Opinion ID: 292091
Heading Depth: 2
Heading Rank: 2

Heading: The Deficiency Judgment

Text: 78 The issue as to a deficiency judgment against The Fish Meal Company and Harvey Smith, in personam, remains in the case. As a matter of judicial economy and for the guidance of the trial court at the retrial of this case, we now consider that question. 79 The district court granted a deficiency judgment in favor of McDermott and against Fish Meal and Harvey W. Smith in personam for $3,233,891.36, with 6% interest per annum from August 9, 1966, plus attorneys fees and court costs, to be reduced by the sum of $666,747.25, the net amount realized from the Marshal's sale of the eight boats. 80 McDermott contends that this was proper under the provisions of the Ship Mortgage Act of 1920, 46 U.S.C. § 954 (a): 81 § 954. Suits in personam in admiralty on default 82 (a) Upon the default of any term or condition of a preferred mortgage upon a vessel, the mortgagee may, in addition to all other remedies granted by this chapter, bring suit in personam in admiralty in a district court of the United States, against the mortgagor for the amount of the outstanding mortgage indebtedness secured by such vessel or any deficiency in the full payment thereof. [Italics by the Court.] 83 When McDermott foreclosed its preferred ship mortgages and procured a sale of the vessels it did not first have them appraised as provided by the Revised Statutes of Louisiana, 13:4106, 4107: 84 § 4106. Deficiency judgment prohibited if sale made without appraisement 85 If a mortgagee or other creditor takes advantage of a waiver of appraisement of his property, movable, immovable, or both, by a debtor, and the proceeds of the judicial sale thereof are insufficient to satisfy the debt for which the property was sold, the debt nevertheless shall stand fully satisfied and discharged insofar as it constitutes a personal obligation of the debtor. [Italics by the Court]. The mortgagee or other creditor shall not have a right thereafter to proceed against the debtor or any of his other property for such deficiency, except as provided in the next paragraph. 86 If a mortgage or pledge affects two or more properties, movable, immovable, or both, the judicial sale of any property so affected without appraisement shall not prevent the enforcement of the mortgage or pledge in rem against any other property affected thereby. 87 § 4107. R.S. 13:4106 declares a public policy and the provisions thereof cannot, and shall not be waived by a debtor, but it shall only apply to mortgages, contracts, debts or other obligations made, or arising on or after August 1, 1934. 88 Prior to the enactment of the Ship Mortgage Act of 1920, the admiralty had no jurisdiction of a suit to foreclose a mortgage on a ship. The Act, however, granted unto admiralty exclusive jurisdiction to enforce the lien of a preferred ship mortgage. There can now be no suit to foreclose such a mortgage in a state court, Detroit Trust Company, Trustee, v. The Thomas Barlum, 1934, 293 U.S. 21, 32, 33, 42, 55 S.Ct. 31, 79 L.Ed. 176. 89 That these vessels were covered by preferred ship mortgages is not disputed. That the district court, sitting in admiralty, had exclusive jurisdiction over the foreclosures is not to be doubted. 90 Fish Meal and Harvey W. Smith say that because the mortgages provided for waiver of appraisal and the vessels were sold without an appraisal no deficiency arose because La.R.S. 13:4104, 4105, 4106, 4107, expressly declares that if a mortgagee takes advantage of a waiver of appraisement and the proceeds of the judicial sale thereof are insufficient to satisfy the debt for which the property was sold, the debt nevertheless shall stand fully satisfied and discharged insofar as it constitutes a personal obligation of the debtor. 91 In other words, McDermott preferred to follow a course which caused the debt to be extinguished by operation of law and ipso facto it could not provide the basis for a deficiency. 92 The Ship Mortgage Act is now a half century old but we find no previous case on the specific issue here involved. The parties have cited none. 93 We begin by saying that provisions of the Ship Mortgage Act are paramount and if a conflict exists between it and a state statute the federal statute would of course prevail. 94 Is there a conflict? 95 The difficulty is that the Mortgage Act is not a comprehensive statute    it contains sketchy provisions on foreclosure;    the Mortgage Act suggests no answer to many important questions    there is no Federal Law of mortgages, decisional or statutory, with the exception of the Mortgage Act itself. Gilmore and Black, The Law of Admiralty 9-57, pp. 590, 591. The federal decisions, sparse as they are, agree that there is no federal law of mortgages, Bergren v. Davis and The Oil Screw called Acadia (D. Conn., 1968) 287 F.Supp. 52, 55, citing Southland Financial Corp. v. Oil Screw Mary Evelyn (E.D.La., 1965) 248 F. Supp. 520, 522. 96 In Bergren, supra, in something of a similar controversy, the court noted that the mortgage was executed in the State of Maine, the vessel's home port is there, and the mortgage was recorded there. Hence the Court will look to the law of Maine. 97 In the case now before us the mortgage was executed in Louisiana, it was recorded in Louisiana, and although the vessels were laid up in Texas the home port [of The Fish Meal Company] was Morgan City, Louisiana. 98 Obviously, Louisiana cannot prohibit the taking of a deficiency judgment in an admiralty court. By the same token the obligations of the parties are to be determined from the mortgages themselves. 1 This is a substantive matter, not a procedural one. The parties are presumed to have known the Louisiana law of mortgages and to have acted accordingly. That law provided that the sale of mortgaged property under a waiver of appraisal (as here) without prior appraisal fully satisfies and discharges the debt insofar as it constitutes a personal obligation of the debtor. The law of Louisiana seems to be clear that the mortgagee may require a waiver and it may, if it wishes, sell under the terms of that waiver, but when it exercises that privilege it surrenders the right to pursue the debtor in personam for the balance due. The debt is extinguished and no deficiency survives. The law applies to sureties as well as to principal obligors, Simmons v. Clark, 1953, La.Ct.App., 64 So.2d 520. 99 We hold that the admiralty court under the terms of the federal statute clearly has the right to grant deficiency judgments, where deficiencies exist. To ascertain the existence or non-existence of a deficiency, the federal law being silent on the subject, we are compelled to look to the mortgage and to state law governing rights of the parties under the mortgage, especially where there is no question as to the place of execution, the place of recordation, and the home port of the vessel involved, Bergren, supra. 100 And this is true although McDermott could not have known whether there would be a deficiency, or the amount of it, until after the sale. All it had to do to protect itself on that subject was to have had a prior appraisal. It is immaterial that the sale was judicial. Judicial sales are expressly named in the statute. 101 Consequently, McDermott is not entitled to a deficiency judgment against Fish Meal or Harvey W. Smith. 102 The judgment in the breach of contract — failure of consideration case is reversed and remanded for a new trial. 103 The judgment of the District Court sitting in admiralty is vacated and remanded.