Opposition Brief — Jones v. Gierach

“LIBRARY | es

SUPREME COURT, U. & ies:

Office-Supreme Court, U.S. 1

FILED

MAR 16 1970 .,

: ae , JOHN F, DAVIS, CLERK

Supreme Court nf the Vuited States

: October Term, 1969

- No.1. 8 0 -

TODD SHIPYARDS. CORPORATION, ’

Pabtvoner,

fee

Ea vs. a

“. oe t

MASTAN COMPANY, INC., etc., |

an Respondents.

\F

>

BRIEF IN OPPOSITION TO PETITION FOR A :

WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE THIRD CIRCUIT

* Jonn R. SHENEMAN

Attorney for Respdéndent,

Mastan Company, Inc.

19 Rector Street

New York, New York 10006

GeorcE D. Byrnes :

Of Counsel |

|

TABLE OF CONTENTS

PAGE

entoment oF the: Oaee (sao ee eee 1

Reasons for Denial of the Writ 9.000000... 6

Mastan Respectfully Requests That This Court Grant

It, As Against Todd, Interest And Damages For

Delay On The Ground That Todd’s Application

For-Writ Is Totally Frivolous 2.000.000.0000... 28

te Eran inn Rah ue MONE ENE LUA N= * 3 29

TABLE OF AUTHORITIES

Cases:

Atlantic Steamer Supply Company v. The SS Trade-

wind, 153 F. Supp. 354 (D. Md. 1957) ...... Ni 17, 18, 20

Blair v. Durham, 139 F. 2d 260 (1943)... 29

Brock v. The SS South Hampton, 231 F. Supp. 280

(D. Ore. 1964) Tati ucaey eevee, es) Ath 14°

Chemical Bank New York Trust Co. v. The SS West-

hampton, 231 F. Supp. 284 (D. Md. 1964) . 22

C. T. Willard Co. v. City of New York, 81 Mise, 48,

pee eS Ge Re Dniiic deal Van IP eae! PS 25

Dampskibsselskabet Dannebrog v. Signal Oil & Gas

Co., 310 U. S. 268 (1940) é if 16

Decker, Matter of, 149 Mise. 364, 268 N.Y. S. 280. 9

Deming v. Carlisle Packing Co., 226 US 102 (1912) . 29

Diaz v. The SS Seathunder, 191 F’. Supp. 807 (D. Md.

1961) ‘

sutissacaeseetive wet 15, 16, 17, 18

#4 y

PAGE

Doehlen v. Real Estate Board of New York Bldg. Co.,

Pe I Ca, Pe eae OD loa sina ictehoreivetccnecscss 9, 10

Donald T. Wright, _— 30 F. Supp. 610 (W.D. Ken.

ee ea ip RAE ga te ae | eee 23

First Nat. Bank of Batavier v. Franke, 1 AD 2d 539,

151 N.Y.S. 2d 596, aff. 3: NY 2d 849, 144 NE 2d

re a 5 css indo ccoknsdecginati secee rv 9

‘Flood v. American Oil Screw Trawler, Francis Me-

‘Pherson, 258 F. Supp. 768 (E.D. Mass. 1966)... 11

Gordon v. Aratee, 114 NJ Eq. 294, 168 A 729 ............ 24, 26

Henry W. Breyer, 17 F. 2d 423 (D. Md. 1927)....13, 18, 20, 21

Huit Corp. v. Siskind, 30 Mise. 2d 598, 219 N.Y.S. 2d

I ate lied, SAR ea sea die cnc secede Svabbcsek oodaccoveve 10

International Refuges Organization v. Maryland Dry-

dock Co., 179 F.. 2d 284 (4th Cir. 1950) ................ 18

Independent Truckers, Inc., In Re, 226-F. Supp. 440

RR ER Akan ee nea Reet 24

Irving Trust Co. v. Kaminsky, 19-F- Supp. Sa

ies ca lenae ena oS Oe ne 9

oe v. Sinicropi, 192 N.Y.S. 2d 240 00000000000... 10

Kelly v. Farmers Production Credit A 88 N.Y.S.

I ota ie esi Toc Wek st chscn eosecenbiavanies 10

Klinger v. New York State National Bank, 151 Mise.

IE I age ee oS 25, 26

Langford v. Fessenden, 220 AD 258, 221 N.Y.S.424... 9

Lewis v. U. S., 92 US 618 (1879) oococcccccsssseeccessseen 25

Libel of Pilgrim Trust v. The Frances €. Denehy, 94

I I ns oe csasasadesserrenen 22

Lottawanna, The, 88 US 558 (1874) 0... : 23

\. Lupia v. Lupia, 190 N.Y.S. 2d 733 .............. Ee 9

II!

-

PAGE

Markham v. Russel State Bank, 358 F. 2d 488 (10th

US Sh I ie cect auras eo eotcpvap seeds ce csence duh 24

Marine Transport, In Re, 94 F. 2d 7 (2 Cir. 1938)... 14

Meriam v. Wimpfheimer, 25 F. Supp. 405 (S.D.N.Y.

ER le See Oe nn “Sr area t Sia NAR i Oni reed a 10

Morrisey et al. v. The SS A & J Faith, 252 F. Supp.

es 8 eae ee ae eee 14, 18, 19, 20

Panama R.R. Co. v. Johnson, 264 U. S. 375 wae ee

Pascagoula Dock Station v. Merchants & Marine

Bank, 271 F. 2d 53 (5th Cir. 1959) .........0..000000... 11, 12

Philadelphia Home, etc. v. Philadelphia Sav. EF. Soc.,

cS ee ke UU SD een eeerepetonen “8

Pope & Talbot, Inc. v. Hawn, 346 U. S. 406 (1953) ... 1

R. Lenahan, The, 10 F. Supp. 497 (E.D. Pa. 1935)... 11

Resolute, The, 168 US 437 (1897) ..........0000 23

Rock Island Bridge, The, 73 US (6 Wall) 213 ( sai © 23

Ruhl v . Phillips, >} Sy AC) 9 Eg ae 9

Sernberger v. Sussman, 69 N. J. Eq. 199, 60 A 195,

aff. 85 N. J. Eq. 593, 98 A 1087 (1916) ................ 25

713 Co. v. Jersey City, 94 N. J. Super. 210 (1967)... 29

“Shay v. Abdella, 131 Mise. 175, 295 N.Y.S.2d517... 9

Sowell v. Federal Reserve Bank, 268 US 449 (1925)... 25

Todd Shipyard Corporation v. City of Athens, 83 F.

a, OE LEE, Tees BOD oii Fein chstecitesessisitivsctes <1

U. S. v. American Gas Serew Franz Joseph, 210 F.

ome. GL CED. AMM TOD oo ooo ices ceciviceeyeocesess 11, 21, 22

U.S. v. Johnston, 268 US 220 (1925) 2000.0. 6

U. S. v. Oil Serew Ken Jr., 275 F. Supp. 792 (E.D.

Diy PE eR ee 11

Iv

PAGE

Victor Gruen Associates, Ine. v. Glass, 338 F. 2d 826

(9th Cir. 1964) Uae caus cue yrcce he aeee ees cee RAPEING 24, 27.

