As described in our articles on Deeds of Trusts and mechanics liens, borrowing on property and failing to pay for work on property results in foreclosures of deeds of trusts in the case of default on a loan and enforcement of mechanic’s liens in the case of failure to pay for improvement on property.
There are similar protections available for vessels and this article briefly describes the remedies available for failure to pay on a boat mortgage or for repair or improvements on a vessel.
Boat Mortgages:
Registering of Vessels:
Boats must be registered with a licensing authority. Some vessels are required to be documented with the U.S. Coast Guard National Documentation Center, depending upon the size and use of the boat. The documentation is required if the vessel is more than 5 net tons and engages in fishing or coast-wide trade. However, in recreational boating cases, the Coast Guard only requires “vessels equipped with propulsion machinery to be registered in the state of principal use.” The owner may chose to be documented rather than state registered if the owner wishes. This avoids the annual state license fee since the documentation is a onetime expense, though renewed for free annually. The documentation is valid for any part of the United States and internationally, while state registration is only valid for the boat within the State, so many boat owners chose to be documented vessels.
For those vessels choosing state registration, in order to comply with the Coast Guard regulations, a boat must be registered with the state’s licensing division. Thereafter, a certificate of number will be released. The numbers must be displayed on the boat in a specific manner. The owner/operator must carry the valid certificate of number whenever the vessel is in use. Numbers must be legibly painted or permanently attached to each side of the forward half of the vessel. The state validation stickers must be affixed within six inches of the registration number. No other letters or numbers may be displayed nearby with the exception of the vessel fee decal. Lettering must be in plain vertical block characters of not less than 3 inches in height. Spaces or hyphens between letter and number groupings must be equal to the width of a letter other than “I” or a number other than “1″.
The owner of a vessel must notify the agency which issued the certificate of number within 15 days if the vessel is transferred, destroyed, abandoned, lost, stolen and recovered or not, or if the certificate of number is lost, destroyed, or the owner’s address changes.
For documented vessels as well as State registered vessels, the United States Coast Guard is the federal regulating authority for recreational boats. The Coast Guard has jurisdiction or law enforcement rights over recreational boating in all United States waters. Under federal law, a certificate of documentation with a recreational endorsement may be issued for a vessel that is eligible for documentation. The Coast Guard issues boating safety recommendations and ensures the proper compliance with federal boating safety laws and equipment requirements. Every boater is responsible for knowing and adhering to Coast Guard boating laws and regulations and laws specific to the state in which the vessel is registered or operated. Boating safety requirements are enforced by the U.S. Coast Guard and the local and state agencies.
Mortgage on Documented Vessels:
Federal statute provides that a mortgage or related instrument that includes any part of a documented vessel or a vessel for which an application for documentation is filed whenever executed must be filed with the Secretary of Transportation to be valid, to the extent the vessel is involved, against any person except:
- the grantor, mortgagor, or assignor;
- the heir or devisee of the grantor, mortgagor, or assignor; and
- a person having actual notice of the sale, conveyance, mortgage, assignment, or related instrument. 46 USCS § 31321
Before a vessel is registered, a mortgage of it will be valid if recorded according to the laws of the state. After it is registered or enrolled, the mortgage will not be valid unless recorded as required by the laws of the United States. Atlas Imperial Diesel Engine Co. v. Criscuolo, 32 Cal. App. 2d 244 (Cal. App. 1939)
Where the owners of a motor boat executed a chattel mortgage while the boat was being constructed and that mortgage was recorded in the county recorder’s office but not in the office of the United States collector of customs, that mortgage was valid and enforceable until the boat was enrolled and duly licensed by the U.S. Department of Commerce. Id.
However, if after the boat was licensed as a vessel of the United States (documented) and another chattel mortgage was executed to a person who had no actual notice of the prior mortgage, no mortgage which includes a vessel of the United States is valid against any person other than the mortgagor and any person having actual notice thereof, until such mortgage is recorded in the office of the collector of customs at the home port of such vessel.
A federal statute provides that federal district courts have original jurisdiction of a civil action brought to enforce:
- a civil action in personam in admiralty against the mortgagor, maker, comaker, or guarantor for the amount of the outstanding indebtedness or any deficiency in full payment of that indebtedness;
- a civil action against the mortgagor, maker, comaker, or guarantor for the amount of the outstanding indebtedness or any deficiency in full payment of that indebtedness; and
- a preferred mortgage lien or a claim for the outstanding indebtedness secured by the mortgaged vessel by exercising any other remedy (including an extrajudicial remedy) against a documented vessel. 46 USCS § 31325.
