# Opposition Brief — Jones v. Gierach > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385604_1367%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1970 - **Citation:** 397 U.S. 992 ## Text “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.