United States v. Sterling

22 F.2d 323 | S.D.N.Y. | 1927

THACHER, District Judge

(after stating the facts as above). The suit is properly brought in equity, since recovery is sought of funds received and held by Sterling as trustee, and alleged to have been paid to the Commercial Trust Company contrary to the provisions of the trust. By the terras of the trust the freight moneys were to be held for account “of whoever may be found entitled to them.” The claim of the Commercial Trust Company rests upon an assignment of unearned freights, made by the agreed purchasers of the vessels, who never acquired title. The effect of such an assignment is quite clearly established by the authorities. As between the mortgagor and mortgagee of a vessel, and in the absence of express agreement disclosing a contrary intention, freights fully earned while the mortgagor is in possession belong to the mortgagor, but freights earned after the mortgag’ee takes possession of the property under his mortgage belong to the mortgagee. Merchants’ Banking Co., Ltd., v. Cargo of the Afton, 134 F. 727 (C. C. A. 2d). And the same rule applies as between the owner oí! a vessel and an agreed purchaser in possession under an executory contract to purchase the ship. In such eases freights fully earned while the agreed purchaser is in possession belong to tho purchaser, but freights earned after the owner retakes the ship for breach of the purchase agreement belong to the owner. Jackson v. 36 Blocks of Marble, etc., 266 F. 58 (C. C. A. 2d); The Neponset Cases, 13 F.(2d) 808 (C. C. A. 1st); In re Atlantic G. & P. S. S. Co. (D. C.) 289 F. 145.

It is also clear from these decisions that neither tho agTeed purchaser nor tho mortgagor can by his assignment defeat the right of the seller or mortgagee, upon retaking possession, to claim the freights subsequently earned. Before the ships were loaded, s, receiver in bankruptcy was appointed for each of the purchasing companies. At about the samo time, and before any freight moneys were earned or paid, the vessels then being in course of loading, notice was given by the Commercial Trust Company and by the United States Shipping Board of their respective claims to the freight'moneys. In order that the freights might bo collected and the charters performed, it was then agreed that the charter party commitments should be carried oat; under the supervision and management of Sterling, as trustee, and that he should receive and hold the freight moneys for account of whoever might bo found entitled to them. Thus it appears that, when the freights were earned, the ships were not in the possession of the assignors, but were in the possession of Sterling as trustee.

It is argued that Ms possession was equivalent to possession by the Arapahoe and Tonawanda Companies, because the complaint alleges that the vessels came into the possession of these companies after the making of the contracts of sale, and there is nothing to show that the Shipping Board ever reclaimed or took back the ships. The Commercial Trust Company therefore insists that under its assignment it is entitled to the freights earned while Sterling, as trustee, was in possession. From the circumstances it is plainly to be inferred that the agreement that Sterling should operate tho ships and receive the freight moneys as trustee was intended to be entirely without prejudice to the rights of the parties. The operating companies were not in default under the terms of their purchase agreements, and no attempt was made by the complainant to put them in default, nor was any attempt made to terminate the contracts or to retake the vessels. The obvious purpose of the arrangement with Sterling was to afford a method for collecting tho freights and carrying out the commitments of the charter parties without prejudice to the rights of the various parties concerned as they existed at that time. Consequently it must be concluded that tho possession of Sterling is to be regarded, in its legal effect upon the rights of tho parties, as equivalent to tho prior possession of tho purchasing com panies. Tho result is that the assignment of tho freight moneys to tho Commercial Trust Company is to bo regarded as effective against the claim of the complainant as owner of the vessels.

But the complainant’s asserted right to recover is predicated, not only upon the alleged invalidity of the assignment, but, conceding its validity, upon specific maritime lions for advances and disbursements necessary in the performance of the charter parties under which the freights were earned. That such advances and disbursements were made by the complainant, in an amount exceeding the sum of the freight moneys received by Sterling, is alleged in tho complaint, and sufficient evidence w'as adduced upon the trial to show that for some of these advances tho complainant is entitled to-ft lien upon the freight moneys superior to tho lien created by the assignment to the Commercial Trust Company, which was given as security for advances which were not used by tho purchasing companies in disbursing these ships. Freights of The Kate (D. C.) 63 F. 707. It has been said that if an owner discharges a lien he extinguishes it and cannot enforce it against the ship or her freights. The Ruth B. Merrill, 286 F. 355 (C. C. A. 2d). But in that case a mortgagee who had not gone into possession was allowed to enforce a lien against the mortgaged vessel for advances made in payment of existing liens, although the vessel was mortgaged for more than she was worth.

The situation of the complainant with relation to the freight moneys, and disbursements made in earning them, is, I think, analogous to that of a mortgagee who has not taken possession under Ms mortgage. Its rights with relation to freight moneys are the same as those of a mortgagee (cf. Merchants’ Banking Co., Ltd., v. Cargo of the Afton, supra; and In re Atlantic G. & P. S. S. Co., supra), and its contributions to the expense necessarily incurred in earning the freights should be treated with the same consideration as similar contributions by a mortgagee. The vessels were operated by Sterling, as trustee, and it was necessary that the charter commitments be performed and that the cost of performance be met. Expenditures neeessary for tMs purpose were a proper charge against the moneys in Ms hands. Those who made disbursements or advances for this purpose upon the credit of the ship and her freights are entitled to assert a lien against the freight moneys. Freights of The Kate, supra; The Charles H. Cramp, 1924 A. M. C. 131.

Regarding the position of the complainant as analogous to that of a mortgagee who has not taken possession, the complainant should not, under the decision in The Ruth E. Merrill, supra, be precluded from enforcing a lien for its disbursements and advances, provided the same were made under such circumstances as would entitle any stranger to the title to enforce liens therefor against the freights. ' The proofs do not disclose with sufficient particularity the circumstances under which all of the advances were made, no doubt because of the ruling made upon the trial that, if it was made to appear that the complainant was entitled to recover any part of the freight moneys, a reference would be had to determine the amount for which it is entitled to assert a lien against the fund.

Accordingly an interlocutory decree may be entered adjudging that the complainant is entitled to recover from the CQmmereial Trust Company the amount of its disbursements necessarily incurred in enabling the vessels in question to perform their commitments under the charter parties pursuant to which the freight moneys were earned and paid, together with the amount of any other maritime liens wMeh it may be entitled to enforce against said freight moneys by reason of the fact that it has acquired and preserved without extinguishment the maritime liens of others for similar advances or disbursements, and referring to a speeal master to hear and report the circumstances under which such advances were made or liens acquired, and the amount thereof for wMeh the complainant is entitled to payment out of the freight moneys.