Ins. Co. v. Gossler, 96 U.S. 645

Insurance Company v. Gossler.

1. So long as a vessel exists in specie in the hands of the owner, although she may require repairs greater than her value, a case of “utter loss,” within the meaning of a bottomry and respondentia bond, does not arise, and she continues subject to the hypothecation. ■ The holder of such a bond, which was conditioned to be void should an utter

oss. rom any of the enumerated perils occur, is, upon a wreck of the vessel uring the specified voyage, not amounting to such loss, entitled to the procee s o the cargo saved by his efforts, as against the insurers thereof, who accepted an abandonment by the owners as for a “total loss,” and paid the

P°®c^®s» sa^ proceeds being insufficient to satisfy the bond.

W111 tlus case> which relates solely to such proceeds.

Error to the Circuit Court of the United States for the ■District of Massachusetts.

e plaintiff, the Delaware Mutual Safety Insurance Comusurer of a cargo of sugar on board the “ Frances,” T aVa t0 B°St°n‘ After leaving her port of departure, the ncountered a hurricane, which compelled her to proceed vova^’ Where 8he Was rePaired and fitted to continue the

bonow eXpenses of rePairs, the master was obliged to and to lnSaPore the sum of $26,055.43, Singapore currency, bond forth? ’ °n tWeUth day °f July’ 1872’ a t’ottomry half npr n &4. SUm’ marine interest at twenty-seven and a p r cent, upon the vessel and freight.

b0nd eentained the following stipulation: -

The vessel sailed from Singapore for Boston, encountered a storm in the month of December following, and was cast ashore on Cape Cod, Mass.

The defendants, Gossler & Co., who were agents of the bondholders and assignees of the bond, succeeded in saving somewhat less than half the sugar on board, and forwarded it to Boston.

The vessel, as she lay upon the beach, was surveyed, and, having been found incapable of repair, was broken up, and her materials were sold. When she was sold, she lay “on the beach, full of water, as high as she could, but so low as to be submerged at high-water.” The chains and anchors, sails an rigging and hull, were sold separately, at auction, by the un derwriter, in January, 1873: the chains, anchors, and ot; utensils bringing $1,494.75; the sailsand rigging, $2,323. , and the hull, $2,000. .

Upon learning of the disaster, the owners of the cargo ma abandonments in writing to the plaintiff as the underwn e^ thereon, and claimed payment for a total loss under respective policies. .

The letters of abandonment were dated, respective y, 28, 30, and 31, 1872. t

In March, 1873, the plaintiff paid to each owner the amor of a total loss under his policy; and received on t e date, from them so insured and paid, an assignment an fer in writing of “ the sugar of said owners, an a. right, title, interest, trusts, claim, and deman t er thereto.”

The defendants, as agents of the bondholders, with the consent of the owners of the cargo, proceeded to sell the sugar saved; and now hold the proceeds, claiming them on account of said bond, such proceeds not being sufficient to satisfy it. The plaintiff having, at all times, claimed them, as the underwriter who accepted abandonments and paid a total loss thereon, brought this action to recover them.

The case was tried by the court below; and, judgment having been rendered for the defendants, the company brought the case here.

Mr. William &. Russell and Mr. Charles M. Reed for the plaintiff in error.

The facts show an “ utter loss ” of the vessel. Thompson v. The Royal Exchange Assurance Co., IM. & S. 30; The Elephanta, 9 Eng. L. & Eq. 553; Joyce v. Williamson, 3 Doug. 164; Pope et al. v. Nickerson et al., 3 Story, 465; Murray v. Hatch, 6 Mass. 464 ; Cambridge v. Anderton, 2 Barn. Cress. 691; Roux v. Salvador, 3 Bing. N. C. 266; 2 Arnould, Ins., sect. 364, 365; Marshall, Ins. 446; 2 Parsons, Mar. Ins. 73; 2 Phillips, Ins., sect. 1485; Barker v. Janson, Law Rep. 3 C. P. 303; Walker v. Protection Insurance Co., 29 Me. 317 ; Gardner

