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Mobile Marine Sales Ltd. v. Prodromos

November 4, 1985

MOBILE MARINE SALES, LIMITED, R.S. STERN, INC., OLD DOMINION STEAMSHIP AGENCY DREW CHEMICAL CORPORATION, INTERVENING PLAINTIFFS
v.
M/V PRODROMOS, HER ENGINES, TACKLE, APPAREL, ETC., FISHER SHIPPING CORPORATION, TITAN SHIPPING & BROKERAGE, LTD. MOBILE MARINE SALES LIMITED, APPELLANT IN NO. 85-1094 DREW CHEMICAL CORPORATION, APPELLANT IN NO. 85-1140; VAN OMMEREN ROTTERDAM, B.V., LOCABAIL INTERNATIONAL FINANCE LIMITED AND BANQUE PARIBAS, HERMES SHIP CHANDLERS, LTD., INTERVENOR PLAINTIFFS, V. M/V. PRODROMOS, HER ENGINES, BOILERS, TACKLE, ETC., IN REM AND TITAN SHIPPING & BROKERAGE, LTD., AND FISHER SHIPPING CORPORATION, VAN OMMEREN ROTTERDAM, B.V., APPELLANT IN NO. 85-1128 HERMES SHIP CHANDLERS, LTD., APPELLANT IN NO. 85-1144



Appeal from the United States District Court for the Eastern District of Pennsylvania D.C. Docket Nos. 84-3466, 84-3565

Author: Rosenn

Before: SEITZ, BECKER, and ROSENN, Circuit Judges

Opinion OF THE COURT

Plaintiffs, four foreign maritime lien creditors of the defendant M/V PRODROMOS (the vessel), appeal from the interlocutory order*fn1 of the district court holding that the intervenors, two foreign banks, held a Panamanian mortgage which enjoyed preferred status under the Ship Mortgage Act of 1920, 46 U.S.C. § 951 (1982) (the Act). If the intervenors' mortgage is preferred, plaintiffs will not be able to recover the cost of necessaries supplied the M/V PRODROMOS. Plaintiffs argue that the mortgage was fatally flawed by an omitted term and thus was not "duly registered" under Panamanian law, as required of foreign mortgages given preferred status under the Act. The district court disagreed, finding the mortgage was duly registered. We affirm.

I.

The Fisher Shipping Corporation (Fisher), a Liberian corporation, bought the M/V PRODROMOS on January 11, 1983, financing its purchase with a loan from Locabail International Finance Limited of France and Banque Paribas of Bermuda (the Banks). The Banks secured the loan with a mortgage on the M/V PRODROMOS for $4,500,000, which Fisher executed in London on the day it purchased the vessel. ON the same day, the Banks accomplished both a preliminary registration of the vessel under the Panamanian flag and a preliminary registration of the mortgage on the vessel through the Consul General of Panama in London, who telexed the same to the Public Registry in Panama. Both registrations were protocolized (recorded with a Panamanian notary and formalized as public documents) within six months of their preliminary registration, as required by Panamanian statutes, and were filed with the Public Registry as Public Instruments Nos. 694 and 1165.

The mortgage agreement provided a space for the "Provisional Patente of Navigation Number" (alternately known as the navigation license number or naval patent),*fn2 but the space was left blank, both on the preliminary registration and on the protocolized registration. the navigation license number as included, however, in the preliminary registration of the M/V PRODROMOS under the Panamanian flag, and the preliminary registration of the mortgage made reference to the preliminary flag registration in describing the M/V PRODROMOS. Copies of the preliminary and protocolized mortgage registrations and flag registrations are recorded in a single microfilm file at the Public Registry, and the plaintiffs do not contend that the absence of the navigation license number from the mortgage registrations in any way affected the identity of the vessel for mortgage purposes or caused them any prejudice.