Walsh v. Tadlock, 104 F. 2d 131 (9th Cir. 1939) ...... 23

Walter E. Heller & Co. v. The M/V Mr. Ed, 270 F.

Supp. 830 (E.D. La. 1967) ©........ Reet 11, 21

Statutes: |

Carriage of Goods by Sea Act (46 USC §§1300-1315)

| . | 19, 20

New York Debtor and Creditor. Law:

oo SEMEEE oe aM Silene teaaraiit SON Le ENG eae ray CE 7, 8, 9,10, 11

OP ra ee 7, 8, 9,10, 11

= 1 (ae len eat ea RNR Palco eae ee aS eR RRR ERIE ihr 7, 8,9

Uniform Fraudulent Conveyance Act ..................... el, 10

U. S. Ship Mortgage Act of 1920:

46 USC §911 .....00000000.... SM SRO IUU ESE Me Moat toet OF 2

ee RT RRS tee Pe Pen ie AU Ried tf 3, 4

Bo side on AB og VSR Eee rN Cte en LEN ay Re Fo rt 4

Me re esi Bo iat eee 4

46 USC §922(a) Pe Ce uae 7, 8, 9, 10, 11

re ee he ee ee Se

‘Other Authorities:

1 Benedict on Admiralty, $12, page 22 000. 13

| OED, MO ROR: ,<. csi coccteics 22

4 Benedict on Admiralty, §613 2000000000000... aa aioe (22

55 CJS Marshalling of Assets & Securities, §4 ............ 26, 27

Gilmore & Black, The Law of Admiralty, 510 (1957) 23

517 (1957) 24

Robinson, Admiralty, page 362 ............... fos Seve 23

IN THE

Supreme Court of the United States

October Term, 1969

Topp SurpyaRps CoRPorRATION,

' Petitioner,

vs.

>

Mastan Company, Inc., ete.,

Respondents.

~

BRIEF IN OPPOSITION, TO PETITION FOR A

WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE THIRD CIRCUIT

Statement of the Case

_ At stake in this admiralty in rem action is the distribu-

tion of $55,085.37, deposited in the Registry of the District

Court, following the foreclosure and sale of the SS Sap-

phire Sandy (hereinafter ‘‘Sandy’’) by the United States

Marshal. The original sale proceeds secured by the United

States Marshal were $160,000. ‘This sum was reduced to

$55,085.37 by payments for administrative costs and by

payments in settlement of lien suits filed below by seamen

for wages. After the latter reductions, there Pemained only

two contestants to the fund of $55,085.37, to wit, the Peti-

9 no

_ tioner, Todd Shipyards Corporation (hereinafter ‘‘Todd’’)

and the Respondent, Mastan Company Inc. (hereinafter

‘‘Mastan’’). : - ; :

Mastan brought the suit below in rem against the Sandy,

a vessel owned by Sapphire Steamship Company (herein-

after ‘‘Sapphire’’) to foreclose a mortgage thereon, which

it claimed to be a preferred ship mortgage under the U. S.

‘Ship Mortgage Act of 1920 (46 USC §911 et seq.). Other

maritime lien claimants, such as Todd, also filed in rem

‘suits below against the Sandy. The District Court ap-

pointed a Special Master, who determined: that Mastan was

entitled to the remaining fund in the District Court ($55,-

085.37) by reason of its being the holder of a valid first

preferred ship mortgage on the Sandy within the purview

of the U. S. Ship Mortgage Act. .

Mastan ’s ship mortgage originally secured a total loan

from Mastan to Sapphire in the amount of $1,296,000. The

Special Master, the District Court and the Court of Ap-

peals found that the sole purpose of this loan was to en-

able Sapphire to purchase three ships, one of which was

the Sandy. The other ships were the SS Sapphire Gladys

(hereinafter ‘‘Gladys’’) and the SS Sapphire Etta (here-

inafter ‘‘Etta’’). Thus, Mastan’s mortgage was in effect

-a purchase money mortgage. This loan was made by Mas-

tan in two parts, i.e., $864,000 on December 29, 1965 and

~ $432,000 on January 21, 1966. The first loan installment

. was used to purchase the Sandy and Gladys. To secure

. said loan, Sapphire granted Mastan a First Preferred

Fleet Ship Mortgage on the Sandy and Gladys. The sec-

ond loan installment was used to purchase the Etta. To

secure said loan, the First Preferred Ship Mortgage was

3

y amended by a Supplemental Agreement in which the Mort-

gage on the Sandy and Gladys was extended to include said

loan and a preferred ship mortgage granted on the E¢ta

to cover the entire loan. |

-Thereafter and in August of 1966 Mastan, at Sapphire’s

request, extended the term of Sapphire’s loan and reduced

the monthly payments thereunder. For this Mastan

charged a finance fee of $52,817.13 which was, in effect,

loaned by Mastan to Sapphire, the said sum being added on

to the then outstanditig indebtedness due under the original

loan of $1,296,000. To secure the latter, the aforesaid origi- .

nal First Preferred Fleet Ship Mortgage, as amended by

the Supplemental Agreement, was further. amended by a

‘Supplemental Indenture which extended the mortgage on

the Sandy, Gladys and Etta so as to cover the additional

loan of $92, 817. 13.

The admiralty jurisdiction of the District Court was

strictly in rem and was invoked to determine the validity

and priority of competing maritime lien rights in the Sandy .

and the proceeds of her sale. There was no issue as to in

personam rights of any of the lien contestants either be-

tween themselves or against Sapphire. It is conceded by

Todd that the Ship Mortgage Act of 1920 is the controlling

statute which governs the priority of the liens filed in the

proceedings below. Such Act (46 USC $953) grants a ship

mortgage, within its coverage, lien priority

‘over. all claims against the vessel, except (1) pre-

ferred maritime liens and (2) expenses and fees. al-

lowed and costs taxed, by the court”’.

The Act (46 USC §953) defines a ‘‘preferred maritime

lien’’ as either (A) ‘‘a lien arising prior in time to the re-

zs | 4

cording and endorsement of preferred mortgage’’ or (B)

‘a lien for damages arising out of tort, * * *’’? (Emphasis

supplied. )

It was found below and it is conceded by Todd that the

First Preferred Fleet Ship Mortgage and the Supplemental

Agreement thereto (which secured the original loan of

$1,296,000) were duly ‘recorded and endorsed on Decem-

ber 29, 1965 and January 21, 1966 respectively. Todd

concedes that its repairs were rendered after such recorda-

tion and endorsement.

