Opposition Brief — Todd Shipyards Corp. v. Mastan Co.

2 OF co Supreme Court, US,

’ ry

D

r ] iF an

mt ERA 6 1970

IN. THE JOHN F. bss, CL |

Supreme Court of the United States

p October Term, 1969

yo 180 nea

etree

¢

TODD SHIPYARDS CORPORATION,

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

.

Sy

=

’

Joun R. SHeneman

Attorney for Respondent,

Mastan Company, Inc.

19 Rector Street

New York, New York 10006

(izorcGe D. Byrnes

Of Counsel

=f

TABLE OF CONTENTS

PAGE

Statement of the Case ao

Reasons for Denial of the Writ x oe

Mastan Respeetfully 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 28

Conclusion be 29

TABLE..OF AUTHORITIES

Cases: :

Atlantic Steamer Supply Company v. The SS Trade-

wind, 153 F. Supp. 354 (D. Mad. 1957) 1, 17, 18, 20

Blair v. Durham, 139°F. 2d 260 (1945) 29

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

(D. Ore. 1964) pepe 14

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

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

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

. 142 N.Y.S.-11 | | | 23

Dampskibsselskabet Dannebroe ¥, Signal Oil & Gas

Co., 310 U.S. 268 (1940) 16

Decker, Matter of, 149 Mise. 264, 268 N.Y.S, 280 i)

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

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

1961) 15, 16, 17, 18

v

II

PAGE

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

150 Mise. 733, 270 N.Y.S. 386 .... 9,10

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

1939) : 93

First Nat. Bank of Batavier y. Franke, 1 AD 2d 939,

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

727 9

Flood v. American Oil Screw Trawler, Francis Me-

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

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

Henry W. Breyer, 17 F. 2d 422 (D. Md. 1927) 13, 18, 20, 21

Huit Corp. v. Siskind, 30 Mise, 2d O88, 219 N.Y.S, 2d

982 10

International Refugee Organization vy. Maryland Dry-

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

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

(D. Neb. 1963) ae Shel nN mee pn

Irving Trust Co. vy. Kaminsky, 19 F. Supp. 816 (S.D.

N.Y. 1987) 9

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

Kelly v. Farmers Production Credit Assn., 88 NLY.S.

2d 872 | : 10

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

903, 271 N.Y.S. 252 25, 26

Langford vy. Fessenden, 220 AD 298, 221 N.Y.S. 424 9

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

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

‘Supp. 807 (D. Me. 1.950) | 22

Lottawanna, The, 88 US 558 (187+) ; 23

Lupia v. Lupia, 190 N.Y.S. 2d 733 |: | 9

tae : /

Sg | } PAGE

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

Cir, TORR). Wea ree) oe eens 24

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

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

Boon oO emer SRA ee tee re oe Ses 10

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

o4 (D. Ohio 1965) 2... co. 14, 18, 19, 20

Panama R.R. Co. v. Johnson, 264 U. S. 375 (1924) 10

Pascagoula Dock Station y. Merchants & Marine

Bank, 271 F. 2d 53 (Sth Cir. 1959) ©... pe a

Philadelphia Home, ete. v. Philadelphia Sav. F. Soce.,

126 N. J. Eq. 104,8 A 2d193... 7 27

Pope & Talbot, Ine. v. Hawn, 346 U. S. 406 (1953) 11

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

Resolute, The, 168 US 437 (1897) , | 23

Rock Island Bridge, The, 73 US (6 Wall) 213 (1867) 23

Ruhl v. Phillips, 48 NY 195 (1871) 9

Sernberger v. Sussman, 69 N. J. Kq. 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, 225 N.Y.S. 2d 517 9

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

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

Supp. 67 (D.C. Md. 1949) 18

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

Supp. 581 (D. Alaska 1962) +48, 21, 22

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

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

La. 1967) . pa er ack 11

IV

¥

PAGE

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

(9th Cir. 1964) see iseccity ol

Walsh v. Tadlock, 104-E. 2d 131 (9th Cir, 1939) _. "93

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

Supp. 830 (K.D. La. 1967) 11, 21

Statutes: ‘

Carriage of Goods by Sea Act (46 USC §§1800-1315)

aon ! 19, 20

New York Debtor and Creditor Law:

$273 7,8, 9, 10, 11

\274 7,8, 9,10, 11

$276 | 7,8,9

Uniform Mraudulent Conveyance Aci 7,10

U.S. Ship Mortgage Act of 1920:

46 USC 9911 | 2

46 USC 6953 ! | 3,4

46 USC §921 AF) ee ae : 4

46 USC $922 4

46 USC 6922(a) (3) He 7, 8,9, 10, 11

46 USC 6922(¢) 29

Other Authorities:

1 Benedict on Admiralty, (12, page 22 1;

‘78, page 181 22

4 Benedict on Admiralty, (613. 22

55 CJS Marshalling of Assets & Securities, 64 26, 27

“Gilmore & Black, The Law of Admiralty, 510 (1957) 93

517 (1957) 24

Robinson, Admiralty, page 362 : . 23

IN THE

Supreme Court of the United States |

October Term, 1969

No.

RE ne Assos

Topp Siipyarps CORPORATION,

Petitioner,

VS,

Mastan Company, Ine, ote,

Respondents,

i

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 m ren action is the Uistribue,

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

Court, following the foreclosure and sale of tha 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

#,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 remained only

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

2

tioner, Todd Shipyards Corporation (hereinafter ‘*'Todd’’)

and the Respondent, Mastan Company Ine. (hereinafter

**Mastan’’),

Mastan brought the suit below jn ren against the Sandy,

a vessel @wned by Sapphire Steamship Company (herein-

after Sapphire’) to foreclose a mortgage thereon, which

it claimed to bea preferred ship mortgage under the U, 8,

Ship Mortgage Act of 1920 (46 USC So] et seq.). Other

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

suits below against. the Sandy. The Distriet Conrt up-

pointed a Special Master, who determined that Mastan was

entitled to the remaining fund in the Distriet Court (#55,-

O80.87) hy reason of its being the holder of a valid first

preferred ship morteage on the Sandy within the purview

of the U.S. Ship Mortgage Act,

Mastan’s ship mortgage originally seeured 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 Ktta (here-

inafter “Mtta’’), Thus, Mastan’s mortgvage was in effect

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

fan in tworparts, i.e, $864,000 on December 29, 1965 and

M432,000 on January 21, 1966. The first loan installment

Was used to purchase the “Sandy and Gladys, To secure

said Joan, Sappbire eranted Mastan a First Preferred

Fleet Ship Mortgaee on the Sandy and Gladys. The see-

ond loan installment was used to purchase the Mita. “To

secure said loan; the First Preferred Ship Mortgage was

ve

a

9

al

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 Etta .

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 #92,817.18 which was, in effect,

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

to the then outstanding indebtedness due under the original

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

nal First Proferred Mleot Ship Mortewawe, «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 $52,817.13,

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 ri€hts of any of the lien contestants either be-

tween themselves or against Sapphire, It is conceded by

Todd that the Ship Mortgage Act of 120 is the controlling

statute which governs the priority of the liens filed in the

proceedings below, Such Aet (46 USC 03) 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 998) defines a ‘preferred maritime

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

“

4

cordiig and endorsement of preferred martgage”’ or (B)

‘a lien for damages arising out of tort, * * ¥?? (Kmphasis

supplied. )

It was found below and it is coneeded 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 endé¥sed on Decem-

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

concedes that its repairs were rendered after such recerda-

tion and endorsement.

9

By reason of the fact that Mastan’s Original Mortgage

and the Supplemental Agreement thereto avere 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 (hb) that the mortgage comply with the public notice pro-

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

that the mostgage, 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 c mplhed with

the just noted recording provisions and further that Mastan was a

United States citizen. 3

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

loan to Sapphire of $1,296,000 (1.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).

id

j

\

©

~

;

3)

“

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.

Realizing the above, Todd advanced below a dual at-

tack on Mastan’s lien priority ie. (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 valid under the Ship Mort-

gage Act.

