United States v. Sterling

• Decision Date: 08 September 1927
• Citation: 22 F.2d 323
• Parties: UNITED STATES v. STERLING et al.
• Court: U.S. District Court — Southern District of New York

22 F.2d 323 (1927)

UNITED STATES v. STERLING et al.

District Court, S. D. New York.

September 8, 1927.

Emory R. Buckner, U. S. Atty., of New York City (G. Biddle, Sp. Asst. U. S. Atty., of New York City, of counsel), for complainant.

John J. Curtin, of New York City, for defendant Commercial Trust Co. of New York.

Earl B. Barnes, of New York City, for defendant Sterling.

White & Case, of New York City (William St. John Tozer, of New York City, of counsel), for defendant New York Trust Co.

THACHER, District Judge (after stating the facts as above).

The suit is properly brought in equity, since recovery is sought of funds received and held by Sterling as trustee, and alleged to have been paid to the Commercial Trust Company contrary to the provisions of the trust. By the terms of the trust the freight moneys were to be held for account "of whoever may be found entitled to them." The claim of the Commercial Trust Company rests upon an assignment of unearned freights, made by the agreed purchasers of the vessels, who never acquired title. The effect of such an assignment is quite clearly established by the authorities. As between the mortgagor and mortgagee of a vessel, and in the absence of express agreement disclosing a contrary intention, freights fully earned while the mortgagor is in possession belong to the mortgagor, but freights earned after the mortgagee takes possession of the property under his mortgage belong to the mortgagee. Merchants' Banking Co., Ltd., v. Cargo of the Afton, 134 F. 727 (C. C. A. 2d). And the same rule applies as between the owner of a vessel and an agreed purchaser in possession under an executory contract to purchase the ship. In such cases freights fully earned while the agreed purchaser is in possession belong to the purchaser, but freights earned after the owner retakes the ship for breach of the purchase agreement belong to the owner. Jackson v. 36 Blocks of Marble, etc., 266 F. 58 (C. C. A. 2d); The Neponset Cases, 13 F.(2d) 808 (C. C. A. 1st); In re Atlantic G. & P. S. S. Co. (D. C.) 289 F. 145.

It is also clear from these decisions that neither the agreed purchaser nor the mortgagor can by his assignment defeat the right of the seller or mortgagee, upon retaking possession, to claim the freights subsequently earned. Before the ships were loaded, a receiver in bankruptcy was appointed for each of the purchasing companies. At about the same time, and before any freight moneys were earned or paid, the vessels then being in course of loading, notice was given by the Commercial Trust Company and by the United States Shipping Board of their respective claims to the freight moneys. In order that the freights might be collected and the charters performed, it was then agreed that the charter party commitments should be carried out under the supervision and management of Sterling, as trustee, and that he should receive and hold the freight moneys for account of whoever might be found entitled to them. Thus it appears that, when the freights were earned, the ships were not in the possession of the assignors, but were in the possession of Sterling as trustee.

It is argued that his possession was equivalent to possession by the Arapahoe and Tonawanda Companies, because the complaint alleges that the vessels came into the possession of these companies after the making of the contracts of sale, and there is nothing to show that the Shipping Board ever reclaimed or took back the ships. The Commercial Trust Company therefore insists that under its assignment it is entitled to the freights earned while Sterling, as trustee, was in possession. From the circumstances it is plainly to be inferred that the agreement that Sterling should operate the ships and receive the freight moneys as trustee was intended to be entirely without prejudice to the rights of the parties. The operating companies were not in default under the terms of their purchase agreements, and no attempt was made by the...