THE EMMA GILES

• Decision Date: 26 June 1936
• Docket Number: 2127.,No. 2126,2126
• Citation: 15 F. Supp. 502
• Parties: THE EMMA GILES. THE EXPRESS.
• Court: U.S. District Court — District of Maryland

15 F. Supp. 502

THE EMMA GILES.

THE EXPRESS.

Nos. 2126, 2127.

District Court, D. Maryland.

June 26, 1936.

John H. Skeen (of Emory, Beeuwkes, Skeen & Oppenheimer) and Raymond S. Williams (of Hershey, Donaldson & Williams), both of Baltimore, Md., for libelant.

James W. Chapman, Jr., of Baltimore, Md., for respondents.

CHESNUT, District Judge.

The sole question in these cases is whether this Court has jurisdiction, in admiralty, to foreclose an alleged "preferred ship mortgage" by sale of the above named ships. The libellant in both cases is the First National Bank of Baltimore (successor to the Citizens National Bank) as Trustee, under mortgage deed of trust dated February 1, 1925, from the Tolchester Beach Improvement Company of Kent County, made to secure an issue of $175,000 of bonds and covering three vessels, the Emma Giles, the Express and the Annapolis, and also four lots of ground situated in Baltimore City and two in Kent County, Maryland. The principal business of the Tolchester Company has been the maintenance of passenger and excursion boat service from its wharf property in Baltimore City to Tolchester Beach in Kent County, Maryland. The mortgagor of the vessels resists the foreclosure proceedings on the ground that the mortgage deed of trust did not fully comply with certain conditions of the Act of Congress of 1920 known as the Ship Mortgage Act (46 U.S.C.A. §§ 911 to 984, Act of June 5, 1920, c. 250, 41 Stat. 1000), in consequence of which the mortgage is not entitled to the status of a "preferred ship mortgage" under the Act, and this court is therefore without jurisdiction in admiralty to entertain a libel for the sale of the vessels in the mortgage foreclosure proceedings.

The particular defect in the mortgage here set up is based on the provisions of section 922 (e) which provides as follows:

"A mortgage which includes property other than a vessel shall not be held a preferred mortgage unless the mortgage provides for the separate discharge of such property by the payment of a specified portion of the mortgage indebtedness. If a preferred mortgage so provides for the separate discharge, the amount of the portion of such payment shall be indorsed upon the documents of the vessel."

The mortgagor says in this case that the mortgage did not provide for the separate discharge of the non-maritime property within the meaning of section 922 (e); and further that the amount of the discharge rate, if any, was not endorsed upon the documents of the vessel. The question thus presented involves, first, a consideration of the provisions of the mortgage with respect to partial releases of the mortgaged property, and, second, the construction and applicability of the particular statute to the provisions of the mortgage. The bearing of these matters upon the ultimate question as to the jurisdiction of the court will clearly appear from a reading of the recent opinion of the Supreme Court of the United States in Detroit Trust Co. v. The John J. Barlum, 293 U.S. 21, 55 S.Ct. 31, 79 L.Ed. 176, where the Chief Justice very fully considered a similar question of jurisdiction in admiralty. It was there said (293 U.S. 21, at page 32, 55 S.Ct. 31, 33, 79 L.Ed. 176):

"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. 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 U.S.C.A. § 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, 46 U.S.C. § 922 (46 U.S. C.A. § 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.'"

It thus clearly appears from the above quotation, and from other parts of the opinion in the Barlum Case, that the admiralty court does not have the jurisdiction to foreclose this mortgage unless it is a "preferred ship mortgage" as a result of compliance with all the conditions of the Act. Section 922 (a) provides:

"A valid mortgage * * * shall in addition have, 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, section 953, if —"

Then follows a particular statement of the requirements of a preferred mortgage which include the recordation of the mortgage in the office of the Collector of Customs as otherwise provided, the endorsement of the mortgage on the vessel's documents, and other provisions not here in point. Subdivision (b), 46 U.S.C.A. § 922, further provides that —

"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."

Subdivision (c) requires the endorsement upon the documents of the vessel covered by a preferred mortgage of certain information regarding the mortgage including —

"(4) Any amount required to be indorsed by the provisions of subdivision (e) or (f) of this subsection."

There follows subdivision (e) above quoted and also subdivision (f) which provides for the case where the mortgage covers more than one vessel, in which event it is not required that the mortgage provide for the separate discharge of each vessel by the payment of a portion of the mortgage indebtedness, but if the mortgage does so, then the amount of the portion to be paid upon discharge must be endorsed upon the documents of the vessel; and in case the mortgage does not provide for the separate discharge of the vessel, the district court "shall determine the portion of the mortgage indebtedness increased by 20 per centum (1) which, in the opinion of the court, the approximate value of the vessel bears to the approximate value of all the vessels covered by the mortgage, and (2) upon the payment of which the vessel shall be discharged from the mortgage."

It will be observed that the statute mandatorily requires that where the mortgage covers property other than a vessel, the mortgage must provide for the separate discharge of such property by the payment of a specified portion of the mortgage indebtedness; and also the amount of such payment for such separate discharge of the non-maritime property must be endorsed upon the documents of the vessel. It is conceded by the libellant that no such endorsement on the documents of the vessel has in fact been made although there was endorsed upon the vessel's documents the alleged discharge rate for the particular vessel itself. The question thus presented in this case is whether this particular mortgage deed of trust does provide for the separate discharge of the non-maritime property as required by the statute; and if so, what is the effect of the failure to endorse the amount specified for the discharge upon the documents of the vessel. The libellant contends that the endorsement of the discharge rate is directory and not mandatory and of itself does not constitute a fatal defect in the status of the deed of trust as a preferred ship mortgage. The libellant further contends that the mortgage does provide for a separate discharge of the non-maritime property as required by the statute, when properly construed.

The mortgage is in the conventional elaborate form of a deed of trust to secure $175,000 par value of bonds, now reduced to $90,000. It was evidently intended to comply with the Ship Mortgage Act, and in article III, § 14, the mortgagor expressly covenanted "to comply with and satisfy the requirements of the Ship Mortgage Act of 1920, so as to establish and maintain this mortgage as a preferred mortgage under said Act." But, as we are concerned with the question of the Court's jurisdiction, the mere intention of the parties, or their promise as to future action, is not sufficient, if the conditions of the Act have in fact not yet been compiled with. On the particular point here involved the only relevant provision of the deed of trust is to be found in Article Seven—Release of Mortgaged Property. This Article is itself in the conventional form for such instruments, and apparently not drawn with special reference to the requirement of 46 U.S.C.A. § 922 (e) of the Ship Mortgage Act. It is framed principally for the protection of the bondholders. The mortgagor is not given an absolute right to a release of any of the mortgaged property upon payment of a certain sum, but only a conditional right. The provision is that the Trustee shall...