By reason of the fact that Mastan’s Original Mortgage

and the Supplemental Agreement thereto were recorded

and endorsed prior to the rendition of Todd’s services, the

Ship Mortgage Act gives the lien of Mastan’s mortgage

priority over the lien of Todd up to the amount outstanding

on the original loan? unless such mortgage is invalid un-

_ 1. The Ship Mortgage Act requires, as a condition precedent to

preferred status that (a) the mortgagee be a U.S. citizen (46 USC

§922), and (b) that the mortgage comply with the public notice pro-

visions of such Act (46 USC §§921, 922). These provisions require

that the mortgage, together with a good faith affidavit executed by

the mortgagor, be recorded with the U.S. Coast Guard at the: mort-

gaged vessel’s port of documentation and further, require that certain

information about the mortgage be endorsed on the mortgaged ves-

sel’s papers. The courts below found, and Todd does not contest,

that Mastan’s mortgage and all the amendments thereto complied with

the just noted recording provisions and further that Mastan was a

United States citizen. +2 ; .

- 2. As noted above, the mortgage documents securing the original

loan to Sapphire of $1,296,000 (i.e., the Original Mortgage and the

Supplemental Agreement thereto) were recorded and endorsed prior

\ to any rendition of repairs by Todd. The evidence below showed.

that up to the time of its mortgage default, Sapphire had repaid

Mastan the sum of $531,000.68, which means that there is still a

principal debt of $715,068.32 due on the original loan to which the

lower courts have held Mastan has lien priority. This amount: is

monumentally in excess of the fund in the Registry of the District

Court ($55,085.37).

‘5

der the Ship Mortgage Act or unless Todd’s lien be a

‘‘preferred maritime lien,’’ as defined above, i.e. if its lien

be deemed based on tort.

a 4

Realizing the above, Todd advanced bélow a dual at-

tack on Mastan’s lien priority i.e. (a) Mastan’s mortgage

was fraudulent and thus is not valid under the Ship Mort-

gage Act and (b) Todd’s lien is a ‘‘preferred maritime

lien’’ sounding in tort and is superior to that of Mastan’s

mortgage even if the latter is s valid under the Ship Mort-

gage Act. :

The Special Master, District Court and the Court of

Appeals found that the mortgage transactions between

Sapphire and Mastan ‘were untainted with the slightest

fraud. To obviate the patent lack of fraud, Todd sought -

below to graft upon the provisions of the Ship Mortgage .

Act concepts of presumed-in-law fraud found in the Debtor

and Creditor Law of New York, i.e., concepts founded, in —

part, on a standard of insolvency or inadequacy of capital

assets of a transferor at the time of a transfer. Likewise

to support its characterization of tort lien, Todd relies on

the concept of insolvency, i.e., that Sapphire was insolvent

when it ordered the repairs and that this condition was

fraudulently ——— from Todd by both Sapphire and

Mastan.

In support of the above tack; Todd contended below

and contends here, that the District Court found, and im-

plies that the Special Master found, that Sapphire was in-

solvent at the time of the mortgage transactions to the

knowledge of Mastan. In its petition, Todd supports this

- eontention by quotations from the District Court’s opinion.

6

Mastan submits that these quotations are extracted out of -

context and that there Was a complete absence of a find-

ing of insolvency and knowledge thereof below. Mastan,

however, need not dwell upon this, as the courts below held

that, even assuming insolvency of Sapphire at the time all

the mortgage transactions to the knowledge of Mastan,

Mastan’s mortgage is valid under the Ship Mortgage Act

of 1920 and is entitled to priority over. the purported lien

of Todd. Todd, however, goes beyond quotations of the

District Court’s opinion and launches into a lengthy re-

view of the evidence below in an attempt to justify its con-

tention of fraud, insolvency and knowledge thereof in Mas-

tan. Mastan wow be remiss if it did not place on the

record the notation that this evidential review amounts to

nothing more than a self-serving and blatant distortion of

the evidence below. The merits of Todd’s evidential in-

cursion aside, Mastan submits that the same is improper

as certiorari is not granted to review evidence or discuss

specific facts. U.S. v. Johnston, 268 US 220, 227 (1925).

i

Reasons for Denial of the Writ

1. The decision below sustaining the validity of Mas-

tan’s mortgage and the priority of that mortgage over the

purported lien of Todd does not present an important fed-

eral question as such decision was patently correct nor does

there exist any conflict between that decision and the deci-

sion of any other court.

Todd’s assault upon the finding of validity of Mastan’s

mortgage, rendered by the courts below, is founded upon

7 7

§922(a)(3) of the Ship Mortgage Act (46 USC 6922(a)

(3)). This section requires that an affidavit be filed with

the mortgage

““* ** to the effect that the mortgage is made in good

faith and without any design to hinder, delay or de-

fraud any existing or future creditor of the mortgagor

or any lienor of the mortgaged vessel ;”?

Todd asserts that the Ship Mortgage Act requires more

than the mere formality of the filing of a good faith affi-

davit; that the Act requires as a matter of substance that

the mortgage be given in good faith and not as a device

of the mortgagor or the mortgagee to perpetrate fraud.

Mastan wholeheartedly agrees. Todd, however, goes be-

yond this truism and without favor of citation to either the

legislative history of the Ship Mortgage Act or case au-

thority contends that the Uniform Fraudulent Conveyance

Act, or more specifically the New York version thereof

(Debtor and Creditor Law), should have been used as a

standard for fleshing out the meaning of §922 (a)(3).. Todd

specifically points to §§276, 273 and 274 of the New York

Debtor and Creditor Law.

As the point of nexus, Todd alludes to Section 276 of

the Debtor and Creditor Law which reads, in part, as fol-

lows:

‘*Kivery conveyance made and every obligation in-

curred with actual intent, as distinguished from intent

presumed im law, to hinder, delay, or defraud either

present or future creditors is fraudulent as to both

. present and future creditors.’’ (Emphasis supplied)

The similarity between the above language and that of

Section 922(a)(3), says Todd, makes such Section appli-

cable to the Ship Mortgage Act. Such interpolation is not,

}

8 { .

however, supported by citation of authority. From this

base of similarity in language, Todd then skips to Sections

273 and 274 of the Debtor and Creditor Kaw, again with-

out citation of any authority, and sa -too, are in-

corporated in Section 922(a)(3) of the Ship rtgage Act.

The latter two sections introduce the concepts of insolvency

and inadequacy of capital assets of a transferor as ele-

ments to be considered in the concept of presumed in law

fraud. ‘Section 273 reads as follows:

‘*Every conveyance made and every obligation in-

curred by a person who is or will be thereby rendered

insolvent is fraudulent as to creditors without regard

to his actual intent if the conveyance is made or the

obligation is irieurred without a fair consideration.”’

Section 274 reads as follows: °

‘*Every conveyance made without fair considera-

tion when the person making it is engaged or is about

to engage in a business or tramsaction for which the

property remaining in his hands after the convey-

ance is an unreasonably small capital, is fraudulent

as to creditors and as to other persons who become

creditors during the continuance of such business or

transaction without regard to his actual intent.’’

