Shooters Island Shipyard Co. v. Standard Shipbuilding Corp.

• Decision Date: 01 November 1923
• Docket Number: 3006,3008.
• Citation: 293 F. 706
• Parties: SHOOTERS ISLAND SHIPYARD CO v. STANDARD SHIPBUILDING CORPORATION et al. JAMES HOWDEN & CO., Limited, v. STANDARD SHIPBUILDING CORPORATION.
• Court: U.S. Court of Appeals — Third Circuit

293 F. 706

SHOOTERS ISLAND SHIPYARD CO v. STANDARD SHIPBUILDING CORPORATION et al.

JAMES HOWDEN & CO., Limited, v. STANDARD SHIPBUILDING CORPORATION.

Nos. 3006, 3008.

United States Court of Appeals, Third Circuit.

November 1, 1923

William St. John Tozer and White & Case, all of New York City (Joseph M. Hartfield, Harvey C. McClintock, and Branch P. Kerfoot all of New York City, of counsel), for appellants.

Walter G. Winne, U.S. Atty., of Hackensack, N.J. (Chauncey G. Parker of Newark, N.J., Henry M. Ward, of New York City, and John M Emery, of Newark, N.J., of counsel), for appellees.

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

WOOLLEY Circuit Judge.

This contest for priority between two mortgages turns on a claim to a prior lien in favor of the junior mortgage. In view of the number of grounds on which the claim is made and resisted, a careful statement of the facts may aid in understanding our decision.

In 1915, Shooters Island Shipyard Company sold its shipbuilding plant, situate on Shooters Island, in New York Bay, to the Standard Shipbuilding Corporation for $1,000,000 and took a purchase money mortgage on lands in the State of New York to secure $863,000, a part of the purchase price. Shooters Island was, and is, a single piece of property entirely occupied by the shipyard mortgaged in this transaction. Any extension of it would necessarily be on land under water then owned and expressly covered by the mortgage, or on land under water to be acquired afterward. This being obvious, the parties covenanted that the mortgage should cover after-acquired property, the clause reading:

'And all additions and extensions to said real property, including any and all rights to lands under water adjoining said premises, wherever acquired by the mortgagor.'

The boundary line between New York and New Jersey crossed the island. The upland was mainly in New York. A portion of one pier, however, extended beyond the line into under water territory of New Jersey while the lands under water expressly covered by the mortgage extended to the pier headline in Newark Bay. In the nature of things it was probable that 'any additions or extensions' would be carried into New Jersey. With this in view a covenant for further assurances was written in the mortgage requiring the mortgagor, when requested, to execute such mortgage instruments as may be necessary to 'place under the lien of this mortgage any such additions of or to the real property herein mortgaged.'

After obtaining title the Shipbuilding Corporation began to enlarge its plant by building additional shipways. For this purpose, in July, 1916, it acquired land under water by lease from the State of New Jersey with the right to convert the lease into a grant in fee upon payment of a principal sum equal to the capitalization of the yearly rental. With the lease in force and the expansion of the yard under way, the Shipbuilding Corporation, on April 17, 1917, regarding the land leased from the State of New Jersey as coming within the after-acquired property clause of the mortgage and acting pursuant to the covenant for further assurances, executed a supplemental mortgage to the Shooters Island Shipyard Company for the same principal debt covering all properties mentioned in the New Jersey lease.

This was the state of the title of the mortgaged premises when, the war being on, the United States Shipping Board Emergency Fleet Corporation, in August, 1917, requisitioned all ships under construction in its yard, and all materials and machinery, and commitments for materials and machinery, necessary for their completion. By this requisition the Shipbuilding Corporation was required to complete the construction of thirteen ships under contract and in the meantime to furnish the Fleet Corporation 'any information necessary to a fair and just determination of (its) obligations in taking over these ships and contracts. ' This is where the trouble began, for by this requisition there was no contractual relation established between the Shipbuilding Corporation and the Fleet Corporation. Their relation, whatever it was, arose out of the requisition prompted by the exigency of war. Having made the requisition, the Fleet Corporation, representing the United States, then set about to determine its obligations for its act and to finance the completion of the ships. First, it assumed the obligation to repay the former owners of the ships under construction the advance payments they had made to the Shipbuilding Corporation amounting (speaking in round numbers) to $6,611,000. Out of this sum the Shipbuilding Corporation, having spent part of the money on its plant, had expended upon the construction of six ships which were on the ways and in the purchase of materials for others only $1,700,000. The Fleet Corporation then supplied moneys for the completion of the requisitioned hulls and the building of other ships amounting in all to $18,083,000, payments, we gather, being made always in advance. Somewhere in these transactions contractual relations between the two corporations arose.

