Section 21. That when package freight or bulk freight is loaded by a

shipper and the goods are described in a bill of lading merely by a

statement of marks or labels upon them or upon packages containing

them, or by a statement that the goods are said to be goods of a

certain kind or quantity, or in a certain condition, or it is stated in

the bill of lading that packages are said to contain goods of a certain

kind or quantity or in a certain condition, or that the contents of

packages are unknown, or words of like purport are contained in the

bills of lading, such statements, if true, shall not make liable the

carrier issuing the bill of lading, although the goods are not of the

kind or quantity or in the condition which the marks or labels upon

them indicate, or of the kind or quantity or in the condition they were

said to be by the consignor. The carrier may also by inserting in the

bill of lading the words "Shipper's weight, load and count," or other

words of like purport indicate that the goods were loaded by the

shipper and the description of them made by him; and if such statement

be true, the carrier shall not be liable for damages caused by the

improper loading or by the non-receipt or by the misdescription of the

goods described in the bill of lading: _Provided, however_, Where the

shipper of bulk freight installs and maintains adequate facilities for

weighing such freight, and the same are available to the carrier, then

the carrier, upon written request of such shipper and when given a

reasonable opportunity so to do, shall ascertain the kind and quantity

of bulk freight within a reasonable time after such written request,

and the carrier shall not in such cases insert in the bill of lading

the words "Shipper's weight," or other words of like purport, and if so

inserted contrary to the provisions of this section, said words shall

be treated as null and void and as if not inserted therein.

This act of Congress has no application to bills of lading for goods

shipped from foreign ports and the rules governing representations in

such bills of lading are different. Bills of lading for shipment from

foreign ports when issued by the master do not bind the shipowner of the

vessel for the number of packages or quantity of goods which the bill

represents as having been shipped. This is the rule which prevailed as

to all bills of lading prior to the passage of the act. It is based on

the theory that the implied agency of the master for the shipowner does

not extend to making misrepresentations in the bill of lading, so as to

make it, as against the shipowner, a receipt for goods not received. It

was intended to protect the shipowner against frauds committed

collusively between the master and shipper who have been known to enter

into conspiracies whereby the master issued false bills of lading upon

which the shipper subsequently raised money by assigning the bill.

There is another class of representations commonly found in the bill of

lading relating to the condition of the goods, as that they are in "good

condition" or "damaged condition." Where the goods are loaded by the

shipper the effect of such statements is governed by § 21 of the Bill of

Lading Act, above quoted, as to shipments in interstate commerce or from

United States ports. In other cases, e.g., where the carrier does the

loading or where the act is not applicable, the rule is that

representation made by the master in the bill of lading as to condition,

bind the shipowner where the bill of lading has passed into the hands of

a _bona fide_ holder for value, the theory being that representations as

to order and condition are within the scope of the master's authority.

=11. Negotiability of Bills of Lading.=--In mercantile law certain

things have the quality of negotiability, that is, they are like money

in that the title may pass from hand to hand by delivery without the

necessity of inquiry into the antecedent ownership. Promissory notes,

checks and drafts, payable to order or bearer, or so endorsed, are

negotiable and the holder's title is not affected by any representations

or transactions between the original parties or prior holders, without

his knowledge. Many attempts have been made to give bills of lading the

full quality of negotiability, but the courts have not favored the

effort. Bills of lading are said to be quasi-negotiable. They may be

transferred by endorsement and delivery and thereby pass the same title

to the goods which they represent as if the goods themselves were

handled. But prior to the passage of the Federal Bill of Lading Act,

above mentioned, the transferee took only the title of his transferor,

subject to all rights which may have been asserted against him. The bill

of lading remained a mere substitute for the goods and the purchaser of

a stolen bill, for example, acquired no more title than he would in the

case of stolen goods. The latest legislation designed to confer upon

bills of lading the quality of negotiable paper is that contained in

§ 22 of the Bill of Lading Act, which is as follows:

That if a bill of lading has been issued by a carrier or on his behalf

by an agent or employee the scope of whose actual or apparent authority

includes the receiving of goods and issuing bills of lading therefor

for transportation in commerce among the several States and with

foreign nations, the carrier shall be liable to (a) the owner of goods

covered by a straight bill subject to existing rights of stoppage in

transition or (b) the holder of an order bill, who has given value in

good faith, relying upon the description therein of the goods, for

damages caused by the non-receipt by the carrier of all or part of the

goods or their failure to correspond with the description thereof in

the bill at the time of the issue.

This appears to protect a person to whom a bill of lading has been

negotiated for value and who took it in good faith, relying upon

representations contained in it. A word of caution, however, is

necessary. The provision is recent and has not been construed by the

highest courts in a case involving a shipment by sea. The disposition of

the courts has been to construe such legislation strictly. The act was

intended to reverse the rule laid down in a line of decisions

consistently adhered to by the Supreme Court down to the time of its

passage. There can be no little doubt that any one seeking to maintain

an action under § 22 of the act would have to bring himself strictly

within the description of persons embraced in items (a) or (b) contained

in the section.

=12. Duration of Carrier's Liability.=--The carrier's liability begins

when he receives the goods for immediate transportation. He is not

liable as a carrier if he receives the goods, but is ordered not to ship

them pending further instructions from the consignor. In such case he

remains a mere bailee, or perhaps a warehouseman, until the voyage

actually begins. The carrier's liability ends when he gives notice of

the arrival of the goods and has afforded the consignee a reasonable

opportunity to remove them. He may go farther and stipulate in the bill

of lading to terminate his responsibility as carrier immediately upon

the putting of the goods ashore.

=13. Exceptions in Bills of Lading.=--In addition to perils of the sea,

deviation and restraint of princes, which have already been mentioned,

bills of lading frequently contain language designed to protect the

carrier from liability for such things as damage due to breakage,

leakage, heat, etc. Clauses of this kind will avail the carrier as a

defense against suits for damages due to these causes provided the

carrier is free from negligence. Inasmuch as these exceptions are in the

nature of exemptions from a liability which is imposed by the policy of

the law, the tendency of the courts is to interpret them with strictness

against the carrier.

A provision in a bill of lading exempting the carrier from loss by theft

will not relieve him from liability on account of a theft committed by a

person in his employ, such as an officer of the vessel or a member of

the crew.

=14. Valuation.=--There is some divergence in the decisions of the

courts involving the valuation of the goods which is frequently stated

in the bill of lading. If the language of the bill indicates that the

amount stated is a limit or that the value is limited to the invoice

price, the shipper may recover his actual loss up to but not exceeding

that amount, subject to the invariable rule that a man may not contract

for relief from the consequences of his own negligence. The right of

recovery on the valuation clause depends upon whether the owner of the

goods has been subjected to loss. Thus if after the accident or injury

the goods continue to be worth the amount of the valuation there is no

loss and consequently there can be no recovery. The valuation clause

cannot be used for the purpose of exempting the carrier from liability

for all goods above a certain value. As is succinctly stated in the

syllabus of Calderon _v._ Atlas Steamship Co., 170 U. S. 272, 42 L. ed.

1033:

A stipulation in a bill of lading, that the carrier shall not be liable

for goods of any description which are above the value of $100 per

package unless special agreement is made therefor, does not mean that

the liability is limited to $100 per package for such goods, but that

the carrier shall not be liable for them to any amount, and is

therefore void, under the Harter Act, as an attempt of the carrier to

exonerate itself from all responsibility for such goods.

=15. Notice of Claim.=--It is very important for shippers to observe the

provisions usually contained in bills of lading to the effect that the

carrier will not be liable unless notice of loss be given within a

certain limited time as such clauses are legal and enforceable, and if

not complied with, the shipper will lose his right of action.

=16. Nature and Effect of Charter Party.=--This may be formal or

informal, written or verbal, as the parties choose, but careful business

men will prefer to have it executed with the same care and detail as is

usually given to contracts of so important a nature. The operations

under a charter always involve large responsibilities and liabilities

upon some one, primarily upon the ship but ultimately upon the parties

to the agreement. The adjustment of these by appropriate language

necessitates a carefully drawn document and while many printed forms are

in general use in various ports they should only be employed when both

parties thoroughly understand the import of their provisions. The effect

of the agreement may be to create a contract of carriage on the part of

the owner or to completely divest him of any control over his ship.

Where he merely rents or lets the carrying capacity, in whole or part,

but retains possession, command and navigation through his own master

and crew, he is the carrier and the charter is a contract of

affreightment. Where he transfers the temporary ownership by

relinquishing these things to the charterer, so that the latter hires

the officers and crew and operates the ship, he is not in the position

of a carrier and is freed from obligations on her account, though the

ship herself remains responsible.

Charters are of various kinds. A charter party which turns over the full

control and operation of the ship to the charterer is called a demise of

the ship. This may be for a fixed term, or for a particular voyage. In

commercial practice, however, charters for a fixed term, that is to say

time charters, seldom amount to a demise of the ship, but are usually

mere contracts of affreightment. A charter party for a particular voyage

is called a voyage charter. In usage such a charter may amount to a

demise or may not, depending on whether or not the full control and

operation of the ship is surrendered to the charterer. A charter which

amounts to a demise is sometimes termed a bare boat charter. Under a

charter which amounts to a demise, the owner will require payment of the

charter money or freight in such installments as are agreed, the

maintenance of his ship in good, seaworthy condition, protection against

maritime liens and the prompt payment of all her expenses, and her

return to him in like condition as when taken at the termination of the

contract. The charterer will require undisturbed possession of the ship

so long as he is not in default and agrees, that in event of default,

the owner may cancel and resume possession. Provision should also be

made for insurance and stipulated value in event of damage or total loss.

=17. Subcharters.=--In the absence of any prohibition in the original

charter, a charterer may execute a subcharter or may assign the original

charter.

=18. Provisions in Charter Parties.=--The legal construction of a

charter party is governed by the rules of the law of contract. Material

representations of fact contained in the instrument as inducements to

the contract must be true or the contract will not be binding on the

opposite party. Such representations are statements relating to the

size, capacity, speed, condition and location of the ship.

(a) _Safe Port._--Among other provisions of the contract, especially in

time charters, is usually one to the effect that the vessel is to be

employed only between safe ports. A safe port is one in which the

physical conditions do not ordinarily expose a vessel to danger. Thus a

port entirely exposed to the weather has been held unsafe, as have ports

blocked by dangerous bars. A port in which the vessel would be liable to

forfeiture in time of war because of her nationality has been held

unsafe.

(b) _Insurance._--Where a time charter provides that the owner shall pay

for the insurance the reference is to insurance for the benefit of the

owner and not that of the charterer.

(c) _Redelivery._--While a time charter is, as the name implies, a

contract for the definite period of time expressed in the charter, it is

obvious that the exigencies of navigation frequently render it

impossible to redeliver the vessel on the precise date when the period

expires. It is customary, therefore, to provide that the charter hire

shall continue at the same rate until the time of redelivery unless the

vessel be lost. It is the duty of the charterer to redeliver the vessel

as nearly as possible to the expiration date of the charter, but if the

vessel is delayed through no fault of his, he cannot be held in damages

for breach of the charter, even though he may not be able to make

redelivery for months beyond the expiration date. So long as the delay

be practically unavoidable, he is liable merely for the stipulated

charter hire until redelivery, and not in damages for breach of the

charter (Anderson _v._ Munson, 104 Fed. 913).

The word "about" as a qualification of the charter period is sometimes

inserted in time charters, as a further protection to the charterer, but

it does not diminish his obligation to surrender the vessel as nearly as

possible to the expiration date.

(d) _Cancellation and Withdrawal._--Charters usually contain a clause

which provides that, if the vessel fails to arrive at the loading port

by a certain date, in condition to be laden--i.e., with cargo space

available--the charterers may cancel the obligation. The clause does not

entitle the vessel to loaf toward the loading port so as just to arrive

by the cancellation date. If she does not proceed with reasonable

promptness, the charterer will be entitled to damages, even though she

arrive by the cancellation date.

Correlative to the charterer's right of cancellation, it is usual for

charter parties to contain a provision to the effect that charter hire

is to be paid in advance and that in default of such payment the owner

shall be entitled to withdraw the vessel from the charterer.