The concepts of insolvency and inadequacy of capital assets

found in Sections-273 and 274 are obviously not elements

of Section 276, for, if they were there would be no need to’

promulgate Sections 273 and 274. While Section 276 has

language similar to that in Section 922(a)(3) of the Ship

Mortgage Act, there is no analogy of language or concept

between the latter and Sections 273 and 274 of the Debtor

and Creditor Law. It is submitted that to read the dissimi-

lar language and concepts of Sections 273 and 274 of the

v;

‘

9

Debtor and Creditor Law into the Ship Mortgage Act would

amount to blatant perversion of statutory construction.

Thus,-Mastan submits that even if one grants that Section

922(a)(3) of the Ship Mortgage Act may take some benefit

from the New York Debtor and Creditor Law, Sections 273

wnd 274 thereof cannot be a part of that benefit.

The language of Sgetion 276 of the Debtor and Creditor

Law expressly requires a finding of ‘‘actual’’ fraudulent

intent, and expressly excludes fraudulent intent presumed

in law. - Thus, the standards of imputed intent found in

Sections 273 and 274 (insolvency and inadequacy of the

capital of the transferor), even if found to exist, would not

work a violation of Section 276. Neither suspicion nor pre-

sumption, but only proof of fraudulent intent, as a matter

of fact, spells out a violation of Section 276, First Nat. Bank

of Batavier v. Franke, 1 AD 2a 539, 151 N.Y.S. 2d 596, aff.

3 NY 2d 849, 144 NE 2d 727; Langford v. Fessenden, 220

AD 258, 221 N.Y.S, 424; Matter of Decker, 149 Mise. 364,

268 N.Y.S. 280; Shay v. Abdella, 131 Mise. 175, 225 N.Y.S.

2d 517; Lupia v. Lupia, 190 N.Y.S. 24 733, Nor cana viola-

tion of Section 276 be founded upon mere intent to hinder

or delay creditors, actual fraudulent intent being absolutely

necessary, Doehlen v. Real Estate Board of New York Bldg.

Co., 150 Mise. 733, 270 N.Y.S. 386; Irving Trust Co. v. Ka-

minsky, 19 F. Supp. 816, 818, (S.D.N.Y. 1937); Ruhl v.

Phillips, 48 NY 125 (1871). The Special Master, the Dis-

trict Court and the Court of Appeals found that Mastan’s

mortgage transactions were untainted with the slightest

fraud. Thus, even if we deem that Section 276 of the Debtor

antl Creditor Law has some application, Todd would gain

naught.

10

Further, it is to be noted that both Sections 273 and 274

of the Debtor and Creditor Law expressly require, as a

condition precedent, to violation, that the complained of

transfer be without ‘‘fair consideration’. The case law

has made it clear beyond peradventure that, even where

there is insolvency at the time of transfer or even where

a transfer leaves inadequate capital, a violation of Sections —

273 and 274 cannot occur, if the transfer was given or made

for ‘‘fair consideration’’ Huit Corp. Siskind, 30 Mise. 2d

598, 219 N.Y.S. 2d 982; Doehlen v. Real Estate Board of

New York Bldg. Co., supra; Kamisher v. Sinicropi, 192

N.Y.S. 2d 240; Kelly v. Farmers Production Credit Assn.,

88 N.Y.S. 2d 872; Meriam v. Wimpfheimer, 25 F. Supp. 405

(S.D.N.Y. 1938). The Special Master, the District Court

and the Ceurt of Appeals found that Mastan’s mortgage

transactions were patently supported by fair and full con-

sideration. Thus, §§273 and 274 of the Debtor and Credi-

tor Law, even if deemed applicable, would gain Todd noth-

ing.

In its petition, Todd relies heavily on the cases In the

Matter of Lea Fabrics, Inc. and Dean v. Davis. Lea Fabrics

concerned The New Jersey Corporation Act and the Dean

ease the Bankruptcy Act, both of which are far removed

from the New York or even Uniform Fraudulent Convey-

ance Act, which Todd uses by analogy in its attempt to

graft the concept of insolvency onto the Ship Mortgage

Act.

The dictates of statutory construction and the finding

of facts below aside, it is paramount to note that neither

in §922 (a) (3) nor anywhere else does the Ship Mortgage

Act stipulate that insolvency. of the mortgagor or the status

i

of his capital assets at the time of a mortgage transaction

is an element by which the good faith of the transaction is

to be judged. If the latter were elements of concern, it is

submitted the Ship Mortgage Act certainly would have said

so, as does the Debtor and Creditor Law (4§§273, 274).

11

Mastan submits that the Court of Appeals was patently

correct in ruling that the submission of the Ship Mortgage

Act to the idiosyncrasies of various state standards could

not be sanctioned, as same would run afoul of the require-

ment that federal ship mortgages have a uniform and a

harmonious application throughout the land and in the

international sphere, a requirement dictated by both the

Constitution and the Ship Mortgage Act, itself. ~Panama

R.R. Co. v. Johnson, 264 U. S. 375 (1924); Pope & Talbot;

Inc. v. Hawn, 346 U.S. 406 (1953); U. S. v. Owl Screw Ken

Jr., 275 F. Supp. 792 (E.D. La. 1967); Walter E. Heller &

Co. v. The M/V Mr. Ed, 270 F. Supp. 830 (E.D. La. 1967) ;

U. S. v. American Gas Screw Franz Joseph, 210 F. Supp.

581 (D. Alaska 1962).

The federal cases which have interpreted §922 (a) (3)

of the Ship Mortgage Act have made it clear the type of

mortgage transaction which would run afoul of that section

is one founded upon actual fraudhlent intent (i.e. the typical

example being a sham mortgage given to a dummy not

founded upon any consideration). Pascagoula Dock Sta-

tion v. Merchants & Marine Bank, 271 F. 2d.53 (Sth Cir.

1959); Flood v. American Oil’ Screw Trawler, Francis

McPherson, 258 F. Supp. 768 (E.D. Mass. 1966); The R.