Salvador, 1 Moo. & R. 116 ; Irving v. Manning, 1 H. L. Rep. -'as. 287, Mullett y. Shedden, 13 East, 303 ; Cambridge v. Anerson, Ry. & M. 60; Poole v. The Protection Insurance Co., onn. 46, Tudor v. New England Mutual Marine Insurance o., 2 Cush. (Mass.) 554; Hugg v. Augusta Insurance &■ ankvng Co., 7 How. 595; Dyson v. Rowcroft, 3 Bos. & Pul. 4; Appleton v. Crowninshield, 3 Mass. 443; Peele n. Suffolk Insurance Co., 7 Pick. (Mass.) 254; Peele et al. v. Merchants' nsurance Co., 3 Mason, 27; Crosby v. New York Mutual In-TTt ?■’ 5 B°sw ’ 369; v. United Insurance ^2/ Johns. (N. Y.) Cas. 34; Coity. Smith, id. 16. v >, 6 J0SS tBe vess®l having avoided the bond, the ers o it had no right, under its terms, to the proceeds of he cargo MTed from wreck. 1 p^^ Mar II® 629; 2 Insect. 1488; Joyee v. anee l °U^ > Robertson £ Brown v. United Insur-*8 Mass ° m 239 ’ Appleton v. Crowninshield*,

Mr. Charles A. Welch, contra, cited The Virgin, 8 Pet. 538; 3 Kent, Com. 359, 360; 2 Arnould, Ins., sect. 392; 1 Phillips, Ins., sect. 1170; Abbott, Shipp., p. 126; Maude & Pollock, Shipp., p. 440; Maclachlan, Shipp., p. 57; Hopkins’ Hand-Book of Average, p. 93 ; Crump, Mar. Ins., sect. 147; Thompson v. The Boyal Exchange Assurance Co., 1 M. & S. 30; The. G-reat Pacific, Law Rep. 2 Ad. & Ec. 381; S. C. Law Rep. 2 P. C. 516; Broomfield n. Southern Insurance Co., Law Rep. 5 Ex. 192 ; The Insurance Company of Pennsylvania v. Duval and Another, 8 Serg. & R. (Pa.) 138 ; Delaware Insurance Co. v. Archer, 3 Rawle (Pa.), 216 ; The Catherine, 1 Eng. L. & Eq. 679; The Elephanta, 9 id. 553; Bynkershoek, Qusest. Pub., lib. 3, ch. 16; The Dante, 2 W. Rob. 427; Stephen n. Broomfield, Law Rep. 2 P. C. 516.

Mr. Justice Clifford delivered the opinion of the court.

Maritime hypothecations had their origin in the necessities of commerce, and they are said to be the creatures of necessity and distress. When properly authorized and duly execute, they are of a high and privileged character, and are hel in great sanctity by maritime courts. The Vibili^ 1 W. R° • ’ The Rhadamanthe, 1 Dod. 201; The Hero, 2 id. 139; The Kenr nersley Castle, 3 Hagg. 1.

Instruments of hypothecation are usually execute y master, he being regarded as the agent of the owner, t e r being that the owner is bound to the performance of a a contracts made by the master relative to the usual emp of the ship, and to the repairs and other necessaries urn for her use. The Aurora, 1 Wheat. 96. t .

Contracts of the kind are authorized in emergencies, g purpose of procuring necessary repairs and supp ies $ which may happen to be in distress in foreign ports, w

master and the owners are without credit, and where, unless assistance can be procured by means of such an hypothecation, the voyage must be broken up, or the vessel and cargo must perish. Burker v. The Brig M. P. Rich, 1 Cliff. 308.

Such an hypothecation of the vessel by the master is only authorized when based upon necessity. And the required necessity is twofold in its character: it must be a necessity of obtaining repairs or supplies in order to prosecute the voyage, and also of resorting to such an hypothecation from inability to procure the required funds in any other way. Thomas et al. v. Osborn, 19 How. 22 ; The Hersey, 3 Hagg. 404.

