Merchants & Marine Bank v. The TE Welles

CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)
Citation289 F.2d 188
Docket NumberNo. 18413.,18413.
PartiesMERCHANTS & MARINE BANK, Appellant, v. THE Fishing Vessel T. E. WELLES, etc., Appellee.
Decision Date12 April 1961

C. D. Marshall, Charles W. Howard, Jr., New Orleans, La., J. I. Ford, Pascagoula, Miss., Milling, Saal, Saunders, Benson & Woodward, New Orleans, La., of counsel, for appellant.

Albert S. Johnston, III, John F. Bryan, III, Pascagoula, Miss., Johnston & Wilson, Pascagoula, Miss., for Pascagoula Dock Station, appellee.

Before TUTTLE, Chief Judge, and BROWN and WISDOM, Circuit Judges.

JOHN R. BROWN, Circuit Judge.

We deal with this case for a second time. As before it presents questions of priority of general maritime liens for supplies in opposition to that of a preferred ship mortgage. Laches was, or was thought to be, the important question.

On its first appearance, Pascagoula Dock Station v. Merchants and Marine Bank, 5 Cir., 1959, 271 F.2d 53, 1959 A.M.C. 2207, we did two things. First, we upheld the validity of the preferred ship mortgage of March 29, 1957. Second, we concluded that the District Judge's initial holding that the maritime lienor, Pascagoula Dock Station, was guilty of delay injurious to the interests of the Bank, but not of laches was intrinsically contradictory. Consequently, we remanded the cause for further proceedings. Our conclusions were summed up this way. "Did the Judge mean delay only or laches as that term is ordinarily understood? The legal consequences * * * turn on this fact-legal conclusion. * * * For instance, if on the remand which we order the Judge adheres to his conclusion that there was delay but no laches, then the decree to be entered must be in favor of the maritime lien ($1,282.12) as superior to the mortgage. Section 953(b), (46 U.S.C.A. § 953) expressly accords priority to `preferred maritime liens' which this would then be since it would be unaffected by laches (46 U.S.C.A. § 974(2)) found not to exist." 271 F.2d at pages 57-58.

On that retrial based largely on the original record save for one new fact which we regard finally as decisive, the Trial Court adhered to the prior conclusion, this time expressed unequivocally, that the lienor was not guilty of laches. Giving literal application, as he was most certainly entitled to do, to our direction dependent upon the specific fact finding, the Judge then held for the lienor and against the Bank. It is the Bank, the mortgagee under the preferred ship mortgage, which now appeals.

Amplifying the same arguments it offered previously in support of the Trial Court's then decision of priority of the mortgage over the maritime liens, the Bank renews the contention that the supplier's lien was extinguished or reduced in priority by laches. Its task on that score has now become more difficult since it is faced with the formidable prospect of overturning fact findings as clearly erroneous. O/Y Finlayson-Forssa A/B v. Pan Atlantic S. S. Corp., 5 Cir., 1958, 259 F.2d 11, 13, 1958 A.M.C. 2070, 2072; Mississippi Shipping Co. v. Zander & Co., 5 Cir., 1959, 270 F.2d 345, 347, 1959 A.M.C. 2143, 2145, 273 F.2d 618, 1960 A.M.C. 247. A finding of laches is compelled, the Bank insists, either on the analogy of the Mississippi state statute of limitation, here claimed to be six months,1 or on general principles of maritime law apart from state statutes.2

Either alone, or as an ingredient of laches, the Bank asserts also that, as a matter of law, the lienor failed to exercise reasonable diligence since it never at any time either made inquiry at the Collector of Customs office concerning the existence of any preferred ship mortgage or, worse, recorded a notice of its maritime liens as the statute permits. 46 U.S.C.A. § 925(a).3 See Gilmore & Black, The Law of Admiralty § 9-72 at 616 (1957). Here the Bank relies heavily on The John Cadwalader (Kensington Shipyard & Drydock Corp. v. Philadelphia National Bank), 3 Cir., 1938, 99 F. 2d 678, 1939 A.M.C. 52.

Of course, as a part of this claim of non-diligence, the Bank lays itself open to like attack. But to the supplier's contention that the Bank failed to make adequate inquiry concerning the existence of outstanding debts, claims or liens, the Bank counters that it satisfied all such obligations imposed either expressly or impliedly under the Ship Mortgage Act, 46 U.S.C.A. §§ 911-984, by obtaining and filing the mortgagor's affidavit of good faith, 46 U.S.C.A. § 922(a) (3). That, it contends, is to be deemed the equivalent of specific inquiry for facts — notwithstanding that it is stated as legal conclusions 4 — as to the borrower's financial situation. Refuting this, the supplier has powerful support both on general principles and the precision with which the Act gives the lender a positive right to a full and fair disclosure and compels honest, complete answers under severe criminal sanctions. §§ 924 and 941(b).

