U.S. Supreme Court
Morgan's Assignees v. Shinn, 82 U.S. 15 Wall. 105 105 (1872)
Morgan's Assignees v. Shinn
82 U.S. (15 Wall.) 105
A bill of sale of a vessel, absolute in its terms, may be shown by parol evidence to be only a mortgage.
The facts that the bill of sale was recorded, that the vessel was reenrolled in the name of the transferee; that a policy of insurance was taken out in his name as owner, and that no note or bond was taken by him will not overcome positive evidence that the bill was taken as a mere security for a loan.
A mortgagee of an interest in a vessel not in his possession is under no obligation to contribute for repairs which he did not order. The ship's agents are not his agents, and they act under no authority from him. And it makes no difference though the vessel be registered in his name.
The assignees of Morgan, Rhinehart & Co. filed a bill in the court below against one Shinn to enforce contribution to the repayment of advances made by their assignors for chanroblesvirtualawlibrary
the repairs and expenses of a steamer called the Fairfax, the bill averring that Shinn was owner of one-fourth part of the vessel, and Shinn by his answer denying this averment of his ownership, and asserting a mere interest as mortgagee. The question of fact, and one preliminary to any other question, therefore was whether Shinn was in fact such a part owner. The evidence on the two sides of the case seemed thus:
1st. Evidence to support the allegation of ownership.
In September, 1855, Morgan, along with three other persons, named Comstock Savage, and Kelly (Kelly being a resident of Philadelphia) became joint owners of the vessel by purchase from the government, and she was reenrolled in their names as joint owners on or about the 10th of October of that year, and made one of a line running between New York and Washington called the "Atlantic Steamship Company." The shares of Morgan and of Comstock were held for the benefit of Morgan, Rhinehart & Co., a firm composed of Morgan, Comstock and one Rhinehart. The firm was also the ship's husband, and as such they made advances for repairs and expenses.
On the 2d of October, 1865, Kelly made a bill of sale of one-fourth of the vessel to Shinn, and the bill, at the instance of Shinn, was forthwith recorded. On the 23d of October, the vessel was reenrolled, Morgan now swearing that Shinn was owner of one-fourth of her. And on the 15th of February, 1866, Comstock having insured the vessel in his own name "for the benefit of all concerned" and the vessel having been destroyed by fire, Shinn, along with Morgan and Savage, signing themselves the three "owners of one-fourth each of the steamer Fairfax," ratified his act.
Of course, if unexplained, these facts would have been sufficient to prove the allegation of ownership. But there was:
2d. Evidence to disprove the allegation.
It was asserted in the answer that the bill of sale, though absolute in its terms, was in fact a mortgage given to secure chanroblesvirtualawlibrary
Shinn for a sum of money agreed to be lent by him to Kelly. Such was the positive testimony of Shinn himself. The scrivener also, who prepared the instrument, testified that on or about the day of date of the bill of sale, both parties to it called at his office; that they stated Kelly wished to purchase an interest in a steamer, and that Shinn was willing to advance the necessary money. Some conversation then occurred respecting the security which should be taken by Shinn, and it was suggested by one of the parties that a regular bill of sale should be given to him by Kelly. The bill was accordingly prepared, together with a power of attorney from Kelly to Shinn empowering him to receive all money due or that might become due to Kelly in the District of Columbia, and to attend to all matters in which Kelly might have an interest or concern. The amount of the consideration was left blank in the bill, for it was not then known how much might be required to be advanced. Shinn took no note from Kelly for the money advanced; though when the amount needed was ascertained, having paid it to Morgan, who was acting in the matter for Kelly, Shinn took Morgan's receipt as for money paid to Kelly.
But admitting that Shinn might in fact have been but a mortgagee, there remained another question of fact. Did Morgan, Rhinehart & Co., when they advanced money for the vessel, know that Kelly was really the owner, and that Shinn was not? And if they did not so know, then had Shinn in any manner held himself out as owner, or authorized the advances, or had they been made on his credit?
Bearing on these points Morgan, one of the firm, testified that when Shinn paid the money he said "it was money advanced by him for Kelly to pay Kelly's share of the ship." Certain letters of Morgan and of Comstock to Kelly were produced, written in November, 1865, and in the spring of 1866, in which they both wrote to Kelly as owners with them of the vessel. One from Comstock to Kelly, dated November 7, 1865, says:
"The steamer Fairfax is doing wonders, taking everything into consideration. She is called the flag ship of the line. We
are now making preparations to organize the company, and we intend putting the Fairfax in at $50,000. Will this meet your approval?"