Sufficient appears to show that the plaintiffs were the underwriters on the cargo of the bark “ Frances,” consisting of sugar, on her voyage from Java to Boston; that, in due course of navigation, the bark sailed from a port of Java, duly laden, for her return port; that she soon encountered a hurricane, which compelled the master to cut away her masts to save the vessel, and to put into a neighboring port for repairs, from whence it became necessary for the bark to proceed to the port of Singapore to fit the vessel to continue the voyage, estitute of funds to pay the expenses incurred for the repairs, and without credit, the master was obliged to execute a bottomry bond there for the sum necessary to liquidate those expenses, with marine interest at twenty-seven and one-half per cent, upon the bark, cargo, and freight. All matters of e sort having been adjusted, the bark sailed from the port of ngapore for the port of Boston; but, before she reached her por ° destination, she encountered a storm, and in the month ecember of that year was wrecked and driven ashore on ape o. Prompt measures for saving as much as possible

Two other matters are admitted: 1. That the defendants hold the proceeds of the sugar, the amount being less than the amount of the bond. 2. That the plaintiffs accepted the abandonments tendered by the owners of the cargo, and have at all times claimed what was saved of the cargo.

Payment being refused, the plaintiffs brought an action of assumpsit against the defendants for money had and received, and the parties submitted the case to the Circuit Court, upon an agreed statement of facts. Hearing was had, and the Circuit Court rendered judgment for the defendants, and the plaintiffs sued out the present writ of error. t,

Due execution of the bond in question is conceded, nor is it questioned that the circumstances were such at the time as to give the master the power to make the loan, nor that the bon by its terms covers the cargo and pending freight as we as the bark, unless an utter loss of the vessel occurred during voyage. . ..

Authority of the master to hypothecate the ship and pen ing freight in such a case, whenever, within the meaning o maritime law, it becomes necessary to enable him to coml the enterprise in which the ship is engaged, was never ou whether the occasion arises from extraordinary pen o fortune, or from the ordinary course of the adventure. ^eca. but necessity can be a proper foundation for such an } p tion. And that necessity, as before stated, must be two o character: first, it must be a necessity of obtaining, rep^ pe supplies in order to prosecute the voyage; secondly, i a necessity of resorting to a bottomry bond, from in procure the required funds in any other way.

3 .Hagg. 404 ; The Fortitude, 3 Sumn. 234; 1 Conkl. Adm. (2d ed.) 269; Abbott, Shipp. (11th ed.) 126.

Ship-owners appoint the master, and they are in general responsible for his acts; but the general rule is different as to the cargo, in respect to which the master is the mere depositary and common carrier, whose whole relation to the goods consists in his obligation of due conveyance, safe custody, and right delivery.

Viewed in that light, it was supposed at one time that the master had no power to hypothecate the cargo to raise funds to prosecute the voyage, whatever the necessity might be ; but the rule is now well settled the other way, that the hypothecation may extend to the cargo as well as to the ship and freight. The Lord Cochrane, 1 W. Rob. 313; The Cratitudine, 3 C. Rob. 240 ; The Packet, 3 Mason, 257 ; The Zephyr, id. 343 ; The United Insurance Co. v. Scott, 1 Johns. (N. Y.) 105; Fontaine v. The Colombian Insurance Co., 9 id. 29; Searle v. Scovell, 4 Johns. (N. Y.) Ch. 218 ; The American Insurance Co. v. Coster, 3 Paige (N. Y.), 323.

Bottomry bonds, when given bona fide and for legitimate purposes, are to be liberally protected. It is important for the interests of commerce that a master in a foreign port, standing n need of assistance, arising out of some unforeseen necessity, to complete a voyage, and having no credit, should for that ject be invested with authority to pledge the ship, and charge rePayment of the loan in case of her safe arrival. lhe Uehance, 3 Hagg. 66.