Lenahan, 10 °F. Supp. 497 (E.D. Pa. 1935). None of the

federal cases which have dealt with the requirement of good

faith of a preferred ship mortgage have. implied, much less

found, that the financial status of the mortgagor, be it in-

solvency or inadequate capital, is a pertinent inquiry. In-

deed, the one case where the topic of the mortgagor’s finan-

cial status was mentioned, shows just the opposite, In

Pascagoula Dock Station v. Merchants & Marine Bank,

supra, a lien claimant, whose claim arose, in part, subse-

Miuent to the recording and endorsement of the ship’s mort-

gage therein, contended that, even though a good faith

affidavit had been filed, the mortgage, could not have been

taken in good faith, since no adequate inquiry was made

.by the mortgagee of the mortgagor concerning the latter’s

outstanding debts and liens. The court rejected this con-

tention, holding that the failure of the mortgagee to make

inquiry as to the financial status of the mortgagor, had no

debilitating effect, as there is no stautory duty upon him

to do so. The court discussed this, at 271 F. 2d 53, 54, as

follows:

‘Since the statute requires an affidavit of good

faith by the mortgagor, we may assume that, on proof

and finding that the mortgagor and the mortgagee

undertook to use the device of a preferred ship mort-

gage in fraud of creditors, and hence with a design to

-hinder, delay and defraud any existing or future cred-

itor or any lienor of the vessel, the mortgage would

lose its preferred status. But except for such cir-

cumstances, there is no statutory obligation on the part

of the mortgagee to make any mquiry. It might, of

course, affett the status of the mortgage as to prior

liens—just as perhaps it does here concerning the

$1,282.95—but an absence of inquiry does not vitiate

_ the mortgage as such.’’ (Emphasis supplied)

4

13

The Special Master, the District Court and the Court of

Appeals found. (a) that the evidence below abundantly

showed that Mastan’s mortgage transactions were made in

good faith and (b) that such transactions were patently —

supported by full and complete consideration.

_ It is conceded by Todd that it rendered its repairs sub-

sequent to the due recordation and endorsement of Mas-_

tan’s Original Mortgage and the Supplemental Agreement

thereto, which secured Mastan’s original loan to Sapphire

of $1,296,000. As hereinbefore discussed, the Ship’ Mort-

gage Act decrees that a lien sounding in tort is a ‘“preférred

maritime lien’’ and, as such, has priority dvér the Wen of a

ship mortgage, even'if the event giving rise to that_lien

occurs subsequent to the due recordation and endorsement

of the mortgage.

Realizing this, Todd attempted below to convert its re-

pair lien from one based upon contract into one sounding

in tort, relying on two cases, to wit, the Henry W. Breyer,

17 F. 2d 423 (D. Md. 1927) and Morrisey et al. v. The SS

A & J Faith, 252 F. Supp. 54 (D. Ohio 1965). Citing these

very same cases in the petition, Todd says its lien is one

arising from tort because at the time it rendered its re-

pairs to the Sandy, both Sapphire and Mastan knew Sap-

phire was hopelessly insolvent, that Sapphire had no in-

tention of paying for the repairs and that thus, its repairs

were fraudulently accepted. Mastan doe not agree with

this interpretation of the evidence. Be that as it may,

Mastan contends that the cases cited by Todd do not sup-

port its position and, further, even if Sapphire was insol-

vent and did not intend to pay at the time. of Todd’s re-

pairs, Todd’s lien still could not sound in tort.

;

= ‘yor

aa

The suit below was one in cna strictly in rem.

The issue was the validity and pridrity of competing mari-

time lien claims against the Sandy. There was no issue

as to m personam rights of any of the lien contestants,

either between themselves or against Sapphire. It is estab-

_ lished beyond peradventure that the test of whether a

repairer, such as Todd, has a maritime lien, is whether in

rendering his services he relied on the credit of the vessel,

as opposed to the credit of the vessel owner. Without reli-

ance on the credit of the vessel, no maritime lien can exist.

In Re Marine Transport, 94 F. 2d 7 (2 Cir. 1938) ; Brock v.

The SS South Hampton, 231 F. Supp. 280 (D. Ore. 1964).

Thus, insofar as the right of maritime lien of a repairman,

such as Todd, is concerned (which is all that was in issue

below), th¢ solvency or.insolvency of the vessel owner at

the tim¢ the repairs are ordered and rendered is completely

immaterial. What, alone, is relevant, is the solvency of the

vessel at the time, i.e. its ability to stand as a credit for the

services given. This concept of personification of the ves-

sel, separate from the vessel owner, is reflected in the

remedy given to enforce the maritime lien, namely, the suit

in admiralty in rem. In discussing the nature of the mari-

time lien and the remedy given to enforce it, 1 Benedict on

Admiralty §12, at page 22, states:

‘¢The maritime lien is an appropriation of the ship

aS security for a debt or claim, such appropriation

being made by the law * * * the law creates a remedy

for the claim against the ship herself and rests in the

creditor a special property in her, which subsists from

the moment the debt arises and follows a ship into. the

hands of an innocent purchaser.”’

ee

4

1d,

The concept of fraud consists of concealment of a fact

from and justifiable reliance on the absence of that fact by

» the person defrauded. Thus, if a repairer, prior to ren-

dering his services to a vessel, knows that the solvency or

credit of the vessel is pledged, in priority, to the lien of

another, the repairer cannot later claim that he was de-

frauded with respect to any lien right his services gen-

erated against the vessel since the status of that vessel’s

credit standing, which in lien right alone is relevant, was

not concealed from him. It is established that the due

recordation and endorsement of a ship mortgage pursuant

to the terms of the Ship Mortgage Act gives constructive

notice to those who subsequently furnish repairs or services

to the encumbered vessel that said vessel is covered by a

U.S. preferred mortgage and that the credit of that

vessel is pledged first to the lien of that mortgage. Thus, |

anyone who furnishes repairs or other services to a vessel

in the face of the latter is not mislead and does so at his

risk. These concepts are reflected in two recent cases

which are directly in point, to wit, Atlantic. Steamer Supply

“Company v. The-SS Tradewind, 153 F. Supp. 354 (D. Md. ©

1957), and Diaz v. The SS Seathunder, 191 F. Supp. 807

(D. Md. 1961). ; |

Diaz v. SS Seathunder, supra, involved a lien proceed-

ing against a vessel, the SS Seathunder, in which various

lien claimants were asserting competing lien rights. One

of these lien claimants was a repairer who had rendered

repairs to the SS Seathunder prior to her arrest. At the

time the repairer had rendered said repairs, the SS Sea-

thunder was.under demise charter (i.e., a'type of lease of

a vessel in which the vessel owner gives over complete. |

/

16.

control and operation of the vessel to the charterer, or

leasee). A clause in the eharter party covering the vessel

provided that the charterer had no authority to pledge the ~

vessel as security for any repairs. Such a clause (a lien

prohibition clause) in a demise charter party is the normal |

practice. The United States. Maritime Lien Act (46 USC :

§§971-975) is to the effect that, if a repairer knows that a

vessel is under charter, or should know that a vessel is

under charter, he has a duty to investigate whether there

is a.lien prohibition clause in the charter party. If the

repairer does not so investigate and there is such a lien

clause, he can have no lien. Dampskibsselskabet Danne-

brog v. Signal Oil é Gas Co., 310 U.S. 268 (1940). A lien

prohibition clause, however, applies only to contract liens

and does not apply tort liens against the vessel (e.g. liens

arising from collision, personal injury) since the latter

are deemed created by operation of law. |

The repairer realizing he would have no lien because of

‘the lien prohibition clause in the charter party under which

the SS Seathunder was operating, attempted to convert his

contract lien into-a tort lien, by using the: same argument

advanced by Todd below, i.e., that at the time the charterer

ordered and accepted the repairs, the charterer was in-

solvent, unable to pay for same and had no intention of

doing so; and that such inability to pay was concealed

from the repairer. Thus, said the repairer, his lien was

based on tort. To this the court refused to agree.

