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MURPHY v. BANKERS COMMER. CORP.

April 14, 1953

MURPHY et al.
v.
BANKERS COMMERCIAL CORP



The opinion of the court was delivered by: KAUFMAN

Plaintiffs, Trustees in Bankruptcy, bring suit in nine causes of action against defendant (hereinafter referred to as 'Bankers'), the mortgagee of ships of Honduran registry owned by the bankrupt. Defendant has moved to dismiss the first, second, third, fourth and eighth causes of action on the ground that they fail to state claims upon which relief can be granted, or in the alternative for summary judgment on said causes of action. The motions will be considered together.

The First Cause of Action

The material allegations of the first cause of action may be summarized as follows:

 On November 9, 1951, the bankrupt corporation executed and delivered a mortgage to Bankers on two vessels, the Carmen and Isabel; the mortgage was executed in New York City; in November 9, 1951, at the moment of the execution and delivery of the mortgage one of the vessels was in Argentina and the other in Pennsylvania; the mortgage states that the vessels were registered under the flag of Honduras and that the bankrupt is a New York corporation; the vessels never went to Honduras until October, 1952, nor was any copy of the mortgage recorded in New York. In November, 1952, a petition in bankruptcy was filed against the mortgagor and the mortgagor was adjudicated a bankrupt in December of 1952.

 In essence, therefore, the first cause of action seeks to set aside the mortgage on the theory that it is a chattel mortgage which under the New York Lien Law, McK. Consol. Laws, §§ 33, 230, 232, should have been recorded in New York and that the failure to so record invalidated the mortgage. Defendant contends that the Honduras registry and the fact that the vessels were outside the State of New York at the time of the making of the mortgage renders New York law inapplicable. Cf. New York Trust Company v. Island Oil & Transport Co., 2 Cir., 1929, 22 F.2d 104, 79 A.L.R. 1007; In re Green, D.C. Conn. 1904, 134 F. 137; In re Nuckols, D.C.E.D. Tenn. 1912, 201 F. 437. Defendant further urges that the validity of a lien is determined by the law of the place creating the lien, that Honduras law therefore controls, and by the affidavit of one Otto Schoenrich an alleged expert on Honduran law, *fn1" defendant seeks to demonstrate that the mortgage is valid under Honduran law.

 Plaintiffs, however, emphasize the fact that the mortgagor and mortgagee are both New York corporations; that the mortgage was executed in New York and that more than 85% of the liabilities of the bankrupt (as appear from claims on file with the Referee in Bankruptcy and the records of Seeling & Jarvis, Inc., the shipping agents) are due to New York creditors upon debts apparently contracted in New York. The domicile of the owner and not the registry, plaintiffs contend, determines the nationality of a vessel. It has been so held in Gerradin v. United Fruit Co., D.C.E.D.N.Y. 1931, 51 F.2d 417, affirmed 2 Cir., 60 F.2d 927, certiorari denied 287 U.S. 642, 53 S. Ct. 92, 77 L. Ed. 556, where the court concluded that the Jones Act, 46 U.S.C.A. § 688, governed the right of a seaman to recover for injuries sustained on the high seas aboard a vessel owned by an American corporation registered under the flag of Honduras. Plaintiffs contend that, as in the Gerradin case, the Court found the law of the domicile to be controlling in its desire to extend Jones Act protection to American seamen hired by American owners, *fn2" so here the law of the domicile should govern to accord to New York creditors the protection of the New York Lien Law.

 Plaintiffs further urge that if this Court should find that the law of the situs controls (assuming the situs to be Honduras) that it be allowed to amend the complaint, if necessary, to allege that the defendant did not comply with the law of the situs. Plaintiffs have submitted an affidavit of Mr. Uno, said to be an expert on Honduran law, in opposition to the affidavit of Mr. Schoenrich. Plaintiffs also seek to to place in issue Mr. Schoenrich's qualification as an expert on Honduran law because, as they say, it does not appear that he has been admitted to practice in Honduras. If this were a ground for disqualification, Mr. Uno, plaintiffs' expert, would be similarly unacceptable as an expert for it does not appear that he is a member of the Bar of Honduras. I do not believe, however, that this factor alone is sufficient to disqualify an expert. See Masocco v. Schaaf, App. Div. 3rd Dept. 1931, 234 App.Div. 181, 254 N.Y.S. 439, and authorities cited therein.