Thus, enforcement of the vessel mortgage is allowed in Federal Court only and may allow enforcement of mortgage rights, thus sale of the vessel to satisfy the indebtedness.
Boat Liens under Federal Law:
A person providing necessaries to an already built vessel on the order of the owner or a person authorized by the owner has a maritime lien on the vessel. The following persons are presumed to have authority to procure necessaries for a vessel: 46 USCS § 31342
- the owner;
- the master;
- a person entrusted with the management of the vessel at the port of supply; or
- an officer or agent appointed by:
- the owner;
- a charterer;
- an owner pro hac vice; or
- an agreed buyer in possession of the vessel.
However, a person tortuously or unlawfully in possession or charge of a vessel has no authority to procure necessaries for the vessel thus cannot create rights to a lien on behalf of third parties.
In McKenzie v. The Jim-Jet II, 133 F. Supp. 804, 806 (D.N.C. 1955), the court held that any person furnishing repairs, supplies, or other necessaries to any vessel upon the order of the owner has a maritime lien on the vessel and it is not necessary to allege or prove that credit was given to the vessel.
Necessaries are furnished only if and when they are either actually delivered on board of or at the side of a vessel or delivered to its owner or his authorized agent for the purpose of delivery to such vessel. The Denelfred, 59 F.2d 213 (D. Mich. 1932)
While a maritime lien may be waived by words or conduct indicating such an intention, the mere acceptance, by a person who has furnished necessaries to a vessel of the promissory note of the owner of such vessel does not in itself constitute or result in such a waiver, unless shown to have been accepted with that intention to replace the lien with the promissory note. Id
State Law Applicable to Repair of Vessels:
Contracts for the construction of vessels and for the furnishing of materials are non-maritime and liens and proceedings to enforce such liens come under state control and may be enforced in state courts. Globe Iron-Works Co. v. The John B. Ketcham, 2nd, 100 Mich. 583 (Mich. 1894). With respect to the application of these principles, no distinction is made between large and small vessels.
A contract for building a vessel, being a contract made on land and to be performed on land is not a maritime contract and that a lien to secure it given by local statute is not a maritime lien and cannot therefore be enforced in admiralty. Id.
If the supply of machinery is deemed a part of the building of a vessel, the contract is not a maritime contract and cannot be enforced in an admiralty court. If the state law gives a lien for building a vessel, the lien can be enforced in the state courts alone. The Owyhee, 60 F.2d 641 (D.N.Y. 1932).
For incidental repairs made on land to articles of a ship’s furniture or machinery, a court of admiralty does not have jurisdiction. Articles removed from a vessel and repaired or renovated upon land at the shop of the artisan are different from repairs made upon the vessel herself and are the subject of a possessory lien at common law. The Robert W. Parsons, 191 U.S. 17 (U.S. 1903).
However, in Steamer Petrel v. Dumont, 28 Ohio St. 602 (Ohio 1876), the court held that a contract for repairs of a boat at her home port on which a suit is brought is a maritime contract, on which a suit in personam might be brought in an admiralty court. The court further held that there can be no maritime lien without a maritime contract and no process in rem without a maritime lien. Also, a state law does not give a lien and process in rem against a boat different from all debts contracted on account thereof.
Thus, the process and lien depends upon the contract and without the contract, there would be neither process, lien, nor cause of action. Steamer Petrel v. Dumont, 28 Ohio St. 602 (Ohio 1876). It is therefore the contract upon which the action is founded that determines the question of jurisdiction and if it is maritime, it falls within the admiralty and maritime jurisdiction conferred on the U.S. district courts.
Conclusion:
Most creditors would elect to utilize the efficient and rapidly moving Federal Courts to seek relief and depending on the State law, the power of liens of vessels is a powerful inducement for rapid resolution of claims. Likewise, most ocean going vessels, including yachts, see advantage in becoming documented and thus subject to Federal law in many instances.
What is important to note, however, is that State law applies to “land” operations and repairs thus the person facing such a transaction should take the time to learn the law of the particular State in which the vessel is located.