Opposition Brief — Standard Oil Co. v. Kongo

Wis: Wi Meera ns huh eatademineabatnelinsaatioee ch idici 10, 11, 13

Deibert Barge-Bldg. Co. v. United States, 289 Fed. 805_____ 13

Gill, P. H., & Sons Forge & Machine Works v. United States,

Oi BR CRBs eninics Ca atten NESE. Ueno 13, 14

Henry W. Breyer, The, 17 F. 2d 423_._..-.-.....--.--- 13

Gdheraian, Ten, 6H, BO GB a aioe inc nck ctckncccke 13

Morse Dry Dock & Repair Co. v. United States, 1 F. 2d 233,

affirming 298 Fed. 153, certiorari denied, 266 U. 8S. 620._ 13, 14

North Coast Stevedoring Company v. United States, 17 F. 2d

i iciincinnwickvitaw i wmatiabdcmtimibedeebebie mibled nk onus os 13

weave, Tie, SES Pee Ge es. eh ce ccc 13

United States v. Carver, 260 U. S. 482____..._.______. 10, 11, 13

United States v. Rapid Coaling & Transfer Co., 289 Fed. 803- 13

United States v. Robins Dry Dock & Repair Co., 13 F. 2d

Reade Tks ck chen ba Deke eee Okino eats: 13, 14

Western Wave, The, 77 F. 2d 695, certiorari denied, 296

in, th: Shain nitenlgintvedpacatanineiimeadacbadbahstan koneoen! 13

Westhaven, The, 297 Fed. 534, affirmed, 3 F. 2d 1021...... 13

Statutes:

Act of June 5, 1920, c. 250, Sec. 30, Subsec. P, Q, R, 41

Stat. 1005:

Ger ws Gh Sk, WE achat ecennducduamnaamae uaa 2

ee ne ee SN SE encinnn adninaidnnint mniedntciiaimcss 2, 11

Be a th Wk IU, Wanna sac ncndakcesescnu 3, 9, 10, 11

Public Law 109, 79th Cong., Ist Sess., approved June 30,

Sep chip eceidsucpadcianthbdbaaseainhinnss cielo 8

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713785—46——-1

imei.

RRS gg eon

CE ETT

Inthe Supreme Court of the Bnited States

OctoBeR TERM, 1946

No. 421

StanpaRD Om Company oF Louisiana, ET AL.,

PETITIONERS

v.

STEAM STERNWHEEL Towsoat “‘Konco”’ anp RE-

CONSTRUCTION FINANCE CORPORATION

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES CIRCUIT COURT OF APPEALS FOR THE SIXTH

CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

OPINIONS BELOW

The opinion of the District Court, in the form

of Conclusions of Law (R. 56-60), is not officially

reported. The opinion of the Circuit Court of

Appeals for the Sixth Cireuit (R. 317-322) is

reported in 155 F. 2d 492.

JURISDICTION

The judgment of the Circuit Court of Appeals

was entered on May 27, 1946 (R. 316). The peti-

tion for a writ of certiorari was filed August 20,

(1)

paren ret es a ~ nce vem

2

1946. The jurisdiction of this Court is invoked

under the provisions of Section 240 (a) of the

Judicial Code, as amended by the Act of Febru-

ary 13, 1925.

QUESTION PRESENTED

Whether petitioners failed to exercise reason-

able diligence to ascertain that the master of

respondent vessel was without authority to bind

her for supplies and repairs, and are therefore,

under the maritime lien act (46 U. S..C., Sees.

971-973), barred from “asserting a lien against

the vessel for supplies and repairs furnished

by them.

STATUTES INVOLVED

_ The pertinent provisions of the maritime lien

act (Act of June 5, 1920, c. 250, Sec. 30, Subsec.

P, Q, R, 41 Stat. 1005) are as follows:

46 U.S. C., Sec. 971. Persons entitled to lien:

Any person furnishing repairs, supplies,

towage, use of dry dock or marine railway,

or other necessaries, to any vessel, whether

foreign or domestic, upon the order of the

owner of such vessel, or of a person author-

ized by the owner, shall have a maritime

lien on the vessel, which may be enforced

by suit in rem, and it shall not be neces-

sary to allege or prove that credit was

given to the vessel.

