Petition for Writ of Certiorari — Teamsters v. United States
Supreme Court brief1934
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MAR 30 !
FILE COPY CHARLES ELMDRE
Cc
IN THE
Supreme Court of the United States
OCTOBER TERM, 1933.
DETROIT TRUST COMPANY, TRUSTEE,
Petitioner,
against
Steamer THOMAS BARLUM, her engines, ete.,
Barlum Steamship Company,
Respondent.
DETROIT TRUST COMPANY, TRUSTER,
Petitioner,
against
Steamer JOHN J. BARLUM, her engines, ete., Barlum
Steamship Company,
Respondent.
PETITION FOR WRIT OF CERTIORARI TO
THE UNITED STATES CIRCUIT COURT OF
APPEALS FOR THE SECOND CIRCUIT
AND BRIEF IN SUPPORT THEREOF.
“| RAY M. STANLEY,
ELLIS H. GIDLEY,
FERRIS D. STONE,
Counsel for Petitioners.
——
———
oO
a a ee ne a ee
BATAVIA TIMES, LAW PRINTERS,
BATAVIA, N.Y.
INDEX.
Page
PETITION FOR WRIT OF CERTIORARI |... 0. 1
ED AE, I II oc vsemnsnncanidennssenishianeennehan Passed heaasdecisuke Sabon oa
The Questions Presented:. phapeiontien CER e a. 8
1. Was it the intention of Congress i in n enacting Subsection
K of the Ship Mortgage Act to withhold jurisdiction
of an action in rem brought to foreclose a preferred
mortgage in all cases where the mortgagor and mort-
gagee knew in advance that a substantial part of the
proceeds was to be devoted to non-maritime uses? 8
2. Can jurisdiction of a District Court over an action in
rem brought under Subsection K of the Ship Mortgage
Act be defeated without destroying the status of a
mortgage as a preferred mortgage under the Ship
Mortgage Act? ..... 8
3. If Congress intended to create a ‘preferred ‘mortgage
lien in all cases where the provisions of the Ship Mort-
gage Act are strictly complied with, irrespective of
the devotion of the proceeds to non-maritime uses, has
it the power so to do under Article III, Section 2 of
the Constitution? ................ ; cabeaeel ae
Reasons for Allowance of Writ........... 12
BRIEF IN SUPPORT OF PETITION FOR ‘WRIT OF CER-
MR RIM TS occa cones scchusicvsten sens ces ree e pecake
Pp are pobbsassNyeeen taken a es NeiGeakegessezcsksspeccacit eee
Statement ............ VME A dita OR EMER A Soa A SE >,
Specifications of Error EIA AbLh aici rash ntcineasasaccieadonlaiankachedasnsendbaleindinss me
POINT I—The Ship Mortgage Act contains no express or im-
plied condition that the proceeds of a preferred mortgage
Shall be devoted to maritime uses. Therefore, an intention
to use the proceeds of such a mortgage for non-maritime
purposes cannot affect the status of the mortgage, or the
jurisdiction of the District Court to enforce it... 18
POINT II—The Ship Mortgage Act is a valid exercise of the
power granted to Congress under Article III, Section 2 of
I a sce cine babu emblnbccnanes 26
POINT III—If the mortgages in suit are preferred mortgages
under the Act, the jurisdiction of the District Court over an
action in rem to enforce them necessarily follows... 31
POINT IV—Estoppel bars the defense and renders the testi-
mony on which the majority opinion rests wholly incompe-
WN areca hinsitins sancentccaah act uceucnk sapaicck cakdschakshctnchacin cine cas beghGh sac ciehecccnsine 34
TABLE OF CASES CITED.
Bogart v. S/S JOHN JAY, 17 How. 399... CARRIE .14, 28, 30
BREYER, THE HENRY W., 17 Fed. (2d) 423 (D. Maryland) 10
Consumer’s Co., v. Goodrich Transit Co., 53 F. (2d) 972 (C.
Mi, Tp GRR. GR BS UT. BH BB ona nccccscccccccsccccccncs 10
ty TPO eS Vee ee ee or
it cat Hii ta hae m
II.
Page
EGERIA, THE 294 F. 791 (C. C. A. 9) ..22.-2..cccccccccecceee eee 10
LINCOLN LAND, THE 295 F. 358 (D. Mass.)........................ 9, 28
LOTTAWANNA, THE 21 Wall 558.....................-.-.-.--..---- 15, 27, 28
Morse Dry Dock & Repair Company v. S/S THE NORTHERN
STAR, 271 U. S. SUB, GUG......................0cccceeeccccssceeceseecsseeeneses 9, 28
MOSHULU, 298 F. 348 (N. D. Call.) ...22222..2------::cccececeeeeecee eee 10
NANKING, THE 292 F. 642 (N. D. Cal.) .......0.....2.2---...--.0--- 9, 28
National Bank v. Enterprise Marine Dock Co., 43 F. (2d) 547
a eS SS | eee ree oe
NORTHERN, THE No. 41, "297 F. “343. ‘s. D. Florida). Ps dleaspelaiebicie 10
NORTHERN STAR, 7 F. (2d) 505 (C. C. A. 2)........ SNE ules 10
OCONEE, The 280 F. 927 (E. D. Virginia) ........................ 9, 27, 28
OWRGO, The SOB F. GBB (BB. Di Gat.) q.-.---...........0cce snes. ccciece00sse-.--. 10
Panama R. R. Co., v. Johnson, 264 U. S. 375............................. ... 26
Peoples Ferry Co., v. Beers, 20 How. 393............................---.-- 15, 28
Wray Tai, BR UF Gh Rinnai nanan nesses cece scenes i ae
RED LION, THE 22 F. (2d) 329 (E. D.N. Y.).........-.-------------.. 10
Richardson v. Harmon, 222 U. S. 96 ..2...022020000.......2200000000ee0eeeene 30
RCTs, Te SD. TR. BO Ui. Bh Bainnna nnn. nanan nance ve nscsnnescsccesiccssss. 15, 28
Schuchardt v. Babbage, 19 How. 239..................-..-----0---eeeee- 15
Southern Pacific Co., v. Jansen, 244 U. S. 205.....................--.-....... 27
White’s Bank v. Smith, 7 Walk. 646.......0..00...000..00..0......0.222c sees 31, 32
AUTHORITIES CITED.
Act of March 3, 1851 (Ch. 43, 9 Stat. 635, 636)...................... 29
Act of June 26, 1884 (Ch. 121, Sec. 18; 23 Stat. 57, 46 U. S. C.
MN Pode aictins ease canbiain Unckcpanak bcos ween aaaie Aeaanendeeinac kin ck bniiuinckdinnnoninsensGanieants 29
Act of June 23, 1910 (Ch. 373, 36 Stat. 604) ecidiailideigh ieiesladaaebatianaes 29
Article I, Section 8 of the Constitution of the United States... 26
Article II, Section 2 of the Constitution of the United
i a aT te A ata dann 2, 8, 12, 16, 26
Judiciary Act of 1789 (Act September 24, 1789, Sec. 9, 1 Stat.