(e) _The Breakdown Clause._--Time charters frequently provide that in

the event of loss of time arising from the breakdown of machinery, lack

of men or supplies for more than twenty-four hours, the payment of

charter hire shall be suspended for the period from which she is

inoperative, but if the vessel is driven into port by circumstances of

weather or accident to cargo, the loss of time due to these causes shall

fall upon the charterer. Such provisions are enforcible according to

their language and intent. If the breakdown endures beyond the period of

twenty-four hours the charter hire ceases not only for the excess, but

for the twenty-four hours also.

=19. Lien for Freight and Charter Hire.=--It is fundamental that the

goods carried are liable for the carrying charges, but the questions

arise: In whose favor does the liability exist, and during what period

does it exist? The lien for freight exists in favor of the person with

whom the shipper contracts to carry the goods. Where the shipowner is

operating the vessel on his own account as a carrier, the lien for

freight exists in his favor. Where the vessel is chartered the contract

of carriage is between the shipper and the charterer, and the lien for

freight exists in favor of the charterer. The owner of a chartered ship

has no lien for freight (unless conferred by the cesser clause,

mentioned below), but he may have a lien on the goods to the extent of

the unpaid freight for the purpose of securing his charter hire. This

lien does not exist in favor of an owner who has demised or let the ship

to the charterer, unless there is an express stipulation to that effect.

The so-called "cesser clause" is to the effect that "owner to have lien

on cargo for freight, dead-freight, and demurrage, charterer's liability

to cease when cargo shipped." The purpose of this clause is to bring the

charterer's liability to an end at the loading port. In return for his

exemption from liability to suit at the port of destination, he turns

over to the shipowner his lien on the cargo for freight, dead-freight

and demurrage.

Possession of the goods is, generally speaking, essential to the lien

for freight or charter hire. It does not attach until the goods have

been delivered for transportation. If, by contract, expressed in the

bill of lading or otherwise, the freight is not payable until after the

goods have been delivered, there is no lien, and the same is true if the

freight is payable at a time and place other than those specified for

the delivery of cargo. Ordinarily the lien is discharged when possession

of the goods is parted with; or by express waiver; or by implied waiver,

such as a direction to pay the freight to another person.

It is usual to insert in time charters a clause providing for a lien for

charter hire. Such provisions are valid, but they are not effective

against the cargo unless the terms of the charter have been brought home

to the shipper by a reference to the charter in the bill of lading,

which is commonly done. To incorporate the charter in the bill of lading

the reference to the charter in the bill must be explicit.

=20. Liability for Loss or Damage.=--In the case of goods, there is a

primary liability on the ship.

The liability of a vessel _in rem_ for want of due diligence in the

care and custody of the goods received on board for transportation is

the same whether the owners of the ship remain in possession as

carriers or whether the terms of the charter party are such as to

constitute a demise of the vessel for the voyage, so as to render the

charterers the owners _pro hac vice_ and alone personally responsible

for the transportation. The T. A. Goddard, 12 Fed. 174.

As between the shipowner and the charterer, this will be borne as the

charter party provides. In the case of loss or damage to the ship, the

contract again controls if its provisions are explicit. If not, the

ordinary rules of bailment of personal property control. If the charter

amounts to a demise of the ship, the charterer is liable, for he engages

to return the ship without injury by reason of his own negligence; if

not a demise, the shipowner bears the loss. For losses caused by perils

of the seas or by ordinary wear and tear, without negligence on his

part, the charterer is not liable in the absence of an express

stipulation.

In the case of the Barnstable, 181 U. S. 464, the vessel was chartered,

the charterer employing the officers and crew to navigate her, as well

as providing the ship's stores, supplies and fuel, and undertaking to

pay all pilotage, port charges and other expenses. The owner was to keep

the vessel insured and in repair. She came into collision with the

schooner _Fortuna_. The owners of the _Fortuna_ libeled the _Barnstable_

and the owners of the latter vessel called upon the charterers to defend

the suit. It was conceded that the collision and the consequent damage

were due to the negligent operation of the _Barnstable_ by the officers

and crew employed by the charterers to operate her. The court held that

the owners of the damaged schooner were entitled to look to the

offending vessel for their damages. As between the owner and the

charterer it was held that the charter amounted to a demise and the

charterer was the temporary owner. He was therefore liable to the real

owner, since he was bound to return the vessel. In the report of the

argument of this case many authorities are cited showing the

circumstances under which a charter party becomes a demise of the vessel.

In a contract of affreightment or charter not amounting to a demise--and

this embraces time charters--the duty of navigation rests upon the

shipowner. He is responsible for any damage due to negligence in

navigation, even though the negligent individual had been employed by

the charterer. In charters of this class the shipowner is also

responsible for loading and discharging cargo. Stevedores are ordinarily

regarded as being in the employ of the ship.

=21. Demurrage and Laydays.=--Time is usually of the essence of maritime

and commercial transactions. Both parties must be punctual in the

performance of their obligations. The shipowner must have the vessel at

the appointed place and time for delivery to the charterer or to receive

the cargo, as the agreement requires. The charterer must be on hand to

receive her or to deliver the cargo for loading. The ship must pursue

the voyage without deviation or delay. The consignee must be ready to

receive his goods on their arrival. Failure to observe these

requirements creates a liability for the damages ensuing or may dissolve

the charter. If the contract is express in regard to these stipulations,

no excuses will be useful unless they can be found in the agreement

itself. It is usual to provide for these obligations under the name of

demurrage. Of course, where the charter is for a definite period of

time, they are unimportant, but otherwise, if it is for one or more

voyages. The charterer has a number of days at his disposal for loading

and discharging the cargo. These are termed laydays. If not specially

provided, or fixed by the usage of the port or trade, a reasonable

number will be implied. For the excess, the ship is entitled to

demurrage to cover her loss of time and expenses, either at the rate

named in the charter or of such amount as may be proved.

Until the laydays have expired there is no breach of the contract to

load, but where the charterer refuses to accept the vessel or provide a

cargo, the owner need not keep her in readiness for delivery during all

the laydays.

What constitutes readiness, or under what circumstances a ship is an

"arrived ship," depends upon the terms of the bargain. Thus if the

charterer requires her to reach her berth a notice given when she is in

the stream will be insufficient. If she is to report for loading cargo

she must have her loading apparatus ready and her cargo space available.

The notice must actually reach the charterer unless he prevents it by

absenting himself or his representative from the place where it is to be

given. Notice should not be given on Sunday or a holiday, unless the

charter expressly permits it.

In accordance with the general principle of the law of contract, laydays

do not run if delay in loading or discharge is caused by the master or

owner.

It is the duty of the charterer to have his cargo ready and he is liable

for demurrage on account of the delay in furnishing cargo.

The charter party usually excepts Sundays and holidays from the laydays

allowed for loading, but, after the expiration of the loading period

(i.e., the laydays and the Sundays and holidays occurring among them),

demurrage begins to be payable to the ship, and she is entitled to

demurrage for Sundays and holidays as well as for secular days. This is

because the work of loading in port does not usually proceed on Sunday,

but a ship at sea continues on her voyage every day, so that every day's

delay in departure causes an equal delay in arrival.

Charters often provide for "despatch money," which is a premium or

allowance to the charterer for speed in loading. This is computed on

each running day saved; that is, it is to be credited to the charterer

for every day, including Sundays and holidays, occurring after the day

on which the master is placed in a position to clear the vessel, up to

and including the last layday, i.e., the end of the loading period.

Despatch is not allowed unless bargained for in the charter.

=22. Breach of Charter.=--If the shipowner refuses to perform the

charter, the charterer has a personal action for damages against him but

no maritime lien against the ship. There is no such lien for breach of a

purely executory contract, that is to say a contract no part of which

has been performed. So, if the ship is ready but the charterer refuses

to perform, the remedy is personal only and not against the goods. Each

must endeavor to mitigate his loss, the ship by seeking other

employment, the charterer by looking for another ship. But after

performance of the contract has once commenced, there are reciprocal

liens on ship and cargo for its performance. The charterers have a lien

on the vessel for all damages caused by a breach of the charter, the

carrying out of which has been begun. For example, if the voyage is

delayed after its commencement through the negligence of the owner, or

if the master, while agent of the owner, violates the terms of the

charter party, a lien arises in favor of the charterer.

In regard to the various obligations of the agreement, breaches by

either party will either dissolve their relations or give rise to

actions for damages. If nonperformance goes to the whole root and

consideration of the contract, the other party may treat it as abrogated

and be relieved from further obligation on his part in addition to his

own claim for damages; if the nonperformance is not so vital, but may be

amply compensated by damages, he will not be so relieved but must resort

to his action.

The arbitration clause contained in a time charter is not enforcible in

the United States.

=23. Dissolution of Charter.=--Like all other contracts, the charter

party becomes dissolved by performance or by the acts of the parties

amounting to a cancellation by agreement or waiver of performance. It

may, however, be dissolved against the will of the parties and by causes

extrinsic to them. Thus, although legal when made, if it becomes illegal

before performance, it is as wholly void as if it were illegal at the

outset. A state of war, for example, making all commercial intercourse

with the enemy illegal, would annul all obligations under a prior

charter for a voyage to an enemy port. So would legislation forbidding

the importation of the cargo in question. A voyage charter may be

dissolved by an accident to the vessel which prevents her making the

voyage at the time contemplated. For example, in Jackson v. Union Marine

Insurance Co., L. R. 10. C. P. 125, the ship was to proceed with all

possible despatch (dangers and accidents of navigation excepted) from

Liverpool to Newport, and there to load and carry to San Francisco a

cargo of iron rails. She left Liverpool January 2, and on the following

day ran aground, sustaining considerable damage. It would necessarily

have been many months before she could be got off and put in repair to

enable her to continue the voyage. The court held that in the commercial

sense the voyage contemplated by the charter party had been brought to

an end, and, under those circumstances, the contract was held to have

determined. The voyage, if resumed, would have been a different voyage,

"as different," in Baron Bramwell's words, "as though it had been

described and intended to be a spring voyage, while the other, after the

repair, would be an autumn voyage." The season within which the

adventure was to be carried out was of importance to both parties, and

it was thus easy to imply a condition that, if the voyage became

impossible of completion within that season, the contract would be at an

end. The exception as to dangers of the sea and accidents of navigation

showed that the parties contemplated providing for some delay from these

causes, but it was held that they were evidently not contemplating a

delay so great that the spring voyage would become altogether impossible.

The particular adventure being a voyage to be carried out within

reasonable limits of time furnished a definite standard by which it

would be determined whether the delay which actually occurred was or

was not within the exception clause. There was, therefore, no

inconsistency between the implied condition and the express provisions

of the contract.

Termination of a charter by frustration of adventure is not applicable

to time charters. Thus the taking of the ship for the use of the

government does not dissolve a time charter. This was held by the House

of Lords, upon a very full consideration in the recent case of Tamplin

Steamship Co. _v._ Anglo-Mexican Products Co., Ltd., 2 A. C. 397. There

a vessel was chartered for five years for a fixed sum per month for the

carriage of oil as the charterers or their agents should direct. The

charter party contained an exception of arrests and restraint of

princes, and the charterers had the liberty of subletting the steamer on

admiralty or other service. After the outbreak of the war, when the

charter party had nearly three years to run, the steamer was

requisitioned for an indefinite period by the admiralty, which made

extensive alterations and used her as a transport. The owners contended

that the charter party had been determined by the requisition. The

charterers, who were willing to continue to pay the charter hire (no

doubt in order to entitle themselves as temporary owners to the

compensation paid by the government) contended that the charter party

had not been annulled and this contention was sustained by the House,

which held that the interruption was not of such a character that the

court ought to imply a condition that the parties should be excused from

further performance of the contract and that the requisition did not

determine or even suspend the charter. Earl Loreburn said:

The violent interruption of a contract may always damage one or both

the contracting parties. Any interruption does so. Loss may arise to

some one whether it be decided that these people are or that they are

not still bound by the charter party. But the test for answering the

questions is not the loss that either may sustain. It is this: Ought we

to imply a condition in the contract that an interruption such as this

was to excuse the parties from further performance of it? I think not.