The requisition by the Fleet Corporation did not include the plant of the Shipbuilding Corporation. It left the plant where it was-- in the title, possession and operation of the owner. It included only the ships under construction and under contract, and materials for their construction. The Fleet Corporation, nevertheless, advanced large sums of money to the Shipbuilding Corporation on account of ship construction and authorized expenditures therefrom for additions and improvements to the plant, aggregating something more than $5,000,000. This was done without demanding security and, apparently, without thought of the mortgage held by the Shooters Island Company; certainly, so far as the record shows, without a move to question or disturb its lien upon after-acquired properties. Among these advances for plant improvement was one for $45,900, the purchase price of the land under water leased from the State of New Jersey. With this money the Shipbuilding Corporation, on November 29, 1918, under the option in the lease, acquired from the State of New Jersey a fee simple title to the leased land under water. This land with its shipways thus became a part of the shipbuilding plant of the Shipbuilding Corporation. Being acquired after the mortgage and the supplemental mortgage given the Shooters Island Company, the land on first view fell within the after-acquired property clause of the mortgage and came within its lien. We apprehend, if nothing else had happened, the lien of this mortgage would have been enforceable on foreclosure against this after-acquired land. And nothing affecting the lien did happen until, on February 5, 1920--the war having ended-- the Shipbuilding Corporation and the Fleet Corporation, after protracted negotiations, entered into a contract adjusting their mutual accounts arising out of moneys advanced by the Fleet Corporation and moneys claimed by the Shipbuilding Corporation and striking a balance due the Fleet Corporation in the sum of $1,337,000. This agreement is important because it shows how the contracting parties regarded the mortgage held by the Shooters Island Company and how they dealt with it in the adjustment of their affairs. By this contract the Shipbuilding Corporation agreed to execute and deliver to the Fleet Corporation its bond or notes for the principal sum of $1,337,000,

' * * * such bond or notes to be secured by a mortgage satisfactory in form and substance to the Fleet Corporation and covering all the real and personal property of (the Shipbuilding Corporation) now owned or hereafter to be acquired; said mortgage shall be a first lien upon all said property, subject only to the existing mortgage thereon (held by the Shooters Island Company) in the principal sum of Eight Hundred and Sixty-three Thousand Dollars ($863,000), or, if the Fleet Corporation so elect, it may purchase and discharge, * * * said existing mortgage; in which event, the said bond or notes and the said mortgage to be given to the Fleet Corporation shall be in the principal sum of Two Million Two Hundred Thousand Dollars ($2,200,000), and said mortgage shall be an absolute first lien on the said property.'

The Shipbuilding Corporation accordingly executed a mortgage to the Fleet Corporation in the sum named. It contained the following recital:

'Whereas, there is now outstanding and unpaid a bond and mortgage heretofore given by the (Shipbuilding Corporation) to Shooters Island Shipyard Company to secure the payment of the principal sum of $863,000, * * * covering certain parts of said real estate of said mortgagor. * * * '

As this mortgage was accepted by the Fleet Corporation it must be assumed that it was, according to the contract, 'satisfactory in form and substance.' There can be no doubt that at the time of entering into the agreement and of the execution of the mortgage the Fleet Corporation had no other thought than that it was obtaining a mortgage for $1,337,000 whose lien upon the property was under and 'subject to' that of the purchase money mortgage and supplemental mortgage held by the Shooters Island Company. Further evidence of this position is found in resolutions adopted by the Construction Claim Board of the Fleet Corporation on March 29, 1920, reciting the agreement of February 5, 1920, and stating that inasmuch as the Fleet Corporation should, in the opinion of the Board, own and control all first mortgages covering properties, it was recommended to the Board of Trustees of the Fleet Corporation--

'That at the time of ratifying said tentative agreement, the Emergency Fleet Corporation purchase the outstanding first mortgage covering the property of...