Decision Date12 January 1927
Citation17 F.2d 423
CourtU.S. District Court — District of Maryland

Foley & Martin, of New York City, and Emory, Beeuwkes & Skeen, of Baltimore, Md., for James and Edwin A. Shewan.

Carter & Phillips, of New York City, and Janney, Ober, Slingluff & Williams, of Baltimore, Md., for Baker, Carver, and Morrell.

Word & Whip, of Baltimore, Md., for Steamship Terminal Co. and J. Jarka Co., Inc.

Janney, Ober, Slingluff & Williams, of Baltimore, Md., for A. J. Yarber.

Harry N. Abercrombie, of Baltimore, Md., for Wittenberg Coal Co.

G. W. S. Musgrave, of Baltimore, Md., for Grand Rapids Showcase Co.

Coleman, Fell, Morgan & Brune, of Baltimore, Md., for other shippers.

Griffin & Beatty, of Baltimore, Md., for Theodore H. Rohde.

SOPER, District Judge.

The proper distribution of the proceeds of sale of the steamship Henry W. Breyer is the subject-matter of the controversies involved in this case. James Shewan and Edwin A. Shewan, who hold a preferred mortgage upon the vessel, claim the entire sum against divers persons, who, either before or after the execution of the mortgage, furnished repairs, supplies, or services to the ship, and against certain shippers of merchandise, who complain of the failure of the ship in the performance of her duties as a common carrier. The ship was seized in Baltimore upon a libel for crew's wages, and thereafter intervening libels were filed by the mortgagee and other claimants. The vessel was sold at public auction for $64,000.

The Breyer was formerly the Norwegian vessel Hallfried. Having been badly damaged by fire, her wreck was purchased by the Shewans and held in New York City for several years. In the latter part of 1925, the New York & Florida Navigation Corporation entered into negotiations with the Shewans for the purchase of the vessel for use in coastwise trade in the United States. For this purpose it was necessary that the ship be registered as an American vessel, which could be lawfully done under R. S. ß 4136, as re-enacted by Act Feb. 24, 1915, c. 57, 38 Stat. 812 (Comp. St. ß 7714a). This section provides that the Secretary of Commerce may issue a registry or enrollment of such a wreck, when purchased by a citizen of the United States and repaired in a shipyard in the United States, if it shall be proved to the satisfaction of the Secretary that the repairs are equal to three times the appraised value of the vessel.

With this statute in view, the Shewans and the navigation corporation entered into an oral contract of sale of the ship "as is, where is, and how is, as of December 1, 1925." The agreed purchase price was $125,000, to be paid as follows: $12,500 on the making of the contract; $37,500 before the vessel sailed from New York and/or Baltimore; $25,000, with interest, on February 15, 1926; $15,000, with interest, on May 15, 1926; $15,000, with interest, on July 15, 1926; $20,000, with interest, on September 15, 1926 ˜ìî the deferred payments to be secured by a preferred mortgage. The sale, however, was conditional upon the transfer of the vessel's flag in accordance with the Wreckage Act (Comp. St. ß 7714a). In order to make this possible, it was agreed that the vessel should be repaired by the Shewans in New York, at the floating dry docks of James Shewan & Sons, Inc., a corporation owned and controlled by them, at the expense of the navigation corporation, with the understanding, however, that, if the change of flag should not be effected, the navigation corporation should be released from any obligation either to take the vessel or to pay for the repairs. It was also understood that, while the repairs were being made, the navigation corporation might put a crew on board and do whatever was necessary to equip the vessel for active service at sea.

Accordingly, on December 18, 1925, the purchaser paid $12,500, and during the month put on board a captain and crew, who were employed in getting the gear ready for survey, while the Shewan corporation made the necessary repairs. On December 29, 1925, the parties were notified that American registry of the vessel could be made. Thereupon the purchaser, by a communication in writing to the vendors, which contains most of the terms of the oral agreement of sale, requested the vendors to deliver a bill of sale, in order that the ship might be documented and registered as an American vessel, agreeing, however, immediately upon the change of registration, to execute and deliver the preferred mortgage, and declaring that, in the meantime, the bill of sale should not vest the actual title in the navigation corporation, but that the vessel should be held in trust for the vendors until the execution and delivery of the mortgage, whereupon the title should pass, subject, however, to the mortgage and a lien for repairs which had been made. The bill of sale was executed the same day, and purports to convey an absolute title to the ship, subject to the lien of the Shewan Corporation for the repairs referred to. It was duly recorded in the office of the collector of customs at New York on December 30. On the same day the vessel sailed from New York for Baltimore. On December 31 the preferred mortgage for $112,500, having been executed as agreed, was similarly recorded. The first payment of $37,500, due under the mortgage before the ship sailed, was not made.