The court found that the repairer knew of the ex-

istence of the demise charter. The court further found

that a copy of the charter party containing the lien prohibi-

tion clause was on board the vessel at all relevant times.

‘

é 17

_ The statutory duty imposed upon the repairer to investi-

gate, together with the knowledge of the repairer as to the

existence of the charter party and the placement of the

latter on board the vessel, meant, said the court, that the

SS Seathunder gave constructive notice tothe repairer

that her credit (which in maritime lien right is, alone, of

concern) -could not be pledged to secure payment of the

repairs. The court held that the latter had the result that

no lien based on fraud could be given to the repairer, as the —

' two vital elements of that fault could not be present,

namely: ,

y

(a) justifiable reliance by the repairer on the pa .

\ of the vessel to stand as security for payment of

the repairs, the court stating one ‘‘alleging fraud

cannot close his eyes to avoid discovery of the truth

and still prevail’? (191 F. Supp. 807 at 815); and _

(b) fraudulent concealment by the vessel of its inability

“to stand as a credit for payment of: the repairs.

An analogous situation was presented in Atlantic

Steamer Supply Co. v. The SS Tradewind, supra. This ease

like the Diaz. case, involved a competition of lien claims

with respect to the sale proceeds of a vessel, the SS Trade-

wind, which had been arrested and thereafter sold. One of

the lien claimants (‘‘Smith’’) was an agent who had been

appointed by. the vessel-owner to render port, cargo and

sundry services to the vessel in the port of Havana. <An-

other of the lien claithants was a ship mortgagee whose

mortgage had been recorded and endorsed prior to the

rendition of Smith’s services. Realizing that the prior

recording and endorsement of a ship mortgage would mean

that his lien would be inferior, Smith attempted to convert

18

his contract lien into one sounding in tort, alleging the

same grounds, as in the Diaz case and as Todd below, to

wit, that at the time the vessel owner directed him to render

services to the SS Tradewind, the owner was insolvent,

unable to-pay and had no intention of paying Smith, all of

. which was concealed. Indeed, shortly after the services

were rendered by Smith, the vessel owner went into volun-

tary bankruptcy.

Noting that Smith had alleged fraud only against the

shipowner and not against the vessel, the court held that

this could never give rise to a lien against the vessel citing. |

International Refugee Organization v. Maryland Drydock

Co., 179 F. 2d 284 (4th-Cir. 1950) ; Todd Shipyard Corpora-

tion v. City of Athens, 83 F. Supp. 67, 76 (D.C. Md. 1949).

The court went on to state however, that even assuming

+ fraud was alleged against the vessel, Smith’s position

would be untenable by reason of the fact that the mortgage

was properly recorded and endorsed prior to Smith’s ren-

dering of services. Thus said the court:

‘‘The vessel clearly gave notice, the solvency or

insolvency of her corporate owner being irrelevant as

to the vessel’s representation of her own ability to

pay for the services rendered, that her own credit was

pledged first to the payment of the preferred mort-

t gage”’. (153 F. Supp. 304, 358. )

Neither Morrisey v. SS A & J Faith nor the Henry W.

Breyer relied on by Todd diminish the above authority or

support Todd’s position.

The Morrisey case involved a lien contest with respect

to the sale proceeds of a vessel, SS A & J Faith, which had

19

been arrested and thereafter sold at the behest of a number,

of lien claimants. One of the lien claimants to the vessel

was a preferred ship mortgagee and another was a shipper

of cargo. The question was whether the lien of the pre-

ferred ship mortgagee or that of the cargo shipper was

superior. The shipper had loaded his cargo aboard the

SSAES Faith at a time when the vessel owner was floun-

dering on the shoals of hopeless insolvency. The result of

the latter was that the vessel never sailed by reason of its |

being arrested at the port of loading by one of its many lien

creditors. The shipper argued that its lien was superior to

that of the ship mortgage, as it was founded upon tort. The

lien was based on tort, said the shipper, for two reasons:

(1) the vessel, as a common carrier, had a statu-

tory duty under the Carriage of Goods by Sea Act (46

USC §§1300-1315), to be seaworthy ‘and had violated

that duty as regard the shipper by reason of the ves-

sel’s financial inability te make the voyage;

(2) the act of the vessel owner in accepting prepaid |

freight, with no expectation of completing the voyage,

gave rise to a claim based on fraud. /

At common kaw, a vessel engaged 1 in common carriage,

owed an absolute duty to cargo “to be seaworthy. The

Carriage of Goods by Sea Act, supra, modified that duty by

the requirement that such vessel need only exercise due

diligence to be seaworthy.

While recognizing that the concept of seaworthiness

normally meant the physical fitness of a vessel to perform a

particular voyage, the court held that the term should not

be merely limited thereto but should be extended to include

20 :

the financial ability of the vessel to complete the voyage for

which it solicits cargo. The court then held that the hope-

ssly insolvent state existing at the time of loading made

the SS A & J Faith unseaworthy, and unseaworthy due to

lack of due diligence. As this fault was a breach of an

extra contractual duty imposed by law, the court held that

it sounded in tort.. Thus, said the court, was the shipper’s

lien superior to the lien of the ship mortgage. Having found

the jatter, the court refused to decide the second groynd

advanced by the shipper, namely, that the acceptance of

prepaid freights by the vessel owner in an insolvent state

wave rise to a tort lien based on fraud.

The Henry W. Breyer also relied on by Todd is on all

fours with the Morrisey case i.e., a shipper loading his

cargo on board a vessel and prepaying freight only to be

met with the failure of the vessel to sail by reason of its

_arrest by lien ereditors. The sole difference between the

Breyer and the Morrisey case is that, at the time the Breyer’

case was decided, the Carriage of Goods by Sea Act, supra,

had not been enacted and the vessel’s duty in regard to

seaworthiness was absolute. In any event, the Breyer case,

like the Morrisey case did not give the shipper a tort lien

based on fraud but rather held, as is noted in footnote 5 of

the Morrisey opinion, that the shipper’s tort lien was one

based on the violation of the common law obligation run-

ning to cargo that the carrying vessel be seaworthy.

In Atlantic Supply Co. v. The SS Tradewind, the agent

‘*Smith’’ relied on the Breyer case in support of its con-

léntion that it had a tort lien based on fraud superior to

that of the prior recorded and endorsed ship mortgage. The

21

court in the latfer case made note of the fact that the Breyér

opinion, itself, showed that it did not support such conten-

tion, the court discussing this at 153 F. Supp. pages 361-362.

