293 U.S. 21 (1934), 13, Detroit Trust Co. v. The Thomas Barlum

Docket Nº:No. 13
Citation:293 U.S. 21, 55 S.Ct. 31, 79 L.Ed. 176
Party Name:Detroit Trust Co. v. The Thomas Barlum
Case Date:November 05, 1934
Court:United States Supreme Court
 
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293 U.S. 21 (1934)

55 S.Ct. 31, 79 L.Ed. 176

Detroit Trust Co.

v.

The Thomas Barlum

No. 13

United States Supreme Court

Nov. 5, 1934

Argued October 12, 1934

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

1. A court of admiralty has no jurisdiction of a suit to foreclose a mortgage on a ship in the absence of an Act of Congress conferring such jurisdiction. P. 32.

2. "Preferred mortgages" of ships under the Ship Mortgage Act of 1920 include deeds of trust securing bonds sold to the public, and, under that statute, are foreclosable exclusively in admiralty, with priority of lien as therein prescribed, if indorsement upon ship's documents, recording, and other conditions expressed in the statute have been fulfilled. P. 32.

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3. The status of "preferred mortgages" does not depend upon application of the borrowed money to maritime use. This condition is not expressed in the Act, and cannot be implied. P. 37.

So held in view of the minute and explicit provisions of the Act; its legislative history, showing that the objective was to foster our merchant marine by making ship mortgages, including deeds of trust securing bonds, safe and attractive to investors, and the importance to this purpose of having the jurisdiction to foreclose in admiralty exclusively or in state courts exclusively determinable by precise statutory conditions, rather than by extrinsic criteria raising a host of questions as to the application of the proceeds of loans.

4. Congress, under Art. III, § 2, and Art. I, § 8, par. 18 of the Constitution, has paramount power to determine the maritime law which shall prevail throughout the country, but, in so doing, it is necessarily restricted to the sphere of the admiralty and maritime jurisdiction, the boundaries of which are determined by the exercise of the judicial power. P. 42.

5. In order to promote investment in shipping securities and thus to advance the maritime interests of the United States, Congress has power, by amendment of the maritime law, to regulate the priorities of mortgage and other liens on ships and to provide jurisdiction in admiralty for the enforcement of such mortgages. Bogart v. The John Jay, 17 How. 399, considered. P. 48.

6. There is no ground for denying this power when the proceeds of the mortgage are used for other purposes than the direct benefit of the vessel. P. 50.

68 F.2d 946 reversed.

Certiorari, 292 U.S. 619, to review the reversal, for want of jurisdiction, of two decrees entered by the District Court, 56 F.2d 455, 2 F.Supp. 733, for the foreclosure of mortgages on two ships.

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HUGHES, J., lead opinion

MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.

These are suits in admiralty to foreclose two mortgages given by the Barlum Steamship Company upon the vessels Thomas Barlum and John J. Barlum, respectively. The mortgages purported to be preferred mortgages under the Ship Mortgage Act 1920. 41 Stat. 1000-1006, 46 U.S.C. c. 25, §§ 911-984. The mortgagor, appearing as claimant, contended that the admiralty was without jurisdiction. The District Court overruled that contention, and, finding that all the requirements of that Act had been met, entered decrees of foreclosure and sale. 56 F.2d 455; 2 F.Supp. 733. In the case of the John J. Barlum, the decree provided for the recovery by certain seamen, intervening libelants, of amounts due for wages, as preferred maritime liens. The Circuit Court of Appeals reversed the decrees, holding that the suits should have been dismissed for the want of jurisdiction. 68 F.2d 946. This Court granted certiorari. 292 U.S. 619.

The mortgagor, at the time the mortgages were executed, was a close corporation, about four-fifths of its shares being owned by John J. Barlum, who was also interested in several nonmaritime enterprises. The mortgage in No. 13 on the Thomas Barlum was executed in March, 1929, to petitioner, as trustee, to secure $200,000 of bonds which were purchased by petitioner with a definite understanding as to the application of the proceeds. Approximately $50,000 were to meet obligations secured by a prior mortgage upon the same vessel; about $100,000 were to take up loans of John J. Barlum and Thomas Barlum & Sons, a concern which was engaged in a nonmaritime enterprise, and the remainder, about $42,000, were to provide for repairs and for refitting the vessels Thomas Barlum and John J. Barlum. The mortgage

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was executed while the Thomas Barlum was laid up.

The mortgage, in No. 14, on the John J. Barlum was executed in December, 1927, to petitioner, as trustee, to secure an issue of $200,000 of bonds purchased by petitioner with the understanding that, of the proceeds, petitioner was to retain about $82,000 to cover principal and interest on bonds of John J. Barlum secured by a mortgage on real estate, and about $10,000 to be applied on one of his notes. Most of the remaining proceeds, which were paid over to the mortgagor, was used to take up loans in connection with nonmaritime enterprises, only a small part being devoted to payments relating to the operation of the vessels.

In both instances, the bonds secured by the mortgages were negotiable bonds, and were purchased by petitioner for sale to the general public, and were largely so sold.

[55 S.Ct. 33] There is no question as to the validity of the mortgages or of the bonds which they secure or as to the default in payment. The question is solely one of jurisdiction in admiralty of the foreclosure suits. Respondent contends that the mortgages "were so devoid of connection with maritime purposes" that the provision of the Ship Mortgage Act conferring jurisdiction in admiralty "either does not, or cannot constitutionally, apply."

The Circuit Court of Appeals was divided in opinion. The majority of the judges, without passing on the extent of congressional authority, thought that it was sufficient to point out that the mortgagor and mortgagee knew, before the mortgages were made, that the moneys advanced "were intended for and actually were used for nonmaritime purposes," and they concluded that the provisions of the Ship Mortgage Act did not extend to such a case. The minority view, supporting the decision of the District Court, was that the Congress intended to encourage the investment of capital in ships; that it

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might well be that this object could best be promoted by allowing vessels "to be hypothecated as readily and with the same effect as other personal property;" that a mortgage on a ship would be "a most undesirable security" if purchasers of bonds so secured must, at their peril, ascertain how moneys advanced upon the mortgage are to be spent, and that Congress had constitutional authority to give to a valid mortgage a preferred status, and to provide for the enforcement of the lien in admiralty, by virtue of its control over ships as essentially marine instrumentalities, a control which includes the promotion of their development and the regulation of their use.

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; Schuchardt v. Ship Angelique, 19 How. 239, 241; People's Ferry Co. v. Beers, 20 How. 393, 400; The Lottawanna, 21 Wall. 558, 583; The Eclipse, 135 U.S. 599, 608; The J. E. Rumbell, 148 U.S. 1, 15.1 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), 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.

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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.2 46 U.S.C. § 922. The application

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of this term in the subsequent provisions [55 S.Ct. 34] 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.

Subdivision (a) of subsection D provides that a "valid mortgage," which "includes the whole of any vessel of the United States of 200 gross tons and upward," shall have, in addition,

in respect to such vessel and as of the date of the compliance with all the provisions of this

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subdivision, the preferred status given by the provisions of subsection M,3

46 U.S.C. § 953. The term "vessel of the United States" means any vessel documented under the laws of the United States, and, in the case of a mortgage "involving a trust deed and a bond issue thereunder," the term "mortgagee" means the [55 S.Ct. 35] trustee. Subsection B, 46 U.S.C. § 911. The "preferred status" given by subsection M is that, on foreclosure and sale in admiralty, all preexisting claims in the vessel are to be held terminated, and thereafter are to attach to the proceeds of the sale, and the...

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