 Assuming that the amendment of the complaint would be allowed, this Court is therefore asked, on the papers before it, to decide whether New York or Honduras law applies and if the latter conclusion is reached, to determine whether there has been compliance with the laws of that jurisdiction. Counsel for plaintiffs and defendant appear to be in agreement on but one point- that this a question of considerable commercial importance upon which there is a surprising dearth of authority. Interpretation of foreign law is a question of fact and not one of law. Read v. Lehigh Valley R. Co., 1940, 294 N.Y. 435, 444, 31 N.E.2d 891, 895, and this is unaltered by the fact that the Court may judicially notice the law of foreign countries. Rule 9(f) of the Federal Rules of Civil Procedure and section 344-a, subd. A, Ar. 1, subd. B. of New York Civil Practice Act. It is the opinion of this Court that sufficient uncertainty has been created by the papers as to the validity of the mortgage under Honduran law to warrant denial of the motions of the law of that jurisdiction were to apply. Arnstein v. Porter, 2 Cir., 1946, 154 F.2d 464; Doehler Metal Furniture Co., v. U.S., 2 Cir., 1945, 149 F.2d 130, 135; Doyle v. Milton, D.C.S.D.N.Y. 1947, 73 F.Supp. 281. It follows, therefore, that regardless of whether New York or Honduras law applies, the motions with respect to the first cause of action must be denied and the resolution of the issues should await a trial. Since the resolution of the sharply contested issue of which law applies *fn3" will not alter the result of the motions addressed to this cause of action, for if Honduras law applies, as defendant contends, there is an issue of fact concerning the validity of the mortgage under Honduran law which cannot be resolved by affidavits, it is more appropriate that all questions be left to the trial judge, who will have the benefit of hearing extended argument and observing expert witnesses. Complex questions such as are created here should not be disposed of by a motion under Federal Rule 12 to dismiss, 'a most undesirable way for a defendant to seek a victory.' Virgin Islands Corp. v. W. A. Taylor & Co., 2 Cir., 1953, 202 F.2d 61, 65, or by summary judgment. See Palmer v. Chamberlin, 5 Cir., 1951, 191 F.2d 532; Stevens v. Howard D. Johnson Co., 4 Cir., 1950, 181 F.2d 390; Mosbacher v. Basler Lebens Versicherungs Gesellschaft, D.C.S.D.N.Y. 1951, 111 F.Supp. 551. The motion to dismiss the first cause of action or in the alternative for summary judgment thereon is accordingly denied. Plaintiffs are granted leave to amend the complaint within 5 days after entry of the order thereon, to include an allegation of noncompliance with Honduran law.

 The Second Cause of Action

 The second cause of action alleges that the mortgage did not contain a certificate acknowledged by two officers of the corporation; that the mortgage was made without the consent of two-thirds of the stockholders; that consent to the mortgage was not obtained by a vote at a meeting of stockholders called for that purpose; and neither the stockholders' consent nor a certificate of such consent was ever filed with the County Clerk of any county in New York State as required by New York Stock Corporation Law, section 16.

 In support of its motion for summary judgment in that cause of action defendant submits the affidavit of Raymond J. Conlon annexed to which is the consent of all the stockholders. Defendant contends that the court of New York and of the Court of Appeals for the Second Circuit have held that failure to conform to the statutory mode of giving and proving required consent does not render a mortgage invalid where actual consent of two thirds of stockholders has been shown. In re Victoria Fusilli Co., 2 Cir., 1935, 79 F.2d 611; Manufacturers Trust Co. v. Ralph, 1950, 300 N.Y. 411, 416, 91 N.E.2d 865. Plaintiffs seek to distinguish these cases on the grounds that in the instant case neither the mortgage nor the consent were filed and so there was recordation of no aspect of the transaction. But an examination of New York authorities indicates that the rationale of these holdings is that 'It is the fact of consent that is rendered operative and vital, not the formalities to be observed in establishing it.' Manufacturers Trust Co. v. Ralph, supra, 300 N.Y. 417, 91 N.E.2d 867. Plaintiffs' attempt to make section 16 of the New York Stock Corporation Law serve as a recording statute must fail in the light of such reasoning. There being no dispute but that actual consent of all the stockholders was obtained, the motion for summary judgment on the second cause of action is granted.

 The Third Cause of Action

 In plaintiffs' third cause of action they contend that one of the vessels, the Isabel *fn4" was purchased on November 9, 1951, and that at the time she was purchased and at the time of the execution and delivery of the mortgage she was enrolled as a vessel of the United States; that after the execution and delivery of the mortgage, the Isabel was changed to Honduran enrollment; that the mortgage is invalid because not filed at the Customs House as is required by the Ship Mortgage Act of 1920, 46 U.S.C.A. § 911 et seq.

 Defendant urges two grounds for its motion for summary judgment here. First, reliance is placed on section 39 of Title 46 U.S.C.A., which provides that when a vessel which has been registered as a United States vessel is sold, the vessel ceases to be a United States registered vessel unless there was a new registration which did not occur here. The Ship Mortgage Act of 1920 by its terms applies only to ships of United States registry. The S/S ...


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