SOE: acastesiscssesuiuhbeshiniepoeepnescininea ened inigacelttinidacascieia ah dielacamaadieelabicenianioleaniitocke 29
Merchant Marine Act of 1920 (Act of June 5, 1920, Ch. 250,
Sec. 1; 41 Stat. 988; 46 U. S. C. Sec. 861)... 24
Senate Reports, Volume I, 66th Congress 2nd Session............ 24
Ship Mortgage Act (Act of June 5, 1920, Ch. 250, Sec. 30; 41
Stat. 1000-1006; 46 U. S. C. Ch. 25............ 2, 6, 11, 13, 18, 24, 26,
27, 28, 31, 33, 35
Subsection D (41 Stat. 1000, 46 U. S. C. Sec. 922)..8, 18, 21, 23
Subsection E (41 Stat. 1001; 46 U. S. C. Sec. 923)... 9
Subsection K (41 Stat. 1003; 46 U. S. C. Sec.
__| PARR el DenRA ORTE Tree aRE Fee TEREST EDS 3, 8, 10, 13, 17, 20, 32
Subsection M (41 Stat. 1004; 46 U. S. C. Sec. 953)......8, 19, 20
IN THE
Supreme Court of the United States
OCTOBER TERM, 1933.
DETROIT TRUST COMPANY, TRUSTEE.
Petitioner,
against
Steamer THOMAS BARLUM, her engines, ete.
Barlum Steamship Company,
Respondent.
DETROIT TRUST COMPANY, TRUSTEE,
Petitioner,
against
Steamer JOHN J. BARLUM, her engines, ete., Barlum
Steamship Company,
Respondent.
THE PETITION OF DETROIT TRUST COMPANY,
TRUSTEE, FOR A WRIT OF CERTIORARI TO
THE UNITED STATES CIRCUIT COURT OF
APPEALS FOR THE SECOND CIRCUIT.
To the Honorable the Chief Justice and the Associate
Justices of the Supreme Court of the United States:
Petition.
Your petitioner, Detroit Trust Company, Trustee,
mortgagee named in each of two preferred marine
rT
De EP ymin ine:
mortgages covering the Steamers Thomas Barlum and
John J. Barlum, respectively, prays that a writ of
certiorari issue to the United States Cireuit Court of
Appeals for the Second Circuit to review its orders
entered in the above entitled causes on February 13th,
1934 (R. 336-338) reversing the decrees of the United
States District Court for the Western District of New
York. Neither the prevailing nor dissenting opinions
of the Circuit Court of Appeals (R. 324-329, 330-336)
are yet officially reported. The original opinion of the
District Court upon exceptions (R. 120-121) is report-
ed at 56 Fed. (2d) 455, and the subsequent opinion of
the District Court following trial of the causes (R.
264-267) is reported at 2 Fed. Supp. 733.
Nature of the Case.
These suits in admiralty, tried together, were in-
stituted by petitioner for the foreclosure, following
default, of two preferred marine mortgages covering
the Steamers Thomas Barlum and John J. Barlum,
respectively, given pursuant to the Ship Mortgage Act
(Act June 5, 1920, Chap. 250, Sec. 30; 41 Stat. 1000-
1006; 46 U. S. C. Chap. 25). The suits were resisted
on the ground that the proceeds of the mortgages be-
ing largely intended and used for non-maritime pur-
poses no maritime lien subject to admiralty jurisdic-
tion arose therefrom, and that the Ship Mortgage Act
1920, insofar as it purports to permit the foreclosure
of such mortgages by suit im rem in admiralty and to
grant original jurisdiction of such suits to the Dis-
trict Courts of the United States is violative of and in
contravention of Article III, Section 2, of the Consti-
ay
3
tution of the United States and is null, void and of no
effect (R. 124-125).
Full compliance with all statutory requirements to
make each mortgage a preferred mortgage under the
Ship Mortgage Act is admitted by the respective an-
swers.
Kach preferred mortgage was given to secure pay-
ment of a loan of $200,000 made by Detroit Trust Com-
pany to the vessel owner. Each loan was evidenced
by an issue of bonds aggregating that sum and ma-
turing serially. The hond issues were purchased by
Detroit Trust Company for sale to the general public
and were largely so sold. Default occurred in pay-
ment of each issue of bonds, whereupon libelant in-
voked the jurisdiction of the District Court, pursuant
to Subsection K of the Ship Mortgage Act (41 Stat.
1003; 46 U. S. C. See. 951) for the enforcement of the
lien of each preferred mortgage.
John J. Barlum was the principal and controlling
owner of stock in the mortgagor corporation when the
mortgages in suit were negotiated and delivered (R.
196-199, 250).
Of the proceeds of the mortgage given on the Thomas
Barlum, the testimony, which is without dispute, shows
that the Detroit Trust Company (Mortgagee, Trustee)
disbursed the proceeds of the mortgage in exact con-
formity with the written directions supplied by the
mortgagor, as follows:
$50,358.33 for the refunding of the unpaid balance
of a prior existing mortgage, also exe-
Li Reemiont Xe thee blip tli we EE Bt HA
ener ets Nib cL hat a ke
esis) Wie Whitest hagas
a,
4
euted and delivered under the provi-
sions of the Ship Mortgage Act.
$45,510.00 for the payment of a note of Thomas
Barlum & Sons (a corporation controll-
ed by John J. Barlum, President of the
mortgagor).
$54,490.00 for the payment of two notes of John
J. Barlum.
$ 1,545.23 for the payment of miscellaneous ex-
penses in connection with the giving of
the mortgage.
$42,896.44 the residue, was paid to the mortgagor
(R. 231).
Of the proceeds of the John J. Barlum mortgage,
there is nothing in the record to indicate that the De-
troit Trust Company (Mortgagee, Trustee) had ad-
vance knowledge of the manner in which the balance
of the proceeds of the mortgage turned over to the
mortgagor and amounting to substantially more than
half such proceeds were to be used. After the mort-
gage was executed, delivered and recorded, the De-
troit Trust Company (Mortgagee, Trustee) disbursed
the moneys in exact conformity with the express direc-
tions in writing of the mortgagor, as follows:
$ 92,363.38 for the payment of note, bonds and
coupons of John J. Barlum.
After deduction of miscellaneous ex-
penses connected with the mortgage,
there was paid to the mortgagor a bal-
ance of
$102,801.55 (R. 240).
The testimony fairly shows that the several amounts
paid to others than the mortgagor, as indicated, were
paid by the express direction of the mortgagor and
merely constituted loans made by the mortgagor out
of the proceeds (R. 194, 207).
The libels respectively allege the execution and de-
livery of the preferred mortgages (as intended to be
such) to secure payment of the indebtedness evidenced
by each bond issue. A complete and strict compliance
with the Ship Mortgage Act is alleged. Default is
pleaded and relief is sought by sale of the respective
vessels and decree of foreclosure thereon (R. 12-15,
66-69).
