153 F.Supp. 354 (1957)
ATLANTIC STEAMER SUPPLY COMPANY, Inc., a District of Columbia Corporation,
THE SS TRADEWIND, her engines, boilers, etc.
United States District Court D. Maryland.
June 11, 1957.
Ober, Williams, Grimes & Stinson, Baltimore, Md. (William A. Grimes), of Baltimore, Md., for Alaska Steamship Co.
Solomon B. Levin, of Baltimore, Md., for Larrabee Associates.
R. DORSEY WATKINS, District Judge.
This is a continuation of a proceeding in admiralty in rem to determine the proper distribution of the proceeds from the sale of the Steamship Tradewind, a foreign documented vessel. The case is now before the court on (1) the motion of W. Harry Smith Agencies, Inc., a foreign supplier, for leave to amend its intervening libel and for reconsideration of this court's opinion of August 7, 1956, insofar as that decision held that "the liens of the foreign suppliers [are] subordinated to the lien of the preferred mortgage", together with the answer and exceptions of the Alaska Steamship Company, mortgagee, to such amended libel; and on (2) the exceptions of the Alaska Steamship Company to the intervening libel of Larrabee Associates, a partnership engaged in the advertising business with its principal place of business in Washington, D. C., claiming a maritime lien.
Claim of The W. Harry Smith Agencies, Inc.
The W. Harry Smith Agencies, Inc., (Smith) was engaged by the Caribbean Atlantic Steamship Company, the owner and mortgagor of The Tradewind, as a special agent to furnish port, cargo, passenger, ship and sundry facilities to and on behalf of the vessel in the port of Havana, Cuba, and such services were rendered the ship on three voyages she made to the port of Havana between July 31, 1955, and October 1, 1955. On November 9, 1955, the Caribbean Atlantic
On the basis of these facts and relying on section 953 of Title 46 U.S.C.A. which defines a preferred maritime lien and accords it priority over the preferred mortgage lien, Smith seeks to build its maritime lien as a supplier into a preferred maritime lien for damages arising out of tort by amending its intervening libel to allege that "on all of the aforementioned dates the officers of the Caribbean Atlantic Steamship Company, Inc. [sic], knew of that company's insolvency and the financial inability of the SS Tradewind to pay for the aforementioned port, cargo, passenger, ship and sundry facilities, services and materials furnished by The W. Harry Smith Agencies, Inc., to and for the benefit of the S.S. Tradewind and, therefore in effect accepted payments for the same fraudulently." (Emphasis supplied). By answer and exceptions the mortgagee, Alaska Steamship Company (Alaska) stated no objection to the making of the requested amendment but reserved the right to contend that the failure to claim a preferred maritime lien in the original intervening libel of Smith indicated, in and of itself, a lack of merit in the intervening libel, as amended, and that as a matter of law no preferred maritime lien arose out of the facts set forth in the amended intervening libel. The amendment was allowed in open court.
As authority for its contention in its amended libel, Smith cites an opinion of this court by Judge Soper, then a district judge, in which the liens claimed by certain shippers for damages occasioned by the complete failure of the vessel to sail were based on the fraudulent conduct of the ship in accepting prepayment of freight for cargo actually placed on board at a time when the vessel's corporate owner was insolvent and the ship was clearly unable to perform the services which she held herself out to the community as being capable of rendering. The court in that case, The Henry W. Breyer, D.C.Md.1927, 17 F.2d 423, 431, said:
"On another ground, the shippers were justified in alleging that they were damaged by acts of the vessel which amounted to torts. The complete financial inability of the owner of the vessel to comply with the obligations of a common carrier is so clearly shown by the testimony that it must have been known to the managers of the vessel when the cargo was taken on board. The action, therefore, in accepting the goods, and particularly in receiving the freight money in advance, from the intervening libelants, was in effect fraudulent. The navigation corporation was doubtless insolvent, and the situation was analogous to that which has been frequently before the courts in reclamation proceedings in bankruptcy. It is a general principle that, when a person who is insolvent purchases goods with no intention of paying for them, and conceals his insolvency and his intention not to pay, he is guilty of fraud which entitles the vendor to recover the goods. Knowledge of inability to pay when the purchase is made is equivalent to purchase with intent not to pay. Such purpose is constructively fraudulent. In re Henry Siegel Co., (D.C.) 223 F. 369; Gillespie v. Piles & Co., (C. C.A.) 178 F. 886 [44 L.R.A.,N.S.,
