United States Court of Appeals, Third Circuit
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7 Bankr.Ct.Dec. 151, 32 UCC Rep.Serv. 337
In the Matter of MISSION MARINE ASSOCIATES, INC., a
corporation of the State of California authorized
to do business in New Jersey, Debtor.
Appeal of MISSION MARINE ASSOCIATES, INC.
In the Matter of MISSION MARINE ASSOCIATES, INC., a
corporation of the State of California authorized
to do business in New Jersey, Debtor.
A. J. Armstrong Company, Inc., Lazere Financial Corporation
and Fuqua Industries, Inc., Appellants.
Nos. 80-1371, 80-1372.
United States Court of Appeals,
Third Circuit.
Argued Sept. 16, 1980.
Decided Oct. 30, 1980.
As Amended Nov. 20 and Nov. 24, 1980.
Lehman & Wasserman, Robert B. Wasserman (argued and on brief),
Millburn, N. J., for appellant, Mission Marine Associates, Inc.
Marvin Comisky, Morton Newman, Matthew J. Siembieda (argued),
Homer Kripke, Sp. Counsel, Blank, Rome, Comisky & McCauley,
Philadelphia, Pa., for appellants, A. J. Armstrong Co., Inc. and Lazere
Financial Corp.
David N. Ravin (argued), Bernard Schenkler, Kathleen A. Tyrrell, Ravin
& Kesselhaut, West Orange, N. J., Homer Kripke, Sp. Counsel, for
appellant, Fuqua Industries, Inc.
Israel Packel, Leonard J. Schwartz, Jay G. Ochroch (argued), A. Fred
Ruttenberg, Fox, Rothschild, O'Brien & Frankel, Philadelphia, Pa.,
Archer, Greiner & Read, Haddonfield, N. J., for appellee.
A. Bruce Schimberg, William F. Lloyd, Michael J. Sweeney, Sidley &
Austin, Chicago, Ill., for National Commercial Finance Conference, Inc.
as amicus curiae.
Before GIBBONS, WEIS and SLOVITER, Circuit Judges.
OPINION OF THE COURT
GIBBONS, Circuit Judge.
Mission Marine Associates, Inc., a debtor which filed a petition for an
arrangement with its creditors pursuant to Chapter XI of the Bankruptcy Act
(Mission Marine), and A.J. Armstrong Co., Inc., Lazere Financial Corporation
and Fuqua Industries, Inc., secured creditors of Mission Marine (the secured
creditors) appeal from orders of the United States District Court reversing an
order of the Bankruptcy Court. The Bankruptcy Court had held that Penske G
M Power, Inc. (Penske) had no lien on any property of the debtor. The district
court, reversing, held the New Jersey Maritime Lien Act, N.J.S.A. 2A:44-59,
confers on Penske a lien superior to claims of Mission Marine's secured and
unsecured creditors. We reverse.
Mission Marine engaged in the business of manufacturing and selling yachts.
Since 1976 Penske has sold diesel engines for installation in those yachts, on
open account with ninety-day credit. The yachts were sold, upon completion, to
independent dealers who in turn resold them to the general public. When, on
May 23, 1979, Mission Marine filed its Chapter XI petition fifteen Penske
invoices for engines totaling $498,379.50 were unpaid. None of the vessels in
which the engines covered by those invoices were to be installed were yet
complete. Unlike the secured creditors, Penske had taken no steps to obtain or
perfect a security interest in accordance with the Uniform Commercial Code.
N.J.S.A. 12A:9-101 et seq. Nevertheless it filed a complaint in the Bankruptcy
Court claiming that as a matter of law it had a continuing lien on the vessels and
the proceeds of their sale, preferred over all of Mission Marine's creditors
including secured creditors holding perfected security interests. The
Bankruptcy Court rejected, but the district court accepted this contention. The
latter relied on a New Jersey statute enacted in 1877 which provides:
3 debt contracted by an owner of a vessel within this State, shall be a continuing
A
lien upon the vessel and her apparel until paid, for:
4
a. Labor performed or materials or articles furnished in this State for the
building, repairing, fitting, furnishing, or equipping the vessel in this State at
the time when the same was performed or were furnished; or
b. Supplies, provisions and stores furnished within this State for the use of the
vessel; or
c. Towing, wharfage and drydockage of the vessel and the expense of keeping
the same in storage in port in water or on land, including expenses incurred in
taking care of and employing persons to watch the vessel.The lien shall be
preferred to all other liens on the vessel, except mariner's wages.