46 U. S. C., Sec. 972. Perens authorized to

procure repairs, supplies, and necessaries:

oe — on RO EERE

SE LS I ER ey ENE EE TO RTE ETE IE we saliidtiiheneniie ate

38

The following persons shall be presumed

to have authority from the owner to pro-

cure repairs, supplies, towage, use of dry

dock or marine railway, and other neces-

saries for the vessel: The managing owner,

ship’s husband, master, or any person to

whom the management of the vessel at

the port of supply is intrusted. No person

tortiously or unlawfully in possession or

charge of a vessel shall have authority to

bind the vessel.

46 U.S. C., See. 973. Notice to person furnish-

ing repairs, supplies, and necessaries:

The officers and agents of a vessel speci-

fied in section 972 of this title shall be

taken to include such officers and agents

when appointed by a charterer, by an owner

pro hac vice, or by an agreed purchaser in

possession of the vessel; but nothing in

this chapter shall be construed to confer

a lien when the furnisher knew, or by ex-

ercise of reasonable diligence could have

ascertained, that because of the terms of

a charter party, agreement for sale of the

vessel, or for any other reason, the person

ordering the repairs, supplies, or other

necessaries was without authority to bind

the vessel therefor.

STATEMENT

In 1942, one McBride, an experienced river

captain of Harrod’s Creek, Kentucky, began ne-

gotiations with Defense Plant Corporation (here-

after referred to as D. P. C.), a wholly-

ee ee

eee SeenON

4

owned subsidiary of Reconstruction Finance

Corporation, to effectuate a project he had

conceived for towing oil up the Mississippi

and Ohio Rivers (R. 47). McBride caused the

incorporation of a dummy Kentucky company,

the United States Barge Lines, Inc., as his alter

ego, and he was immediately elected its president

and general manager (R. 47, 57, 320). He then

arranged for the purchase by D. P. C. of re-

spondent towboat Kongo (R. 47), which was

then leased by D. P. C. to United States Barge

Lines, Inc., and repairs begun (R. 47). In the

spring of 1943, before any freight or towing

operations had been undertaken, the lease was

cancelled by D. P. C. and, after extensive negotia-

tions in which McBride personally participated,

a charter party was substituted (R. 47-48), with

the following provision concerning liens:

ArticLE VI. Neither Charterer nor any

of its employees or agents shall have any

right, power or authority to create, incur,

suffer, or permit to be placed or imposed

upon said vessel any maritime lien, or other

lien, or incumbrance or charge, or to incur

debt, obligation or charge upon the credit

of said vessel. In the event a libel or

other proceeding in rem be filed against

the said vessel, based on any claim alleged

to have arisen during the term of this

Charter Party, or in the event the said

vessel is otherwise levied against or taken

into custody by virtue of any legal pro-

ii ee

ceedings in any court based on a cause of

action alleged to have arisen during the

Charter Period, Charterer shall within

five (5) days thereafter cause the vessel

to be released and the asserted lien or claim

be discharged. Charterer shall promptly

notify Owner of the institution of any

libel or other proceeding against the vessel.

Charterer shall exhibit or cause to be ex-

hibited copy of this Charter Party to any

person having business with said vessel

which might give rise to any maritime lien

or to any other lien, encumbrance or charge

whatsoever (R. 49).

This agreement was duly signed by McBride, on

behalf of United States Barge Lines, Inc., on

May 17, 1948, and the Board of Directors of

D. P. C. authorized execution on its behalf on

May 21, 1943, and the actual signing by D. P. C.

took place on June 3, 1943 (R. 48).

On May 27, 1943, McBride, as master, took

over possession and operation of the boat at

New Orleans, and after picking up the oil barges

to be towed, he started up the Mississippi River

on May 30, 1943 (R. 49). At Baton Rouge, La.,

McBride purchased fuel oil from _ petitioner

Standard Oil Company of Louisiana (R. 50, 52),

various materials and supplies from petitioners

Standard Supply and Hardware Company (R. 50,

52) and Charles Carter (R. 78-79, 273-276),

and services and materials from petitioner

6

Yaun Welding, Boiler, and Machine Works

(R. 50, 53). At Memphis, Tenn., an additional

supply of oil, together with a boiler plate, was

obtained from the Standard Oil Company, and

some boiler repairs were made by petitioner

Southern Boiler and Tank Works (R. 50, 52, 53).

At Louisville, Ky., McBride had petitioner Peter

Jensen and Company make certain further re-

pairs (R. 50, 54). Payment was not made for

any of these supplies or services (R. 50).