It at once becomes apparent by a comparison of the underlined portions of Smith's amended intervening libel with the underlined portions of the opinion in The Henry W. Breyer that the former is, at the most, nothing more than an allegation of personal fraud on the part of the officers of the corporate shipowner, while the latter clearly makes the well established distinction in admiralty between the shipowner and the ship. Where the fraud of the owner is of a personal nature, a claim for damages arising out of that fraud does not constitute a lien upon, or a claim against, the vessel. International Refugee Organization v. Maryland Drydock Co., 4 Cir., 1950, 179 F.2d 284, 288. Judge Chesnut in Todd Shipyards Corporation v. City of Athens, D.C.Md.1949, 83 F.Supp. 67, 76, considering the import of the decision in The Henry W. Breyer as being "only a recognition of a long existing right of a claimant to sue in tort for damages resulting from wrongful action of a common carrier with respect to passengers or cargo after they had physically come within the control of the carrier", refused to hold a ship liable in tort for breach of an executory contract for the transportation of passengers who had not come within the care or control of the carrier; finding the obligation to transport that of the owner, not of the vessel. "The maritime lien is of very ancient lineage. Its conceptual origin lies in the personification of the ship itself. The ship as an entity, considered apart from the personal liability of the owner, becomes responsible for benefits conferred and damages committed by her." Todd Shipyards Corporation v. The City of Athens, supra, 83 F.Supp. at page 74. There is no question in the instant case, and this court has so held, that The Tradewind is personally responsible for the benefits she derived from Smith under the provisions of section 971, Title 46 U.S.C.A. giving a maritime lien to one furnishing necessaries to a vessel upon the order of the owner, the only question being one involving prioritiesâ€"whether or not The Tradewind was guilty of fraudulent conduct toward Smith giving rise to a preferred maritime lien. The intervening libel, as amended, alleges no fraud on the part of the vessel.
In addition to the complete absence of any factual support for an allegation of fraudulent concealment, the legal effect, as regards concealment, of a clause in a valid preferred mortgage prohibiting the creation of any liens whatsoever other than for crew's wages or salvage, must be considered. The purpose of the Ship Mortgage Act, 1920, 46 U.S. C.A. Â§ 911 et seq., was to make ships' mortgages desirable investments. To effectuate this purpose it is necessary to charge suppliers with notice of a valid preferred mortgage.
"One who furnishes supplies to a vessel upon the order of the owner thereof is not required to examine the ship's papers or to make inquiry as to the authority of the owner to bind the vessel. Such authority is given him by statute as well as by virtue of his title. To be sure, one who furnishes supplies, etc., to the owner of a vessel is chargeable with notice of a valid preferred mortgage thereon; * * *." The Bergen, 9 Cir., 1933, 64 F.2d 877, 879; accord: Morse Drydock & Repair Co. v. The Northern Star, 1926, 271 U.S. 552, 554, 46 S.Ct. 589, 70 L.Ed. 1082; Atlantic Steamer Supply Co. v. The Tradewind, D.C.Md., 1956, 144 F. Supp. 408, 414.
Courts dealing with mortgages on vessels of the United States have held that the preferred mortgage lien takes precedence over the supplier's lien even where no notices relative to the mortgage have been posted on the vessel and the mortgagor has failed to use diligence in placing a copy of the mortgage on board the ship and causing it to be exhibited to all having business with the vessel which might give rise to a maritime lien, the rationale of such cases being that compliance with the provisions of section 922 of Title 46 U.S.C.A., requiring among other things that the mortgaged vessel be a vessel of the United States of 200 gross tons or more, endorsement of the mortgage upon the vessel's documents,
That this is not an unreasonable burden and is, in fact, a necessary precaution regularly taken by American suppliers of American documented vessels to insure their security therein and that even suppliers of a foreign documented vessel may without difficulty determine whether or not prior liens exist is evidenced by testimony before the Committee on Merchant Marine and Fisheries of the House of Representatives when the 1954 amendment to the Ship Mortgage Act, 1920, was being considered. Congress saw fit in the 1954 amendment, 46 U.S.C.A. Â§ 951, to accord the liens of American suppliers of foreign documented vessels priority over the lien of the preferred mortgage thereon but denied such priority to the liens of foreign suppliers, both American and foreign suppliers remaining chargeable with notice of a valid preferred
That Smith, being chargeable with notice, can not assert a lien for damages arising out of tort is further manifested by certain provisions of the Ship Mortgage Act, 1920, dealing with failure to disclose encumbrances upon vessels of the United States. Section 941 (a) of Title 46 U.S.C.A. provides that willful failure on the part of the master to exhibit the vessel's documents or a copy of the preferred mortgage may result in the suspension or cancellation of his license. Section 941 (b) states a mortgagor who, with intent to defraud, fails, upon request, to disclose in writing to the mortgagee before the execution of the mortgage any prior encumbrances upon the vessel or incurs, without the consent of the mortgagee, before a reasonable time has passed after the execution of the mortgage for the recording and endorsement of the mortgage on the ship's documents, any contractual obligation creating a lien upon the vessel shall be guilty of a misdemeanor and, if the mortgagor is a corporation, its president or other principal executive officer shall be subject to prosecution. Section 941 (c) is most pertinent to the present case.