I think they took their chances of lesser interruptions and the

condition I should imply goes no further than that they should be

excused if substantially the whole contract became impossible of

performance or in other words impracticable by some cause for which

neither was responsible. Accordingly I am of opinion that this charter

party did not come to an end when the steamer was requisitioned and

that the requisition did not suspend it or affect the rights of the

owners or charterers under it and that the appeal fails.[16]

Where the charter provides for the return of the vessel at the

expiration of the term in as good condition as when taken, fair wear and

tear from reasonable and proper use only excepted, and requires the

hirer to make all repairs and assume liability for all loss and damage,

an absolute obligation to return her is created and her total loss

without any fault on his part will not exempt him from liability; he

must return the ship or pay her value, and, if the charter party

contains an agreement as to what that value is, that amount will be

decreed by the court. In Sun Printing & C. Association _v._ Moore, 183

U. S. 642, the New York _Sun_ newspaper chartered a yacht from Moore for

newsgathering purposes in Cuban waters during the Spanish war. The

charter party provided that the hirer was to keep "said yacht in repair

and to pay all its running expenses and to surrender said yacht with its

gear, furniture and tackle at the expiration of this contract to the

owner or his agent ... in as good condition as at the start, fair wear

and tear from reasonable and proper use only excepted." It was further

provided that "for the purpose of this charter the value of the yacht

shall be considered and taken at the sum of $75,000." The charter party

was accompanied by a paper in the nature of a surety bond given by the

_Sun_ to secure the owner against any loss or damage to the vessel in an

amount _not exceeding_ $75,000. The yacht was wrecked and totally lost.

Moore sued for $75,000 as representing the agreed value of the yacht.

The _Sun_ contended that the figure represented a penalty, enforceable

only to the extent of actual damage. The court sustained a recovery of

the full amount without deducting the charter hire. Justice White said:

It is elementary that, generally speaking, the hirer in a simple

contract of bailment is not responsible for the failure to return the

thing hired, when it has been lost or destroyed without his fault. Such

is the universal principle.... But it is equally true that where by a

contract of bailment the hirer has, either expressly or by fair

implication, assumed the absolute obligation in return, even although

the thing hired has been lost or destroyed without his fault, the

contract embracing such liability is controlling and must be enforced

according to its terms....

As the stipulation for value referred to was binding upon the parties,

the trial court rightly refused to consider evidence tending to show

that the admitted value was excessive and the circuit court of appeals

properly gave effect to the expressed intention of the parties.

REFERENCES FOR READING

_Charter-Parties_, XVI American Law Review, 6330.

_Charter-Parties and Bills of Lading_, T. E. Scrutton. London, 1899;

Clowes and Cons, Ltd.

_Shipping and Admiralty_, Parsons, 274-337.

_Shipping and Admiralty_, Desty, §§ 217-286; 196-285.

Crossman _v._ Burrill, 179 U. S. 100.

Moore _v._ Sun Ass'n, 183 U. S. 642.

Boskenna Bay, 36 Fed. 697.

Majestic, 56 Fed. 244.

Centurion, 57 Fed. 412.

_Shipping and Admiralty_, Parsons, Vol. I, Chapter VIII.

_Admiralty_, Hughes, Chapters VII, VIII.

Francis, 21 Fed. 715.

Sprott, 70 Fed. 327.

Rosenthal, 57 Fed. 254.

Ronalds, 109 Fed. 905.

Burrill, 65 Fed. 104.

Dene, 103 Fed. 983.

Ely, 110 Fed. 563.

Dixie, 46 Fed. 403.

Mencke _v._ Sugar, 187 U. S. 248.

_Charter-Parties and Ocean Bills of Lading_, Poor.

[16] It may be inferred, however, that, if it had appeared that the

requisition necessarily rendered the performance of the entire contract

impossible, the charter would have been held to be dissolved. In this

case, it was the owner, who saw a chance to make more money, who wanted

the charter annulled; not the charterer whose adventure was being

frustrated in a manner advantageous to him. It is a little difficult to

suppose that the court would have required the charterers to go on

paying charter hire, had they been unwilling to do so, for a vessel of

which the government had deprived them of the use. Still, that

conclusion is deducible from the language of the several lords who wrote

opinions in the case.

CHAPTER VIII

LIABILITIES AND LIMITATIONS

=1. Liabilities of Ship.=--As elsewhere observed, the ship resembles a

person in maritime law and has a corresponding liability. In general,

she is responsible for every benefit received and every wrong done as

well as for every breach of governmental regulations. Particular

instances may furnish exceptions to this general rule, but they will be

only occasional exceptions. The ship should be considered as a juristic

person and her liabilities like those of an ordinary corporation, quite

apart from those of the natural persons in charge of her operations or

interested in her ownership. The liability of a vessel arising out of

contract is discussed elsewhere. The principle governing her liability

for torts is laid down in the brig Malek Adhel, 2 How. (U. S.) 210:

The ship is also by the general maritime law held responsible for the

torts and misconduct of the master and crew thereof, whether arising

from negligence or a willful disregard of duty; as, for example, in case

of collision and other wrongs done upon the high seas or elsewhere

within the admiralty and maritime jurisdiction, upon the general policy

of that law, which looks to the instrument itself, used as the means of

the mischief, as the best and surest pledge for the compensation and

indemnity to the injured party.

The liability ordinarily extends to the entire ship and all the

appurtenances.[17] It may include the freight money and collision

damage; it does not include the insurance; and it may be diminished by

statutes like the Harter Act or by special agreements in the contract

of carriage or similar stipulations.

=2. Liabilities of Owner.=--While it has been said that the liability of

the ship and of the owner were convertible terms, the statement is

hardly accurate in many cases. The owner may have so chartered the ship

as to release him from personal responsibility; he may be wrongfully

deprived of her possession; his liability may be limited by law or

special agreement to her value. In other words, the ship is frequently

liable and the owner is not; and the owner can usually confine his

liability to the value of the ship and otherwise go free from her

obligations.

=3. Liabilities of Charterer.=--Where a vessel is so hired that the

charterer has the exclusive possession, control and management,

appointing the master and hiring the crew, there is said to be a demise

of the ship and a temporary ownership in the charterer. He then becomes

responsible for her obligations as if he were the real owner and has

similar rights of limitation. The law provides that where a charterer

mans, victuals and navigates the ship at his own expense, he shall be

considered as owner within the provisions of the statutes limiting

liability, and that the ship shall be liable, when so chartered, as if

navigated by the owner (Rev. St. § 4286).

=4. Liabilities of Mortgagee.=--These depend upon his possession of the

ship. Where he takes possession and operates the ship for his own

benefit, he assumes all the responsibilities of ownership but without

the right to limit his liability to the value of his interest in the

ship. Thus he may become personally liable for wages, supplies and

repairs as well as for damages done by negligence. He may, by special

arrangements, confine contract liabilities to the ship and, being

lawfully in possession, he may create maritime liens upon her. A

mortgagee out of possession is not considered as the owner even when he

holds the record title under a bill of sale absolute on its face. He may

still show that his title was by way of security only and so exempt

himself from personal liability for repairs done or supplies furnished

for the contracts or negligence of the mortgagor or other person having

real ownership of the boat.

=5. Liabilities of Underwriters.=--The insurers are ordinarily strangers

to the ship as far as concerns any authority to instruct the master or

incur obligations on her account. Only in case of an abandonment of the

vessel to them, when the loss is total or constructively total, and when

they have accepted such an abandonment, does such authority arise. An

abandonment when properly made, or accepted, vests the property in the

underwriter and the master then becomes his agent. The underwriter is

then the real owner and has all an owner's liabilities and limitations.

There is, however, a very large intermediate class of disasters where

the underwriters decline an abandonment and yet take possession of the

ship and cargo for the purpose of rescue and repair. Large expenses are

thus created for which the damaged ship and cargo may be adequate

security. The underwriters are personally liable, in the absence of

special contract, for the contracts of their agents, although the nature

of the business is such that it is often a practical difficulty to

ascertain who were the insurers actually making the engagements and what

was the real authority of those assuming to represent them. These

questions are usually not raised during the exigencies of salvage

operations but may become important when the work is unsuccessful and

the expenses are unpaid.

=6. Theories of Limitation.=--The general maritime law has always been

that an owner was not personally liable for the obligations of his ship

as distinguished from his own agreements or delinquencies. It regards

the ship as a distinct individuality similar to a corporation. The

common law, on the contrary, considers the ship like any other kind of

personal property and holds the owner correspondingly liable because his

agents were in charge and he is liable for whatsoever they do within the

scope of their agency. The maritime law retains an earlier notion of the

common law, that it is against all reason to put blame or fault upon a

man for the negligence of others and declines to hold him personally for

what he cannot personally control. It also recognizes the fact that men

of means will not invest in ships unless they can be protected against

the unlimited liability of the common law. It holds that such a

liability is inherently unjust when applied to the shipowner and it also

accepts the situation in which the capitalist declines to invest in

shipping unless that injustice is averted. Hence came the rule that the

owner is not liable on account of the ship beyond the value of his

interest therein and her freight pending and the corollary that he might

absolve himself from all liability by abandoning the ship to her

creditors. The theory is (at least as applied to torts) that:

If you surrender the offending vessel you are free, just as it was said

by a judge in the time of Edward III, "If my dog kills your sheep and I

freshly after the fact tender you the dog you are without recourse to

me."[18]

This rule is in abrupt conflict with the theories of the common law and,

while it has been expressed in statutory form in most maritime

countries, the courts have been so far influenced by common law

doctrines in its application that it does not prevail in its original

integrity either in this country or in England. Congress has endeavored

to restore it in the United States but the courts, so far, have declined

to follow the plain language of the statute.

=7. Contract Limitations.=--To a considerable extent there may be an

effective limitation of liability by special contract between the

parties. The courts hold, generally, that limitations of liability in a

contract must be reasonable if they are to be valid and they regard

clauses which exempt the shipowner from liability for his own or his

servants' negligence as unreasonable and also as contrary to public

policy. At the same time, when the ship is not professing to be a common

carrier and the contract is plain and on adequate compensation, such

clauses may be, and are, enforced. Their efficiency will depend largely

upon the contract itself and there is no hard and fast rule which

prevents the private carrier from obtaining such limitations as he

requires if the other party will agree thereto.

An illustration is found in the case of the Royal Sceptre, 187 Fed. 224,

where the charter provided:

The ship is to be in no way liable for any consequences of ... perils

of the sea, ... collisions, stranding, or other accidents or errors of

navigation even when occasioned by the negligence, default, or error in

judgment of the pilot, master, mariners, or other servants of the

shipowners.

Judge Hough said:

The quoted charter provision delimits the obligations of the ship, in

so far as it goes, when reasonably interpreted. If therefore the

proximate cause of this loss be a peril of the sea (or river), a

stranding, an error of the pilot or negligence of the master, it may be

assumed that libellant cannot recover; for, without any written

limitation of liability, all that the bailor-libellant could require or

expect from the bailee-claimant was the use of ordinary care and skill

and that expectation has been (in part) bargained away for a

consideration presumably expressed in the rate of charter hire.

=8. The Federal Statutes.=--The original law was enacted in 1851 (Rev.

St. §§ 4284-4286; Comp. St. 1916, 8020-8027); that provided an absolute

protection against loss by fire unless caused by the design or neglect

of the owner, and in case of practically all losses which might occur

without the "privity or knowledge" of the owner, his liability was

limited to the value of his interest in the ship and freight pending;

provision was made for a general average of creditors and transfer to a

trustee; in 1872 the Supreme Court promulgated rules of practice under

which its benefits might be more efficiently applied by the admiralty

courts. It was held that these statutes were enacted to restore the old

doctrine of the maritime law, to encourage shipbuilding and the

employment of ships in commerce, and for the public benefit. Hence they

must be liberally construed in favor of shipowners. In a series of great

decisions, commencing about 1870, the Supreme Court held the law

constitutional; that foreign shipowners were entitled to its benefits;

that the valuation of the owner's interest might be made as of the

termination of the voyage or immediately after the disaster so that if

the loss is total the liability is practically nil; that insurance was

no part of the owner's interest in the ship or freight and need not be

surrendered; and that the protection of the act extended to underwriters

to whom the ship had been abandoned.