Throughout the trip, the Kongo carried, on both

sides, a large sign bearing the name ‘‘ United States

Barge Lines, Inc.’’, and also a sign stating “‘ Prop-

erty of Defense Plant Corporation an Instru-

mentality of the United States Government’”’ (R.

50, 321). All of the petitioners, except Yaun,

were actually aware that D. P. C. owned the boat

(R. 52-54, 79). But none of the petitioners, ex-

cept Standard Oil at Memphis, made any inquiries

concerning the existence of a charter or its terms,

or even knew that the boat was operating under

charter (R. 52-54, 79). Standard Oil’s Memphis

representatives were informed by McBride that

the vessel was chartered by D. P. C. to United

States Barge Line, Inc., but they neither asked

to see the charter nor inquired about its provisions

(R. 52). Accordingly, none of the petitioners had

actual knowledge of the bare-boat provision,

quoted above, which denied the charterer or its

7

agents authority to bind the vessel (R. 318). To

each petitioner, McBride represented, despite the

terriis of the charter which he had participated in

drawing, that he had authority as master to order

the materials or services (R. 53, 55, 318), and

petitioners apparently rested on these representa-

tions without more. No copy of the charter was

aboard the ship (R. 59, 318), but copies were

filed with the office of the United States Barge

Lines, Ine. at Louisville (R. 48), and the Louis-

ville office of D. P. C. (R. 48). Moreover,

D. P. ©. had branch offices in each of the cities

in which the petitioners carried on their business

and furnished supplies or services to the Kongo

(Baton Rouge, Memphis, Louisville), as well as

in New Orleans (R. 48). Inquiry at any of these

offices by telephone, telegraph, or letter would

either have produced adequate information as to

the charter contents, or have been referred to

Washington and promptly answered from there

(R. 321, 59-60, 212-219).

After delivery of the oil at a Pennsylvania

river port, the Kongo returned to Louisville and

was there repossessed by D. P. C., on August 17,

1943, for non-payment of the charter hire (R.

50-51, 318). The seamen were discharged with-

out being paid their full wages. McBride himself

compensated all but two of the seamen, and took

assignments of their wage claims (R. 52, 318).

713785—46——-2

Libels against the vessel and the United States

as sole stockholder of D. P. C.' were immediately

filed by the two unpaid seamen and by, McBride,

as assignee of the others (R. 1, 46). Petitioners,

and several other furnishers of supplies and serv-

ices, intervened to claim liens against the boat

(R. 46). The United States Barge Lines, Inc.,

which had no property and no capital (R. 47,

57), was adjudicated bankrupt in January 1944

(R. 55).

The District Court decreed judgment for the

two seamen who had not assigned their wage

claims,’ dismissed McBride’s libel as assignee on

the ground that he was actually the charterer and

could not therefore obtain a lien by assignment,

and dismissed the libels of the intervening fur-

nishers because they had not been reasonably

diligent in investigating McBride’s authority to

bind the boat (R. 56-61, 78). The Circuit Court

of Appeals affirmed the judgment both as to the

assigned claim for wages and the furnishers’

claims for supplies and services (R. 316-322),

agreeing with the District Court that the inter-

1 In the Circuit Court of Appeals, by agreed motion, Recon-

struction Finance Corporation was substituted for D. P. C.

(R. 315-316, 322), since Public Law No. 109, 79th Congress,

ist Sess., approved June 30, 1945, had dissolved D. P. C. and

transferred all of its functions, powers, duties, and authority,

together with all of its assets and liabilities, to Reconstruc-

tion Finance Corporation.

2 No appeal was taken by the United States or D. P. C. as

to this adverse part of the judgment.

veners had not exercised reasonable diligence to

ascertain the terms of the charter party, as re-

quired by the maritime lien act (46 U. 8S. C. See.

973) (R. 321-322).

The instant petition for a writ of certiorari

is presented by six of the intervening furnishers,

and raises only the question of their diligence

(Pet. p. 3-4). No question is presented, or could

be raised by these petitioners, as to the claims

for wages.