Beyond all doubt, the bond in this case hypothecates the go as well as the vessel and the unpaid freight by way of A °mrI’ aS secur1^ for the payment of the loan on the terms 1 n°nS 8^>ec^e^ the instrument, which are as follows:

Superadded to those terms and conditions is the following stipulation, in the form of a proviso: that if in the course of the voyage an utter loss of the vessel by fire, lightning, enemies, men-of-war, or any other perils, dangers, accidents, or casualties of the seas or navigation, shall unavoidably happen, then the loan and interest shall not be payable; and all parties liable therefor shall be wholly discharged therefrom, and the loss shall be wholly borne by the lenders or bondholders, and every thing herein contained for payment shall be void and determined, save and except only, and provided in such case, that the lender or bondholders shall be entitled to such average as can be hereby lawfully secured to them on all salvage recoverable in respect to the vessel, freight, and goods, or any of them.

Difference of opinion exists among Continental writers as to the meaning of the exception at the close of the preceding condition; but the great weight of authority, even from that source, is, that the holder of the bottomry bond is preferre over the insurer or owner, to the extent of his legal claim for principal and marine interest secured by the bond. 3 Boulay Paty, Cours de Droit Commercial Maritime, 183.

Instead of that, Valin holds that the lender on bottomry is entitled in such a case only to such a proportion of the value o the property salved as the sum loaned bears to^the whole va ue of the property hypothecated. Pothier and Emerigon cone i with the writer first named; and the Court of Privy 0U”C1 Appeals decided, that, if the vessel is lost, the lender on tomry, though his remedy is limited to the value of the p P erty salved, is entitled to the whole of what is saved,w it was included in his security. Stephens v. Broomfie ’ Kep. 2 P. C. 522; 2 Em^rigon, Traits des Assurances 1 times et des Contrats a la grosse, 544. .

Much discussion took place in the preceding case, a meaning of the stipulation in the closing part of t e co of the instrument, which was quite similar in lega e

closing exception in the present case; the contention being there, as here, that it gave the owners of the ship or cargo, as the case may be, the right to share in the salved property: but the court, without hesitation, rejected the proposition ; holding that the theory involved a forced construction of the stipulation, utterly inconsistent with such a maritime contract, and that it reserved no such right to the owners. The Great Pacific, L. R. 2 Ad. & Ec. 381.

Authorities to show that the doctrine of constructive total loss is in no respect applicable to such a contract are numerous, unanimous, and decisive. Thomson v. The Royal Exchange Assurance Co., 1 M. & S. 30.

In the case of bottomry, said the Chief Justice in that case, nothing short of a total destruction of the ship will constitute an utter loss; for, if it exist in specie in the hands of the owner, it will prevent an utter loss: and text-writers of the highest repute adopt the same rule, and express it in substantially the same language. Nothing but an utter annihilation of the subject hypothecated, says Chancellor Kent, will discharge the borrower on bottomry; the rule being that the property saved, whatever it may be in amount, continues subject to the hypothecation. 3 Kent, Com. (12th ed.) 359; Williams & Bruce, Frac. 47.

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; or if she is captured, and a terwards retaken and restored, she is not utterly lost, within io meaning of that phrase in the contract of hypothecation.

® Pollock, Shipp. (3d ed.) 44; The Catherine, 1 Eng. pQ- 679; The Elephanta, 9 id. 553.

upport to that view, of a decisive character, is derived from St V’ Nickerson (3 Story, 489), decided by Judge an W ere say®’ that, in cases of bottomry, nothing but borpC 1°SS the voyage will excuse the merat'Pa^men^’ no^ even when by reason of the enuvalup • 8 s^aP require repairs greater than her

Hypothecations of the kind are created by contract in writing, whereby the master of a vessel in a foreign port, not having any credit in the port where the vessel is lying, is enabled to obtain money for the repair and equipment of the vessel, and for necessary supplies for the prosecution of the voyage, by creating a charge or lien upon the vessel and freight, or upon the vessel, freight, and cargo, in favor of the lender; so that, if the vessel or cargo is sold or mortgaged by the owners, the property will be burdened with the charge or lien in the hands o the purchaser or mortgagee. Addison, Contr. (6th ed.) 275.