Upon the filing of the libels and seizure of the re-
spective vessels at the Port of Buffalo, Barlum Steam-
ship Company made claim thereto and attacked the
jurisdiction of the District Court through exceptions.
After hearing, the exceptions were overruled by the
District Court (R. 123). Claimant then interposed an-
swers which admit every allegation of the libels. Two
separate defenses are therein alleged; the first of which
alleges that the proceeds of the loans, as evidenced by
an issue of bonds to secure payment of which the re-
spective mortgages were given, were used by claimant
(Mortgagor) almost entirely for non-maritime pur-
poses to the knowledge of libellant when the mortgages
were executed and delivered. The second defense is
the same as was urged by exceptions (R. 124-125).
Testimony was taken and trial of both causes had
upon the issue raised by such first defense. A further
opinion was filed by the District Court upholding the
UL rm A al NT alls Se gf *
SEA at ARE Te i le a ta ll BN EA eB
hc eat tx
6
right to enforce the respective preferred mortgages in
a Court of Admiralty as provided by the Ship Mort-
gage Act. Decrees were entered in the respective suits
providing for foreclosure and directing the sale of the
vessels to satisfy the amounts found to be due (R. 268,
280). Claimant appealed and the Circuit Court of
Appeals, by a divided court, reversed the decrees of
the District Court. Petitions for rehearing were sub-
sequently denied (R. 338, 339).
In determining that the jurisdiction provided by the
Ship Mortgage Act did not extend to the mortgages
at bar, the prevailing opinion of the Circuit Court of
Appeals (Manton and Chase, C. J.) held:
1. That the jurisdiction of the District Court over
an action m rem to foreclose a preferred mortgage
complying with all the express provisions of the Ship
Mortgage Act may be collaterally attacked by the
mortgagor and jurisdiction defeated by showing that
the mortgagor and mortgagee had advance knowledge
that a substantial part of the proceeds of the mort-
gage were to be used for non-maritime purposes.
2. That the result follows notwithstanding the libel
alleges and the answer admits that the mortgage in
question is a preferred mortgage under the Act.
3. That admiralty jurisdiction over the foreclosure
of preferred mortgages on vessels is limited to mort-
gages the proceeds of which were used ‘‘to develop
and encourage the maintenance of a merchant marine’’
(R. 324-329).
Petitioner contended below, and now contends, that
this construction is an unwarranted and narrow limita-
— iy
7
tion of the Ship Mortgage Act, and that the correct
construction is that set forth in the dissenting opinion
of the Circuit Court of Appeals (A. N. Hand, C. J.)
which held:
1. That since each mortgage admittedly was a valid
mortgage, and since the owner (Mortgagor) in all re-
spects complied with the provisions of the Ship Mort-
gage Act relating to preferred mortgages, each mort-
gage attained a preferred status.
2. That the Ship Mortgage Act was passed in
aid of the development and encouragement of our
merchant marine, and was intended to give to ship
mortgages complying with the statute a status per-
mitting their more advantageous employment by way
of promotion of investment than had been theretofore
enjoyed.
3. That to make the status of a preferred mortgage
depend upon the purposes for which it is given is to
engraft upon the plain words of the statute an excep-
tion seemingly contrary to its terms and not required
by any convincing public policy.
4. That the whole matter is one of the creation and
displacement of liens upon ships as essential marine
instrumentalities over which Congress has complete
control under its power to alter, qualify or supplement
the maritime law.
_o. That the mortgages in suit being admittedly
valid as preferred mortgages, the admiralty court had
jurisdiction and the decrees ordering sales of the ves-
sels for the satisfaction of the liens of the mortgages
should be affirmed (BR. 330-336).
ee Ee eee
I tet GN Nis BOON Di le RE Rie Bonne
a - ii aati 0 9 Ba 4
8
Questions Presented.
1. Was it the intention of Congress in enacting
Subsection K of the Ship Mortgage Act to withhold
jurisdiction of an action im rem brought to foreclose
a preferred mortgage in all cases where the mortgagor
and mortgagee knew in advance that a substantial part
of the proceeds was to be devoted to non-maritime
uses?
2. Can jurisdiction of a District Court over an
action in rem brought under Subsection K of the Ship
Mortgage Act be defeated without destroying the stat-
us of a mortgage as a preferred mortgage under the
Ship Mortgage Act?
3. If Congress intended to create a preferred mort-
gage lien in all cases where the provisions of the Ship
Mortgage Act are strictly complied with, irrespective
of the devotion of the proceeds to non-maritime uses,
has it the power so to do under Article III, Section
2 of the Constitution?
The Ship Mortgage Act is unconditional in form.
By Subsection D (41 Stat. 1000, 46 U. S. C. See. 922)
it is provided: ,
‘*(A) A valid mortgage which, at the time it
is made includes the whole of any vessel of the
United States of 200 grass tons and upward, shall
in addition have, in respect to such vessel and as
of the date of the compliance with all the provi-
sions of this subdivision, the preferred status giv-
en by the provisions of Subsection M, if—’’
then follow various conditions with respect to endorse-
ment, recording, filing of affidavit, etc., compliance
——————
9
with which is essential for the attaining of the status
of a preferred mortgage.
Subsection E of the Ship Mortgage Act (41 Stat.
1001, 46 U. S. C. See. 923) further requires the pro-
euring of certified copies of the preferred mortgage
following recording and the retention of one such copy
on board the mortgaged vessel for purposes of ex-
hibition to any person having business with the ves-
sel which may give rise to a maritime lien.
Each libel alleges a complete and strict compliance
with all the provisions of the Ship Mortgage Act re-
quisite to give to the respective mortgages the pre-
ferred status accorded by the statute. Each answer
specifically admits that every allegation of the libel
is true.
That, upon compliance with all the conditions speci-
fied, the mortgage is made preferred, is the enunciat-
ed doctrine of this Court in the only cause involving
the Ship Mortgage Act which has come before it.
Morse Dry Dock & Repair Company v. Steam-
ship The Northern Star, 271 U. S. 552, 556.
In that case the constitutionality of the Ship Mort-
gage Act appears to have been assumed, although
seemingly not directly presented for decision.
However, several] decisions of the District Courts
have considered at length and have sustained the con-
stitutionality of the Act as well as the power of Con-
gress to enlarge the jurisdiction of the District Court
sitting in admiralty.
The Oconee, 280 F. 927 (E. D. Virginia) ;
The Nanking, 292 F. 642 (N. D. Cal.) ;
The Lincoln Land, 295 F. 358 (D. Mass.).
os Sane $s swe eee
WE PRAT OS os A eae Meise
itera ii ensctihetel ae
10
Other decisions of Federal Courts have plainly as-
sumed the validity of the Ship Mortgage Act and of
preferred mortgages complying therewith.