ARGUMENT

Petitioners present only the issue of their com-

pliance with the statutory obligation resting on

a furnisher, desiring to obtain a maritime lien,

to show that he did not know and by the “‘exer-

eise of reasonable diligence’? could not have as-

certained that ‘‘because of the terms of a charter

party * * * the person ordering the repairs,

supplies, or other necessaries was without au-

thority to bind the vessel therefor.”’ 46 U.S. C.,

Sec. 973. The two courts below have denied pe-

titioners’ claims on the ground that they did not

exercise the necessary reasonable diligence to

discover that the instant charter-party forbade

McBride from binding the Kongo for repairs or

supplies. This decision clearly follows from the

uncontroverted facts, and fully accords with the

established rule declared by this Court and con-

sistently applied by the lower federal courts.

ee ee ee ey 7) SRA mere gsc | es TEER TREADS MVE

1d

1. The rulé governing a material-man’s respon-

sibility, where the owner has denied the charterer

authority to bind the ship, has been settled for

over two decades. In the leading tase, United

States v. Carver, 260 U. 8. 482, this Court dis-

cussed the terms of the proviso of 46 U. 8. C.,

See. 973 as follows:

We regard these words as too plain for

argument. They do not allow the material-

man to rest upon presumptions until he

is put upon inquiry, they call him to in-

quire. To ascertain is to find out by in-

vestigation. If by investigation with

reasonable diligence the material-man could

have found out that the vessel was under

charter, he was chargeable with notice that

there was a charter; if in the same way

he could have found out its terms he was

chargeable with notice of its terms. In

this ease it would seem that there would

have been no difficulty in finding out both

[260 U. S., at 489].

In Dampskibsselskabet Dannebrog v. Signal Oul

and Gas Co., 310 U. S. 268, this rule was ex-

pressly reaffirmed, and the Court took occasion to

point out that an owner who does not desire the

charterer to burden the vessel ‘‘has a simple and

ready means of protection. All that it is neces-

sary for him to do, as the material-man dealing

with the charterer is charged with notice of the

charter, is to provide therein that the creation of

ll

maritime liens ig prohibited.’’ (310 U. 6., at

280.) Petitioners do not purport to challenge

this settled rule, but they make some slight at-

tempt to avoid its application by asserting that

the supplies in the Carver case were ordered “not

by the master, but by a shore agent who is not

presumed to have authority” (Pet., p. 4). But

in requiring reasonable diligence by a furnisher,

the statute does not differentiate between persons

presumed to have authority under 46 U. 8. C.

Sec. 972, and others. Section 973 plainly specifies

that nothing in the maritime lien act—including,

of course, the provisions of Section 972—shall con-

fer a lien contrary to a charter provision, unless

the furnisher was reasonably diligent in investi-

gating the authority of any person ordering the

repairs or supplies. Moreover, the opinion in the

Carver case indicates that the materials were fur-

nished ‘‘upon the orders of the [chartering] cor-

poration’s port captain who was charged with the

duty of procuring them’’* (260 U. S., at 488),

and this Court, then and in the later Signal Oil

case, as well as the lower courts (cited in note 5,

infra, p. 13), have obviously treated the case

exactly as if the supplies had been furnished on

order of the master.

* Section 972 includes among persons presumed to have

authority from the owner to procure supplies, etc. “any per-

son to whom the management of the vessel at the port of

supply is intrusted.”

12

2. The lower courts correctly applied this es-

tablished rule and found that petitioners had

failed to exercise the required degree of diligence.

D. P. C., as owner, had expressly denied to the

United States Barge Lines, Inc., and its agents,

all authority to bind the towboat for supplies,

and provided that the charterer was to exhibit the

charter party, containing this limitation, to per-

sons having business with the vessel ‘‘which might

give rise to any maritime lien or to any other lien,

encumbrance or charge whatsoever’? (R. 49).

Petitioners, however, made no real effort to ascer-

tain either the existence or the terms of the

charter, though it should have been obvious to

them, if only from the two signs plainly visible on

the boat (R. 50), supra, p. 6, that the vessel was

being operated by another than the owner. None

of the claimants, except one, even went so far as

to mention the possibility of a charter, and that

petitioner neither asked to see the agreement nor

made inquiry as to its provisions. See supra, p.

6. If through the exercise of ordinary fore-

sight, petitioners had become aware of the exist-

ence of the charter, they then could easily and

authoritatively have discovered its terms through

the D. P. C. branch offices in petitioners’ home

cities, or at the charterer’s office at Louisville.

Certainly, claimants who made no efforts at all

ean hardly contend, on this record, that it would

have been useless or unduly burdensome for them

13

to take these elementary steps. And if the re-

sults of initial investigation proved unsatisfactory

or delayed, petitioners were always free to decline

to service the vessel.