VJ

~The Speci al Master, District Court and the Court of

Appeals found that the iortgage transactions between .

Sapphire and Mastan were untainted with the slightest

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

belaw 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 1.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 concealed 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

contention 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 andeknowledge thereof in Mas-

tan.- Mastan would 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-

eursion 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).

_ Reasons for Denial of the Writ

I. The decision helow sustaining the validity of Mas.

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

purporte d lien of Todd does not present an important fed-

eral question as such decision was patently correct nor doves

there exist any conflict between that decision and the degi-

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

¢.

‘

9922(a)(3) of the Ship Mortgage Act (46 USC °922(a)

(>)). 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-

frand 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 afi-

~ davit :that the Aet requires as a matter of substance that

the inortgage 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 he-

youd this truism and without favor of citation to either the

legislative history of the Ship Mortgage Act or case “ue

thority contends that the Uniform Fraudulent Conveyance

‘Act, or more specifically the New version thereof

ive been used as a

of 99221a) (3). Todd

274 of the Now York

(Debtor and Creditor Law), should

standard for fleshing out the meaning

specifically points to, ‘6276, 273 ane

Debtor and Creditor Law.

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

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

lows; ; ‘

We

eon ,¥ : . ;

“Kvery conveyance made and every obligation in-

eurred with actual intent. as distinguished from intent’

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

present or future creditors ix frandulent 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 Law, again with-

out citation of any authority, and says these, too, are in-

corporated in Section 922(a)(3) of the Ship Mortgage 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

wren

fraud. Section 2723 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 incurred 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

. fo engage in a business or transaction 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 insolveney 5 seman of capital assets

found in Sections 273 and 27

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

promulgate Sections 273 and 274. While Section 276 has

Biciics 922(a)(3) of the Ship

Mortgage Act, there is no analogy of language or concept

are obviously not elements

language similar to that 4

hetween the latter and Sections 2723 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

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 e° York Debtor and Creditor Law, Sections 273

and 274 thereof cannot be-a part of that benefit,

The language of Section 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 x violation of Section 276. Neither suspicion nor pre-

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

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

of Batavicr vy. Franke, 1 AD) 2a 939, 151 N.Y.S. 2d 596, aff.

Oo NY 2d S49, 144 NI 2d 727; Langford vy. Fe ssenden, 220

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

268 N.Y.S. 280; Shay y. Abdella. 12] Mise. 175, 225 N.Y.S,

2d 917; Lupia vy. Lupia. 190 N.Y.S. 2d 733. Nor ean a viola-

tion of Section 276 be founded upon mere intent to hinder

or delay creditors, actual fraudulent intent being absolutely

necessary, Dochlen vy. Real Estate Board of New York Blda,

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

musky, 19 F. Supp. 816, 818: (S.D.N.Y. 1987): Ruhl y.

Phillips, A8 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

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

and Creditor Law has some application, Todd would gain

naught.

vi

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 ‘itselear beyond peradventure that, even where

there is insolvency at the time of transfer or even where

a transfer leaves inadequate ‘apital, a violation of Sections

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

for **fair consideration’? Hyit Corp. Siskind, 30 Mise. 2d

I98, 219 N.Y.S..2d 982: Doehlen y. Real Estate Board of

Vew York Blig. Co.. supra; Kamisher v. Sinicropi, 192

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

88 N.Y.S. 2d 872: Veriam vy. Wimpfheimer, 25 F. Supp. 405

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

and the Court of Appeals found that _Mastan’s mortgage

transactions were patently supported by fair and full eon-

sideration, Thus, $275 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 eases In the

Matter of Lea Fabrics, Ine. and Dean v. Davis. Lea Fabrice

concerned The New Jersey Corporation Act and the Dean

case the Bankruptey: Act, both of Which aré far removed

from the New York or even Uniform Fraudulent Convey-

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

craft the concept of insolvency onto the Ship Mortgage

Act.

The dictates of statutory construction and the nee

of facts helow-aside, it is paramount to note that neither

in (925 (a) (3) nor anywhere else does the Ship Mortgage

Act stipulate that insolvency of the mortgagor or the status

" 11

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 ($$273, 274).

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 haye aZyniform fund a

harmonious application throughout the “I id and pn the

international sphere, a reqhiremént ‘dictated by both the

Constitution and the Ship Morteage Adt, itself, Pagiama

R.R. Co. v. Johnson, 264 U. 8. 375 (1924)2Pope & Talbot.

Tne. v. Hawn, 346 U.S. 406 (1953): U.S. y. Oil Screw Ken

Jr., 275 F. Supp. 792 °(E.D. La. 1967); Walter E. Weller

Co. v. The M/V Mr. Ed, 270 F. Supp. 880 (ED. La. 1967)

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

081 (D. Alaska 1962).

The federalgcases 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 seetion

is one founded upon actual fraudulent 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 (5th Cir.

1959); Flood v. American Qil Serew Trawler, Francis

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

Lenahan, 10 F, Supp. 497 (E.D. Pa. 1935). Nono of the

federal cases which have dealt with the requirement of good

12

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 topie of the mortgagor’s finan-

cial status was mentioned, shows just. the Opposite, In

Pascagoula Dock Station y. Merchants «& Marine Bank,

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

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

gage therein, éontended that, even though a good faith

affidavit had been filed, the mortgage could not have heen

taken in good faith, sinee no adequate inquiry was made

by the mortgagee of the mortgagor concerning the latter’s

outstanding debts and liens. The court rejeeted this cCoOn-

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 henee with a design to

hinder, delay{ and defraud any existing or future ered-

itor or any Henor 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 imquiry. It might, of

course, affect 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.” (Kmphasjs supplied)

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 isa ‘preferred

maritime lien’? and, as such, has priority over the lien 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,

li #; 2d 423 (D. Mad. 1927) and Morrisey Pay: The SS

AJ Faith, 252 F. Supp. 94 (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 does 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,

tes

a 4

The suit below was one in admiralty, strietly in. rem,

The issue was the validity and priority of competing mari-

time lien claims against the Sandy. There was no issue

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

either between themselves or agaist 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 eredit 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.

Tn Re Marine Trausport, 94 F, 2d 7 (2 Cir. 1938) ; Brock We

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

Thus, insofar as the right of maritime lien of 4 repairman,

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

below), the solvency or insolvency of the vessel owner at

the time the repairs are ordered and rendered is completely

-immatérial. > hat, alone, is relevant, is the solvency ‘of the .

“vessel at the time, ie. 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 ereates ‘a remedy

for the ¢laim 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,’’

15

‘ ©

The ‘concept of fraud consists of concealment of a fact

from and justifiable reliance on the absence of that tact hy

the person defr: auded. Thus, if a. re pairer, prior to’ ren-

dering his serviees to ‘a vessel, he that the solveney 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 een:

erated against the vessel since the st: tus of that vessel's

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

not coneealed from him. It is established that. the due

recordation and. endorsement of a ship mortgage pursuant

to the terms of the Ship Mortgage Act eives constructive

notice to those who subsequently furnish repairs Or services

to the eneumbered vessel that said vessel. is covered by a

US. preferred mortgage and that the credit. of ‘that

vessel is pledged first to the lien of that mort\iee. Thus,

anvone who furnishes repairs or other serwices to a vessel

‘in the face gt ‘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 Triadewind. 152 BY. Supp. 354 (D. Ma.

1957), and Diaz v. The SS Scathunder, 191 F, Supp. S07

(D. Md. 1961). | °

s ~

a

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

Ing against a vessel, the SS Seathunder, in whieh various

lien claimants were asserting competing lien rights. One

of these lien claimants was a repairer who had rendered:

repairs to the ‘SW Seathunder prior to her arrest. At the

time the repairer had rendered said repairs, the SS Seq.

thunder was under demise charter (ke., a type of lease of

a vessel in which the vessel owner gikes over complet

\

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

901-975) ix to the effect that, if a repairer knows that a

Vessel is under charter, or should: know that a Vessel

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 ein have no lien, Dampskibsselskabet) Danne-

brog ve Signal Oil & Gas Co., 310 US. 268|(1940). A lien

prohibition clause, however, applies only to contract liens

and docs 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 Len 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, 1:¢., that'at the time the charterer

@rdered hind accepted the vepairs, 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, ssid the repairer, his lien was

based on tort: To this the court refuse d to agree,

The caurt 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.

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 ve essel, meant, said the court, that the

SS Seathunder gave constructive notice to -the repalrer

that her eredit «(which In maritime lien right is, alone, of

concern) could not be/ pledged oO secure = payment of the

repairs. “The court held that the latter had the resnilt that

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

two vital clements of. that fault could ‘not be present,

namely:

(a) justifiable reliance by the repairer on the ability

of the vessel to stand als security for payment’ of

the repairs, the court Stating one “alleging fraud

‘annot close his eyes to ay ‘oid discovery of the truth

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

(b) fraudulent concealment by the vessel of its in ibility

to cae as a eredit for payment of the repairs,

An analogous situation was presented in Atlantic

Steamer Supply Co.v. The SS Trade wind, supra. This case

like the Diaz case, Involved a competition of Tiey claims

With respect to the sale proceeds of a vessel, the SS Trady-

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

the lien el: almants (*Smith’’?) was an agent who hed been

appointed by the vessel owner to render port, careo and.

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

other of the lien claimants Was a ship mortgagee whose

mortgage had been recorded and endorsed prior to. the

rendition of Smith’s services. Realizing that the Prior

-reeording and endorsement of a ship mortgage would moan”

that his lien would be inferior, Smith attempted to convert

1s

his contract lien into one sounding in tort, alleging the

sime grounds, as in the’ Diaz ease anil as Todd below, to

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

services to the SS Trad: wind, the owner was insolvent,

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

Which was ¢ meet. Indeed, shortly aft.: the services

were Soha by Smith, the vessel owner went into yolun-

tary bankruptey.

Noting that Smith had alleged: frand. 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

lutevuatiounl Re fudge Oraanization ¥. Marylin? Drydock

Co. 179 F. 2d 284 (4th Cir. 195 WW): Todd Shipyard © Or pora-

liow v. City of Athy ws, S5 - Supp. 67, 76 (D.C. Md. 1949),

The court went os lo state however, that even issuing

frand was alleged against the Vessel, Smith's position

would be untenable by reason of the fact that the mortgage

Wits properly recorded and Sidorsed prior to Smith's ren-

‘dering of services, Thus said the court:

‘The vessel clearly gave notice. the solveney | “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

pledyed first to the payment of the preferred mort-

wave’’, (153 F. Supp. HOF, BOS.)

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

Breyer re ‘lied on by Todd diminish the above authority or

=p) port Todd’ = position,

The Morrisey ease involved a lien contest Wilf respect

to the sale proceeds of a vessel, SS Add Faith, which had

; 19

heen arrested and thereafter sold at the behest of a farmber

of lien claimants. One of the lien Claimants to fe 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 eargo shinner was

superior, The shipper had loaded hisgeargo aboard the®

SS Add Faith at atime When the vessel owner was floun-

dering on the shoals of hopeless insolvency, The result of

the latter was thet the Vessel never sailedgby reason of its

being arrested at the port of loading by Lge its nan lien

creditors, The shipper arened that its lien was superior to

that of the ship mortgage, as it Was founded npon tort. The

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

: ‘

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

| tory duty under the Carriage of Goods hy Sea Ael (46

USC “€1800-1315), to he seaworthy and had, vielated

that duty as reward the shipper by reason of the ves.

sel’s financial inability to make the voyage;

(2) the act of the vessel owner in aceepting perepniel

freight, with no expectation of completing the voyage,

gave rise to acclaim based on frand.

At common law, a vessel engaged in common carriage,

owed an absolute duty to cargo to be seaworthy. The

Carriaa Of Goods hy Sea Net. supra, modified that duty hy

the requirement that such vessel peed only exercise due

diligence to be seaworthy,

While: recognizing that the concept of seawortlriness

normally meant the physical fitness of a vessel to perforin a

particular voyage, the court held that the term should net

he merely limited thereto but should be extended to include

wtres

‘,

ey toe

20

the financial ability of the vessel to complete the voyage for

Which it solicits carge. The court then held that the hope-

lessly insolvent state existing at the time of loading made -

the SS Lue J Faith: unse: worthy, and unse: worthy due to

por “dlack of due diligence. As this fault was a breach of an

~ extn contractual duty-imposed by law, the court held that

it Munded in tort. “Thus, said the court, was the shippers

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

the latter, the court refused to decide the second ground

advanced by the shipper . namely, that the acceptance of

prepatd freights by the vessel owner in an insolvent state

eave rise toa tort lien based on fraud.

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

fours with the Morrisey ease ie. a shipper loading his

eargo ‘on board a vessel and prepaying freight only. to ne

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

arrest by lien creditors. The sole difference between <i

Breyer and the Morrisey ease is that, at the time the Breyer

case Was decided, the Cary macofl Goods hy Sea Act, supra,

had not heen enacted and the veszel's duty in regard to

<enWorthiness was absolute. In uny event, the Breyer case,

like the Morrisey case did not vive 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 rmn-

ning to-eargo that the carrying vessel be seaw orthy.

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

“Smith’’ relied on the Breyer ease in support of its con-

tention that ithad a tert lien based on frand superior to

that of the prior recorded and endorsed ship mortgage, The

court in the latter case made. note of the f Fact that the Breyer

opinion, itself, showed that it did not sup port such couten-

tion, the court dise ‘ussing this at 153 F. Supp. pages 261-362,

2 The decision below sustaining the refusal of the

Special Master and District C ourt to apply the doetring of

marshalling of assets does not present an important federal

“question, as such decision was patently correct. nor does

lhere « vist auy conflict betiween 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.) Thes® cases

then do not support Todd’ assertion that the affirmanee by

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

trine of marshalling of assets against Mastan was a grie v-

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

in this regard fs the plea that equity be done,

.

While it cannot be denied that equitable consider nations

have some place in admiralty proceedings, it is submitted

that they must be subservient to the substantive and pro-

cedural. rights conferred by admiralty Jaw, both Common

and statutory, The proceedings herein are governed

by specific. federal enactment. the Ship Mortgage Act of

1920, which gas meant to be Sop prevconive in and of

itself, VW ‘alter E. Meller & Co. . Lhe W/V Mr. Ed, supra:

U.S. vy. American Gas Sere Pree Joseph, supra. That

Act contains nary a mentidn that funds or collateral ex.

franeous “the foreclosure proceed be = marshalled

before #7 ship mortgagee ¢ an on

the proceeds of the sale of the e

~

e“upon his lien from

ered vessel. If such

ea

22

a deference to funds or collateral] other than the vessel

proceeds avere intended, it is submitted that the Ship

Mortgage Act, which is detailed indeed, would have clearly ,

suid so. For example, the Aet (46 USC S922(e)) pro-

vides that where a ship mortgage covers property other

than the vessel, it must provide a separate dischnurge for

“uch property by the payment of a specified portion of the

mortgage Indebtedness. It is submitted then that the

application of the doctrine of marshalling of assets below

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

the same would clearly be in derogation of the contractual

Jien rights of Mastan, but more importantly would, in

effect, amend the Ship Mortgage Act by super-imposing

equeable principles not specifically found therein Beue-

ligt ono Admiralty. O13: Libel of Pilgrim Trust vo The

Frances Ca Deuchy, OF FB, Supp. S07 (D. Me. 1950),

Farther, any requirement that a ship mortgagee divert

is focus from the cucumbered vessel or the sale’ proceeds

thereof snd cast about to test the’ worth of other possible

collateral wi nit clearly work. a dilution of the certaints,

ned thus value. OF the dien.of the preferred ship mortgage

Which! in. ‘tury wenld violate the very purpose fer whieh

the Ship Mortage Net was created, ie. the 2 Bas

ment, stalvlization and promotion of “the financing of

worlaage security in ships.in the interest of building a

trong American, Merchayf Marine, Chemical Bank Neo

ork Trust Co. ¥. The SS Westhampton, 231 Fi. Supp. 284

(D. Md. 1964); U.S. v0 American Gas ‘Screw Fréanz Joseph;

