In re North Atlantic and Gulf Steamship Company

• Decision Date: 25 April 1962
• Citation: 204 F. Supp. 899
• Parties: In the Matters of NORTH ATLANTIC AND GULF STEAMSHIP COMPANY, Incorporated, Nortropic Shipping Company, Incorporated, Debtors.
• Court: U.S. District Court — Southern District of New York

204 F. Supp. 899

In the Matters of NORTH ATLANTIC AND GULF STEAMSHIP COMPANY, Incorporated, Nortropic Shipping Company, Incorporated, Debtors.

United States District Court S. D. New York.

April 25, 1962.

COPYRIGHT MATERIAL OMITTED

Bergerman & Hourwich, New York City, Milton M. Bergerman, Joseph Calderon, Albert F. Reisman, New York City, of counsel, for trustee.

Haight, Gardner, Poor & Havens, New York City, John C. Moore, Charles S. Haight, Jr., New York City, of counsel, for Cargill, Incorporated, A/S Acadia and A/S Bruusgaard, Orvigs D/S A/S, D/S A/S Imica, A/S Mabella, D/S A/S Laly, I/S Norlindo, A/S D/S Neptun, Rederi A/B Sigyn, D/S A/S Progress, and A/S D/S Dannebrog.

Joshua Morrison, New York City, Samuel Rosenbloom, New York City, of counsel, for Ocean Tramping Corp.

Kirlin, Campbell & Keating, New York City, Raymond T. Greene, New York

City, of counsel, for Luciferus Cia, Maritima S.A., Cia.Mar. Adra S.A. Panama.

Healy, Baillie & Burke, New York City, Richard T. O'Connell, New York City, of counsel, for Arequipa Compania Naviera S.A. and National Shipping & Trading Corp.

Zock, Petrie, Sheneman & Reid, New York City, Francis J. O'Brien, New York City, of counsel, for T. Smith & Son, Inc.

FREDERICK van PELT BRYAN, District Judge.

This proceeding is brought on petition of the trustee of the debtor North Atlantic and Gulf Steamship Company, Incorporated (Norgulf) to determine the validity of liens claimed by shipowners and others on subfreights earned by vessels operated by Norgulf under time charter.

On May 23, 1958 an involuntary petition was filed against Norgulf under Chapter X of the Bankruptcy Act. The trustee was appointed on June 19, 1958. Prior to the filing of the petition Norgulf operated a number of cargo vessels which it had time chartered from the owners. The charters were the standard form Time Charter of the New York Produce Exchange.

Certain of the vessels operated by the debtor under charter had been turned back to the owners, prior to the filing of the petition. However, the debtor continued to operate some of the vessels which it had chartered during the period between the filing of the petition and the appointment of the trustee. The trustee continued to operate three vessels after his appointment.

Owners of various vessels claim liens against subfreights earned and due from shippers for cargoes carried aboard their vessels while operated by Norgulf. The liens, eighteen in number, are claimed for sums due to the owners by the debtor for charter hire of the vessels. Two stevedores who performed stevedoring services for chartered vessels operated by the debtor also assert liens against earned subfreights due from shippers.

Suits in admiralty in personam were brought by lien claimants for the amounts due from Norgulf in the United States District Courts in this District, the District of Maryland and the Eastern District of Louisiana, in some of which writs of foreign attachment were issued on subfreights due to debtor from shippers. In other suits by third parties against the debtor, subfreights due to the debtor from shippers were also attached by writ of foreign attachment. Other liens against earned subfreights were asserted merely by service of notice of lien upon the shipper from whom subfreights were due.

By agreement of the parties to the instant proceeding part of the funds against which liens have been asserted have been paid to the trustee pursuant to orders of the court, to be held subject to determination of the rights of the lienors. Other funds remain under attachment in the hands of shippers.

The trustee seeks a determination that all of the liens claimed are void as against him under § 67, sub. a of the Bankruptcy Act, 11 U.S.C.A. § 107. He asks the court to direct that the sums against which the liens are asserted be paid to the estate as part of its general assets, and that the claims of the lienor claimants be classified as general unsecured claims against the estate. Failing this the trustee asks that certain of the claimed liens be reduced by amounts advanced by the debtor for the ordinary disbursements of the vessel and by amounts due from the owners for fuel on board vessels turned back to their possession, which was the property of the debtor. Finally, he questions the amounts of several of the liens claimed.

There are a large number of claims and vessels involved in this proceeding. It would serve only to confuse the issues were I to discuss each of the claims by name and in detail. A discussion of the principles applied to each of the various factual situations involved in the proceeding and resolution of the issues raised will enable the parties to make such calculations as may be necessary to ascertain the final figures to be included in the order to be entered on the trustee's petition. The matter will be handled accordingly.

I.

The validity of the claimed liens as against the Trustee.

A. Liens claimed by shipowners.

The standard form Time Charters of the New York Produce Exchange under which vessels were operated by Norgulf provided that charter hire was payable by the charterer semi-monthly in advance and gave the shipowner "a lien upon all cargoes, and all sub-freights for any amounts due under this Charter."

The debtor paid the charter hire which became due on these charters until early in 1958, when it began to default on its obligations to various shipowners under the charters. The shipowners' liens involved here are claimed for installments of charter hire so in default.

The liens claimed by shipowners fall into three main categories:

(1) Liens on subfreights earned by vessels owned by claimants which arose and were asserted prior to the filing of the Chapter X petition on May 23, 1958;

(2) Liens on subfreights earned by vessels owned by claimants which arose prior to the filing of the Chapter X petition but were asserted after the petition was filed; and

(3) Liens claimed for charter hire against subfreights earned by a vessel other than the vessel for which the charter hire was due.

(1)

As to the first two main categories the trustee relies primarily on § 67, sub. a of the Bankruptcy Act¹ which provides that all liens against the debtor obtained by legal or equitable process or proceeding within four months before the filing of the petition are deemed void if, at the time the lien was obtained, the debtor was insolvent.

The claimant shipowners, on the other hand, contend first, that § 67, sub. a does not apply because their liens were maritime and not obtained by legal or equitable process; second, that their liens were not obtained within the four months period; and third, that it was not established that the debtor was insolvent at the time the liens were obtained.

Their third contention relating to failure to establish insolvency may be disposed of briefly at the outset of the discussion.

The petition was filed on May 23, 1958. At the hearing on these claims the trustee presented evidence through his accountant that the debtor was insolvent as of March 31, 1958. As I will point out, § 67, sub. a of the Bankruptcy Act is applicable only to a relatively small proportion of the claimed liens. All of such liens arose after March 31, 1958. Proof of insolvency as of that date is therefore controlling for purposes of § 67, sub. a.

The evidence of the trustee's accountant clearly established the debtor's insolvency on the controlling date. It was not impeached in any way and the claimants did not offer any countervailing evidence. I find that the debtor was insolvent within the meaning of § 67, sub. a on March 31, 1958.

I turn next, then, to the contention that § 67, sub. a does not cover the claimants' liens because they were maritime in nature.

The trustee takes the property of the debtor subject to all valid liens not expressly made void by the Bankruptcy Act. Cohen v. Wasserman, 238 F.2d 683 (1 Cir. 1956); Porter v. Searle, 228 F.2d 748 (10 Cir. 1955); Lockhart v. Garden City Bank & Trust Co., 116 F.2d 658 (2 Cir. 1940); In re Uni-Lab, Inc., 180 F. Supp. 176 (W.D.Pa.1959). Thus, if the claimed liens are valid and do not come within the purview of § 67, sub. a they may be enforced as against property in the trustee's hands or to which he may be entitled.

Maritime liens may arise out of contract only where all the provisions of the contract are maritime in nature. The Walter Adams, 253 F. 20, 24 (1 Cir. 1918); Freights of The Kate, 63 F. 707, 713 (S.D.N.Y.1894). The charter parties involved here are wholly of a maritime nature and liens based on them may therefore be maritime liens.

Shipowners' liens on earned subfreights due to a charterer are based on an ancient and standard charter provision, the origins and history of which are somewhat obscure. It is clear, however, that no such lien can arise without an express grant in the charter of the vessel earning the subfreights. Poor on Charter Parties and Ocean Bills of Lading (4th Ed.), p. 46; Carver's Carriage of Goods by Sea (10th Ed., Colinvaux), pp. 918, 919.

The shipowner's lien on subfreights permits him to obtain payment of monies due under the charter out of such subfreights earned by the vessel as remain unpaid by a shipper to the charterer. Carver's Carriage of Goods by Sea (10th Ed., Colinvaux), p. 920. Cf. Lord Alverstone, C. J., in Tagart, Beaton & Co. v. James Fisher & Sons (1903) 1 K.B. 391, 395.

The lien cannot arise unless there is a specific lien clause written into the charter party. Cf. Hall Corporation of Canada v. Cargo Ex Steamer Mont Louis and Subfreights Thereon, 62 F.2d 603 (2 Cir. 1933); N. H. Shipping Corp. v. Freights of the S/S Jackie Hause, 181 F.Supp. 165, 169 (S.D.N.Y.1960); The Solhaug, 2 F.Supp. 294, 299 (S.D.N.Y. 1931).

All of the charters in the case at bar contain such a specific lien clause. Each of them provides in Clause 18:

"That the Owners shall have a lien upon all cargoes, and all subfreights for any amounts due

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