The Egeria, 294 F. 791 (C. C. A. 9);
The Northern Star, 7 F. (2d) 505 (C. C. A. 2);
National Bank v. Enterprise Marine Dock Co.,
43 F. (2d) 547, (C. C. A. 4);
Consumer’s Co. v. Goodrich Transit Co., 53
F. (2d) 972 (C. C. A. 7); cert. denied 286
U. S. 548;
The Owego, 292 F. 403 (E. D. La.) ;
The Northern, No. 41, 297 F. 343 (S. D. Flor-
ida) ;
The Moshulu, 298 F. 348 (N. D. Cal.);
The Henry W. Breyer, 17 F. (2d) 423 (D.
Maryland) ;
The Red Lion, 22 F. (2d) 329 (E. D. N. Y.).
Petitioner contends where it is conceded that the
mortgage was valid and where alli the statutory re-
quirements requisite to accord such mortgage prefer-
red status were complied with that such preferred
mortgage, by virtue of the statutory provision, con-
stitutes a preferred mortgage lien upon the mort-
gaged vessel. Petitioner also contends that upon de-
fault occurring in the terms or conditions of a pre-
ferred mortgage, such lien is enforceable by the mort-
gagee by suit im rem in admiralty, of which suit ex-
clusive original jurisdiction is granted to the District
Courts of the United States by virtue of Subsection
K of the Ship Mortgage Act (41 Stat. 1003, 46 U. S.
C. See. 951).
Exclusive original jurisdiction having been con-
ferred upon the District Courts for the enforcement
O——
1l
of a lien created by the Ship Mortgage Act upon ves-
sels of the United States over which Congress has un-
deniable power, petitioner contends that such juris-
diction is absolute and positive in every case where
such preferred mortgage lien is existent by reason of
compliance with the conditions of the Ship Mortgage
Act.
The majority decision of the Cireuit Court of Ap-
peals is based upon the erroneous proposition that,
although the mortgages were admittedly valid as pre-
ferred mortgages within the purview of the Ship
Mortgage Act, the statutory grant of jurisdiction over
the enforcement of the lien thereby created failed once
it appeared that the mortgagee had advance knowl-
edge that the mortgagor intended to, and did, use a
substantial portion of the proceeds of the borrowings
for non-maritime purposes.
The majority opinion said:
‘‘It is not enough to say that they were mort-
gages with due formalities placed upon the ves-
vels. As soon as it appeared at the trial, and it
did so beyond question, that the loan was not made
to be used for purposes of navigation or relating
to things maritime, the court should have declined
jurisdiction’? (R. 329).
The majority opinion ignores the fact that the mort-
gages were each made after proper corporate action
authorizing their execution under resolutions assert-
ing that it was necessary to borrow the moneys ‘‘for
the use and benefit”’ of the respective vessels (R. 253,
258). Similarly, the majority opinion overlooks com-
pletely the covenants of the mortgagor contained in
Paste 8 dae ae
12 |
the respective mortgages that the mortgagor shall
comply with and satisfy all the provisions of the Ship
Mortgage Act and ‘‘shall establish and maintain this
mortgage as a first preferred mortgage under said
Act”’ (R. 35, 88). Further while admitting that the
Ship Mortgage Act does not say anything about how
the proceeds of the loan secured by the mortgaye are
to be used, the majority opinion of the Cireuit Court
of Appeals flatly holds that a maritime use was con-
templated. Hence, the majority opinion, through re-
liance upen facts aliwnde the instruments themselves
relating to how the moneys thus secured were to be
spent, determined that the District Court is without
jurisdiction in the present suits and that the petition-
er inust be relegated to its remedy at common law.
Reasons for Allowance of Writ.
1. The questions presented are of considerable pub-
lic importance which have not been, but should be,
settied by this Court, involving fundamental questions
of jurisdiction in admiralty. Indeed, the questions
actually go deeper, in that while the Cireuit Court of
Appeals placed its decision on a basis of statutory
construction, the underlying question is a constitution-
alone. If the statute includes within its terms the pre-
ferred mortgages in suit, as petitioner contends it
clearly does, then it must be determined whether the
Constitution, Article III, Section 2, permits such ex-
pansion of the field of admiralty. The constitutional’
problem was recognized and argued by counsel for
the parties and is squarely dealt with by the dissent-
ing opinion. '
If Congress had the power under Article ITI, Section
2 of the Constitution to amend the general maritime
13
law as expressed in the Ship Mortgage Act, Subsec-
tion K of the same Act, extending the jurisdiction of
the District Court, is equally valid. If, by strict com-
pliance with the Act, each mortgage in suit became a
preferred mortgage under the Act, the jurisdiction
of the District Court over an action to foreclose auto-
matically follows. It, therefore, results that the juris-
diction of the District Court over an action in rem to
foreclose can only be defeated by destroying the pre-
ferred character of the mortgage.
The strained and illiberal construction of the stat-
ute by the majority opinion of the Circuit Court of
Appeals is the result of an attempt to avoid the onus
of declarmg the statute in violation of the Constitu-
tion. The decision in these cases is of great interest
and importance to all persons interested in our na-
tional shipping and its financing. The fostering of a
merchant marine has been the fixed policy of our gov-
ernment for many years.
2. Throughout the country there are numberless
holders of bonds secured by preferred mortgages un-
der the Ship Mortgage Act. The decision of the ma-
jority of the Circuit Court of Appeals has opened
wide the door to an attack on preferred mortgages as
such and thus has impaired the value of such bonds
as a security with a possibility of their complete de-
struction in individual cases. The’ pernicious effect
on future efforts to float bond issues secured by pre-
ferred mortgages is certain. It follows that if this
decision stands the purpose of Congress in enacting
the Ship Mortgage Act will be defeated.
3. The decision in the present case is contrary both
to the letter and the spirit of the Ship Mortgage Act.
_ ay
14
It nullifies the provisions for the enforcement of the
lien created by the statute by imposing upon the plain
words of the statute a condition which is wholly ir-
relevant ;—namely, to what uses did the mortgagor
with the knowledge of the mortgagee put the moneys
obtained upon the security of the instruments. In so
determining, the Circuit Court of Appeals expressly
refrained from deciding whether a loan made for mari-
time purposes secured by a mortgage upon a ship
will become non-maritime if the borrower, contrary to
the agreement of the mortgage, diverts the; money to
non-maritime purposes; nor would the Court express
itself as to the effect, in such case, of estoppel. But
the Court clearly bases its decision upon the advance
knowledge of the mortgagee as to the ultimate non-
maritime use of a substantial part of the borrowings
by the mortgagor which depends on testimony wholly
dehors the instrument offered for the purpose of con-
troverting the express covenants of the mortgage.
Such a construction finds no support in the letter of
the Ship Mortgage Act and is contrary to the intent
of Congress in the enactment of the measure for the
creating of valid mortgage security on ships which
would thus be made the subject of investment.
4. The Circuit Court of Appeals is in palpable
error in holding that jurisdiction is to be determined
by the purely subjective test of knowledge of the mort-
gagee of the intended use of the funds loaned.
+. The majority decision of the Circuit Court of
Appeals is based upon a misapplication of the deci-
sions of this Court in
Bogart v. The Steamboat John Jay, 17 How.
399 ;
Schuchardt v. Babbage, 19 How. 239 ;
Peoples’ Ferry Co. v. Beers, 20 How. 393;
The Lottawanna, 21 Wall. 558 ;
The J. E. Rumbell, 148 U.S. 1.
We respectfully submit that the decision of the Cir-
cuit Court of Appeals is wrong and should be review-
ed by this Court.
WHEREFORE, your petitioner prays that a writ of cer-
tiorari be issued out of and under the seal of this
Honorable Court directed to the United States Cireuit
Court of Appeals for the Second Cireuit commanding
that Court to certify and send to this Court for its
review and determination on a day certain to be nam-
ed therein, a full and complete transcript of the record
and all the proceedings in the cases numbered on its
docket numbers 175-176, October Term 1933, and en-
titled: ‘‘Detroit Trust Company, Trustee, Libelant-
Appellee, against Steamer Thomas Barlum, her en-
gines, ete., Barlum Steamship Company, Claimant-
Appellant; Detroit Trust Company, Trustee, Libelant-
Appellee, against Steamer John J. Barlum, her en-
gines, ete., Barlum Steamship Company, Claimant-Ap-
pellant’’, and that the said decrees of the United States
Cireuit Court of Appeals for the Second Circuit may
be reversed by this Honorable Court, and that your
r “itioner may have such other and further relief in
\. premises as to this Honorable Court may seem
meet and just, and your petitioner will ever pray.
Derroir Trusr Company, TRUSTER,
Petitioner,
Ray M. Srantey,
Euus H. Ginxey,
Ferris D. Stone,
Counsel for Petitioner.
— " 2 3 |
16
selene unen: ainda nase.
IN THE
SUPREME COURT OF THE UNITED STATES
OctTosBEr Term, 1933.
No.
DETROIT TRUST COMPANY, Trustee,
Petitioner,
against
Steamer THOMAS BARLUM, her engines, etc., BAR-
LUM STEAMSHIP COMPANY,
Respondent.
os
DETROIT TRUST COMPANY, Trustee,
Petitioner,
against
Steamer JOHN J. BARLUM, her engines, etc., BAR-
LUM STEAMSHIP COMPANY,
Respondent.
BRIEF IN SUPPORT OF PETITION FOR
WRIT OF CERTIORARI.
Jurisdiction.
This is a suit within the admiralty and maritime
jurisdiction of the United States and of this Honor-
able Court. Jurisdiction is invoked under Article ITT,
Section 2 of the Constitution of the United States of
America, and under Section 240 of the Judicial Code
Wo peutncant
as amended by the Act of February 13th, 1925, 43 Stat.
938 (U.S. C. A., Title 28, Section 347).
Statement.
The majority of the essential facts are stated in the
petition and will not be repeated here. We call atten-
tion, however, to the fact that the testimony upon
which the majority opinion of the Circuit Court of
Appeals was based was all admitted over the objection
and exception of libelant (R. 133-134). This testimony
in substance merely amounts to this—that the mort-
gagor loaned a substantial portion of the proceeds of
each mortgage to third parties (i. e., the President of
the mortgagor and to corporations controlled by him).
These borrowers in turn used the moneys for non-
maritime purposes. The borrowers were charged on
the books of the mortgagor with the amount of the
loans (R. 194, 207 ), obviously with the expectation that
the loans would be repaid in due course.
Specifications of Error.
The Circuit Court of Appeals erred in the following:
1. In holding that it was the intention of Congress
in enacting Subsection K of the Ship Mortgage Act to
withhold jurisdiction of an action in rem brought to
foreclose a preferred mortgage in all cases where the
mortgagor and mortgagee knew in advance that a sub-
stantial part of the proceeds was to be devoted to a
non-maritime use.
2. In holding that the jurisdiction of a District
Court over an action in rem brought under Subsection
Se Ree eT
ah i NM sl
Oe ho ae ar hang itr ils
Sienna
;
18
K of the Ship Mortgage Act may be defeated without
destroying the status of a mortgage as a preferred
mortgage under the Ship Mortgage Act.
3. In holding that strict compliance with all the
express provisions of the Ship Mortgage Act does not
of itself vest jurisdiction in the District Court over
an action in rem to foreclose the mortgage, but that
jurisdiction may be defeated by testimony aliunde that
the loan was not made to be used for purposes of navi-
gation or relating to things maritime,
4. Inreversing the decrees of the District Court di-
recting foreclosure and sale of the mortgaged vessels
as prayed for in the libels.
POINT I.
The Ship Mortgage Act contains no express or
implied condition that the proceeds of a preferred
mortgage shall be devoted to maritime uses.
Therefore, an intention to use the proceeds of such
a mortgage for non-maritime purposes cannot af-
fect the status of the mortgage, or the jurisdic-
tion of the District Court to enforce it.
The language of the Ship Mortgage Act is precise,
definite and certain. By Subsection D (41 Stat. 1000;
46 U.S. C. Sec. 922) it provides:
‘‘(a) A valid mortgage which, at the time it is
made includes the whole of any vessel of the
United States of 200 gross tons and upward, shall
in addition have, in respect to such vessel and as
of the date of the compliance with all the provi-
cote ae a,
,
a a a a
sions of this subdivision, the preferred status
given by the provisions of subsection M, if—
(1) The mortgage is indorsed upon the vessel’s
documents in accordance with the provisions of
this chapter ;
(2) The mortgage is recorded as provided in
Subsection C, together with the time and date
when the mortgage is so indorsed;
(3) An affidavit is filed with the record of such
mortgage to the effect that the mortgage is made
in good faith and without any design to hinder,
delay, or defraud any existing or future creditor
of the mortgagor or any lienor of the mortgaged
vessel ;
(4) The mortgage does not stipulate that the -
mortgagee waives the preferred status thereof;
and
(5) The mortgagee is a citizen of the United
States.
(b) Any mortgage which complies in respect to
any vessel with the conditions enumerated in this
subsection is hereafter in this chapter called a
‘Preferred Mortgage’ as to such vessel.
(c) There shall be indorsed upon the documents
of a vessel covered by a preferred mortgage—
(1) The names of the mortgagor and mort-
gagee ;
(2) The time and date the indorsement is made;
(3) The amount and date of maturity of the
mortgage;and
(4) Any amount required to be indorsed by the
-provisions of subdivision (e) or (f) of this sub-
section,
Hisnit, Embry meena |
20.
(d) Such indorsement shall be made (1) by the
collector of customs of the port of documentation
of the mortgaged vessel, or (2) by the collector
of customs of any port in which the vessel is
found, if such collector is directed to make the in-
dorsement by the collector of customs of the port
of documentation ; and no clearance shall be issued
to the vessel until such indorsement is made.
ec * * 99)
It is to be observed that the statute has enumerated
in complete and precise detail, every step to be taken
in order that the mortgage may attain the preferred
status created by the Act. Strict compliance with
every requirement of the Act is, therefore, necessary.
The mortgage having attained a preferred status,
through strict compliance with the Act, Subsection K
(41 Stat. 1003; 46 U. S. C. Sec. 951) provides that:
‘‘A preferred mortgage shall constitute a lien
upon the mortgaged vessel in the amount of the
outstanding mortgage indebtedness secured by
such vessel.’’
Subsection M (41 Stat. 1004, 46 U. S. C. Sec. 953)
provides that upon a sale of any mortgaged vessel by
order of a District Court in any suit in rem in admir-
alty for the enforcement of a preferred mortgage lien
thereon:
‘““(b) * * * the preferred mortgage lien shall
have priority over all claims against the vessel,
except (1) preferred maritime liens; and (2) ex-
penses and fees allowed and costs taxed, by the
Court.”’
————
21
. The libels in these cases allege a full and complete
compliance with every provision of the Ship Mort-
gage Act necessary to make the mortgages in suit
preferred mortgages under the Act. The answers in-
terposed admit that every act and thing necessary to
be done was done to make these mortgages preferred
mortgages under the Act, and further expressly admit
that the mortgages are preferred mortgages under the
Act.
The majority opinion of the Circuit Court of Ap-
peals in these cases has, for the first time, grafted on
to the Ship Mortgage Act, a further condition not war-
ranted by the language of the Act, and which would
seem to be negatived by the express terms of the Act.
This condition imposed by the court below, in effect,
is that no matter how strict the compliance with the
express provisions of the Act, if the intention existed,
known to both mortgagor and mortgagee, to devote a
substantial portion of the proceeds to non-maritime
uses, the preferred status is not attained, at least inso-
far as jurisdiction of the District Court is concerned.
This construction is certainly anomalous for the rea-
son that it makes jurisdiction of a District Court in an
action brought to foreclose a mortgage depend upon
advance knowledge of a fact rather than upon the fact
itself,
That Congress did not intend to impose any implied
limitations on the use of the proceeds is fairly evi-
denced by the express provisions of paragraph (e) of
Subsection D of the Act (41 Stat. 1000; 46 U. S. C.
Sec. 922, par. (e) which provides:
‘*(e) A mortgage which includes property other
than a vessel shall not be held a preferred mort-
;
}
22
gage unless the mortgage provides for the sepa-
rate discharge of such property by the payment
of a specified portion of the mortgage indebted-
ness. If a preferred mortgage so provides for the
separate discharge, the amount of the portion of
such payment shall be indorsed upon the docu-
ments of the vessel.’’
By this section Congress has expressly provided for
a single mortgage covering ships together with any
other conceivable form of property, and provides that
the only requirement necessary to be observed for the
maintenance of the mortgage as a preferred mortgage
on the vessel shall be a provision contained in the mort-
gage providing for a separate discharge of such other
property by the payment of a specified portion of the
mortgage indebtedness and by the endorsement on the
ship’s papers of the amount so required to be paid.
It is obvious that Congress contemplated no alloca-
tion of the proceeds of sueh a mortgage to specific uses.
If such had been the intention of Congress, unques-
tionably express provision therefor would have been
incorporated in the statute.
The conclusion of the majority of the Cireuit Court
of Appeals, therefore, is not based upon the language
of the statute, but is based upon the assumption that
Congress is without power to create a preferred mort-
gage lien over which the District Court, sitting in ad-
miralty, would have jurisdiction unless the mortgage
lien so created was made expressly ‘‘for navigation or
shipping purposes within the statute.’’ Such a con-
struction conflicts with the intention of Congress as
——————
-23
expressed in paragraph (e) of Subsection D of the Act
(41 Stat. 1000; 46 U.S. C. Sec. 922, par. (e)) ; and no
other provision of the Ship Mortgage Act lends sup-
port to the conclusion reached. ;
The majority opinion of the Cireuit Court of Ap-
peals defeats jurisdiction of the District Court upon
the single ground that the mortgagor and mortgagee
had knowledge at the time the mortgages were exe-
euted that a substantial part of the proceeds were to
be devoted to non-maritime uses and asstimes the con-
stitutionality of the Act upon the ground that:
‘‘It was not the intention of Congress, by the
mere grant of jurisdiction under the terms of the
Ship Mortgage Act, to confer jurisdiction on the
federal court to foreclose a mortgage lien placed
on the vessel which was not made a maritime lien
for navigation or shipping purposes within the
statute. In granting such jurisdiction, Congress
could have intended only a valid preferred mort-
gage thus authorized to be made under the terms
of the Ship Mortgage Act. It must be a transac-
tion which relates to navigation and things mari-
time’’ (R. 329).
Assuming this to be the intention of Congress, the
Cireuit Court of Appeals has thus made a practical
construction of the Act, and so construing it, has held
that jurisdiction of the District Court in the instant
causes fails because of the use of a substantial part
of the proceeds of the mortgages for non-maritime
purposes. Continuing, the Court holds that the inten- .
tion of Congress being plain, a mortgage executed and
delivered under the precise circumstances here dis-
Se ee ee 12; eer so .
r ——
als
Wns kt stamens le A ate ran |
24
closed cannot attain such a preferred status as to give
a District Court jurisdiction over an action in rem for
its enforcement, and that the only way in which a mort-
gage execuied and delivered under the precise circum-
stances here disclosed can attain such a status will be
by an act of Congress making the necessary extension
of the Ship Mortgage Act. This is evidenced by the
following language employed by the majority deci-
sion below: |
‘‘In the absence of an express provision, The
Ship Mortgage Act will not be construed to extend
to such a case’’ (R. 328).
Thus the Court affirms the constitutionality of the
Ship Mortgage Act based upon an assumed intention
of Congress which finds no support in the Act itself
and at the same time defeats the jurisdiction of the
District Court to enforce the mortgages in suit. It is
to be observed that such defeat of jurisdiction is based
solely upon the mere existence of knowledge that some
part of the moneys were to be diverted to non-maritime
uses. That jurisdiction of the District Court, sitting
in admiralty, cannot be defeated except by the destruc-
tion of the preferred status of the mortgages we will
discuss in a later point.
The motive and intention of Congress in enacting
the legislation in question is not only clearly evidenced
in the Senate Reports, Volume I, 66th Congress 2nd
Session, but is also expressly set forth in Section I of
the Merchant Marine Act of 1920 (Act of June 5, 1920,
Ch. 250, Sec. 1; 41 Stat. 988; 46 U. S. C. Sec. 861) of
which the Ship Mortgage Act is a part. From the
Senate Reports and the recital in Section I of the Act,
ggeaees
it appears that the purpose of the Act was to stimulate
the building of ships and the investment of capital
therein. The broad purpose of Congress cannot be
better expressed than by quoting the language con-
tained in the dissenting opinion of Judge Hand in
which he said:
“It may well be that the building of ships and
the investment of capital therein can best be pro-
moted by allowing vessels to be hypothecated as
readily and with the same effect as other personal
property. If ship mortgages are accorded such a
status, there is ground for supposing that they can
be employed more advantageously than hereto-
fore’’ (R. 332).
The narrow and illogical construction placed upon
the Ship Mortgage Act by the majority of the Circuit
Court of Appeals will have the inevitable effect of
largely impairing, if not completely defeating, the pur-
pose of Congress in enacting the legislation. Pur-
chasers of bonds secured by preferred mortgages will
no longer be able to rest secure upon the assurance,
which should follow from a strict compliance with the
express provisions of the Ship Mortgage Act. For
strict compliance will afford no assurance, since under
the decision of the majority of the Court below, that
assurance may be completely destroyed if the mort-
gagor testifies and the Court finds as a fact that the
mortgagee (merely a Trustee for innocent bondhold-
ers) knew when the mortgage was given that a sub-
stantial part ‘of the proceeds were to be devoted to
non-maritime uses. It is obvious that the public will
not purchase this type of security under such circum-
stances.
byt ~ eee,
26
POINT 1.
The Ship Mortgage Act is a valid exercise of the
power granted to Congress under Article ITI, Sec-
tion 2 of the Constitution.
Article III, Section 2 of the Constitution of the
United States extends the judicial power to ‘‘all Cases
of admiralty and maritime Jurisdiction.’’
Article I, Section 8 confers upon Congress power
‘*to make all Laws which shall be necessary and proper
for carrying into Execution the foregoing Powers, and
all other Powers vested by this Constitution in the
Government of the United States or in any Department
or Officer thereof.’’ !
In the case of Panama Railroad Company v. John-
son, 264 U. S. 375, in speaking of the constitutional
grant contained in Article III, Section 2, this Court
said at page 386:
‘**Although containing no express grant of legis-
lative power over the substantive law, the provi-
sion was regarded from the beginning as implicit-
ly investing such power in the United States.
Commentators took that view; Congress acted on
it, and the courts, including this Court, gave ef-
fect to it. Practically, therefore, the situation is
as if that view were written into the provision.
After the Constitution went into effect, the sub-
stantive law theretofore in force was not regarded
as superseded, or as being only the law of the
several states, but as having become the law of
the United States,—-subject to power in Congress
to alter, qualify, or supplement it as experience or
changing conditions might require.”’
27
In the case of The Lottawanna, 21 Wall. 558, this
Court said at page 577:
‘‘Tt cannot be supposed that the framers of the
Constitution contemplated that the law should for-
ever remain unalterable.’’
In the case of Southern Pacific Company v. Jensen,
244 U.S. 205, this Court said at page 215:
“‘Considering our former opinions, it must now
be accepted as settled doctrine that, in conse-
quence of these provisions, Congress has para-
mount power to fix and determine the maritime
law which shall prevail throughout the country.’’
Citations might be multiplied which establish that
it is now beyond dispute that Congress has power in
its discretion, and as required by experience or chang-
ing conditions, to alter, qualify or supplement the
maritime law by statutes of general application em-
bodying its deliberate judgment. Only thus may be
safeguarded the characteristic of harmony and uni-
formity conferred by the constitutional grant. Through
the exercise of such power is made possible the con-
tinued adherence by Congress to its fixed and time
honored policy of encouragement and protection of in-
vestment in ships and the consequent maintenance and
strengthening of our national merchant marine. It
follows that Congress has power to create and confer
preferred status upon a mortgage covering a vessel
of the United States without regard to the uses which
may be made of the proceeds of such mortgage.
The constitutionality of the Ship Mortgage Act was
first attacked in the case of The Oconee, 280 Fed. 927.
=)
SIREN AR B02 ARE
a
28
It was there urged that it was beyond the power of
Congress to give a preferred status to a ship mort-
gage upon the ground that a ship mortgage was a non-
maritime contract, and that it was not within the power
of Congress to create a preferred maritime lien out
of a contract essentially non-maritime in character,
citing as a basis for the claim the cases of :
; The John Jay, 17 How. 399;
| Peoples Ferry Co. v; Beers, 20 How. 393;
The J. E. Rumbell, 148 U.S. 1;
The Lottawanna, 21 Wall. 558, among others.
a
2
fe
2
m
*
:
3
4
3
10) Tels See
Both upon reason as well as upon the authority of
the very cases cited, District Judge Groner, sitting in
the Eastern District of Virginia, upheld the constitu-
tionality of the Act.
. The constitutionality of the Ship Mortgage Act was
again attacked in the case of The Nanking,.292 Fed.
642, where the same considerations were urged
as were urged in the case of The Oconee, supra. Judge
Partridge, sitting in the Northern District of Califor-
nia, again upheld the constitutionality of the Act.
The constitutionality of the Act was again attacked,
as well as the power of Congress to enlarge the ad-
miralty jurisdiction of the District Court, in the case
of The Lincoln Land, 295 Fed. 358. In this case Judge
‘Brewster, sitting in the District Court of Massachu-
setts, again upheld the constitutionality of the Act, as
well as the power of Congress to enlarge jurisdiction
of the District Court, sitting in admiralty.
In the ease of Morse Dry Dock & Repair Co. v.
Steamship Northern Star, 271 U. S. 552, the constitu-
29
tionality. of the Act was assumed by this Court, inas-
much as the question of constitutionality of the Ship
Mortgage Act was apparently not raised.
This Court has, therefore, never interpreted the Ship
Mortgage Act as a whole, nor considered the power of
Congress to enact it.
The power of Congrens to make substantive changes
in the law maritime has been repeatedly exercised.
The jurisdiction of the District Court, sitting in ad-
miralty, by the Judiciary Act of 1789 (Act Sept. 24,
1789, Sec. 9, 1 Stat. 76) was made to include cases of
seizure under the impost, navigation and trade laws.
The original act providing for limitation of liability,
enacted March 3, 1851 (Ch. 43, 9 Stat. 635, 636) made
a radical change in the substantive law and the juris-
diction of a court of admiralty to enforce the provi-
sions of the Act automatically followed. The Act of
June 23, 1910 (Ch. 373, 36 Stat. 604) creating a mari-
time lien for supplies furnished in a home port of a
vessel where no lien had theretofore existed under the
general maritime law, automatically conferred juris-
diction on the District Courts to enforce such liens.
Indeed, before Congress enacted the statute in ques-
tion this Court held (Perry v. Haines, 191 U. S. 17)
that where a State statute gave a maritime lien for
supplies furnished in a home port of a vessel the Dis-
trict Courts of the United States had exclusive juris-
diction to enforce that lien by proceedings in rem—
this to the exclusion of State statutes providing a rem-
edy in rem.
By the Act of June 26, 1884 (Ch. 121, Sec. 18; 23
Stat. 57, 46 U. S. C. 189) Congress radically extended
a
Panes se
30
the martime law by an addition to the Limited Li-
ability Act by which the individual liability of a ship
owner was limited to the proportion of any and all
debts and liabilities his individual share of the vessel
bore to the whole; and in Richardson v. Harmon, 222
U.S. 96, this Court held that the provisions of the Act
in question extended to and included non-maritime
torts, and that the owner of a vessel could proceed in
admiralty for a limitation of his hability for the de-
struction of a bridge concededly a land structure.
There was no express act of Congress extending the
jurisdiction of the admiralty courts to non-maritime
torts. Jurisdiction followed as a result of the enact-
ment of the Act.
The instances cited sufficiently illustrate the power
of Congress to extend the maritime law to matters
essentially non-maritime in character. Indeed, the pow-
er of Congress so to do was expressly recognized in a
dictum of the United States Supreme Court in the case
of The John Jay, 17 How. 399, where it is suggested
that Congress would have the power to extend the
maritime law to cover a ship mortgage in the follow-
ing language:
‘*It is true that the policy of commerce and its
exigencies in England have given to its Admiralty
Courts a more ample jurisdiction in respect to
mortgages of ships, than they had under its form-
er rule, as that has been given in this opinion.
But this enlarged cognizance of mortgages of
ships has been given there by Statute 3 and 4, Vic.,
ch. 65. Until that shall be done in the United
States, by Congress, the rule in this particular
must continue in the Admiralty Courts of the
United States, as it has been.’’
ig iee ai ated abet hace | SU Re ESE oy Gait gy OO?
‘whatiecota a bie ae Mit ee Pek
That Congress has complete power to control and
regulate vessels of the United States was expressly
recognized by this Court in the case of White’s Bank
v. Smith, 7 Wall. 646, where the Court said:
‘‘Some question is made as to the power of
Congress over the title and property of vessels
of the United States to such an extent as to enable
it to pass a recording Act.
But, after the regulation of this species of prop-
erty by the several Acts of Congress to which
we have referred, and in respect to’ which there
has never been a question, theracan be very little
hesitation in conceding the power to protect the
rights of subsequent bona fide purchasers and
mortgagees therein.
Ships or vessels of the United States are the
creations of the legislation of Congress. * * *’?
If Congress intended in the enactment of the Ship
Mortgage Act that the application of the proceeds
of a mortgage should be limited to maritime uses, it
has defeated the primary purpose of the Act. If Con-
gress intended to create a preferred mortgage lien
without placing any limitation, express or implied, up-
on the application of the proceeds, it had undoubted
power based upon both reason and authority so to do
and the purpese of the statute is fully served.
POINT Il.
If the mortgages in suit are preferred mort-
gages under the Act, the jurisdiction of the Dis-
trict Court over an action in rem to enforce them
necessarily follows.
In the preceding point we have noted that in cases
where Congress has extended the maritime law to
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32
subjects over which the courts of admiralty had never
theretofore exercised jurisdiction that jurisdiction au-
tomatically followed without any express enactment
of Congress. Here, however, Congress, exercising su-
perabundant caution, by the express provisions of Sub-
section K (41 Stat. 1003; 46 U. S. C. See. 951) has
expressly vested jurisdiction in the District Courts
in the following language:
‘‘Upon the default of any term or condition of
the mortgage, such lien may be enforced by the
mortgagee by suit im rem in admiralty. Original
jurisdiction of all such suits is granted to the dis-
trict courts of the United States exclusively.’’
If Congress has the power to make a ship mortgage,
which prior to ffe enactment of the statute was con-
cededly a non-maritime contract, a preferred mort-
gage lien, maritime in character, having priority over
various other types of maritime liens, it likewise had
authority to vest jurisdiction in the District Court,
sitting in admiralty, to enforce that lien.
That Congress possesses adequate power to create
a lien effective against vessels of the United States
may not be questioned. Such instruments of commerce
engaged in water transportation and navigation are
always subject to the regulation and control of Con-
gress. White’s Bank v. Smith, supra. The creation
of a preferred mortgage lien upon vessels of the Unit-
ed States is but a further employment of the power of
Congress to regulate and control such instrumentali-
ties of transportation and commerce.
CRN RS LB RRND EOE EA OBO LG |
nnoho Daiarperrmmnenm ar a Wa) ANAT DS Sh HT ae »”
i ANS eh OR oh i Me
ERAT ES ee. < Tes we
—ecosox”"" a ne ee ee eT eee ae Cee er tee te eat a
| 33
The lien so created consists of an appropriation of
the personified res as security -for the indebtedness
represented by the mortgage. Such has ever been the
characteristic foundation of the rem action in the ad-
miralty. Once created, the lien is exclusively enforce-
able against the personified res in a court of admiralty,
and not elsewhere. i
Such jurisdiction may only be defeated by the de-
struction of the preferred status of the mortgages.
But preferred status attained through compliance with
the conditions of the statute may not be here destroy-
ed. Reference to the respective mortgages which are
attached to and expressly made a part of the libels
(R. 10, 63) shows that the mortgagor solemnly cove-
nanted and engaged that all requisite corporate ac-
tion on its part for the execution and delivery of the
bonds and of the respective mortgages had been taken
(R. 29, 82); that the mortgagor would, in all respects,
comply with the provisions of the Ship Mortgage Act
so as to create and maintain the respective mortgages
as preferred mortgages within the provisions of the
Act, and would perform such acts as requested by the
Trustee, as reasonably calculated to preserve the pre-
ferred status of the mortgages until fully paid and per-
formed (R. 32, 85). Moreover, Article XIII of the re-
spective mortgages provides:
‘‘Preferred Mortgage.
That the mortgagor shall comply with and satis-
fy all the provisions of the ‘Ship Mortgage Act,
1920’ and shall establish and maintain this mort-
gage as a first preferred mortgage under said
Act’’ (R. 35, 88).
RED Rohtak ait pitabcioe BO :
34
In the face of these covenants contained in the mart-
gages, the preferred status of the mortgages in suit
cannot be destroyed and the jurisdiction of the District
Court over actions in rem to enforce such preferred
mortgages necessarily follows.
POINT IV.
Estoppel bars the defense and renders the testi-
mony on which the majority opinion rests wholly
incompetent.
If effect be given to the admissions contained in
the answers and to the binding character of the af-
firmative covenants contained in the mortgages, the
mortgagor was estopped from offering the testimony in
question, either for the purpose of attacking the valid-
ity of the mortgages or defeating the jurisdiction of
the Court. Notwithstanding the opinion of the ma-
jority of the Court below is based on this wholly in-
competent testimony.
f
35
CONCLUSION.
We respectfully submit that a writ of certiorari
should be granted to review the decisions of the
United States Circuit Court of Appeals for the
Second Circuit in these causes because of the im-
portance of the questions presented which ought
to be settled by this Court; because the decision
in the present cases destroys the benefits provided
by the Ship Mortgage Act in cases where strict
compliance was had with the provisions of the Act
conferring a preferred mortgage status; and be-
cause the decision in the present cases is contrary |
to both the letter and spirit of the Ship Mortgage
Act.
Dated: March 20, 1934.
Respectfully submitted,
Ray M. Srantey,
Euuis H. Giwtey,
Ferris D. Strong,
CLEVELAND THURBER,
Counsel for Petitioner.
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