"If any person enters into any contract secured by, or upon the credit of, a vessel of the United States covered by a preferred mortgage, and suffers pecuniary loss by reason of the failure * * * of the mortgagor, or master of the mortgaged vessel, or any officer, employee, or agent thereof, to comply with any provision of section 923 or 924 of this title, or to file an affidavit as required by subdivision (a) of section 922 of this title, correct in each particular thereof, the mortgagor shall be liable to such person for damages in the amount of such loss. The district courts of the United States are given jurisdiction (but not to the exclusion of the courts of the several States, Territories, Districts, or possessions) of suits for the recovery of such damages, irrespective of the amount involved in the suit or the citizenship of the parties thereto. Such suit shall be begun by personal service upon the defendant within the limits of the district * * *."
Since the failure to comply with the provisions of sections 922, 923 and 924 would most often, if not always, arise from negligent or fraudulent conduct on the part of the one charged with the statutory duty of giving notice as to the ship's financial condition, it is not entirely without significance that Congress in section 941 (c) failed to indicate, or to reserve, any right on the part of one injured to proceed in rem against the vessel for such tortious conduct. Section 954 (a) creating upon default a cause of action in personam in admiralty for the outstanding mortgage indebtedness recites this type of relief as being an additional remedy. Section 974 dealing with
In the Libel of Pilgrim Trust Co. v. Frances C. Denehy, supra, the court considered the effect of a valid preferred mortgage from the standpoint of a balancing of equities, the repairer lien holder forcefully arguing that, as the vessel has been substantially and materially improved by its repair work, to allow the lien of the preferred mortgage to attach to the entire fund as distinguished from the value of the vessel before the repairs were initiated would result in an unjust enrichment of the mortgagee. The court in denying the repairer recovery on the basis of its failure to ascertain the existence of prior encumbrances and on the basis of the declared purpose of the Ship Mortgage Act, 1920, to make ships' mortgages desirable investments, explained, 94 F.Supp. at page 815, as follows:
"In The Favorite, D.C.S.D.N.Y., 1940, 34 F.Supp. 324, Judge Conger states, 34 F.Supp. at page 328, the theory behind this burden of inquiry on the part of one dealing with a vessel: `One dealing with the ship, either in her home port or abroad, can easily ascertain whether or not there is any encumbrance on the vessel. It is his duty to so do. Should he fail, he does so at his own peril. If an inspection of the ship's papers discloses to a repairman or a contractor that there is a preferred mortgage on the ship, he deals with the ship with full knowledge, if it appears that the maturity date has passed, and no certificate of discharge is endorsed on the mortgage. He has, at least, notice that he should inquire further. He is, at least, dealing with the ship with his eyes open. See Robinson on Admiralty, 1939, pg. 452, where it is stated: "If he feeds the mortgage elephant without inquiring, he is in the same position as if he has fed the animal knowingly. This inversion of the admiralty rule will tend to make the supplyman demand cash; and in the long run the mortgagee, as he has had to do often enough in shore mortgages, may have to feed his own elephant by paying for the supplies, etc., himself as an alternative to forcing the ship to lay up."'"
An examination of The Henry W. Breyer, supra, principally relied upon by Smith, indicates it is authority for this court's conclusion that Smith can not build its maritime lien as a supplier or furnisher of services into a preferred maritime lien for damages arising out of tort. The court in that case, after having considered the shippers' claims, then turned its attention to other claimants. Stevedoring services and supplies had been furnished the vessel after the execution
"Undoubtedly the claimant is entitled to a lien on the ship for the coal furnished under subsection P of section 30 of the Ship Mortgage Act of 1920, providing that any person furnishing supplies or other necessaries to a vessel shall have a maritime lien thereon. The sole question is whether this lien has priority over the lien of the preferred mortgage. It is clear that it is not one of the preferred liens under the terms of subsection M, since it did not arise prior to the recording and indorsement of the mortgage, nor did it arise out of tort, wages of stevedores or crew, or general average or salvage." (Emphasis supplied.)
Likewise under the facts of this case, as a matter of law Smith may not claim a preferred maritime lien for damages arising out of tort, and its maritime lien as a foreign supplier of a foreign vessel is subordinated, under the provisions of section 953, to the lien of the preferred mortgage.
Claim of Larrabee Associates.
Larrabee Associates (Larrabee), a partnership engaged in the advertising business, asserts its right to a maritime lien under the provisions of section 971 of Title 46 U.S.C.A. Counsel for Larrabee and for the mortgagee, exceptant to this claim have stipulated as to the nature of the services rendered as follows: