In re Rochester Shipbuilding Corporation

• Decision Date: 13 March 1940
• Docket Number: No. 29275.,29275.
• Citation: 32 F. Supp. 98
• Parties: In re ROCHESTER SHIPBUILDING CORPORATION.
• Court: U.S. District Court — Western District of New York

32 F. Supp. 98

In re ROCHESTER SHIPBUILDING CORPORATION.

No. 29275.

District Court, W. D. New York.

March 13, 1940.

Sutherland & Sutherland, and Andrew R. Sutherland, all of Rochester, N. Y., for Petroleum Heat & Power Co.

Harris, Beach, Folger, Bacon & Keating and Keith D. Poland, all of Rochester, N. Y., for American Locomotive Co.

Goodwin, Nixon, Hargrave, Middleton & Devans and W. Clyde O'Brien, all of Rochester, N. Y., for Lincoln-Alliance Bank & Trust Co.

Marvin R. Dye, of Rochester, N. Y., trustee in pro. per.

Charles Van Voorhis, of Rochester, N. Y., for trustee.

BURKE, District Judge.

The trustee has under his control as one of the assets of the debtor corporation a Deisel powered motor vessel called Dolomite #2. When the trustee was appointed the vessel was subject to a charter agreement dated October 23rd, 1936, which obligated the debtor corporation to transport petroleum products of Petroleum Heat and Power Company, hereinafter called Petro, from Gulf ports to points north of Hatteras at a stipulated rate of 25¢ per barrel. By this proceeding the trustee seeks to have a determination by the Court (1) that the charter should be deemed cancelled and terminated by its terms, (2) in the event that the said charter is deemed not to have expired according to its terms that the Court approve the recommendation of the trustee to reject it and to authorize and direct the trustee to operate the said vessel free and clear of any charter provisions.

The Lincoln Alliance Bank & Trust Co. holds a first preferred ship's mortgage on the vessel. It opposes cancellation of the charter on the ground that cancellation would deprive it of part of its agreed security. Its contention is based on one of the provisions of a financial agreement between the various corporations which were interested in the reconstruction and financing of the vessel. The bank had advanced moneys for the reconstruction of the vessel, repayment of which had been guaranteed by Petro. The financial agreement provided that "to the extent that Petro shall be indebted to Rochester (the debtor corporation) on any mortgage payment date for charter hire of Dolomite #2 or otherwise, Petro shall have the right to pay over to the bank direct, for Rochester's account, an amount up to but not exceeding the amount due as of such date from Rochester to the note holders under said mortgage obligation as hereinabove designed, and such payment by Petro to the bank for Rochester's account shall be pro tanto, a payment by Petro to Rochester". Petro is not indebted to the debtor corporation for charter hire or otherwise. The charter is not part of the mortgage security.

The charter agreement was made on October 23rd, 1936. The vessel was an old hull. It was to be substantially reconstructed, new engines installed and when reconstructed it was to be placed at the disposition of Petro for carrying its cargo. Petro was to guarantee the repayment of moneys advanced by the bank for the reconstruction of the vessel. As appears by the charter agreement the plan was that the vessel would be ready for enrollment on April 30, 1937. Because of conflicting provisions of the charter agreement relating to the original period and renewal period the duration of the charter is somewhat obscure. As it developed the vessel was not ready for enrollment until about December 1st, 1937. The charter agreement in the first paragraph thereof provides for a charter to Petro "as and when its reconstruction is completed for a period of three years from date of enrollment". Another provision is "It is understood and agreed that Petro shall have an option to renew this charter contract for a period of three years beginning December 1, 1939 under the same terms and conditions". Another provision is "If Dolomite (debtor's predecessor) receives an offer of purchase of said vessel during the three year term of the charter agreement or its renewal on December 1, 1939, Dolomite will pay to Petro the sum of 5% of sale price of said vessel". The trustee contends that by its terms the charter agreement terminated on December 1, 1939. Concededly there has been no renewal nor any attempt to renew. Petro contends that the original charter period was a full three year term from the enrollment of the vessel on or about December 1, 1937 which would make the expiration date December 1, 1940. Its contention is that the date, December 1, 1939, in the charter agreement relates only to the right to renewal, which may be exercised after that date. In my opinion the evidence fairly establishes that the charter agreement contemplated a full three year charter period commencing at the enrollment of the vessel. Accordingly the charter agreement would not expire by its terms until ...