The original law had been passed with much difficulty and its language,

as the result of compromise and concession, was subjected to much

criticism as uncertain and ambiguous. The shipping interests of the

country continued to decline and among the reasons assigned were the

responsibility and liabilities left open or undefined by the law. About

1880, in connection with a vigorous attempt to revive the merchant

marine, the entire subject received full consideration by Congress. The

Act of June 26, 1884, was subsequently passed, and, expressly repealing

all laws in conflict therewith, declared in a few words that "the

individual liability of a shipowner shall be limited to the proportion

of any and all debts and liabilities that his individual share of the

vessel bears to the whole, and the aggregate liabilities of all the

owners of a vessel on account of the same shall not extend the value of

such vessel and freight pending." An amendment seeking to insert the

condition that such debts must have been incurred without the owner's

privity or knowledge was deliberately rejected. The courts, however,

have declined to enforce the law according to its terms and held that

Congress really intended to insert the condition as to privity or

knowledge in spite of the omission of the words and the rejection of the

amendment which sought to insert them. The result is that the owner is

still liable without limit for all obligations which arise out of

matters of contract, according to the rules of the common law and in

many instances of negligence on the part of his employees the same

result seems to follow. His liability can not be limited where "privity

or knowledge" is imputable to him and no accurate definition of these

terms is yet available.

Under the present law, the voyage is the unit in respect to which

limitation may be granted. Probably the shipowner may claim the benefit

of the law at any time before he pays a final judgment in favor of the

damage creditors, but he must account for the value of the ship as it

was at the termination of the voyage on which the liability was created.

The courts will not permit him to continuously operate the ship at the

expense of her creditors and then finally abandon her to them loaded

with the liens of many voyages. The rule is only a practical one and in

special cases may work injustice to shipowners, as where ships make a

continuous number of short trips between contiguous points. Part-owners

are only liable according to the proportion of their shares, and the

personal fault or privity of one does not necessarily implicate the

others. It is not necessary that they should join in the same

proceeding. The exemption is several and may be claimed by each without

reference to the others.

=9. "Privity or Knowledge."=--Limitation of liability can not be had

against any loss or obligation unless incurred without the privity or

knowledge of the shipowner. These words, by judicial construction, still

remain as a condition or qualification of the law and it is unfortunate

that no plain definition of their meaning has been yet supplied. The

words have been discussed in many cases and there are many decisions in

particular instances granting or denying the benefit of the law, but the

expression is still undefined and perhaps is incapable of accurate legal

definition. Some judges have held that "privity or knowledge" means the

shipowner's own willful or negligent acts as distinguished from those of

his agents or employees. This gives the broad and liberal construction

of the law which the Supreme Court directed in its earlier decisions on

the subject. On the other hand, judges of equal learning have been

inclined to treat the matter by the standards of the common law and held

that the acts or faults of agents or servants are those of the principal

and that he must be as personally liable as if he had done them himself.

These would limit the protection of the law to the acts of the master of

the ship when beyond control of the owner and give it a close

construction against the shipowner. This has been the tendency of the

later decisions of the Courts of Appeals and the Supreme Court has so

far acquiesced in them. There has also been a development of a doctrine

to the effect that there can be no limitation against the enforcement of

the shipowner's personal contracts, and engagements made by various

employees and managing owners have been held to be within this class.

This rule depends on the theory of privity or knowledge, as, of course,

there can be no such thing as a contract relation without privity or

knowledge of its subject-matter. Thus in the recent case of Luckenbach

_v._ McCahan Sugar Ref. Co., 248 U. S. 139, decided December 9, 1918:

But the liability of the owners sought to be enforced here is one

resting upon their personal contract; and to such liabilities the

limitation acts do not apply.

Similarly in another recent case, Pendleton _v._ Benner Line, 246 U. S.

353:

The contract was between human beings, and the petitioner, by his own

act, knowingly made himself a party to an express undertaking for the

seaworthiness of the ship. That the statute does not limit liability

for the personal acts of the owners, done with knowledge, is

established by Richardson _v._ Harmon, 222 U. S. 96. It was said in

that case, p. 106, that § 18 leaves the owner "liable for his own

fault, neglect, and contracts."

* * * * *

It is said that the owners did their best to make the vessel seaworthy,

and that if it was not so the failure was wholly without the privity or

knowledge of the petitioner. But that is not the material question in

the case of a warranty. Unless the petitioner can be discharged from

his contract altogether he must answer for the breach, whether he was

to blame for it or not.

In the case of corporate shipowners it is said that the privity or

knowledge must be that of the managing officers, but there is no

definition of who the managing officers are and the term is not capable

of accurate definition. The law of limitation of liability of shipowners

in the United States is not now plain or simple nor is it in harmony

with the general maritime law or that of other commercial countries.

Where the owner can prove that the loss occurred without his privity or

knowledge he will obtain protection, but just what facts or ignorance of

facts he must prove to reach this result can not be stated at the

present time.

=10. Harter Act.=--This law was enacted by Congress in 1893, and

corresponds to a similar English statute of about the same date. It may

be found in 7 Comp. St., 1916, §§ 8029-8035. The text of the act follows:

Chapter 105. An act relating to navigation of vessels, bills of lading,

and to certain obligations, duties, and rights in connection with the

carriage of property.

Be it enacted by the senate and house of representatives of the United

States of America in congress assembled, that it shall not be lawful

for the manager, agent, master or owner of any vessel transporting

merchandise or property from or between ports of the United States and

foreign ports to insert in any bill of lading or shipping document any

clause, covenant or agreement whereby it, he, or they shall be relieved

from liability for loss or damage arising from negligence, fault or

failure in proper loading, stowage, custody, care, or proper delivery

of any and all lawful merchandise or property committed to its or their

charge. Any and all words and clauses of such import inserted in bills

of lading or shipping receipts shall be null and void and of no effect.

Sec. 2. That it shall not be lawful for any vessel transporting

merchandise or property from or between ports of the United States of

America and foreign ports, her owner, master, agent, or manager, to

insert in any bill of lading or shipping document any covenant or

agreement whereby the obligation of the owner or owners of said vessel

to exercise due diligence, properly equip, man, provision, and outfit

said vessel, and to make said vessel seaworthy and capable of

performing her intended voyage, or whereby the obligations of the

master, officers, agents, or servants, to carefully handle and stow her

cargo and to care for and properly deliver the same, shall in any wise

be lessened, weakened or avoided.

Sec. 3. That if the owner of a vessel transporting merchandise or

property to or from any port in the United States of America shall

exercise due diligence to make the said vessel in all respects

seaworthy and properly manned, equipped and supplied, neither the

vessel, her owners or managers, agents or charterers, shall become or

be held responsible for damages or loss resulting from faults or errors

in navigation or in the management of said vessel, nor shall the

vessel, her owner or owners, charterers, agent, or master be held

liable for losses arising from dangers of the sea or other navigable

waters, acts of God, or public enemies, or the inherent defect, quality

or vice of the thing carried, or from the insufficiency of package, or

seizure under legal process, or for loss resulting from any act or

omission of the shipper or owner of the goods, his agent or

representative, or from saving or attempting to save life or property

at sea, or from any deviation in rendering such service.

Sec. 4. That it shall be the duty of the owner or owners, masters, or

agent of any vessel transporting merchandise or property from or

between ports of the United States and foreign ports, to issue to

shippers of any lawful merchandise a bill of lading or shipping

document, stating, among other things, the marks necessary for

identification, number of packages or quantity, stating whether it be

carrier's or shipper's weight, an apparent order or condition of such

merchandise or property delivered to and received by the owner, master,

or agent of the vessel for transportation, and such document shall be

_prima facie_ evidence of the receipt of the merchandise therein

described.

Sec. 5. That for a violation of any of the provisions of this act the

agent, owner, or master of the vessel guilty of such violation, and who

refuses to issue on demand the bill of lading herein provided for,

shall be liable to a fine not exceeding two thousand dollars. The

amount of the fine and costs of such violation shall be a lien upon the

vessel whose agent, owner, or master is guilty of such violation, and

such vessel may be libeled therefor, in any district court of the

United States within whose jurisdiction the vessel may be found.

One-half of such penalty shall go to the party injured by such

violation and the remainder to the government of the United States.

Sec. 6. That this act shall not be held to modify or repeal sections

forty-two hundred and eighty-one, forty-two hundred and eighty-two, and

forty-two hundred and eighty-three of the Revised Statutes of the

United States, or any other statutes defining the liability of vessels,

their owners or representatives.

Sec. 7. Sections one and four of this act shall not apply to the

transportation of live animals.

Sec. 8. This act shall take effect from and after the first day of

July, eighteen hundred and ninety-three. Approved February 13, 1893.

The general purpose of the act is understood to have been to regulate

the relations between ship and cargo, so as to provide a limitation of

liability, beyond that granted by the earlier statutes as to damages in

general, by providing that if the owner exercised due diligence to make

his ship seaworthy neither he nor his vessel should be liable for losses

resulting from fault or error in the navigation or management of the

vessel. The courts, however, have construed the statute closely against

the shipowner and it is doubtful whether it has not rather increased his

original liabilities instead of limiting them. He is still held to his

warranty of absolute seaworthiness at the beginning of the voyage;

stipulations in the bill of lading are prohibited which tend to relieve

him from liability for loss arising from negligence, fault or failure in

proper loading, stowage, care or proper delivery and he is forbidden to

insert any clauses lessening his common-law obligations as a carrier.

In the Carib Prince, 170 U. S. 655, the damage to cargo was caused by

latent defects in a rivet, from which the head had come off, leaving a

hole through which water entered and injured libellant's merchandise.

The defect was due to too much hammering during the construction of the

hull, causing the rivet to become brittle and weak. By reason of this

defect the vessel was unseaworthy at the time the bill of lading was

issued, although the owner did not know it. The bill of lading exempted

the owner of the vessel from liability on account of "latent defects in

the hull." The court held that the bill of lading was intended to confer

exemption only to latent defects arising subsequent to sailing and

consequently that there was no contractual limitation of liability, and

with reference to the exemption from liability claimed under the Harter

Act, said:

Because the owner may, when he has used due diligence to furnish a

seaworthy ship, contract against the obligation of seaworthiness, it

does not at all follow that when he has made no contract to so exempt

himself he nevertheless is relieved from furnishing a seaworthy ship,

and is subjected only to the duty of using due diligence. To make it

unlawful to insert in a contract a provision exempting from

seaworthiness where due diligence has not been used, cannot by any

sound rule of construction be treated as implying that where due

diligence has been used, and there is no contract exempting the owner,

his obligation to furnish a seaworthy vessel has ceased to exist. The

fallacy of the construction relied upon consists in assuming that

because the statute has forbidden the shipowner from contracting

against the duty to furnish a seaworthy ship unless he has been

diligent, that thereby the statute has declared that without contract

no obligation to furnish seaworthy ship obtains in the event due

diligence has been used.

* * * * *

The exemption of the owners or charterers from loss resulting from

"faults or errors in navigation or in the management of the vessel,"

and for certain other designated causes, in no way implies that because

the owner is thus exempted when he has been duly diligent that thereby

the law has also relieved him from the duty of furnishing a seaworthy

vessel. The immunity from risks of a described character, where due

diligence has been used, cannot be so extended as to cause the statute

to say that the owner when he has been duly diligent is not only

exempted in accordance with the tenor of the statute from the limited

and designated risks which are named therein, but is also relieved as

respects every claim of every other description from the duty of

furnishing a seaworthy ship.

In the Wildcroft, 201 U. S. 378, a cargo of sugar was injured by an

opening of a valve in the ship's side in such a manner that water got

into the cargo. The vessel was in all respects seaworthy at the

beginning of the voyage, and the court held that having discharged the

duty of providing a seaworthy ship the vessel was relieved from

liability arising out of an unseaworthy condition, which devolved after

the beginning of the voyage and without the fault of the owners. It was

emphasized, however, following the case of the Southwark, 191 U. S. 1,

that the burden is upon the owner of a vessel

to show by reasonable and proper tests that the vessel was seaworthy

and in a fit condition to receive and transport the cargo undertaken to

be carried and that if, by failure to adopt such tests and furnish the

required proofs, the question of the ship's seaworthiness was left in

doubt, that doubt must be resolved in favor of the shipper, because the

vessel owner had not sustained the burden cast upon him by the law to

establish that he had used due diligence to furnish a seaworthy vessel.

As it emerges from the interpretation of the courts, the effect of the

Harter Act seems to amount to this:

The act says to the shipowner:

1. You may make a valid bargain by which you will be exempted from

liability, if you use due diligence to make the ship seaworthy at the

beginning of the voyage, and some defect develops which eluded your

diligence. Unless you make such a bargain, your obligation to provide a

ship which is seaworthy at the commencement of the voyage is absolute,

and, in no event, can you bargain to relieve yourself from using due

diligence.