One by Morgan to him, March 24, 1866, after the vessel had been burned, says:
"I must again appeal to you to remit me all the money you can command. I need it badly. We have had to pay all of the accounts against the Fairfax as well as the other boats, and have had but very small return."
After the steamer was burned, Comstock said she was insured for $15,000, and that none of them, and especially Kelly, would lose anything by the disaster. He also asked Shinn to sign a paper for Kelly respecting the ship, and to act for him by virtue of his power of attorney, and what perhaps seemed even more important, Morgan afterwards made an affidavit stating in effect that Kelly was the owner of one-fourth of the vessel.
The court below dismissed the bill, and from this decree the appeal was taken. chanroblesvirtualawlibrary
MR. JUSTICE STRONG delivered the opinion of the Court.
We think the averment of the answer that the bill of sale was intended by the parties to be only a security is sufficiently proved. The testimony of Shinn himself is positive. It is confirmed by that of the scrivener, and the testimony of both is entirely uncontradicted. The fact that a power of attorney was given at the same time with the bill is also significant. Why empower Shinn to collect money which might become due to him in the District of Columbia, and to attend to his interests, if Kelly then parted with all his ownership in the vessel? There is no evidence that he had any other interests in the District, and he was a resident of Philadelphia. It is true the bill of sale was recorded at the instance of Shinn, but that was necessary whether it was a security or an absolute transfer. It is true also that the vessel was reenrolled on the 23d of October, 1865 (Morgan having sworn that Shinn was then the owner of one-quarter), but the new enrollment did not negative the fact that Shinn was only a mortgagee. So also, Shinn joined with Savage and Morgan in ratifying the act of Comstock in taking out a policy of insurance on the vessel, but that was not inconsistent with his present assertion that he held the property as a security for a debt. He took no note for the money advanced by him for Kelly. He could not have taken one when the bill was made, for it was then not known how much he might be required to advance. But chanroblesvirtualawlibrary
when the money was advanced, he did take a receipt in Kelly's name. If in truth a debt was created, the fact that a bond or note was not taken does not make the bill of sale any the less a mortgage, though the absence of a bond or a note is to be considered in inquiring whether a debt was intended. [Footnote 1] Nothing in all this, we think, overcomes the positive evidence that the arrangement was a loan rather than a purchase, and that the bill of sale was intended only as a hypothecation to secure the loan.
It is not questioned that an instrument absolute in its terms may be shown by parol evidence to be only a mortgage. [Footnote 2] It is true that if trust and confidence have been reposed in it by third parties, with the honest belief that it was indefeasible, and such parties have been misled by its form, they have a right to insist that, as to them, it shall be what upon its face if purports to be. But there is not even an allegation in this case that Morgan, Rhinebart & Co. were misled. Much less is there any proof that Shinn held himself out to them as owner or that he authorized the advances, or that they were made on his credit. On the contrary, the evidence, so far as it goes, tends strongly to show that the firm knew the real nature of the transaction and that they believed Kelly remained an owner notwithstanding the bill of sale. There can, indeed, be no pretense that Morgan, Rhinehart & Co., did not know from the beginning that the bill of sale was a mere security for money advanced by Shinn.
If, then, Shinn was only a mortgagee of an undivided interest in the vessel, as we think he was, he is under no obligation to contribute for repairs which he did not order. A mortgagee out of possession is not liable for repairs. [Footnote 3] The benefit of repairs enures primarily to the mortgagor. A mortgagee out of possession does not appoint the master, or the ship's agents. They do not act under authority from chanroblesvirtualawlibrary
him, and he is not entitled to the freight earned. Nor does it make any difference though the vessel be registered in his name. [Footnote 4]
It certainly cannot be maintained that Shinn was in possession, or that he ever authorized the expenditure that was made. And as this is a bill, not by third parties who furnished the supplies, but in right of some joint owners, the ship's husband, against a mortgagee of another joint owner, authority from the mortgagee to contract for the supplies is indispensable to any liability on his part.
Hoyer v. Savington, 1 Peere Williams 268; Russell v. Southard, 12 How. 139.
Babcock v. Wyman, 19 How. 289.
1 Parsons on Shipping and Admiralty 129 and cases collected in note 1.
Howard v. Odell, 1 Allen 85; Myers v. Willis, 17 C.B. 77; 18 id. 886.