Bank of British North America v. Freights, etc., of the Hutton

• Decision Date: 12 April 1905
• Docket Number: 653,654.
• Citation: 137 F. 534
• Parties: BANK OF BRITISH NORTH AMERICA v. FREIGHTS, ETC., OF THE HUTTON. SAME v. FREIGHTS, ETC., OF THE ANSGAR.
• Court: U.S. Court of Appeals — Second Circuit

137 F. 534

BANK OF BRITISH NORTH AMERICA v. FREIGHTS, ETC., OF THE HUTTON.

SAME v. FREIGHTS, ETC., OF THE ANSGAR.

Nos. 653, 654.

United States Court of Appeals, Second Circuit.

April 12, 1905

Charles S. Haight, for appellants.

Mark W Patten, for appellee.

Before WALLACE, LACOMBE, and TOWNSEND, Circuit Judges.

WALLACE Circuit Judge.

These are actions in rem by which the libelant seeks to assert an alleged lien arising out of the following facts: For two or three years prior to 1901 the libelant, a foreign bank having representatives in New York City, had been accustomed to make advances to one Perry, who was engaged there in operating chartered vessels. He usually had a number of vessels under charter, carrying cargoes upon long voyages, and his profits depended upon the excess of the freights earned by them, and payable upon delivery of the cargo at the port of destination, beyond disbursements for hire and other expenses; and, at times when he required moneys to pay hire and other disbursements of a vessel, he was accustomed to apply to the libelant, and the libelant would advance them to him. These advances were made without taking any evidence of indebtedness from him, and with the understanding that they were made against, and should be repaid from, the freights of the particular vessel for which they were made; and, as security, Perry customarily assigned to the libelant the charters and insurance policies covering the freights for the particular voyages. Upon the arrival of the vessels, Perry would collect the freight, deposit the amount to his own credit in bank, mingling the amount with his own funds, and would pay the libelant by checks drawn upon that bank. Among the vessels chartered by Perry were the steamers Ansgar and Hutton. December 26, 1900, he applied to the libelant for advances against the freights of these vessels. His letter after stating that the former was about to load at Calcutta on her voyage home, with her hire paid to December 27, 1900 and that the Hutton was about to load at Nagasaki on her voyage home, with here hire paid to January 3, 1901, reads 'We desire advances against freights above steamers, $10,000 each. Kindly hand us your check for $20,000 and oblige. Documents will be handed you later. ' The libelant thereupon advanced him $20,000, which he deposited in his bank account; making a note on the stub of his checkbook that $10,000 was advanced 'against freights' of the Ansgar, and February 2, 1901, the documents relating to the Hutton; these consisting of the charter parties, memoranda of accruing freights, and insurance policies covering the freights for the particular voyages; the charter parties and insurance having his assignment indorsed thereon. The memoranda showed expected freights of about $65,000. January 30, 1901, he applied for an additional $10,000 against the freights of the Ansgar, and on February 15, 1901, he applied for $20,000 more-- $10,000 against the freights of each vessel. These sums were advanced by the libelant-- in all $30,000 against the freights of the Ansgar, and $20,000 against the freights of the Hutton. The Ansgar arrived at New York April 10, 1901, and the Hutton April 26, 1901, Perry collected the freights, and of the amount he deposited about $39,000 to the credit of his account in the Bank of New York. Perry died May 8, 1901, at which time there was a balance to his credit in that bank derived to the extent of $18,000 from the freights of the Hutton, and $803.78 from the freights of the Ansgar. His estate proved to be insolvent.

The libelant asserts that there was an hypothecation of the freight moneys, and that it is entitled to follow them into Perry's bank account. The claimant, the administrator of Perry's estate, asserts that the libelant stands in no better position than do the other creditors of Perry in respect to the moneys in bank.

Quite irrespective of the fact, which may be put aside for present purposes, that Perry used nearly $20,000 of the advances of the two vessels in aid of the voyages upon which the freights were earned, the libelant acquired a maritime lien upon the freights by the agreement of hypothecation, and thereby became the equitable owner. A pledge for loans made for the purpose of directly aiding the prosecution of current voyages, and upon the faith of the freights to be earned, as a part of the contract, is as purely maritime as a bottomry bond. The Advance, 72 F. 797, 19 C.C.A. 194. Indeed, it has been held by the Supreme Court of New York (Brown v Gray, 70 Hun, 261, 24 N.Y.Supp. 61) that an action to restrain the diversion of freight moneys which had been pledged for advances, and which it was asserted the charterers were collecting and misapplying, could not be maintained in the state court, because it involved an adjudication as to the existence of a maritime lien, and was therefore within the exclusive jurisdiction of the federal courts in maritime causes. The lien created by a maritime pledge of freights follows the freights through all their transmutations, and wherever they can be found. It is familiar doctrine of the admiralty courts that a maritime lien attaches not only to the original subject of the lien, but also to whatever is substituted for it, and that the lienholder may follow the proceeds wherever he can distinctly trace them. 'Wherever there is a maritime lien upon property, it adheres to the proceeds of that property, into whose hands soever they may go, and these proceeds may be attached in the admiralty. ' Benedict, Adm. Pract....