Contracts regularly created in that mode, and for that pur pose, give rise to a maritime lien well understood in the ci ’ law as existing, even without actual or constructive possession, the rule being, that, wherever a maritime lien of the kind exists, it gives & jus ad rem to the property to which it attaches, to carried into effect by appropriate legal process. Such a con tract does not transfer the property hypothecated, but on y gives the creditor a privilege or claim upon it, to be carnej into effect by legal process, in case the vessel arrives at t e p of destination in safety. Abbott, Shipp. (11th ed.) 1 > Tobago, 5 C. Rob. 218; Stainbank n. Penning, 11 C. B. , Stainbank v. Shepard, 13 id. 417.

Where several securities of the kind are given upon ship and cargo, the rule is, all other things being equa they take effect in the inverse order of their dates, ecau supposed that the last loan furnished the means o pre the ship, and that without it the prior lenders wo entirely lost their security. The Eliza, 3 Hagg.

Subject to the rule that requires diligence in putting the bond in suit, securities of this nature, when the fund is deficient, take priority, as before remarked, in the inverse order of their dates; the ground for the preference of the later bonds to the earlier being the condition of necessity on which the validity of each is originally dependent, which is applicable to the last as well as to the first, and is regarded as a safe reason for presuming that the one latest in date furnished the means for preserving the property for the earlier lender. Maclachlan, Shipp. (2d ed.) 5.

Liens of the kind are preferred to all other claims upon the property, except those arising from seamen’s wages, the claims of salvors for subsequent service in saving the adventure, and the holder of a subsequent bottomry bond. The William F. Safford, Lush. 69; The Priscilla, id. 1.

Throughout, it should be borne in mind that the bond in this case covers the bark, pending freight and cargo, and that the controversy in the case has respect only to the proceeds derived from the sale of so much of the cargo as was saved by the efforts of the defendants. Where the bond only covers the ship, the lenders run no risk as to the cargo, as they must be paid if the ship arrives in safety, even though the whole cargo is lost, but, where the bond covers the cargo as well as the vessel, the lender, unless the condition is otherwise, is entitled . e paid even if the ship is lost, if enough of the cargo arrives in safety to pay the bottomry loan, the rule being that the time lien of the lender attaches to the entire property ere by the bond, or, to all that part of it which arrives at tne port of destination in safety.

1°SS ProPerty Ly the described perils disv. 6 ^en^er’ and defeats his right of recovery; au. 6 t V8’ havp 11 Eq 679& S° ^°r

is of authority in caqp« °?ln1011. The V: condition covered by the bond. J-ne Virgin, 8 Pet. 538.

SkiP *8 once bottomried, the bond P^an^’ and the holder of the bond may

^ene^‘ ^he Catherine, 1 Eng. L. &

exists for that proposition, and the court the same rule is applicable to the cargo

Prior remarks are sufficient to show that the doctrine of constructive total loss is not applicable to contracts of bottomry, which serves very strongly to show that the maritime lien of the bondholder attaches to every part of the property covered by the bond, as seems to follow from all the authorities upon the subject. Broomfield v. Southern Insurance Co., L. R. 5 Ex. 192.

Slight differences exist between a loan on the ship and a respondentia loan or loan on the cargo; but it is unnecessary to remark upon that distinction, as the bond in this case covers the bark as well as the cargo. 2 Marsh. 734; Stephens v. Broomfield, 6 Moore, P. C. N. S. 161.

By the general marine law, the lender on bottomry is entitled to be paid out of the effects saved, so far as those effects go, if the voyage be disastrous. Appleton v. Crowninshield, 3 Mass. 443.