2. You cannot bargain away your duty and obligation to use due diligence

to see that your vessel is maintained in seaworthy condition during the

voyage, but you may, if you like, bargain that if you use due diligence

and your ship nevertheless become unseaworthy, you shall be relieved

from responsibility for damage to cargo on that account.

3. If you use due diligence to employ a competent master and crew and

their skill in navigation fails or the ship encounters perils of the sea

and accident happens to the cargo you are not responsible for the

damage. Your exemption from responsibility in this case is given by the

statute and you do not need to bargain for it.

4. Your exemption from liability does not extend to damage due to

improper loading and stowage.

=11. Insurance.=--Where the shipowner is entitled to the benefits of the

Limited Liability Law, his liability is terminated by a surrender or

abandonment of the ship and her pending freight. He may retain the

insurance and her creditors can not claim it. He is not obliged to

account for the insurance money which he may have collected for the loss

or damage to his vessel. In this respect the law of the United States is

more liberal to the shipowner than that of many other countries. The

question was decided in the cases of the City of Norwich, 118 U. S. 468,

and the Scotland, in the same volume at page 507. The latter will

illustrate the rule; the _Scotland_ and the _Dyer_ were in collision and

both sunk; the lower court held the _Scotland_ at fault and awarded the

owners of the _Dyer_ upwards of $250,000, as damages. The value of the

_Scotland_ before the collision was about $500,000, and her owners had

collected insurance on her to the amount of $299,867.42. The value of

her wreckage was $4,927.85. The Supreme Court held that her owners'

liability was limited to this last amount and that the owners of the

_Dyer_ could not claim any part of the insurance.

=12. Single Ship Companies.=--This is a form of organization which has

the advantages of the general law of corporations in limiting the

liability of shareholders to the amount of their stock. If such a

corporation has all its capital invested in a single ship, its liability

is, of course, limited to the amount of the investment and if the shares

have been paid in full there can be no further calls upon the

shareholders. When the ship is lost, all liabilities are lost with her

except such as the shareholders may have personally guaranteed or

assumed. The corporation which owns several ships will obviously not

have the same degree of limitation. Hence the popularity among

investors, particularly in England, of the single ship company. As far

as the corporate affairs are concerned the laws of the State in which it

is incorporated must be observed. In the maritime law, its status is

that of an individual shipowner. The privity or knowledge of its

managing officers may preclude it from the protection of the admiralty

law of limited liability; if so, it cannot retain the insurance or any

other part of its capital against its creditors, but, when the capital

is lost or exhausted, the stockholders who have paid in full for their

shares will have no further responsibility.

REFERENCES FOR GENERAL READING

_Admiralty_ (1910), Benedict, Chapter XXXV.

_Carriers_, Wheeler, Chapters I-III.

_Admiralty_, Hughes, Chapters VIII and XVI.

_Collisions at Sea_, Marsden (1904), Chapter VII.

_Limitation of Liability_, Van Santvoord, 1887.

Rebecca-Ware (Fed. Cas. No. 11,629).

Trans. Co. _v._ Wright, 13 Wall. 104.

Benefactor, 103 U. S. 247.

Scotland, 105 U. S. 24.

City of Norwich, 118 U. S. 468.

O'Brien _v._ Miller, 168 U. S. 287.

La Bourgogne, 210 U. S. 95.

Richardson _v._ Harmon, 222 U. S. 96.

Pendleton _v._ Benner Line, 246 U. S. 353.

[17] Liability does not extend to parts of a tow having no motive power

of their own when attached to a tug whose faulty navigation caused a

collision even though the damage resulted from the impact of the tow and

the tug itself did not physically come into collision at all, and this

is so notwithstanding the tug belongs to the same owner. Liverpool &c.

Navigation Co. _v._ Brooklyn Eastern Dist. Terminal, U. S. Advance

Sheets, 1919-20, 85, decided by the Supreme Court December 8, 1919.

[18] Justice Holmes in Liverpool, etc., Navigation Co. _v._ Brooklyn

Eastern Dist. Terminal (_supra_).

CHAPTER IX

MARITIME LIENS

=1. How Created.=--In general and within the limits hereinafter

mentioned, every service rendered to a ship and every injury done by a

ship, creates a maritime lien upon her for the benefit of the individual

who did the work or suffered the wrong.

Those who furnish supplies or fuel or provisions, or make repairs, or

render services, as well as the members of the crew and officers (except

the master) acquire such liens for the collection of the amounts due

them. A like right or privilege accrues for the damage done through

negligence on the part of the ship resulting in damage to persons or

property, as by collision or injury to cargo. So these liens are divided

into two classes, those _ex contractu_ (arising out of agreements,

express or implied) and those _ex delicto_ (arising out of wrongs or

torts).

The authority of the master to obligate the ship so that a lien arises

has been discussed under the title "Master."

The managing owner, ship's husband, master or any person to whom the

management of the vessel at port of supply is entrusted may by ordering

supplies, repairs, render the vessel liable to a maritime lien. If the

master be drunk or disabled and another person is discharging his duties

and is in effect for the time being master of the ship, such person may

create a valid lien. Thus it has been held that the vessel is bound for

supplies ordered by the mate acting during the illness of the master.

The vessel is also bound for supplies furnished on the order of any

member of the ship's company and with the master's knowledge and

acquiescence. It is customary in the administration of a large modern

ship for the head of each department, e.g., the steward, chief engineer,

to order supplies and for these the vessel is responsible, but only on

the theory that the purchases are made with the master's authority, and

if the person contracting the obligation has acted in excess of the

powers delegated to him by the master, the ship will not be bound. It is

incumbent on the person furnishing goods to a vessel to inquire into the

authority of the individual ordering the same. Moreover, if the goods

ordered are greatly in excess of the vessel's needs, it is incumbent

upon the supplier to know that fact and if the goods ordered, even by

the master personally, are greatly in excess of the vessel's needs the

ship will not be bound.

A maritime lien attaches to the offending ship only, and not to her

cargo (except for unpaid freight) and this is true even though the cargo

belonged to the owner of the offending ship. As was said by Mr. Justice

Brown in the case of the Bristol, 29 Fed. 867:

The cargo, except for the collection of the freight due, cannot be held

for the faults of the ship. There being no lien beyond freight due, no

proceeding _in rem_ lies against the cargo for damages by collision, if

the freight be paid, whether the cargo belongs to the owner of the

offending vessel or not; and, if arrested, the cargo must be released

upon the payment of the freight due.

A maritime lien, being essentially a remedy against the vessel, may

attach even in a case in which the owners are not personally

responsible; as for instance, where a state pilot, in charge of a ship

under a state statute which renders his employment compulsory,

negligently brought the ship into collision, she was subjected to a lien

for the damage done, although the pilot was in no sense the agent of the

owners, and no personal liability rested upon them. The China, 7 Wall.

53.

The lien attaches only by virtue of contracts or torts which are wholly

maritime in their nature. It is frequently difficult to determine the

nature of a contract or tort. Thus persons digging ice and snow from

around a vessel on a beach, and about to be launched did not acquire a

maritime lien because the service was performed on shore. Whereas

persons who floated a vessel which had been carried far ashore were held

to have performed a maritime service and to be entitled to a lien. In a

case in which a vessel communicated fire to a wharf to which she was

made fast, it was held that the tort was not maritime, whereas, had she

been in the stream and had communicated fire to another vessel in the

stream, the tort would have been maritime and would have given rise to a

maritime lien (Hough _v._ Trans. Co., 3 Wall. 20). Conversely a tort

having its inception on land and completed on shipboard will give rise

to a lien. As for example where a man working on board ship was injured

by a piece of lumber thrown through a chute by a man working on a wharf.

(Herman _v._ Mill Co., 69 Fed. 646).

A lien arises in favor of the owners or temporary owners of a vessel

upon cargo actually on board for unpaid freight and for demurrage. This

is the only case in which possession of the security is essential to the

existence of a maritime lien. If the cargo is removed from the ship the

maritime lien is lost. In this class of cases suit to enforce the lien

should be instituted before the cargo is discharged.

=2. Essential Value.=--The essential value of these liens lies in the

right they give to have the ship arrested and sold by a court of

admiralty for their satisfaction, and in the speed and security with

which the remedy can be applied. The vessel is arrested immediately upon

the filing of the libel, before the liability is proven or the case

tried, and may not leave port without giving bond to secure the claim

(see Chapter XVII, Admiralty Remedies).

=3. Independent of Notice or Possession.=--They do not depend upon

notice or recording or possession and do not in any way resemble a

mortgage. They are, in fact, an actual property in the ship, created as

soon as the service is rendered or the wrong suffered (Yankee Blade, 19

How. 82).

=4. Secret.=--As these liens do not depend upon notice or record, they

are essentially secret in their nature and even purchase of the ship, in

good faith and for value, will not be protected against them (The

Marjorie, 151 Fed. 183).

=5. Diligence Required.=--On the other hand the law requires the lienor

to be diligent in enforcing his lien so that third parties may not be

unduly prejudiced thereby. If he is not diligent, the court will hold

him guilty of laches and the lien may become stale as against all

parties other than the owner.

=6. Rules of Diligence.=--There are no hard and fast rules defining

diligence or the limit after which a lien becomes stale. Under the

general maritime law, the voyage was the test; liens which accrued on

one voyage were required to be enforced before another voyage was made

or they became stale as to those of the latter. In deep-sea navigation,

where the voyages are prolonged, this rule still obtains. On the Great

Lakes, where the trips or voyages are comparatively short, and

navigation is closed by the winters, the season of navigation is the

rule. Liens not enforced during the season or the following winter will

be postponed to those of the later season. In New York harbor, the local

conditions have resulted in a forty-day rule; in Virginia, under

somewhat different conditions, a one-year rule has appeared. The safe

method is to be prompt and diligent in collecting liens against a ship;

delay is always dangerous and there may be no other financial

responsibility. This course is also for the best interests of the

shipowner; interest and costs accumulate rapidly where the liens are

enforced by the courts.

In the case of the Marjorie, 151 Fed. 183, above cited, a private yacht

was libeled in Baltimore on account of coal furnished her in Norfolk

nearly a year previously. She spent that time voyaging up and down the

coast, putting in at various ports and when libeled had been laid up for

the winter. She had not been in Norfolk subsequent to the occasion on

which the coal was furnished. About six months after the coal was

furnished she was sold to a new owner, who, finding no lien on record

against her, paid the full purchase price. The Court held:

As commercial enterprise would be vexatiously incommoded and the free

circulation and disposal of vessels prevented if such liens, which are

not required by law to be made manifest by public registration, were

allowed to lie dormant for an indefinite period, the courts have

uniformly held, where the rights of _bona fide_ purchasers will be

injuriously affected if it is allowed to prevail, that the lien is lost

if there has been long delay, and there has been reasonable opportunity

to enforce it. The diligence required is usually measured by the

opportunity of enforcement. In nearly all of the cases where the courts

have held the lien to be lost and where there has been change of

possession, there has been unreasonable delay on the part of the

creditor in availing himself of the opportunities of enforcing his lien.

* * * * *

In the case under consideration the libel was filed within less than a

year. The yacht had been sailing from port to port, and never came

within the jurisdiction of the port where the supplies were furnished.

The claim was a small one and hardly justified the employment of a

detective to follow her wanderings. The lien was asserted as soon as

the yacht was found.... The law is well settled that liens of this

nature must be sustained if there has been reasonable diligence in

asserting them. A long line of decisions shows that a delay of a year

in circumstances such as are disclosed by the testimony is not

unreasonable, and to lay down any other rule would tend to unsettle the

law and to disturb the credit which in the interest of commerce must be

extended to ships for supplies when away from their home ports to

enable them to continue their voyages, a credit only given upon the

faith that they have a lien upon the ship.

=7. Recording Liens on "Preferred Mortgage" Vessels.=--The Merchant

Marine Act of 1920 (Sec. 30, Subsection G. See Appendix), provides that

any one claiming a lien on an American ship which is subject to a

"preferred mortgage" as defined in that Act (see Chapter X, _infra_) may

record a notice of his lien with the Collector of Customs at the port of

documentation, and upon the discharge of the indebtedness, shall file a

certificate to that effect. A lienor who has recorded his lien is

entitled to notice of any proceeding for the foreclosure of a preferred

mortgage. This provision is intended to enable the lienor to come in and

protect his interest.