Recognizing that a plea of laches is more than time, the Bank undertook to establish detriment. It did this both as to the time of making of the original loan, and later on in 1958 when it released another vessel. The M/V Glenn and Kay, from a simultaneous preferred ship mortgage securing the common debt in order to permit her to be sold without requiring application of the full proceeds of the sale to reduce the debt. See 271 F.2d 53, 55.

And all the while there was, on any supposition or holding of laches as to the maritime liens in competition with a preferred ship mortgage, lurking many intriguing and intricate questions. This would include the effect of laches and whether it extinguishes the in rem lien altogether leaving only rights in personam for the remainder of the stated statutory period of limitations on a contract action. See Gilmore & Black, The Law of Admiralty §§ 9-77 through 9-84 at 624-40 (1957). Some have pointed out "that the issue of laches is gone into only on the problem whether or not there is a lien. If the question is as to the priority of liens among themselves, laches does not defeat priority." Robinson, Admiralty § 55 at 398-99 (1939). Although we do not undertake to decide the point, Judge Hough was quite positive. "Laches is a defense, and, if successful, it defeats the claim advanced by plaintiff or libellant." The Oregon, 2 Cir., 1925, 6 F.2d 968, 969, 1925 A.M.C. 1271. This might have particular importance here since the contest is between a preferred ship mortgage and a maritime lien. Section 974 of the Maritime Lien Act does declare that it shall not affect the "rules of law existing on June 5, 1920, in regard to * * * (2) laches in the enforcement of liens upon vessels, * *." Hence the Bank recognizes in its brief that if, somewhat as was done in Burdine v. Walden, 5 Cir., 1937, 91 F.2d 321, 1937 A.M.C. 1149 where effect was given to a state statute, the Court were to adjudge that the supplier's lien was stale and therefore unenforceable because of laches from failure to commence judicial proceedings within six months as § 340 of the Mississippi Code, note 1, supra, requires, there would then be the none too easy task of determining whether to approve the doctrine of The Owyhee,5 2 Cir., 1933, 66 F.2d 399, 1933 A.M.C. 1185, and thus cut off the priority given by § 9536 to pre-mortgage preferred maritime liens. If deemed a question of priority, not the more decisive one of continued existence of the lien as such, there would be the further problem of the general pre-1920 law and the impact, if any, of state law since the pre-existing law was continued only as to "(5) priorities between maritime liens and mortgages, other than preferred mortgages, * * *." § 9747 (Emphasis supplied.)

But all of this was on the supposition that, as tried below the first time and determined here on the first appeal, the mortgage we were concerned with was that of March 29, 1957. It was on this point that the trial on remand was so decisive. For now it appears without contradiction that the mortgage of March 29, 1957, was in reality a renewal of an earlier preferred ship mortgage of March 9, 1956.

The probable legal significance of that event is forecast by the entirely different color it throws upon the facts of the supplier's claim. Whereas all thought that the question related to priority of $1282.12 for supplies furnished prior to the mortgage, it now turns out that only $40.58 predated the initial mortgage of March 9, 1956.8

This newly discovered event9 now calls for a change of course. The legal questions are changed to these. Was this initial10 mortgage valid as a preferred ship mortgage? What was the status of maritime liens for supplies furnished in the period March 9, 1956 to March 29, 1957? What, if anything, happened to that status when the initial mortgage was replaced by the subsequent one — did that which was subordinate now become superior?

The first is readily disposed of. This initial mortgage complied with the statute, was properly filed with supporting affidavit of good faith, recorded and noted on the ship papers. By the express terms of the statute, that made it superior to all liens of every kind and character thereafter incurred save liens for crews' wages, general average, salvage and tort claims. 46 U.S.C.A. § 953(a). At that point laches by the supplier is wholly irrelevant. The statute fixed the priority in favor of the mortgagee. Of course the Ship Mortgage Act does not outlaw maritime liens, it merely subordinates them. Consequently, all of these supplies when and as furnished gave rise to valid maritime liens. They were in existence. The mortgage did not, as such, extinguish them. They would, subject to laches or relative priority ranking among other maritime liens, continue. To the extent of any surplus remaining after satisfaction of the preferred ship mortgage debt, such liens would participate in the distribution. § 953(b). See also § 961(c) and Gilmore & Black, The Law of Admiralty § 9-54 at 587 (1957). And if the mortgage debt has...

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