Underwriters and lenders on bottomry stand upon a different footing, as was well explained at a very early period in our judicial history. Wilmer v. Smilax, 2 Pet. Adm. 299.

By an abandonment, the insurer is placed in the situation of the insured whom he represents, and can have no greater right than the insured would have had. Unlike that, the lender on bottomry loses his remedy only when the ship or other proper y hypothecated is wholly lost; and, where parts are preserved, such parts are esteemed his proper goods, being presumed to be t e product of his money; and he, therefore, takes preference o the owner or insurer. In case of shipwreck, “ the owners are not personally bound, except to the extent of the fund sa ve which has come into their hands.”. The Virgin, 8 Pet.

“ Utterly lost,” said Chief Justice Tilghman, is a strong expression ; intended, as he held, to distinguish the case from o where the vessel is technically lost, as in case of aban onmP Such must have been his meaning; for he adds, that a s p not utterly lost while she remains in specie in the han s owners. “ Had she been taken by an enemy, she wou , been utterly lost to the owner,” unless she had been recap and restored. “ So, had she been burnt, or wrec e an to pieces,” unless some of her sails, masts, anchors, o $ had been saved. But she is not utterly lost mere y

may cost more than she is worth to repair her. Insurance Company of Pennsylvania v. Duval et al., 8 S. & R. (Pa.) 138.

Salved property, in case of wreck or other disaster, says Phillips, continues to be subject to the hypothecation; but, if the loss is by the perils assumed by the lender, the borrower becomes discharged from all liability on his bond, excepting to the amount saved. Nothing short of a total loss will discharge the borrower. 2 Phillips, Ins. (5th ed.), sect. 1170.

High authority also exists for the proposition, that a total loss within the meaning of a bottomry bond cannot happen if the ship exists in specie, although she may be so much injured on the voyage as not to be worth repairing and bringing to the ultimate place of departure. Abbott, Shipp. (11th ed.) 126. • Bynkershoek defines such contracts to be a pledge of the vessel or other effects upon which the loan is made, and of ■what may remain of them after any event by which the personal responsibility is excused. Bynk., Queest. Pub., lib. 3, c. 16.

From the moment of the accident, says Em^rigon, the lender is seised of right to the effects saved, he having a special lien upon them for the payment of his debt, saving the freight and salvage; and the French ordinance is to the same effect, the rule there promulgated being that in case of shipwreck the security of the loan is reduced to the value of the effects saved from loss. Title 5, art. 17.

Decided support to the proposition that the lien extends to w atever is saved from the property covered by the bond is CP f ^rom a case in which the opinion was given by Chief Justice Gibson, in which he expressly decided that the en er m a respondentia bond takes the risk only of a total h u a1 Property which arrives goes to the

, X ° • ^°n^’ without regard to whether it be great or th 1 sma^’ so that it does not exceed the amount of 226 °aU’ Th& Delaware In8u^nce Co. v. Archer, 3 Rawle (Pa.),

Examined in the light of these authorities, it is clear that the bark in this case was not utterly lost within the meaning of the bottomry bond, when considered in view of the facts as they existed at the time the vessel was sold, and before she was voluntarily broken up by the purchaser. Subsequent acts of the purchasers cannot affect the right of the defendants; and, if not, therf the proof is full to the point that the vessel existed in specie as she lay stranded on the beach. The Brig Draco, 2 Sumn. 157.

Shipwreck occurred in this case before the bark arrived at her port of destination: but the agreed statement shows that the vessel, though “ cast ashore,” still existed in specie, and that the voyage was terminated by a sale of the bark at an intermediate place; that she was surveyed subsequent to the disaster, as she lay upon the beach, and, though found to e incapable of repair, she was not an utter loss within the maritime rule applicable in such a case; nor can the act of t e owners in making an abandonment as for a constructive tota loss have any effect to conclude or impair the rights of t e defendants as the holders of the bottomry bond.

Ketchum v. Duncan.