2. The decision below sustaining the refusal of the

Spécial Master and District Court to apply the doctrine of

marshalling of assets does not present an important federal

question, as such decision was patently correct, nor does

there exist any corflict between that decision and'the deci-

sion of any other court.

None of the cases cited by Todd in its petition deal with

proceedings, as below, to foreclose _the lien of a ship mort-

gage under the Ship Mortgage Act)of 1920. These cases

then do not support Todd's assertion that the affirmance by

the Court of Appeals of the refusal below to apply the doe-

trine of marshalling of assets against Mastan was a griev-

ous error. Really, the sole support of Todd’s assertion

in this regard is the plea that equity be done.

While it cannot be denied that equitable considerations

have some place in admiralty proceedings, it is submitted

that they must be subservient to the substantive and pro-

eedural rights conferred by admiralty law, both common

and statutory. The proceedings herein are governed

by specific federal enactment, the Ship Mortgage Act of

1920, which was meant to be comprehensive in and of

itself, Walter E. Heller & Co. v. The M/V Mr. Ed, suPra;

U.S. v. A merican Gas Screw Franz Joseph, supra. That

Act contains nary a mention that funds or collateral ex-

traneous to the foreclosure proceedings be marshalled

before the ship mortgagee ean realize upon his lien from

the proceeds of the sale of the encumbered vessel. If such

22

a deference to funds or collateral other than the vessel

proceeds were intended, it is submitted that the Ship

Mortgage Act, which is detailed indeed, would have clearly

said so. - For example, the Act (46 USC §922(e) ) pro-

vides that where a ship mortgage covers property other

than the vessel, it must provide a separate discharge for

such property by the payment of a specifiéd portion of the

mortgage indebtedness. It is submitted then that the

application of the doctrine of marshalling of assets below

could not be sanctioned, as a valid exercise of equity, since

the same would clearly be in derogation of the contractual

lien rights of Mastan, but more importantly would, in

effeet, amend the Ship Mortgage Act by super-imposing

equitable principles not specifically found therein, 4 Bene-

dict on Admiralty, $613; Libel of Pilgrim Trust v. The

Frances C. Denehy, 94 F. Supp. 807 (D. Me. 1950).

Further, any requirement that a ship mortgagee divert

his foeus from the encumbered vessel or the sale proceeds

‘thereof and cast about to test the worth of other possible

collateral would clearly work a dilution of the certainty, |

and thus value, of the lien of the preferred ship mortgage

which, in turn, would violate the very purpose for which

the Ship Mortgage Act was created, i.e., the encourage~

ment, stabilization and promotion of the financing of

mortgage security in ships in the interest of building a

strong American. Merchant Marine, Chemical Bank New

York Trust Co. v. The SS Westhampton, 231 F. Supp. 284 .

(D. Md. 1964); U.S. v. American Gas Screw Franz Joseph,

supra; 1 Benedict on Admiralty, §78, p. 181. Thus, did the

Third Cirenit in its opinion (418 F. 2d 177 (8rd Cir. 1969))

state, at 418 F.2d 180:

23

‘*Moreover there is serious doubt whether marshalling

is ever proper where its effect would relegate the pre-

ferred mortgage to a status inconsistent with the ex-°

press priority given it by the statutory direction.’’

The jurisdiction of the court below is strictly in fem

over a single fund, i.e. the Sandy sale proceeds. The yource

of that jurisdiction.was and is the maritime liens against

that fund of the various lien claimants. The court below

had and has no power to adjudicate with respect to property

to which a maritime lien cannot adhere. As Justice Field

wrote in The Rock Island Bridge,73 US (6 Wall) 213, 215

(1867) :

: a)

‘The lien and the proceedings in rem are, there-

fore correlative—where one exists, the other can be

taken, and not otherwise.’’

See also The Resolute, 168 US 437, 440 (1897); The Lotta-

wanna, 88 US 558, 581 (1874); Gilmore & Black, The Law

of Admiralty, 510 (1957) ; Robinson, Admiralty, p. 362.~

As noted in the Third Circuit’s opinion, the supposed

funds which Todd contends should be marshalled are (1)

Loe marine insurance proceeds derived from the

Sandy, Gladys and Etta which Todd contends Mastan is en-

titled to and (2) accounts receivable assigned by Sapphire

to Mastan, such accounts primarily consisting of freight,

charter hire, ete. purportedly due Sapphire under various

_ eontracts of affreightment. .

It is well established, however, that marine insurance

-proceeds are nonmaritime property to which no right of

maritime lien can adhere. Walsh v. Tadlock, 104 F. 2d 131

(9th Cir. 1939); The Donald T. Wright, 30 F. Supp. 610

(W.D. Ken. 1939) and the cases cited therein. <A like result

ES

04 ‘

pertains to the accounts receivables (assignments of charter

hire, freights), While a vessel is given a maritime lien

against cargo to secure the payment of charter hire or

freight due on a particular voyage, such lien is strictly

possessory and is thus destroyed if the cargo is unloaded,

Gilmore and Black, The Law of Adnfiralty, p. 517 (1957).

As Sapphire has long since lost its vessels to lief arrests,

there is obviously no cargo possessed by it to which liens

for freight and hire might attach. Thus any assignments

as to the latter, Mastan may have, certainly do not carry

any maritime lien rights. . ~~ - UG Ke

As the marine insurance proceeds and the accounts re-

ceivable alluded to by Todd cannot support maritime liens,

it is submitted that, under the above law, the court below

was and is without jurisdiction to adjudicate a marshalling

of same.

The above aside, it is submitted that even if the doctrine

of marshalling é6f assets could in theory be applied below,

Mastam would not under ‘the terms of that- doctine be re-

quired to marshal. This is said for the following:

(a) Said doctrine can apply only if the other fund or

property to which the senior lienor, alone, has access, is in’

the control of or in the hands of a debtor, common to both

such senior lienor and the junior lienor who is seeking the .

marshalling process, Markham v. Russel State Bank, 358 F.

2nd 488 (10th Cir. 1966); Victor Gruen Associates, Int. v.

Glass, 338 F 2nd 826 (9th Cir. 1964); In Re Independent

Truckers, Inc., 226 F. Supp. 440 (D. Neb. 1963) ; Gordon v.

Aratee, 114 NJ Eq.-294, 168 A. 729. As noted in the Third

Circuit’s opinion the insurance proceeds on the Sandy and

the other vessels are in the hand of English underwriters.

‘

25

While the English underwriters may be considered debtors

to Sapphire by, reason .of the fact that the latter is the

named assured under the marine policies on the aforesaid

vessels, and while they may be considered debtors to Mas-

tan by reason of the fact that it is loss payee as interest

may appear, they are certainly not debtors as to Todd, the

latter having no contractual or other relation with said

underwriters. <A like result must be advanced as regards

the accounts receivable, assuming they have any worth at

all. While the obligors under these accounts may be con-

sidered debtors of Sapphire, by reason of being opposite

contractual parties, and debtors of Mastan, by reason of

an assignment in its favor, they are certainly not debtors

as to Todd, the latter having no contractual or other rela-

tion with said obligors. . |

(b) Said doctrine does not apply where the fund or

property as to which the senior lienor, alone, has a right

is without the jurisdiction of the court attempting the

marshalling. Lewis v. U.S., 92 US 618 (1879); Sowell v.