3. Despite the settled rule that the furnisher

has the burden of inquiry, and cannot rest on

presumptions, petitioners urge that ‘‘no investi-

gation was required beyond the Kongo and her

master’’ (Pet., p. 3)... This contention contra-

dicts the basic statutory policy and is plainly

at variance with the facts and the opinion of

the Carver and Signal Oil cases, as well as with

the consistent line of lower court decisions.’ The

proviso to Section 973 would serve no purpose if

* It is clear that an investigation of the boat would, at the

least, have put the petitioners upon inquiry that it was under

charter (R. 50). The absence of the charter from the ship’s

papers might then have raised some doubts as to the master’s

authority.

* The Admiral Goodrich, 288 Fed. 362 (C.C. A. 9) ; Deibert

Barge-Bldg. Co. v. United States, 289 Fed. 805 (C. C. A. 4) ;

United States v. Rapid Coaling & Transfer Co., 289 Fed. 803

(C. C. A. 4) ; Morse Dry Dock & Repair Co. v. United States,

1 F, 2d 233 (C, C. A. 2), certiorari denied, 266 U. S. 620;

P. H. Gill & Sons Forge & Machine Works v. United States,

1 F. 2d 964 (C. C. A. 4) ; United States v. Robins Dry Dock

& Repair Co., 13 F. 2d 808 (C. C. A. 1) ; The Liberator, 5 F.

2d 585 (C. C. A. 4) ; North Coast Stevedoring Co. v. United

States, 17 F. 2d 874 (C. C. A. 9); The Western Wave, 77 F.

2d 695 (C. C. A. 5), certiorari denied, 296 U. S. 633; The

Thordis, 290 Fed. 255 (E. D. N. Y.); The Westhaven, 297

Fed. 534 (D. Md.), affirmed, 3 F, 2d 1021 (C, C. A. 4); The

Castlewood, 298 Fed. 184 (E. D. Pa.), affirmed, 5 F. 2d 1013

(C.C. A 3); The Henry W. Breyer, 17 F. 2d 423 (D. Md.) ;

The Ben Lawers, 42 F. 2d 897 (W. D. Wash.).

14

Congress had not desired to afford an owner, not

in control of the vessel, some protection from a

charterer’s facile misrepresentations by word or

act. For that reason, the Cireuit Courts of Ap-

peal have uniformly held that a material-man

cannot rely on the bald and general representa-

tions of the person in possession of the vessel,

as petitioners claim to have done here. Morse Dry

Dock & Repair Company v. United States, 1 F. 2d

233, 237-238 (C. C. A. 2), affirming 298 Fed. 153,

157 (8S. D. N. Y.), certiorari denied, 266 U. 8S. 620;

P. H. Gill & Sons Forge & Machine Works v.

United States, 1 F. 2d 964, 965 (C. C. A. 4) ; United

States v. Robins Dry Dock & Repair Co., 13 F.

2d 808, 811-812 (C. C. A. 1); instant case, 155

F, 2d at 496 (R. 321). The foregoing, we submit,

effectively disposes of petitioners’ argument based

upon an attempted distinction between ‘‘resting’’

and ‘‘relying’’ on a presumption (Pet., p. 9).

By the same token, it should not be enough that

the petitioners have now discovered that the

charter, in which they had no interest at the

time, was not kept by McBride among the ship’s

papers.

In order to protect both itself and material-

men, D. P. C. specifically bound the charterer to

show the agreement to all potential furnishers,

and the charterer’s failure to comply cannot be

charged to the absent owner. As we have shown

above, petitioners could probably have ascertained

15

| the actual terms of the charter without difficulty

| or delay, or, if the matter turned out to be

burdensome, they could have refused to deal with

McBride.

CONCLUSION

The findings and decision of the two lower

courts are correct and fully accord with the de-

cisions of this Court, and of the lower Federal

courts. It is, therefore, respectfully submitted

that the petition for a writ of certiorari should

be denied.

/ J. Howarp MoGratn,

Solicitor General.

J Joxun F. Sonnert,

Assistant Attorney General.’

Pavut A. SWEENEY,

/ Oscar H. Davis,

/ Attorneys.

JoHN D. GoopLoz,

General Counsel,

James L. DovcHerry,

Assistant General Counsel,

\ Max Hersx,

Counsel,

\ Reconstruction Finance Corporation.

Grorce H. TERRIBERRY,

BENJAMIN W. Yancey,

| JoHN C. Doonan,

THomas J. Woon,

Proctors.

SEPTEMBER 1946.

U. S. GOVERNMENT PRINTING OFFICE, 1946