SALE OF SHIP/ SHIP MORTGAGE
Bank of Guam v Del Priore [2001] GUSC 10; 2001 Guam 10 (17 May 2001)
Ship mortgages- deficiency payments- mortgagee bank not entitled to deficiency payment after auction of mortgaged vessel where proper notice requirements not complied with.
The Bank of Guam filed for judicial foreclosure of security interest given by the plaintiff to secure a ship mortgage. The collateral was subsequently repossessed and sold at public auction. The proceeds did not satisfy outstanding debt, and the bank was awarded a deficiency judgment. The mortgagor appealed arguing that the bank had not complied with the notice provisions required for the sale.
HELD: Appeal allowed
DECISION: Failure to plead and prove the notice requirement bars recovery of a deficiency. The requirement of notice of time and place of the sale under the Code if for the protection of the debtor. The debtor must be given notice of the sale in order to obtain a deficiency.
Ship mortgages- question of the enforceability of a ship mortgage is a matter that falls within the maritime jurisdiction of the FSM Supreme Court. At trial the court had decided that ship mortgage matters did not come within the maritime jurisdiction of the Supreme Court. The decision relied on a case decided in the United States- Bogart v. The Steamship John Jay, 58 U.S. (17 How.) 399 (1854).
HELD: Appeal allowed
DECISION: The John Jay decision was no longer the law in the United States. The case was actually an aberration in its time and had been widely criticized. Further, the US had overruled its effect by statute. The Appeal Court looked at historical international law and concluded that ship mortgages fall within maritime jurisdiction as they are contracts which abet maritime commerce and navigation, and as such have the requisite maritime connection.
Fiji Development Bank v Chute [1996] FJHC 87; Hbc0547j.94s (4 January 1996)
Ship mortgages- Bank holding Bill of Sale for boats as security for loan is analogous to mortgagee where bank makes a demand for payment, repossesses and sells the boats- no duty of care arises as to when repossession and sale occurs- only duty is to receive fair value for chattel at sale
The boat owner Defendant received a loan from bank, the bank holding Bill of Sale for security. The boat owner entered into a lease agreement with a third party to lease the boat. When the Bank was granted a default judgment against the Defendant, the Defendant submitted that the Bank was negligent in not having monitored the third party’s performance under the arrangement, and in failing to repossess the boats in good time and in selling the boats at a gross undervalue.
HELD: for the Plaintiff
DECISION: The Bank owed no duty of care to the boat owner under the loan arrangement, except to get good value for the chattel ( which it did). The Bank was not a party to the lease arrangement between the Defendant and the third party and had no responsibilities under that arrangement.
Ship mortgage- encumbrances- can refer to a mortgage- mortgagee cannot assert its claim as a mortgagee by instituting an action as an intervenor against the proceeds of sale.
After the vessels had been sold “free of encumbrances” and this was known to the purported mortgagees, the mortgagees cannot then apply as intervenors for a portion of the proceeds of the sale of the vessel.