N.J.S.A. 2A:44-59. The statute is one of those state enactments, now largely
obsolete, passed to fill in the gap in maritime lien law caused by the Supreme
Court's announcement of the home port rule. The General Smith, 17 U.S. (4
Wheat.) 438, 4 L.Ed. 609 (1819), The Lottawana, 88 U.S. (21 Wall.) 558
(1874). The rule held federal admiralty law did not afford a lien to suppliers and
repairers of a vessel in its home port. The enactment of the Federal Maritime
Lien Act of 1910, 36 Stat. 604 obsoleted most of the New Jersey and similar
statutes, for in 1 it revoked the home port rule, and in 5 it provided
expressly for federal preemption.1 Prior to 1910, however, the Court had held
that an unlaunched vessel was merely a land based structure to which admiralty
law had no application. E. g. Tucker v. Alexandroff, 183 U.S. 424, 438, 22
S.Ct. 195, 201, 46 L.Ed. 264 (1901). Even after the enactment of the Federal
Maritime Lien Act, the Court continued to hold that a contract for construction
of a vessel was not a maritime contract and that furnishing of necessary parts
for a newly constructed vessel, even after the hull is in the water, does not give
rise to a maritime lien. E. g. Thames Towboat Co. v. The Francis McDonald,
254 U.S. 242, 41 S.Ct. 65, 65 L.Ed. 245 (1920). Thus only so much of N.J.S.A.
2A:44-59(a) as provides for a state law lien for parts furnished for a vessel's
initial construction remains effective.2 That much, however, fits Penske nicely,
giving it a non-possessory statutory materialman's lien that does not require
filing or other notice to creditors.
The appellants contend this secret lien is ineffective against them for three
reasons. They contend, first, that a priority of lien provision in the Uniform
Commercial Code, N.J.S.A. 12A:9-310, subordinates Penske's non-possessory
materialman's lien to perfected security interests.3 New Jersey has not ruled
definitively on the priority of non-possessory secret liens over perfected
security interests.4 Second, they urge that the debtor in a Chapter XI
proceeding, armed with the same rights as a trustee in bankruptcy by virtue of
Section 342 of the Bankruptcy Act, is treated by virtue of Section 70(c) of that
act as an ideal lien creditor under the applicable state law.5 That section may
not advance their cause, however, unless a judgment creditor would in New
Jersey come ahead of a maritime lien creditor. On that question, as well, we
find no definitive answer in the New Jersey cases. Finally, appellants rely on
Section 67(c)(1)(B) of the Bankruptcy Act, which invalidates, against a trustee
in bankruptcy, statutory liens which would on the date of bankruptcy be invalid
against a bona fide purchaser from the debtor.6
9
As with Section 70(c), the Bankruptcy Act's reference is to state law; in this
instance the position of a bona fide purchaser under New Jersey law against the
holder of a non-possessory non-filing statutory lien. Here we do find clear
instruction in the New Jersey caselaw. Penske's lien is a typical New Jersey
materialman's lien, such as that provided for garagemen and repairers. In
Lanterman v. Luby, 96 N.J.L. 255, 114 A. 325 (E&A 1921), the state's highest
court held that while the garagekeepers lien statute provided that loss of
possession of the automobile would not deprive the repairman of his lien, if he
did not retain possession the lien was not good against a subsequent purchaser
without notice. The court announced the New Jersey policy concerning the
protection of bona fide purchasers against secret non-possessory liens in these
broad terms:
10
Secret
liens upon chattels are an obstruction and a menace to trade and as such are
against the policy of the law. They attempt to contradict and to destroy the
universally accepted and natural, as well as legal, badge of ownership of chattels,
which is possession. The law is most jealous in its protection of an innocent
purchaser of a chattel for value without notice, who has relied upon possession as
the badge of ownership.
11
96 N.J.L. at 259, 114 A. at 326. We are confident the Supreme Court of New
Jersey would apply the same policy to protect a yachtsman who purchased from
Mission Marine without notice of Penske's claim from seizure of his yacht at
Penske's behest.
12
The district court concluded otherwise, relying not on any New Jersey cases,
but on American Trust Co. v. W & A Fletcher Co., 173 Fed. 471 (1st Cir.