Federal Reserve Bank, 268 US 449 (1925); Klinger v. New

York State National Bank, 151 Mise. 903, 271 N.Y.S. 252;

Sernberger v. Sussman, 69 'N.J. Eq. 199, 60 A 195, aff. 85

N.J. Eq. 593, 98 A 1087 (1916). If any insurance proceeds

are available to Mastan, they, as noted above, are in the

hands of the English underwriters. Thus, they are without

the jurisdiction of the court below, the underwriters being

obviously in London. | |

(c) Said doctrine may not be applied where it would

compel the senior lienor to engage in litigation, especially

’ where the property or funds as to which marshalling is

directed are of doubtful value. C.7. Willard Co. v. City

of New York; 81 Mise. 48, 142 N.Y.S. 11; Klinger v. New

~

€

~

~~ 2

26

York State National Bank, supra; Gordon v. Aratee, supra,

or compel him to exhaust a mere personal remedy, 55 CJS

Marshailling of Assets & Securities, §4.

As discussed above, Mastan has no lien rights as re-

gards the insurance proceeds or accounts receivable alluded

to by Todd. Thus, any attempt by Mastan to vindicate a

right to said items would not be by im rem suit, but by an

ordinary in personam remedy with all its attendant delAy.

The value of Mastan’s right to the purported insurdnce

_ proceeds is cloudy. At page 40 of its petition, Todd implies

that Mastan has certain legal right to collect the proceeds.

The testimony below was just the opposite. The adjuster

for the underwriters testified as to the failure of under-

writers to pay claims under the Sandy’s insurance, as

to which claims, Todd asserts there is a net due Mastan.

This adjuster advised that the funds on these claims were

not being sent by the English underwriters because they

were aware of Sapphire’s bankruptcy and thus, the prob-

able legal problem as how to distribute the funds. Thus,

the obvious reality is that Mastan, even if it attempted to

vindicate any rights it might have as to the insurance pro-

“ceeds, could not do so by merely writing a letter, but would

have to take the path of litigation, which litigation would

most assuredly involve Sapphire*s Trustee in Bankruptcy

as one of the parties. A like view results with respect to

the accounts receivable as to which Todd urges marshalling.

As Sapphire is now in bankruptcy, any claim by Mastan

to these accounts would involve litigation, which .would

be complicated by the interest of Sapphire’s Trustee in

Bankruptcy. Further and most important and as noted

‘in the Third Cireuit’s opinion, the Special Master found

»

poe

that the evidence showed the Maks receivable to be

worthless.

_ Characteristic of Todd’s straining approach throughout

the proceedings below, it asserts on page 39 of its petition,

that it is prepared to offer testimony that Mastan assigned

to the 046 corporation insurance claims of 130,000 for

15,000. The testimony bélow showed that this assignment

had nothing to do with the mortgage in issue here, was not

made for 15,000 and in fact was actually made for Todd’s

benefit. It is submitthd-that Todd is guilty of nothing less

than a shocking lack of candor to this Court.

(d) Said doctrine may not be applied where it will

operate to the senior lienor’s prejudice or trench upon his

rights; Victor Gruen Associates v. Glass, supra; Philadel-

phia Home, etc. v. Philadelphia Sav. F. Socz, 126 N.J. Eq.

104, 8 A 2nd 193; Gordon v. Aratee, supra; 55 CJS Mar-

shalling of Assets € Securities, §4.

_It is submitted that application of the doctrine would

seriously prejudice’ Mastan, since it would put Mastan to

the vexation of commencing in personam litigation with

respect to rights of uncertain value in jurisdictions other

than the court below, which litigation would be made all the

more difficult and which litigation would be prolonged, to

say the least, by reasgn of the competitive right of

Sapphire’s Trustee Pe Be

Thus, it is submitted that the Special Master’s refusal

to apply the doctrine of marshalling of assets, which refusal

was sanctioned by both the District Court and the Circuit

Court of Appeals was eminently proper on any one of a

number of grounds. |

me

If

Mastan respectfully requests that this Court grant

it, as against Todd, interest and damages for delay

on the ground that Todd's application for writ is to-

tally frivolous.

The judgment below was dated and entered in the Dis-

trict Court for the District of New Jersey on February

17, 1969. In substance, said judgment confirmed the find-

ings of the Special Master that Mastan was entitled to the

remaining.funds of $55,085.37 in the District Court and di-

rected the Clerk of that Court to pay out of.the Registry

to Mastan said sum. The enforcement of this judgment

for money has been delayed froni February 17, 1969 until

date, a period of over a year, by reason of ~Todd’s ap-

_peal tothe Court of Appeals and its present applicatron

for certiorari to this Court.

Mastan respectfully submits that the grounds advanced.

by Todd in its petition are of the most frivolous kind and

- further were briefed in a manner that simply ignored the

clear findings of the Special Master, District Court and

Court of Appeals tat the evidence below showed that Mas-

tan’s mortgage transactions were made in abundant good

faith and that same were supported by full and fair con-

sideration. It is respectfully-submitted, then, that the pres-

ent application for writ was prosecuted solely for the pur-

poses of delay. Thus, Mastan respectfully requests that

this Court grant it, as against Todd, interest on the sum

‘awarded to Mastan below ($55,085.37) from the date the

judgment of the Court of Appeals was entered, to wit, No-

vember 18, 1969 until the date the judgment of the District

29

Court is enforced by payment of the said $55,085.37 to Mas-

tan, the interest rate being at 6% per annum, which is the

rate for post-judgment interest allowed by the law of the

State of New Jersey, the place where the District Court

judgment was rendered and entered. 713 Co. v. Jersey

City, 94 N. J. Super 210 (1967). Mastan further requests

that this Court, in addition to interest, exact in its favor,

_ as against Todd, a sum equal to 10% of the sum of $55,-

~ 085.37 as an award of damages and penalty.

Mastan makes the above application on the basis of

Rule 56 of the Supreme Court Rules. “Deming v. Carlisle

Packing Co., 226 US 102 (1912); Blair v. Durham, 139 F.

2d 260 (1943) and the cases cited therein.

Conclusion

For the foregoing reasons it is respectfully sub-

mitted that this petition for a writ of certiorari should

be denied and that Mastan should be awarded inter- |

est and damages as against Todd.

Respectfully submitted,

Joun R. SHENEMAN

Attorney for Respondent,

Mastan Company, Inc.

19 Rector Street

New York, New York,10006

Of Counsel :

GrorcE D. Byrnes :