=8. Limited to Movable Things.=--These liens arise only upon movable

things engaged in commerce and navigation. They cannot exist in anything

which is fixed and immovable and not the subject of maritime commerce or

navigation. Thus they will subsist in vessels, rafts and cargoes but not

upon a bridge or a ship totally out of commission (Rock Island Bridge, 6

Wall. 213; Pulaski, 33 Fed. 383). The lien has been sustained against a

dredge. (Atlantic, 53 Fed. 607).

=9. Priorities.=--Important priorities exist among maritime liens and

these are adjusted when the ship is sold in admiralty to satisfy her

debts. The purchaser at an admiralty sale, as elsewhere stated, takes

the ship free of all existing liens; the proceeds of the sale are

distributed among the lienors according to their priorities, after

deducting costs and expenses.

Liens for torts take precedence over all prior liens, and the later lien

for tort will be preferred to an earlier if there has been an absence of

diligence in enforcing it. The John G. Stevens, 170 U. S. 113, is the

leading case on the priority of liens against the offending vessel for

torts committed by her. Mr. Justice Gray held:

But the question we have to deal with is whether the lien for damages

by the collision is to be preferred to the lien for supplies furnished

before the collision.

* * * * *

The collision, as soon as it takes place, creates, as security for the

damages, a maritime lien or privilege, _jus in re_, a proprietary

interest in the offending ship, and which, when enforced by admiralty

process _in rem_, relates back to the time of the collision. The

offending ship is considered as herself the wrongdoer, and is herself

bound to make compensation for the wrong done. The owner of the injured

vessel is entitled to proceed _in rem_ against the offender, without

regard to the question who may be her owners, or to the division, the

nature, or the extent of their interests in her. With the relations of

the owners of those interests, as among themselves, the owner of the

injured vessel has no concern. All the interests existing at the time

of the collision in the offending vessel, whether by way of part

ownership, of mortgage, of bottomry bond, or of other maritime liens

for repairs or supplies, arising out of contract with the owners or

agents of the vessel, are parts of the vessel herself, and as such are

bound by and responsible for her wrongful acts. Any one who had

furnished necessary supplies to the vessel before the collision, and

had thereby acquired, under our law, a maritime lien or privilege in

the vessel herself, was, as was said in The Bold Buccleugh [7 Moore

P. C. 267] before cited, of the holder of an earlier bottomry bond,

under the law of England, "so to speak, a part owner in interest at the

date of the collision and the ship in which he and others were

interested was liable to its value at that date for the injury done

without reference to his claim [7 Moore P. C. 285]."

Liens arising out of matters of contract will be paid in substantially

the following order:--

Salvage.

Sailors' wages and wages of a stevedore when employed by master or owner.

"Preferred mortgages" (see below).

Pilotage and Towage.

Supplies and Repairs.

Advances of Money.

Insurance premiums (where a lien).

Mortgages not preferred.

It may be regarded as the grand rule of priority among maritime liens,

that they are to be paid in the _inverse order of the dates_ at which

they accrued. Liens arising on a later voyage have priority over liens

of an earlier voyage, and the later in point of time which have been for

the preservation or improvement of the vessel, are to be paid in the

inverse order of the dates at which they accrued, the later debt being

paid in full before anything is allowed to the lien of an inferior

grade. The reason for this is because the loan, or service, or whatever

created the later lien has tended to preserve or improve the first

lien-holder in security for his lien. He is to be preferred who

contributed most immediately to the preservation of the thing.

An important qualification of the rule heretofore governing the priority

of maritime liens on American vessels, is made by the Ship Mortgage Act

of 1920 (Merchant Marine Act, see Appendix). By this act certain

mortgages which conform to its provisions are called "preferred

mortgages" and are made maritime liens enforceable in admiralty. In the

order of priority, a preferred mortgage lien comes next after liens

arising out of tort, for wages of a stevedore when employed directly by

the owner, operator, master, ship's husband, or agent of the vessel, for

wages of the crew, for general average and for salvage. Liens for

repairs, pilotage, towage, freight and charter hire come in subsequent

to "preferred mortgages."

The subjects of liens for salvage, wages, pilotage and towage, advances,

mortgages, freight and charter hire are discussed under the appropriate

titles in this book.

=10. Lien for Repairs and Supplies.=--By act of Congress approved June

23, 1910, provisions were made which substantially changed the law as it

existed theretofore. This act was repealed and reënacted with amendments

by the Merchant Marine Act of 1920 (see Appendix). The latter act (Sec.

30), representing the present state of the law, provides:

Subsection P. Any person furnishing repairs, supplies, towage, use of

drydock 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 authorized by the owner, shall have a maritime lien on the

vessel, which may be enforced by suit _in rem_, and it shall not be

necessary to allege or prove that credit was given to the vessel.

Subsection Q. The following persons shall be presumed to have authority

from the owner to procure repairs, supplies, towage, use of drydock or

marine railway, and other necessaries 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.

A person furnishing supplies or repairs to a vessel in the absence of

her owners or temporary owners, and elsewhere than in her home port, and

upon the order of the master, should inquire into the necessity for the

supplies or repairs. If, upon reasonable inquiry, he finds that they are

necessary, he may safely furnish them, relying on the credit of the

vessel and upon his right to a maritime lien upon her. If reasonable

inquiry fails to show any necessity, the supplier or repairer will not

be entitled to a lien, even though the master gave the order.

In the case of the Valencia, 165 U. S. 264, the home port of the ship

was Wilmington, North Carolina. She was plying between New York and

Maine. Coal was ordered for her in New York, not by the master, but by a

steamship company doing business in New York whose relations to the

vessel were not inquired into by the suppliers of the coal. If they had

inquired, they would readily have learned that the steamship company was

a charterer of the vessel and was bound by the charter party to "provide

and pay for all coals." The coal was not paid for and the suppliers

libeled the ship. In directing the libel to be dismissed the Supreme

Court said:

Although the libellants were not aware of the existence of the charter

party under which the _Valencia_ was employed, it must be assumed upon

the facts certified that by reasonable diligence they could have

ascertained that the New York Steamship Company did not own the vessel,

but used it under a charter party providing that the charterer should

pay for all needed coal. The libellants knew that the steamship company

had an office in the city of New York. They did business with them at

that office, and could easily have ascertained the ownership of the

vessel and the relation of the steamship company to the owners. They

were put upon inquiry, but they chose to shut their eyes and make no

inquiry touching these matters or in reference to the solvency or

credit of that company. It is true that libellants delivered the coal

in the belief that the vessel, whether a foreign or a domestic one, or

by whomsoever owned, would be responsible for the value of such coal.

But such a belief is not sufficient in itself to give a maritime lien.

If that belief was founded upon the supposition that the steamship

company owned the vessel, no lien would exist, because in the absence

of an agreement, express or implied, for a lien, a contract for

supplies made directly with the owner in person is to be taken as made

"on his ordinary responsibility, without a view to the vessel as the

fund from which compensation is to be derived." The St. Jago de Cuba, 9

Wheat. 409. And if the belief that the vessel would be responsible for

the supplies was founded on the supposition that it was run under a

charter party, then the libellants are to be taken as having furnished

the coal at the request of the owner _pro hac vice_, without any

express agreement for a lien, and in the absence of any circumstances

justifying the inference that the supplies were furnished with an

understanding that the vessel itself would be responsible for the debt

incurred. In the present case, we are informed by the record that there

was no express agreement for a lien, and that nothing occurred to

warrant the inference that either the master or the charterer agreed to

pledge the credit of the vessel for the coal.

* * * * *

We mean only to decide, at this time, that one furnishing supplies or

making repairs on the order simply of a person or corporation acquiring

the control and possession of a vessel under such a charter party

cannot acquire a maritime lien if the circumstances attending the

transaction put him on inquiry as to the existence and terms of such

charter party, but he failed to make inquiry, and chose to act on a

mere belief that the vessel would be liable for his claim.

The law is even more succinctly stated in the case of the Kate, 164

U. S. 458, as follows:

The principle would seem to be firmly established that when it is

sought to create a lien upon a vessel for supplies furnished upon the

order of the master, the libel will be dismissed if it satisfactorily

appears that the libellant knew, or ought reasonably to be charged with

knowledge, that there was no necessity for obtaining the supplies, or,

if they were ordered on the credit of the vessel, that the master had,

at the time, in his hands, funds, which his duty required that he

should apply in the purchase of needed supplies. Courts of admiralty

will not recognize and enforce a lien upon a vessel when the

transaction upon which the claims rests originated in the fraud of the

master upon the owner, or in some breach of the master's duty to the

owner, of which the libellant had knowledge, or in respect of which he

closed his eyes, without inquiry as to the facts.

If no lien exists under the maritime law when supplies are furnished to

a vessel upon the order of the master, under circumstances charging the

party furnishing them with knowledge that the master cannot rightfully

as against the owner, pledge the credit of the vessel for such

supplies, much less one is recognized under that law where the supplies

are furnished, not upon the order of the master, but upon that of the

charterer who did not represent the owner in the business of the

vessel, but who, as the claimant knew, or by reasonable diligence could

have ascertained, had agreed himself to provide and pay for such

supplies, and could not, therefore, rightfully pledge the credit of the

vessel for them.

Where a charterer becomes the owner _pro hac vice_, as usually occurs in

the case of a "bare-boat" charter, necessary supplies ordered by the

master will entitle the supplier to a maritime lien under the statute,

unless the charter party contains stipulations that were known to the

supplier or which he could have readily ascertained, excluding such

liens. Thus in the latest decision of the Supreme Court in which the act

of June 23, 1910, was construed (South Coast S. S. Co. _v._ Rudnbach,

decided March 1, 1920) a bare vessel was chartered to one Levick, the

contract stipulating that Levick was to pay all charges and save the

owners harmless from all liens. There was also a provision that the

owner might retake the vessel in case Levick failed to discharge any

liens within thirty days, and a provision for the surrender of the

vessel free of all liens, if Levick failed to make certain payments. The

master of the ship had been appointed by the owner, but was under

Levick's orders. When the supplies were ordered representatives of the

owners warned the supplier that the steamer was under charter and that

he must not furnish supplies on the credit of the vessel. He disregarded

the warning and furnished the supplies and libeled the vessel for his

lien. The Court upheld his right to the lien, holding that the warning

of the owner was ineffectual because the charterer had become the owner

_pro hac vice_, the master being his agent and not that of the owner,

and that:

Unless the charter excluded the master's power the owner could not

forbid its use. The charter-party recognizes that liens may be imposed

by the charterer and allow to stand for less than a month, and there

seems to be no sufficient reason for supposing the words not to refer

to all the ordinary maritime liens recognized by the law. The statute

had given a lien for supplies in a domestic port, and therefore had

made that one of these ordinary liens. Therefore the charterer was

assumed to have power to authorize the master to impose a lien in a

domestic port, and if the assumption expressed in words was not

equivalent to a grant of power, at least it cannot be taken to have

excluded it. There was nothing from which the furnisher could have

ascertained that the master did not have power to bind the ship.

=11. Not Sole Remedy.=--The reader will not be misled into supposing

that the absence of a right to a maritime lien means that the debt is

uncollectible by legal process. While the admiralty court is closed to

the creditor if there be no right to a maritime lien, he has the same

remedy as any other creditor by a suit at law to recover the debt or

damage from the debtor, or person liable, i.e., the owner, the temporary

owner, or the person who ordered the goods or did the damage as the case

may be. Such a remedy lacks the peculiar advantages of the maritime lien

(§ 2 _supra_, this chapter). There may also be special remedies open to

him under state statutes (but see § 13, this chapter).