supras 1 Beredict on Adinivaley, «78, p. 181. Thus, did the

Third Circuit in its, opinion -(418 F, 2d 177 (: 3rd C it. 1969))°

stitte, at 418 F.2d 180: : eu

> e

Po

a ER ite eee ke ae hed

we

‘Moreover there is serious doubt whether marshalling

is ever proper where its e feet would -relogate the pre-

ferred mortgage to a status inconsistent with. the OX

press priority given it by the statutor y direc tion.”

.

The Jurisdiction of the court below is strictly in rem

overa single fund, i.e. the Sandy sale proceeds, 'T he source

_of that Fein ay Was and is the maritime liens against

that fund of the various lien claimants. The court below

had and has 10 power to adjudicate With.respect to property

to which a maritime lien cannot adhere. As Justice Rield

wrote in The Rock Island Bridge, % 2 US (6 Wall) 212, 215

(1867):

‘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 Re solute, 168 US 4387. 440 (1897): The Lotta-

wanna, 88 US 558, 581 (18 (4); Gilmore & Black, The Lay

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

As noted in the'Phin Circuit's opinion, the supposed

furids which Todd contents should be m: irshalled are (1)

purported net marine insirance proceeds derived from the

Sandy, Gladys and Etta w hich Todd contends Mastan is o N-

titled to and (2), accounts receivable assigned by Sapphire

to Mastan, such ecounts primarily consisting at freight,

charter hire, ete, purportedly due Sapphire undes’ vitriois

contracts of affreightment. : |

Tt ix well established, however, thi i marine insurance,

proceeds are nonmaritime property 1 o which na right of!

“maritime lien ean adhere, Walsh v. Tadlock, 104 F.2d 12)

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

(W.D. Ken, 1939) and a cases cited therein. A like fesyls

J

|

a4

N

pertains to the accounts receivables (assignments of charter

hire, freight: s). While a vessel is given a maritime lien

against cargo. to secure the payment of charter hire or

freight due on a particular vovage, such lien is strictly |

possessory and is thus destroyed if the cargo is unloaded,

Gilmore and Blaek, The Law of Admiralty, p. 517 (1957).

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

there is obviously no eargo possessed by it to which liens

for freight and hire might attach, Thus uy assignments

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

any maritime lien rights.

As the marine insurance proceeds and the accounts re-

celvable alluded to by Todd eannot support maritime liens,

it is submitted that, under the above law, the ‘court helow

“Was and is without jurisdiction to adjudicate a marshalling

é

of same, .

1

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

of mi irshalling of assets could in theory be applied below,

Mastan would not ugder 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 lenor and the junior lienor. who is seeking the

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

2nd 488 (10th Cir. 1966); Victor Gruen Associates, Inc. \

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

Truckers, Inc., 226 F. Supp. 440 (D. Neb. 1963): Gordon vy.

Aratec, 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

While the English und& ‘writers may be considered debtors

to Sapphire by reason of the t 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

Jatter having no contractual or other relation with sald

underwriters. A like result must. be advaneed as rewards

the accounts recej rable, assuming the ‘vy have any worth at

all. While the obligors under these accounts may he 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 ot apply where the fund or

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

is without the ON ag of the court attempting the

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

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

York State National Bank, 151 Mise. 903, 271 Ny tee =

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

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

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

hands of the English underwriters. Thus, thie ‘Vare without

the jurisdiction of the court below, the underwriters bei ine

obviously ‘in London. +

?

.

