to interfere, or insist upon a different construction of ¡.he instrument from that which it ought to have between the original parties, would be a want of notice.
This is completely taken from him, on the exhibition of his own bill of sale, the instrument under which he claims, by the last clause in which he expressly agrees to take the ship subject to this mortgage and the amount, the date, the place of eSregistry, and all are recited He. lives in the same town with the plaintiff, and could in five minutes have learnt from, him |he nature of all the transactions, and the amount of his claims against the ship: by completing, the purchase under these Circumstances, he Objected himself to all the equity existing between M‘M ¡siers and the plaintiff and .there is strong reason to believe he was fully acquainted with the amoiufi of plaintiff ’s demands when we find him giving only 4000 Hollars for . .r „ ■ , t a ship deemed worth 12,000 not a year ©fibre.
The amount of the loan Joeing certain, the money paid by the plaintiff for disbursements, &c. being admitted and proved, as stated in bis account annexed to his petition, the result is, that if the law be with him he is entitled to a judgment for 85685,61.
Workman, in reply.
In the present stage t|f this cause, this court may undoubtedly render such a judgment in it as t:>ey think the district court ought to have done. The wiioie case being oefore them, they are authorised, by the equitable and liberal provisions of the statute, to do complete justice between the parties.
The plaintiff’s attempt to distinguish the hy-pothecation in question from the contract of bottomry, will be defeated, by the account which hgjihimself has. presented, annexed to his peti-titibn. iPi’om that account it is seen that no more than 11,000 dollars were actuatty paid to M‘Masters on account of the 12,000 dollars for which he mortgaged the vessel. It also appears that the plaintiff was to charge the enormous commission, on the advance and freight, of seven and a Jmff per cqpt. These two ckcpm- stances would by themselves form a consider-ab e maritime u»hry, and give to the instrument the decided character of a bottomry bond : but these circumstances are not all: for it further appears, that the defendant was to be charged with the full amount of the insurance of the vessel; which from New Orleans to Liverpool is generally, 1 believe in time of peace, from a ■ >ui 4 to 5 per cent. This, for a period of two mouths, would amount to from 24 to 30 per cent, per annum, the ordinary rate of maritime usury. Maritime, interest is allowed in these contracts chiefly as :a compensation for the lender’s risk of losing the whole loan, if the vessel should be lost. And whether he takes this interest at a fixed rate, and becomes his own insurer, or charges the premium of insurance to the borrower, is to the borrower immaterial. Perhaps indeed the borrower may be a lose , by stipulating to pay the insurance instead of the nautical usury. If, ⅛ the present case, for example, a war had broke out between the United States and any European power, the premium of insurance would probably have been increased far beyond the highest rate of maritime interest at this port when the vessel sailed. — Add this stipulation to the defalcation of one thousand dollars from the money supposed to be advanced, and the exhorbitant commission, and the result will be a'more extravagant allowance for maritime usury than often occurs in this or any other maritime place. And yet the plaintiff contends that he is entitled to all these advantages without being liable to any of the risks for which such advantages can be lawfully stipulated.— If this be, as the plaintiff contends, a simple hypothecation, to Secure íponey lent, it is void for gross usury. If it be a contract of bottomry, it is void, as I havé before stated, for want of the stipulation that the debt should be discharged if the vessel were lost. ,
On the second point, I still contend that the rule of law is general and absolute; to wit, that payments, made generally on account, must be imputed to hypothecary, rather than to chirography debts. The particular circumstances which might perhaps form an exception to this rule, in the case of M‘Masters, as stated by the counsel are not applicable to the defendant Martin, who bought the Ajax, subject only to the liens legally imposed by, or arising from the deed on which the plaintiff sues.
On the remaining question, respecting the expenses of fitting the vessel for her return Voyage, the principle on which the district court has determined is so clear and correct, that it is deemed unnecessary to trouble the • .court further on that subject.

Opinion:
Martin, J.
delivered the opinion of the court. The testimony and documents, which come up with the record, establish the quantum of the plaintiff's claim. Indeed, that does not appear to be disputed, and the contest is only as to the right of hypothecation.
With regard to the defendant, M'Masters, the district court certainly erred in withholding from the plaintiff a judgment for that sum; and its judgment is, therefore, annulled, avoided and reversed.
Proceeding to inquire what judgment ought to have been given in the district court, as to the claim of hypothecation, we cannot admit the position of the defendants' counsel, that the deed of hypothecation is void on account of the absence of a clause, providing that the debt shall not be demanded, but held to be extinguished in case of the loss of the ship: but we think with him and the district court that the hypothecation claim does not extend to the expenses of the outward voyage, When, by the collection of the freight$ the sum loaned was paid iu whole op in part, the hypothecation was in like manner destroyed, and could not be revived by subsequent disbursements.
It is, therefore, ordered, adjudged and decreed, that the plaintiff do recover from the defendant, M'Masters, the sum of five thousand eight hundred and sixty five dollars, and sixty one cents ; and that the ship Ajax be sold to satisfy the sum of five hundred and thirty seven dollars, and thirty eight cents, the balance of üíe sum borrowed, and the expenses of the outward voyage, as part of the aforesaid sum, with costs of suit in this and the district court.