=12. How Divested.=--Maritime items are only completely divested by

payment or by an admiralty sale. Laches--that is to say delay or

sloth--on the part of the lienor may prevent their enforcement against

the rights of subsequent lienors or purchasers for value in good faith,

but the ship is really only absolutely free from them when she has

passed through a sale in proceedings _in rem_--that is, a suit against

the ship. This transfers all claims to the proceeds in the registry of

the court and passes a clear title to the purchaser. The Garland, 16

Fed. 283, is illustrative; she had sunk a yacht in the Detroit River

with great loss of life; her business was that of a ferry between

Detroit, Michigan, and Windsor, Ontario, and her value was about

$20,000; libels were filed against her in Detroit on account of the

collision and she was then arrested in Windsor, by process from the

Maritime Court of Ontario, for a coal bill of $36.30; that court sold

her in accordance with the usual admiralty practice. She then resumed

her business and was arrested under the Detroit libels. These were

dismissed by the United States court because all liens had been divested

by the admiralty sale in Ontario and such sales are good throughout the

world. No other sales, judicial or otherwise, have this effect since

they convey only the title of the owner in the thing and not the thing

itself. Maritime liens, therefore, are not divested or affected by the

foreclosure of a mortgage, or a sheriff's sale on execution, or a

receiver's sale, or any other form of conveyance of an owner's title.

Nor are they divested by a writ of execution issued out of a court of

common law, nor postponed to such execution. This has been held, even

where the execution was in favor of the government.

=13. State Liens.=--For many years there was an open question in the

maritime law of the United States as to the status of liens which arose

in the home port of the vessel and numerous conflicting decisions were

made by the courts. The effect was that in all cases of liens arising

out of contract, like supplies and repairs, the question of upon whose

credit the work was done and the supplies furnished became very

important; where the transaction was in the home port, there was a

presumption that it was on the personal credit of the owner and no lien

was allowed; and the theory of home port became extended to include the

entire State in which the owner resided. Thereupon all of the states

interested in maritime affairs enacted statutes providing for liens upon

vessels, both maritime and nonmaritime in their nature, and a sort of

admiralty proceeding against the ship to enforce them; the procedure

portions of these statutes were generally held void as interfering with

the exclusive jurisdiction _in rem_ of the Federal courts, but the liens

which they created, if maritime in their nature, were usually enforced.

By the act of Congress of June 23, 1910 (as amended and reënacted by the

Merchant Marine Act of 1920, see Appendix), relating to liens on vessel

for repairs, towage supplies or other necessaries, it was declared

unnecessary to allege or prove that credit had been given the vessel and

also provided that the Act shall supersede the provisions of all state

statutes conferring liens on vessels so far as they purport to create

rights _in rem_, that is to say, rights against the vessel herself. It

is yet unsettled whether those of a nonmaritime class survive, as in the

case of the lien for shipbuilding which, not being regarded by the

admiralty as maritime, has been enforceable under the state statutes.

=14. Builders' and Mechanics' Liens.=--These may arise upon a ship under

the provision of local statutes and be entirely enforceable so long as

they do not come into conflict with maritime liens and the exclusive

jurisdiction of the admiralty. So, also, a lienor may assert his

common-law right to retain possession of the ship until payment is made.

This depends entirely on possession and cannot be enforced by judicial

proceedings, although it may be recognized by the court when it arrests

the vessel on other accounts.

=15. Foreign Liens.=--Maritime liens often depend on the law of the

place in which the obligation is incurred and also upon the law of the

ship's flag. In other words, inquiry must frequently be made whether the

local law gives a lien, whether the law under which the ship sails gives

the master power to create the lien, and whether the country in which

the suit is commenced has the legal machinery to enforce the lien. There

is no doubt about our own admiralty courts having adequate jurisdiction

and equipment to enforce any maritime lien which exists by the law of a

foreign country. Its enforcement is a matter of comity and not of right

when the parties are foreigners. Thus the maritime lien for collision

will generally be enforced wherever the offending ship may be seized,

irrespective of the place where the collision occurred. That lien exists

by virtue of the general maritime law. On the other hand, there may be a

closer question in regard to the lien for supplies. They may be

furnished in a port of a country whose laws do not provide such a

maritime lien but only give a remedy by attachment of the ship. The

tendency of the weight of authority is to enforce such liens in the

courts of this country whenever they exist by virtue of the general

maritime law, even if they could not be enforced in the courts of the

country where they arose. Possibly this gives a foreigner an advantage

here over what he would have at home, but this is not really material.

=16. Enforcement of Liens.=--This is discussed in Chapter XVII,

Admiralty Remedies.

REFERENCES FOR GENERAL READING

_Admiralty_, Hughes, Chapter XVII.

_Admiralty Liens of Material Men_, IX American Law Review, 654.

_Features of Admiralty Liens_, XVI American Law Review, 193.

_Maritime Liens_, 4 Law Quarterly Review, 379.

_Priorities among Maritime Liens_, II University Law Review, 122.

The DeSmet, 10 Fed. 483 (excellent annotation).

Lottawanna, 21 Wall. 558.

John G. Stevens, 170 U. S. 113.

CHAPTER X

MORTGAGES AND BONDS

=1. Definitions.=--A vessel mortgage is a conveyance of the ship as

security. A bottomry bond is a contract in the nature of a mortgage by

which the ship is pledged as security for the repayment of money

borrowed and the lender assumes the risk of loss if the ship does not

survive in consideration of maritime interest, usually at a high rate.

Respondentia is a loan on the cargo, to be repaid if the goods arrive,

but, if lost, the borrower is exonerated. Like bottomry, it is

essentially a loan without personal liability beyond the value of the

property mortgaged. Vessel bonds are a modern form of security in the

form of debentures of the owner, carrying interest coupons and secured

by a trust deed or mortgage of the ship.

=2. Bottomry Bonds.=--The name of this class of security on the ship

arose from the fact that the bottom or keel of the ship was figuratively

used to express the whole and to indicate that the entire vessel secured

the loan. The repayment of money borrowed on bottomry depends on the

safe arrival of the ship; if she is lost the loan is lost with her. The

money is at the risk of the lender. Under an ordinary mortgage, the

borrower must pay at all events and his personal liability survives the

loss of his vessel. Under bottomry, the risk is shifted. In

consideration of this risk, the lender is permitted to charge a high

rate of interest without violating the law of usury. Rates of interest

as high as 25 per cent. and higher have been upheld, and while in some

cases the courts have ordered a reduction in the rate when it was

regarded as clearly extortionate, the strong inclination of the courts

is to carry out the bargain as made by the parties. The bond must be in

writing. No particular form is essential but it must rest on the

assumption of maritime risks by the lender or it will be no bottomry. It

may be expressed after the precedent of a common-law bond, with a

recital of the circumstances, provisions showing that the usual risks

are on account of the obligee; and stipulations providing that the

condition of performance or discharge is the safe arrival of the ship at

her designated haven. The lender may secure himself against loss by

taking out insurance. Such bonds may be made by the owner, in the home

port, although this is not usual. He may, of course, make them anywhere.

The master, however, can only do so as in cases of great necessity and

the absence of the owner. His power, in this respect, is like his power

to sell. His first duty is to obtain funds on the personal credit of the

owner. The duty of the master to communicate with the owner, if

possible, before giving a bottomry bond is the same as his duty to

communicate before selling the vessel (Chapters II, § 14; IV, § 9). For

this reason and in view of modern facilities for communication the

giving or making of bottomry bonds by masters has, like the sale of a

vessel by her master, become rare in modern times.

A good illustration of a bottomry bond is found in the case of the

Grapeshot, 9 Wall. 129. There the libel recited that the _Grapeshot_ was

at Rio de Janeiro in April, 1858, was in great need of reparation,

provisions and other necessaries to render her fit and capable of

proceeding to New Orleans, the master having no funds or credit in Rio

de Janeiro, and the owner not residing there and having no funds or

credit there, the libellants at the request of the master loaned him

$9,767.40, on the bottomry and hypothecation of the bark at the rate of

19-1/2 cents, maritime interest; that the master did expend the sum

borrowed for repairing, victualing and manning the bark to enable her to

proceed to New Orleans and that she could not possibly have proceeded

with safety without such repairs and other necessary expenses attending

the refitting of her. Chief Justice Chase described the general

characteristics of a bottomry bond as follows:

A bottomry bond is an obligation, executed generally, in a foreign

port, by the master of a vessel for repayment of advances to supply the

necessities of the ship, together with such interest as may be agreed

on; which bond creates a lien on the ship, which may be enforced in

admiralty in case of her safe arrival at the port of destination; but

becomes absolutely void and of no effect in case of her loss before

arrival.

Such a bond carries usually a very high rate of interest, to cover the

risk of loss of the ship as well as a liberal indemnity for other risks

and for the use of the money, and will bind the ship only where the

necessity for supplies and repairs, in order to the performance of a

contemplated voyage, is a real necessity, and neither the master nor

the owners have funds or credit available to meet the wants of the

vessel.

The Court also quoted with approval the decision in the old case of the

Aurora, 1 Wheat. 96, in which it was said:

To make a bottomry bond, executed by the master, a valid hypothecation,

it must be shown by the creditor that the master acted within the scope

of his authority; or, in other words, that the advances were made for

repairs or supplies necessary for effecting the objects of the voyage,

or the safety and security of the ship. And no presumption should arise

in the case that such repairs or supplies could be procured on

reasonable terms with the credit of the owner, independent of such

hypothecation.

And in summarizing the conclusion reached in the case it was said:

To support hypothecation by bottomry, evidence of actual necessity for

repairs and supplies is required and, if the fact of necessity be left

unproved, evidence is also required, of due inquiry and of reasonable

grounds of belief that the necessity was real and exigent.

These bonds are not required to be placed on record but great diligence

should be employed in enforcing them so that the rights of innocent

purchasers or subsequent lienors may not be impaired.

=3. Respondentia.=--This is security for a loan on marine interest

created on the cargo. It may be created by the cargo-owner, at home, if

he sees fit, but ordinarily, only arises out of necessity during the

course of the voyage. The master has the same authority to borrow on the

security of the cargo as he has in cases of bottomry. The proceeding

must be sanctioned by great necessity and liability to communicate with,

or obtain relief from, the owner of the goods. The duty of communication

is the same as in the case of bottomry bonds (see preceding sections).

The rule with respect to interest is the same as that governing bottomry

bonds. The instrument may be in any form which expresses the facts and

conditions; an ordinary bill of sale may be used or the form of a

bottomry bond. The instrument is not required to be recorded.

The case of Ins. Co. _v._ Gossler, 6 Otto 645, contains an example of a

bond, which was both bottomry and respondentia. The bark _Frances_ en

route from Java to Boston with a cargo of sugar encountered a hurricane

which compelled the master to cut away her mast to save the vessel and

put into Singapore for repairs. Destitute of funds and without credit,

the master executed a bond with maritime interest at 27-1/2 per cent.,

secured upon the boat, cargo and freight. When nearing the completion of

her voyage the bark was cast away on the shore of Cape Cod. She could

not be salved as an intact vessel, but was sold as a wreck and

subsequently broken up by the purchaser in order to make use of the

parts of her. Some of her cargo was saved. The Court held that the

salvaged portion of the cargo and the wreck as she lay on the beach must

respond to the obligation of the bond, saying that nothing but an utter

annihilation of the thing hypothecated would discharge the borrower on

bottomry, the rule being that the property saved, whatever it may be in

amount, continues subject to hypothecation.

Unless the ship be actually destroyed and the loss to the owners

absolute, it is not an utter loss within the meaning of such a

contract. If the ship still exists, although in such a state of damage

as to be constructively totally lost, within the meaning of a policy of

insurance; ... she is not utterly lost within the meaning of that

phrase in the contract of hypothecation.

Thus, the doctrine of "constructive total loss," which is important in

the law of marine insurance, has no application to bottomry. It is

customary in bottomry and respondentia bonds to insert a clause

reserving to the lender, in case of utter loss, any average that may be

secured upon all salvage recoverable.

=4. Necessity for Advances.=--The lender of money on a bottomry bond is

under obligation to satisfy himself that the supplies or refitment for

which the money is borrowed are necessarily required by the vessel. The

act of June 23, 1910 (discussed in § 9 of preceding chapter), apparently

has no application to money advanced on bottomry bonds and certainly has

no application to respondentia bonds. If the actual need for the advance

sought to be secured by the bottomry or respondential bond does not

exist, the bond will not constitute a lien upon the vessel or cargo.

=5. Mortgages.=--These are species of chattel mortgages. The ship is a

chattel or personal property, for many purposes. Prior to June 5, 1920,

these mortgages were not recognized as maritime transactions. The

Merchant Marine Act of that date makes radical changes in the law

governing ship mortgages. The new provisions are to be found in Section

30, which is to be cited, independently of the rest of the statute, as

the "Ship Mortgage Act, 1920," and is printed in full with the rest of

the Merchant Marine Act in the Appendix.