Claim of Baker, Carver, and Morrell.

The claim of Baker, Carver, and Morrell for $8,302.57 covers equipment and supplies furnished to the ship between December 14 and December 28, 1925, upon the order of the president of the navigation corporation. Under these circumstances, the supply men claim, not only that they acquired a lien upon the vessel, under the provisions of subsections P, Q, and R of section 30 of the Act of June 5, 1920, 41 Stat. 1005 (Comp. St. ßß 8146ºooo, 8146ºp, 8146º pp), but also that the lien is a preferred maritime lien under subsection M of section 30 of that act (Comp. St. 8146ºnnn). Subsections P, Q, R, and M are as follows:

"P. Persons Entitled to Lien. Any person furnishing repairs, supplies, towage, use of dry dock or marine railway, or other necessaries, to any vessel, whether foreign or domestic, upon the order of the owner of such vessel, or of a person authorized by the owner, shall have a maritime lien on the vessel, which may be enforced by suit in rem, and it shall not be necessary to allege or prove that credit was given to the vessel.

"Q. Persons Authorized to Procure Repairs, Supplies, etc. The following persons shall be presumed to have authority from the owner to procure repairs, supplies, towage, use of dry dock or marine railway, and other necessaries for the vessel: The managing owner, ship's husband, master, or any person to whom the management of the vessel at the port of supply is intrusted. No person tortiously or unlawfully in possession or charge of a vessel shall have authority to bind the vessel.

"R. Same; Notice to Person Furnishing Repairs, Supplies, etc. The officers and agents of a vessel specified in subsection Q shall be taken to include such officers and agents when appointed by a charterer, by an owner pro hac vice, or by an agreed purchaser in possession of the vessel; but nothing in this section shall be construed to confer a lien when the furnisher knew, or by exercise of reasonable diligence could have ascertained, that because of the terms of a charter party, agreement for sale of the vessel, or for any other reason, the person ordering the repairs, supplies, or other necessaries was without authority to bind the vessel therefor."

"M. Preferred Maritime Lien; Priorities; Other Liens ˜ìî (a) When used hereinafter in this section, the term `preferred maritime lien' means (1) a lien arising prior in time to the recording and indorsement of a preferred mortgage in accordance with the provisions of this section; or (2) a lien for damages arising out of tort, for wages of a stevedore when employed directly by the owner, operator, master, ship's husband, or agent of the vessel, for wages of the crew of the vessel, for general average, and for salvage, including contract salvage.

"(b) Upon the sale of any mortgaged vessel by order of a District Court of the United States in any suit in rem in admiralty for the enforcement of a preferred mortgage lien thereon, all pre-existing claims in the vessel, including any possessory common-law lien of which a lienor is deprived under the provisions of subsection L shall be held terminated and shall thereafter attach, in like amount and in accordance with their respective priorities, to the proceeds of the sale; except that the preferred mortgage lien shall have priority over all claims against the vessel, except (1) preferred maritime liens, and (2) expenses and fees allowed and costs taxed, by the court."

Since the supplies were furnished before the mortgage was executed, it is necessary only to determine whether a lien arose when they were received by the ship. The existence of the lien depends (1) upon whether the goods were ordered by the owner of the ship or a person authorized by the owner, as described; and (2) upon whether the furnisher knew, or by the exercise of reasonable diligence could have ascertained, that the person ordering the supplies was without authority to bind the vessel. It is suggested that the navigation corporation was not "an agreed purchaser in possession of the vessel," and therefore its president was not an authorized person within the terms of the statute. But undoubtedly there was a contract of purchase. It is so referred to in the letter of December 29, 1925. It is true that title to the vessel had not passed, and that the agreement might be nullified by failure to secure a transfer of the vessel's flag, but these features were merely incidents, and do not destroy the essential nature of the instrument as a contract of sale.

It is necessary, however, to find, not only that the navigation corporation was an...

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