The Atlantic City

• Decision Date: 28 January 1915
• Docket Number: 1884.
• Parties: THE ATLANTIC CITY.
• Court: U.S. Court of Appeals — Third Circuit

220 F. 281

THE ATLANTIC CITY.

No. 1884.

United States Court of Appeals, Third Circuit.

January 28, 1915

Howard M. Long, of Philadelphia, Pa., for appellant.

Henry W. Baird, of New York City, for appellee.

Before BUFFINGTON, McPHERSON, and WOOLLEY, Circuit Judges.

J. B McPHERSON, Circuit Judge.

The dispute in this case grows out of the distribution of a fund in the admiralty. The steamer Atlantic City, owned by the Atlantic City Transportation Company, had been attached under a libel for maritime supplies, and on May 9, 1913, she was sold as perishable. The price obtained at the sale was deposited in the registry of the court, and a commissioner was appointed to make distribution. After the maritime liens had been allowed, a considerable sum of money remained, to which three claimants appeared, the Staten Island Shipbuilding Company, the West Jersey Trust Company, and Warren Webster. Neither of them presented a claim that was maritime in its nature; the Shipbuilding Company asserted a lien growing out of work done in the construction of the vessel; the Trust Company asserted a lien under a blanket first mortgage given by the Transportation Company; and Warren Webster's claim rests upon a second mortgage on the steamer. The jurisdiction of the admiralty to entertain these claims was challenged, but in support of the jurisdiction we need only refer to Schuchardt v. Babbage, 19 How. 239, 15 L.Ed. 625 and The J. E. Rumbell, 148 U.S. 1, 13 Sup.Ct. 498, 37 L.Ed 345.

The claim of Warren Webster is conceded to be the third in rank; and, since the balance for distribution is not large enough to pay either of the other two claims in full, we shall confine ourselves to the principal question at issue between the Shipbuilding Company and the trustee of the first mortgage. For that purpose we shall assume that the mortgage binds the vessel, and shall consider whether the District Court was right in awarding the balance of the fund to the Shipbuilding Company. The validity of the company's liens is attacked, and as the opinion below does not discuss this question we shall be obliged to take it up. The Trust Company cannot share in the fund, if the claims for construction are entitled to priority, and therefore it is vital to determine whether the liens are good.

The facts are as follows: Early in 1911 the Transportation Company, a New Jersey corporation whose principal business was the carriage of freight and passengers by water between Atlantic City and Philadelphia, and Atlantic City and New York, bought an uncompleted vessel then at City Island, N.Y. Soon afterwards, in the following May, the company gave the first mortgage in question to secure $100,000 of bonds. The mortgage covered the company's real estate, with other property, including three steamships, described as 'Str. Alpha, Str. Goldboro, and N.Y. Str. (complete).' (The 'N.Y. Str.' was named Atlantic City in March, 1912.) On January 29, 1912, the Shipbuilding Company (whose yard is at Port Richmond, N.Y.), having previously done a little work on the uncompleted vessel, agreed in writing with the Transportation Company to do further work thereon, and to furnish materials and supplies in accordance with the plans and specifications annexed to the contract. No departure from these plans and specifications was to be allowed unless authorized in writing, and no compensation for additions or alterations was to be made unless these had been first similarly authorized. For the work and material specifically included in the contract the Shipbuilding Company was to receive $36,910 in the following manner: $3,910 when the steamer should be delivered to the Port Richmond yard, and $33,000 when the work should be finished and the steamer delivered-- $13,000 in cash, and $20,000 in three-months notes, the notes to enjoy the privilege of renewal in whole or in part during five years, but to be secured by the Transportation Company's first mortgage bonds, $1,200 in bonds for $1,000 in notes, the bonds to be released proportionally as the notes should be reduced. After January 29 the Shipbuilding Company brought the uncompleted vessel to Port Richmond, and went on with the contract. During the construction extra work was agreed upon-- for which $9,540.14 is still unpaid--and this was authorized in part by letters written to the Shipbuilding Company by the Transportation Company and by Mr. Drake, its supervising architect. There is no dispute about the accuracy of the foregoing figures.

On July 16, as the time approached for delivering the steamer, the parties interested-- namely, the Transportation Company, the Shipbuilding Company, and Warren Webster, who was a large holder of the Transportation Company's stock and bonds-- entered into a written agreement, to which the Trust Company was not a party. It is likely that one reason for the agreement was the fact that all the first mortgage bonds had been disposed of, so that the Transportation Company had none to deliver as security for its notes. But Webster had bonds in considerable amount, and he agreed to turn over $24,000 of them to the Transportation Company, so that the contract of January 29 could be complied with in this respect, and the steamer delivered. The agreement of July 16 provided that the Shipbuilding Company should file a notice of lien against the steamer for $33,000 under the New York statute hereafter referred to; that bonds for $24,000 should pass from Webster to the Transportation Company, and thence to the Shipbuilding Company; that the Transportation Company should give its three-months note for $20,000 to the Shipbuilding Company, secured by Webster's bonds; that, when the note first fell due, the interest and at least $1,000 of the principal should be paid, whereupon the note should be extended for three months; that similar extensions should be granted if similar payments should be made thereafter during a period of five years; that, whenever a payment of principal should be made, a proportional amount of the bonds held as collateral security should be returned; that Webster should be subrogated to the rights of the Shipbuilding Company under its lien, so far as the company should receive money on account of its claim of $33,000; and, finally, that the agreement of January 29 should in no wise be affected, except as the subrogation of Webster might affect it.

On July 22, 1912, the steamer was delivered, and the Transportation Company gave a note for $20,000, secured by the $24,000 of bonds. Under the contract of January 29 the Shipbuilding Company had received in cash the first payment of $3,910, and $13,000 additional; the remainder of the agreed price being secured by the note and bonds referred to. On October 23-- the due date of the note-- the Shipbuilding Company was paid the interest and $1,000 on account, and the note was thereupon extended for three months; and on March 3, 1913, a further payment of $1,000 was made, which was apparently accepted as a second three months' renewal, although the payment was made several weeks after the note fell due for the second time. No other payment appears to have been made, and indeed the Transportation Company went into the hands of a receiver before October 18, 1912. Webster had advanced $6,000 of the $13,000, and also the $2,000 just referred to.

Meanwhile on September 3, 1912, the Shipbuilding Company had filed a notice of lien with the county clerk of the proper county, claiming a lien for $33,000 under the law of New York (Consol. Laws 1909, c. 33, art. 4, Secs. 80, 82, 83) for the labor and materials specifically covered by the contract of January 29. And on October 28 another notice was filed under the same statute for extra work amounting to $9,540.14. The...