=6. Are Mortgages Maritime Contracts?=--An ordinary mortgage upon a

vessel, whether made to secure the purchase money or to obtain funds for

general purposes, is not a maritime contract. This is the rule in this

country, as announced by the Supreme Court in the J. E. Rumbell, 148

U. S. 1, although it is different under the general maritime law in

other countries. Accordingly, courts of admiralty in the United States,

have no jurisdiction of a libel to foreclose a mortgage or to enforce

title or right to possession under it. If, however, the ship has been

sold under admiralty process, and there are proceeds in the registry

after satisfying maritime liens, the court will pay over the surplus, to

a mortgagee in preference to the owner or general creditors.

The Ship Mortgage Act (_supra_) makes a sweeping exception to the

foregoing rule in cases of American vessels where the mortgagee is an

American citizen and where the parties fulfill certain formalities

required by the Act and discussed in the next section. The Act provides

that these mortgages shall be known as "preferred mortgages" and confers

upon the courts of admiralty exclusive jurisdiction to foreclose them.

There has yet been no judicial interpretation of this Act. Some doubt

may be entertained whether it is within the power of Congress to convert

ship mortgages into maritime contracts; that is to say, can Congress

take a transaction, which has always been regarded as wholly foreign to

the admiralty and confer upon it a maritime quality? The decision of

this point is of the utmost importance and will be awaited with the

greatest concern by every one interested in ships and shipping.

=7. When Postponed to Other Liens.=--An ordinary vessel mortgage is a

very inferior grade of security because it is subordinate to all

maritime liens and has only a qualified and dubious standing in the only

courts which enforce them. One who advances money to a ship or her owner

on mortgage is bound to know that the ship navigates on credit, and must

continue to accumulate liens in order to earn freight, and that she may

be pledged for bottomry or incur liability for torts. He is therefore

postponed to sailors' wages, salvage, towage, advances, bottomry,

general average, repairs, supplies, collision, personal injury, damage

to cargo, breach of contract, penalties, and liens created by local law

which the admiralty will enforce.

Here again the Ship Mortgage Act, 1920, makes a radical change in the

case of "preferred mortgages" given upon American vessels to secure

American investors. The Act makes the lien of a "preferred mortgage"

inferior to liens of prior date and liens for damages arising out of

tort, for wages of stevedores when employed directly by the owner,

operator, master, ship's husband, or agent of the vessel, for wages of

crew, general average and salvage, including contract salvage; but

superior to all other liens, such for example as repairs, supplies,

towage, pilotage, etc.

=8. Form.=--No particular form is essential to a vessel mortgage except

that the requisites of the Federal Statutes in regard to recording and

conveyance must be observed if it is to be placed on record in the

office of a collector of customs. They require that every instrument in

the nature of a bill of sale or other conveyance or incumbrance of any

ship or vessel, shall be duly acknowledged before a notary public or

other officer authorized to take acknowledgments of deeds (7 U. S. Comp.

St. §§ 7778, 7779). It should contain a copy of the last certificate of

registration or enrollment. Government blank mortgages can usually be

obtained at the custom house and are preferred, although any instrument

following their general form will be sufficient. A bill of sale may be

used, although absolute in its terms, and the fact that it is only

security can be shown by parole.

Trust-deeds or mortgages securing issues of bonds are in general use

where large amounts are involved. These forms are very elaborate and

resemble railroad mortgages in their elaborate details. In all vessel

mortgages, important provisions are those in regard to the insurance,

the amount of liens which the ship may incur, the waters which she may

navigate, and the rights of the mortgagee on default. It is desirable to

provide for contingencies, as far as possible, by clear and definite

agreements in the instruments.

To entitle a mortgage of an American vessel to an American mortgagee to

the status of a "preferred mortgage" under the Ship Mortgage Act, 1920,

giving its lien the superiority described in the preceding section, it

is necessary that it should be recorded; that an affidavit be filed at

the time of recordation to the effect that the mortgage is made in good

faith and without design to hinder, delay or defraud any existing or

future creditor of the mortgagor or any lienor; and that there be

endorsed upon the ship's documents the names of the mortgagor and

mortgagee, the time and date of the endorsement; the amount and date of

the maturity of the mortgage. The formalities to be observed in the

creation of "preferred mortgages" are described in detail in the Act

which is printed in full in the Appendix and should be observed with

scrupulous exactness.

=9. Recording.=--No mortgage of any vessel of the United States is valid

against third parties unless it is duly recorded in the office of the

collector of customs where such vessel is registered or enrolled. She

must be registered or enrolled by the collector of that collection

district which includes the port to which such vessel shall belong at

the time of her registry; which port shall be deemed to be that at or

nearest to which the owner, if there be but one, or, if more than one,

the husband or acting and managing owner of such vessel usually resides.

Unless a mortgage is properly recordable in the custom house, the mere

fact that it is recorded there is insufficient to give it validity

against others than the mortgagor. Record in the wrong office and

premature record in the right office are equally invalid. Thus a

mortgage was held bad against general creditors in the case of the

Empire Shipbuilding Company, 221 Fed. 223, where it was made before the

ship was completed and recorded on the same day she was enrolled. The

proper course would have been to first enroll the ship as a vessel of

the United States and then execute and record the mortgage. As we have

observed in Chapter II, § 16, _supra_, where a vessel at sea is

mortgaged it is wise, in order to be safe until she returns, to record

the mortgage at the home port, as shown by her outstanding document, as

well as at the new home port if there is to be a change of home port.

=10. Rights of Mortgagee.=--These depend principally upon the

stipulation in the mortgage. He is entitled to have his security made

available to the satisfaction of his debt, but, until foreclosure, the

ship is subject to many claims which may impair or destroy its value. If

seized by admiralty process, the mortgagee may appear and protect his

interest, as by taking possession under the usual claim and bond.

Seizures or levies under local law are subject to the rights of the

owner of a valid mortgage. Generally, the terms of the instrument will

provide that, upon any default by the mortgagor or impairment of the

security by acts of third parties, the mortgagee may take possession,

declare the entire debt due, and foreclose. Where maritime liens affect

the security, the mortgagee is entitled to pay them and be subrogated

thereto, that is to say, after discharging the liens, he stands in the

shoes of the lienors. Where the ship has been arrested and sold by a

court of admiralty, and its proceeds are in the registry, he may appear

and file an intervening petition for the protection of his interest

therein. Where the admiralty disclaims jurisdiction over vessel

mortgages, it will pay over surplus proceeds to the mortgagee in

preference to the owner or the owner's general creditors. So the

mortgagee may answer and contest the claims of the lienors in their

proceedings against the ship.

=11. Liabilities of Mortgagee.=--A mortgagee in possession of the ship

becomes liable as owner for supplies furnished or repairs made at his

request or at the request of those apparently authorized to act for him.

So, if he operates the ship, he will be liable for the risks and

expenses of the voyage.

=12. Transfer and Payment.=--A vessel mortgage may be assigned or

transferred like other similar forms of security. If the debt is

evidenced by negotiable promissory notes or bonds, the transfer of them

carries with it the security, although the more usual and convenient way

is by a formal assignment of mortgage placed on record with the

collector. The assignee succeeds to all the rights of the original

mortgage. So the mortgage may descend to heirs or pass to creditors like

other personal property, in accordance with the law of the owner's

domicile.

On payment of the debt, the mortgage is automatically canceled and the

mortgagor is entitled to have the fact placed upon the records by the

usual certificate of payment and discharge.

In the case of "preferred mortgages" under the Ship Mortgage Act, 1920,

the ship's documents may not be surrendered (except in case of

forfeiture or judicial sale) without the approval of the Shipping Board

which will be withheld unless the mortgagee consents, and the interest

of the mortgagee will not be terminated by a forfeiture of the vessel

unless the mortgagee was implicated in the act which caused the

forfeiture. No rights under any mortgage of an American ship, whether

preferred or not, may be assigned to any person not a citizen of the

United States without the approval of the Shipping Board.

=13. Foreclosure.=--A mortgage upon an American vessel, although

necessarily recorded according to Federal law, is still only a chattel

mortgage for many purposes and must be foreclosed in accordance with

local law. This will be in one of three ways: by a suit in a court of

competent jurisdiction to obtain a decree of foreclosure and sale, by a

sale in accordance with local statutory provisions in respect of chattel

mortgages, by exercise of the power of sale which is usually contained

in the instrument itself. The last is the method best adapted to vessel

property and carefully drawn mortgages usually contain plain and

adequate provisions for that purpose. If, however, the mortgagee be an

American citizen and the requirements of the Ship Mortgage Act, 1920,

with reference to "preferred mortgages" have been complied with, the

foreclosure proceeding is to be instituted in a United States District

Court sitting in admiralty, and no one except an American citizen may

purchase an American ship at a sale by admiralty decree in a suit _in

rem_. The mortgagor's title can only be extinguished by foreclosure but

stipulations giving the mortgagee the power, on breach of condition, to

dispose of the mortgaged property, at public or private sale, and after

applying the proceeds to his expense and debt, to account for the

surplus to the mortgagor, are valid and may be executed without resort

to a court. The mortgagor may appoint the mortgagee, as well as any

other person, to sell his property for the purpose of satisfying his

debts. The mortgagee should proceed strictly in accordance with the

power of sale and carefully observe its terms in regard to notice, time

and place. The conduct and fairness of such sales are open to

investigation at the instance of the mortgagor and will be set aside on

proof of unfair or oppressive conduct or deviation from the terms of the

power or statute. It is not necessary to hold the sale on board the ship

if the mortgage provides another place, but, in the absence of such a

provision, it would be safer to so make the sale as there are

authorities holding that the mortgaged property must be in view when the

sale is made. There are numerous rules in the general law of foreclosure

of chattel mortgages which are quite inapplicable to ships and much

embarrassment may be avoided if the instrument is drafted with these in

mind. The courts will enforce the contract as the parties make it, if

its provisions are plain and are carefully observed. As in other cases,

the sale may be adjourned from time to time and the mortgagee may employ

an agent or attorney to make it. The debt may be used instead of money;

the mortgagee may bid in the property himself and execute an appropriate

bill of sale. The power of sale is merely cumulative and will not

prevent a suit for foreclosure or an action at law on the debt. The sale

is, of course, subject to all maritime liens superior to the mortgagee,

but will extinguish all subordinate liens and subsequent titles if the

mortgage was duly recorded.

Where an American ship subject to a "preferred mortgage" is sold at an

admiralty sale at the suit of a lienor whose lien is inferior to that of

the mortgage, the Ship Mortgage Act, 1920, provides that the vessel

shall be sold free from all preëxisting claims, but the court shall, at

the request of the mortgagee, the libellant or any intervenor, require

the purchaser to give and the mortgagor[19] to accept a new mortgage of

the vessel for the term of the original mortgage, and in that case the

mortgagee shall not be paid from the proceeds of the sale and the

purchase price shall be diminished in the amount of the new mortgage

debt.

REFERENCES FOR GENERAL READING

_Chattel Mortgages_, Herman (1877), Chapter XIII.

_Mortgages_, Boone, § 254.

J. E. Rumbell, 148 U. S. 1.

Grapeshot, 9 Wall. 129.

Blake, 107 U. S. 418.

O'Brien _v._ Miller, 168 U. S. 287.

[19] Apparently a misprint in the act for mortgagee.

CHAPTER XI

COLLISION

=1. Definition.=--In maritime law, collision is the impact of ship

against ship, although usage is increasing the scope of the word so as

to include contact with other floating bodies. It does not include

stranding or running into structures forming a part of the land, such as

bridges and wharves.

The question whether a collision is a subject for adjudication in

admiralty is frequently one of some nicety. What constitutes a vessel

within the meaning of admiralty jurisprudence has been discussed in

Chapter 1, § 4.[20] While, in general, objects which come into collision

must be afloat in the water to warrant recourse to the admiralty courts,

and certainly must not be permanently attached to the shore,

nevertheless the jurisdiction has been exercised when the collision was

between a barge and a pier erected in the midst of a stream and

unlawfully obstructing navigation. Atlee _v._ Union Packet Co., 21 Wall.

(U. S.) 389. The jurisdiction has also been exercised where boats have

come into collision with submerged and stranded wrecks and sunken

articles.