Plaintiffs argue that the omission of the navigation license from the preliminary and protocolized mortgage registrations render the registrations invalid under Panamanian law. Article 1515 of the Commercial Code of Panama specifies the procedural requirements for a naval mortgage contract. It states, in relevant part, that the naval mortgage contract "in every case, shall contain . . . the name, distinctive features of the vessel, a complete description thereof, her registry and navigation license."*fn3 These require items of description appear as the fifth of seven paragraphs detailing the information required for a naval mortgage; the navigation license number is the only item of information that was omitted from the mortgage. Dr. Frank de la Guardia, a maritime lawyer practicing in Panama, expressed the opinion on behalf of the plaintiffs that the absence of the navigation license number in the mortgage registrations made them fatally flawed and invalid. The Public Registry in a certified document obtained by the intervenor banks stated that the mortgage was duly registered, but the absence of the navigation license was apparently not brought to the attention of the Public Registry.

The M/V PRODROMOS sailed into Philadelphia on July 10, 1984, with many unpaid debts, and on July 12 and on subsequent dates the vessel was arrested by various parties asserting maritime lien claims. The four plaintiffs in this case supplied fuel, food, and other necessaries to the M/V PRODROMOS outside the United States. The plaintiffs, Mobile Marine Sales, Limited, of the United Kingdom, Van Ommeren Rotterdam, B.V., of the Netherlands, Drew Chemical Corporation of New Jersey (operating throughout the globe), and Hermes Ship Chandlers Limited of South Africa, made a total of approximately $300,000 in claims against the M/V PRODROMOS for services provided abroad. American suppliers made additional claims for approximately $250,000. The Banks intervened to enforce their mortgage interest, $4,500,000. All the actions were consolidated in the United States District Court for the Eastern District of Pennsylvania.

About a month after the ship was arrested, the Banks moved for its sale under Rule E(9) of the Supp. R. Admiralty and Maritime Claims, Fed. R. Civ. P. The district court ordered the United States Marshal to sell the M/V PRODROMOS for no less than two-thirds of its appraised value of $3,500,000. The Banks, the only bidders at the public action, bought the ship for $2,450,000, slightly in excess of the two-thirds its appraised price. Approximately $250,000 in liens against the M/V PRODROMOS for services performed in the United States, which under the Act are preferred over all other claims, were immediately settled. The Banks then moved the court to find that they were entitled to the remaining sum from the judicial sale, approximately $2,200,000, as holders of a foreign mortgage that is deemed to have preferred status under the Act. If the mortgage were found not to be preferred, plaintiffs would obtain the sum owed them, approximately $300,000, before funds would be applied to the mortgage. If the mortgage were preferred, the plaintiffs would receive nothing.

Judge Weiner for the district court rejected plaintiffs' argument that omission of the navigation license from the mortgage made its registration fatally defective under Panamanian law. He held that the mortgage was duly registered under Panamanian law, and thus was a preferred mortgage under the Act. The plaintiffs appeal.

II.

Prior to the enactment of the Act in 1920, ship mortgages were held not to be maritime contracts and therefore could not be considered under a court's admiralty jurisdiction. Bogart v. The Steamboat John Jay, 58 U.S. (17 How.) 399, 402-403, 15 L. Ed. 95 (1854). Congress passed the Act to facilitate the dismantling by the United States of its merchant marine after World War I, with the United States expected to be the principal beneficiary, as the holder of most of the ship mortgages. G. Gilmore & C. Black, The Law of Admiralty (2d ed. 1975) 698. The Act made the lien of mortgages that complied with its procedural requirements a "preferred mortgage" and a maritime lien. 46 U.S.C. § 922 (1982). It gave jurisdiction to foreclose the district courts acting as admiralty courts. 46 U.S.C. § 951 (1982). The Act only applied to American flag vessels and required the parties to the mortgage to be American citizens. 46 U.S.C. § 922 (1982).

After World War II, the United States sought once again to dismantle its merchant fleet, but found that the increasingly popular use of foreign flags of convenience required expanding preferred mortgage status to foreign ship mortgages. H.R. Rep. No. 1662, 83d Cong., 2d Sess. 2, reprinted in 1954 U.S. Code Cong. & Ad. News 2451, 2452; S. Rep. No. 1213, 83d Cong., 2d Sess. 3. In 1954, Congress amended the Act to cover foreign mortgages, but the procedural requirements for domestic mortgages were not ...


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