Atlantic Steamer Supply Company v. The SS Tradewind

• Decision Date: 11 June 1957
• Docket Number: No. 3799.,3799.
• Citation: 153 F. Supp. 354,1957 AMC 2196
• Parties: ATLANTIC STEAMER SUPPLY COMPANY, Inc., a District of Columbia Corporation, v. THE SS TRADEWIND, her engines, boilers, etc.
• Court: U.S. District Court — District of Maryland

153 F. Supp. 354

1957 AMC 2196

ATLANTIC STEAMER SUPPLY COMPANY, Inc., a District of Columbia Corporation, v. THE SS TRADEWIND, her engines, boilers, etc.

No. 3799.

United States District Court D. Maryland.

June 11, 1957.

Norwood B. Orrick, of Baltimore, Md., and John Geyer Tausig, of Washington, D. C., for W. Henry Smith Agencies, Inc.

Ober, Williams, Grimes & Stinson, Baltimore, Md. (William A. Grimes), of Baltimore, Md., for Alaska Steamship Co.

Solomon B. Levin, of Baltimore, Md., for Larrabee Associates.

R. DORSEY WATKINS, District Judge.

This is a continuation of a proceeding in admiralty in rem to determine the proper distribution of the proceeds from the sale of the Steamship Tradewind, a foreign documented vessel. The case is now before the court on (1) the motion of W. Harry Smith Agencies, Inc., a foreign supplier, for leave to amend its intervening libel and for reconsideration of this court's opinion of August 7, 1956,¹ insofar as that decision held that "the liens of the foreign suppliers are subordinated to the lien of the preferred mortgage",² together with the answer and exceptions of the Alaska Steamship Company, mortgagee,³ to such amended libel; and on (2) the exceptions of the Alaska Steamship Company to the intervening libel of Larrabee Associates, a partnership engaged in the advertising business with its principal place of business in Washington, D. C., claiming a maritime lien.

Claim of The W. Harry Smith Agencies, Inc.

The W. Harry Smith Agencies, Inc., (Smith) was engaged by the Caribbean Atlantic Steamship Company, the owner and mortgagor of The Tradewind, as a special agent to furnish port, cargo, passenger, ship and sundry facilities to and on behalf of the vessel in the port of Havana, Cuba, and such services were rendered the ship on three voyages she made to the port of Havana between July 31, 1955, and October 1, 1955. On November 9, 1955, the Caribbean Atlantic Steamship Company filed a voluntary petition in bankruptcy scheduling liabilities of $587,000 and assets of $385,000 including The Tradewind listed as valued at $332,000 but which later sold for $222,000.

On the basis of these facts⁴ and relying on section 953 of Title 46 U.S.C.A. which defines a preferred maritime lien⁵ and accords it priority over the preferred mortgage lien, Smith seeks to build its maritime lien as a supplier into a preferred maritime lien for damages arising out of tort by amending its intervening libel to allege that "on all of the aforementioned dates the officers of the Caribbean Atlantic Steamship Company, Inc. sic, knew of that company's insolvency and the financial inability of the SS Tradewind to pay for the aforementioned port, cargo, passenger, ship and sundry facilities, services and materials furnished by The W. Harry Smith Agencies, Inc., to and for the benefit of the S.S. Tradewind and, therefore in effect accepted payments for the same fraudulently." (Emphasis supplied). By answer and exceptions the mortgagee, Alaska Steamship Company (Alaska) stated no objection to the making of the requested amendment but reserved the right to contend that the failure to claim a preferred maritime lien in the original intervening libel of Smith indicated, in and of itself, a lack of merit in the intervening libel, as amended, and that as a matter of law no preferred maritime lien arose out of the facts set forth in the amended intervening libel. The amendment was allowed in open court.

As authority for its contention in its amended libel, Smith cites an opinion of this court by Judge Soper, then a district judge, in which the liens claimed by certain shippers for damages occasioned by the complete failure of the vessel to sail were based on the fraudulent⁶ conduct of the ship in accepting prepayment of freight for cargo actually placed on board at a time when the vessel's corporate owner was insolvent and the ship was clearly unable to perform the services which she held herself out to the community as being capable of rendering. The court in that case, The Henry W. Breyer, D.C.Md.1927, 17 F.2d 423, 431, said:

"On another ground, the shippers were justified in alleging that they were damaged by acts of the vessel which amounted to torts. The complete financial inability of the owner of the vessel to comply with the obligations of a common carrier is so clearly shown by the testimony that it must have been known to the managers of the vessel when the cargo was taken on board. The action, therefore, in accepting the goods, and particularly in receiving the freight money in advance, from the intervening libelants, was in effect fraudulent. The navigation corporation was doubtless insolvent, and the situation was analogous to that which has been frequently before the courts in reclamation proceedings in bankruptcy. It is a general principle that, when a person who is insolvent purchases goods with no intention of paying for them, and conceals his insolvency and his intention not to pay, he is guilty of fraud which entitles the vendor to recover the goods. Knowledge of inability to pay when the purchase is made is equivalent to purchase with intent not to pay. Such purpose is constructively fraudulent. In re Henry Siegel Co., (D.C.) 223 F. 369; Gillespie v. Piles & Co., (C. C.A.) 178 F. 886 44 L.R.A.,N.S., 1; Hornor v. Henning, 93 U.S. 228, 23 L.Ed. 879; In re K. Marks & Co., (C.C.A.) 218 F. 453; Jones v. H. M. Hobbie Grocery Co. (C.C.A.) 246 F. 431; In re Liebig (C.C.A.) 255 F. 458; In re Stewart (D.C.) 178 F. 463; In re Kenyon (D.C.) 156 F. 863. It was equally fraudulent for the ship to accept payment for services which she was clearly unable to perform." (Emphasis supplied).

It at once becomes apparent by a comparison of the underlined portions of Smith's amended intervening libel with the underlined portions of the opinion in The Henry W. Breyer that the former is, at the most, nothing more than an allegation of personal fraud on the part of the officers of the corporate shipowner, while the latter clearly makes the well established distinction in admiralty between the shipowner and the ship. Where the fraud of the owner is of a personal nature, a claim for damages arising out of that fraud does not constitute a lien upon, or a claim against, the vessel. International Refugee Organization v. Maryland Drydock Co., 4 Cir., 1950, 179 F.2d 284, 288. Judge Chesnut in Todd Shipyards Corporation v. City of Athens,⁷ D.C.Md.1949, 83 F.Supp. 67, 76, considering the import of the decision in The Henry W. Breyer as being "only a recognition of a long existing right of a claimant to sue in tort for damages resulting from wrongful action of a common carrier with respect to passengers or cargo after they had physically come within the control of the carrier", refused to hold a ship liable in tort⁸ for breach of an executory contract for the transportation of passengers who had not come within the care or control of the carrier; finding the obligation to transport that of the owner, not of the vessel. "The maritime lien is of very ancient lineage. Its conceptual origin lies in the personification of the ship itself. The ship as an entity, considered apart from the personal liability of the owner, becomes responsible for benefits conferred and damages committed by her." Todd Shipyards Corporation v. The City of Athens, supra, 83 F.Supp. at page 74. There is no question in the instant case, and this court has so held,⁹ that The Tradewind is personally responsible for the benefits she derived from Smith under the provisions of section 971, Title 46 U.S.C.A. giving a maritime lien to one furnishing necessaries to a vessel upon the order of the owner, the only question being one involving priorities—whether or not The Tradewind was guilty of fraudulent conduct toward Smith giving rise to a preferred maritime lien. The intervening libel, as amended, alleges no fraud on the part of the vessel.

Assuming for the moment that the intervening libel were more aptly amended to state an acceptance by the ship of services and necessaries for which she knew at the time of acceptance that she could not pay, the supplier's position would still be untenable and again The Henry W. Breyer indicates what other element must be alleged—concealment of insolvency. The facts in the instant case alone must, of necessity, bar the supplier from asserting fraudulent concealment on the part of the ship. The Tradewind was subject to a preferred mortgage executed on December 27, 1954, in the principal sum of $200,000. At the time of the mortgagor's default on October 15, 1955 the principal sum of $136,000 still remained owing. The mortgage clearly recited that neither the shipowner nor the master had the authority to incur any liens against the vessel other than for crew's wages or salvage. A framed notice six inches wide by nine inches high was required under the terms of the mortgage to be kept in a prominent place in the chartroom and in the master's cabin advising of the mortgage prohibition against the creation of liens upon the vessel. The preferred mortgage was endorsed upon the documents of The Tradewind, a copy was placed on board, and the documents and the copy were exhibited by the master to all persons having business with the vessel which might give rise to a maritime lien.¹⁰ The vessel clearly gave notice, the solvency or insolvency of her corporate owner being irrelevant as to the vessel's representation of her own ability to pay for services rendered, that her own credit was pledged first to the payment of the preferred mortgage.

In addition to the complete absence of any factual support for an allegation of fraudulent concealment, the legal effect, as regards concealment, of a clause in a valid preferred mortgage prohibiting the creation of any liens whatsoever other than for crew's wages or salvage, must be considered. The purpose of the Ship Mortgage Act, 1920, 46 U.S. C.A. § 911 et seq., was to make ships'...