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

compel the senior licnor to engage in litigation, especially

Where the property or funds as 10 Whieh marshalling is

directed are of doubtful value. C.7. WW lard Co, v. City

of New York, 81 Mise. 48, 142 N.Y.S. 11: Klinger ve. New

< 26

H oa)

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

or compel him to exhaust a mere personal remed~ 55 CJS

Marshalling of Assets & Securities, S4. a

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

wards the insurance proceeds or accounts receivable alluded

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

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

ordinary (i personam remedy with all its attendant delay.

The value of Mastan’s right to the purported insurance

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 ii¥surance, 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 lecduse they

were aware of Sapphire’s bankruptey 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 i 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 Bankraptes:

-as one of the parties, A like view results with respect. 10.

the accounts receivable as to which Todd urges marshalling.

OAS Sapphire is now in bankruptey, any claim by Mastan

to these aecounts would involve litigation, which would

he complicated by the interest. of Sapphire’s Trustee in

Bankruptey., ~Further and most important and as noted

in the Third Circuit's: opinion, the Special Master found

|

that the evidence showed the accounts receivable to, be

worthless. Ro att Se

Characteristic of Todd's straining approach throughout

the proceedings below, it asserts on page 59 of ity petition,

that it is prepared to offer te stimony that Mastan assigned

‘to the 046 corporation insurance claims) of 130,000) for

15,000." The testimony below showed that this assignment

had nothine to do with the mortgage in issue here, was not

made for 15,000 and in faet Was actually made tor Todd’s

benefit. It is submitted that Todd js guilty of nothing less

than a shocking lack of ¢ dor to this Court.

\

\

\

(d) Said doctrine may: not be applicd where it will’

operate to the senior lienor’s pre ye or trench upon his

rights; Vietor Crrucn Associates / Glass. supra; Philadele

phia Home, elo. ve Philadelphia nS EL Soc., 196 NJ, Kq.

104, 8 A’ 2nd 193: Gordon \ : Aratec, supra; 55 CJS War-

shalling of Assets & See iritie Ry f S4.

It is submitted that application of the doetrine would

seriously prejudice Mastan, sinee it would put Mastan to

the vexation of comn neing 7 personam litigation with

respect to rights ofAmeertain value in Jurisdictions othe:

than the court belo Vv, Which litigation would be made all ‘the

more difficult and which litigation would .be prolonged,

say the least, by reason of the competitive right of

Sapphire’s Trustee in Bankruptey.

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

to apply the doctrine of marshalling of assets, which refis:!|

Was sdnetioned by hoth the District Court and the Cireuit

Court of Appeals was eminently proper on any one of a

number of grounds, a

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 sto

tally frivolous.

The judgment below was dated and entered in the Dis-

trict Court: for the District of New Jersey on February

17, 169. In substinee, said judgment confirmed the find-

ings o¥ the Special Master that Mastan was éntitled to the

orehaining funds of $55,085.37 in the Distriet Court and di-

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

to Mastan said sum. The enforcement of this judement

for money has been delayed from February 17, 1969 until

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

peal to the Court of Appeals and its present application

for certiorari to this Court. rs

Mastan respectfully submits that the grounds advanced

hy Todd in its petition are of the most. frivolous kind and

further were briefed in a manner th: at simply ignored the

clear findines of the Special Master; Distriet Court and

Court of Appeals that the evidence aNae showed that Mas-

tan’s morteage transactions were made in abundant good

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

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

ent application for writ Was proseeuted solely for the pur-

poses of d Tay. Thus, Mastan respectfully 1 requests that

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

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

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

“vember 18, 1969 until the date the judgment_of the District

/ /

oo

Court is enforced by payment of the said $99,085.87 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. 773 Co. v. Jersey

City, 94 XN. 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.-

O85.37 as an award of damages and penalty,

Mastan makes the above application on the basis of

Rule 56 of the Supreme Court Rules. J), ming v. Carlish

Packing Co.: 226 US 102 (1912): Blair vy. Durham, 139 FY.

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

- Conclusion

For the foregoing reasons it is respectfully sub-

mitted that this petitien 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. Sunexeman

Attorney fo r Re spond ni.

Mastan Company, Ine.

19 Rector Street

New York, New York 10006

Of Counsel

Georce D. Byrnes

/