1909). Its reliance was misplaced. In Fletcher a shipowner executed a ship
mortgage with an after acquired property clause covering a vessel to be
constructed, recording the ship mortgage at the proposed home port of the
vessel in Maine. The hull was constructed in Pennsylvania and the vessel towed
to New Jersey, where engines were installed. The New Jersey shipyard
relinquished possession without being paid, and later asserted a lien by virtue of
the same New Jersey statute Penske relies on. A federal diversity court
conducting an equity reorganization of the shipowner held the New Jersey
shipyard's lien superior to that of the prior ship mortgage despite the after
acquired property clause. The case is distinguishable on several grounds. The
New Jersey statute provided the shipyard's lien "(should) be preferred to all
other liens on the vessel." Thus the ship mortgage fell literally within its terms.
The statute makes no mention of priority of bona fide purchasers, and the
holder of a mortgage with an after acquired property clause on a vessel to be
built in the future could not qualify as such. Thus the Fletcher holding does not
address the issue Section 67(c)(1)(B) of the Bankruptcy Act poses. To the
extent that dicta in that rather discursive opinion may be construed as a
suggestion about the treatment of bona fide purchasers and secret nonpossessory lien holders in New Jersey, it is inconsistent with the policy
announced in Lanterman v. Luby, supra, and would not be relied upon by a
New Jersey court.
13
Since New Jersey would protect a bona fide purchaser from Mission Marine,
Penske's lien is vulnerable under Section 67(c)(1)(B) even if New Jersey would
provide for priority over perfected security interests. That conclusion requires a
reversal, and relieves us of the necessity to resolve the other New Jersey law
questions which the parties have tendered.
14
The order appealed from will be reversed.
Act of June 23, 1910, c. 373 1, 5, 36 Stat. 604, 605; now codified at 46
U.S.C. 971, 975
The 1976 amendments by the New Jersey Legislature to subsections (b) and (c)
of section 59 appear to have been a futile exercise. Laws of 1976 C. 55 1
The section relied on provides:
12A:9-310. Priority of Certain Liens Arising by Operation of Law.
When a person in the ordinary course of his business furnishes services or
materials with respect to goods subject to a security interest, a lien upon goods
in the possession of such person given by statute or rule of law for such
materials or services takes priority over a perfected security interest unless the
lien is statutory and the statute expressly provides otherwise. L.1961, c. 120,
9-310.
Board of Education of Bayonne v. Kolman, 111 N.J.Super. 585, 270 A.2d 64
(Ch.1970). (In Kolman, a trial court suggested-as an alternate ground-nonpossessory mechanics' liens subordinate perfected security interests. Unlike the
"Maritime" lien, the New Jersey Mechanics' Materialmen's and Laborer's Lien,
N.J.S.A. 2A:44-64 44-141, contains elaborate filing provisions.) Decisions in
other states support appellants' construction of Section 9-310 of the Uniform
Commercial Code. Balzer Machinery v. Klineline Sand & Gravel Co., 271 Or.
596, 533 P.2d 321 (1975); General Motors Acceptance Corp. v. Colwell Diesel
Service and Garage, Inc., 302 A.2d 595, 601 (Me.1973); Forrest Cate Ford v.
Fryar, 62 Tenn.App. 572, 465 S.W.2d 882 (1971). See also U.S. v. Crittenden,
563 F.2d 678, 713 (5th Cir. 1977). But see Leger Mill Co., Inc. v. Kleen-Leen,
Inc., 563 P.2d 132 (Okla.1977)
5
Bankruptcy Act 342, 11 U.S.C. 742 (1976), and 70(c), 11 U.S.C. 110(c)
(1976), are now found in the new Bankruptcy Act at 11 U.S.C.A. 1107(a)
and 544(a) (1979), respectively
11 U.S.C. 107(c)(1)(B) (1976) (Revised in new Act at 11 U.S.C. 545(2)
(1979)) provides:
(E)very statutory lien which is not perfected or enforceable at the date of
bankruptcy against one acquiring the rights of a bona fide purchaser from the
debtor on that date, whether or not such purchaser exists: Provided, That where
a statutory lien is not invalid at the date of bankruptcy against the trustee under
subdivision (c) of section 110 of this title and is required by applicable lien law
to be perfected in order to be valid against a subsequent bona fide purchaser,
such a lien may nevertheless be valid under this subdivision if perfected within
the time permitted by and in accordance with the requirements of such law;
And provided further, That if applicable lien law requires a lien valid against
the trustee under section 110(c) of this title to be perfected by the seizure of
property, it shall instead be perfected as permitted by this subdivision by filing
notice thereof with the court(.)
