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27 Ocean L. Memo 1 (1985)

handle is hein.journals/ocoaslme27 and id is 1 raw text is: Ocean and Coastal Law Center - School of Law - University of Oregon * Eugene 97403 Ocean Law- Mmo Issue 27 BOAT FORECLOSURES: SECURING THE SUPPLIER'S INTEREST IN DURABLE GOODS Introduction Wilma Wiley sells marine hardware and equipment and has learned that the F/V Listless is being sold at auction pursuant to a foreclosure. Wiley is understandably concerned about this because she has recently extended credit to the Listless's owner, Paul Poor. The Listless is the only thing Poor owns and it is his only source of income. Since Wiley knows this, she also knows that once the Listless is gone she will be unable to collect from Poor. The F/V Listless is a 35-ton fish- ing boat. Poor had been using the boat to eke out a living for some time, and he recently decided to try to do bet- ter. A new Moron fishfinder in Wiley's showroom looked like just the thing to improve Poor's catch. The Moron fish- finder was not well received in the fishing community and had been gathering dust in Wiley's showroom. Happy to see the thing go, Wiley extended credit to Poor for the purchase price. Poor in- stalled the Moron in his boat. Poor's enthusiasm and the new Moron fishfinder notwithstanding, Poor's catch did not improve, and foreclosure proceedings against the Listless are now pending. Foreclosure is a legal mechanism to satisfy a debt that is in default. A debtor's property is sold under court supervision, and the proceeds of the sale are used to satisfy the debt. Once the property is sold, all other claims against the property that are derived through the debtor are extinguished, and the buyer takes the property with a clean title. Creditors like Wiley will therefore wish to claim their interest in the property before it is sold, and they are generally permitted to join in foreclosures. In a foreclosure involv- ing more than one creditor, rights to the sale proceeds are determined by e Distributed by: OSU Extension Service' rules of priority, as we shall see be- low. Since priority depends upon the type of debt asserted, it does not mat- ter which of Poor's other creditors initiated the foreclosure. Wiley is not sure if she can recov- er anything from the foreclosure or, if she can recover, what she may be enti- tled to. She would prefer to obtain full payment for the fishfinder. She had difficulty selling it once and would prefer to use the money for other inventory. Nevertheless, if faced with a choice between repossessing the fish- finder or recovering nothing at all, Wiley would choose to have the fish- finder back. A valid lien is necessary for Wiley to obtain a stake in the Listless's foreclosure. Liens of interest to Wiley include the federal maritime lien for necessaries, the federal preferred ship mortgage and, as a group, liens under state law. State law liens and pre- ferred ship mortgages require formal, affirmative action at the time they arise in order to take effect. Fortu- nately for Wiley, the maritime lien for necessaries does not require such action. It can be claimed after-the- fact and regardless of whether it was contemplated at the time of the sale. This article offers practical ad- vice to suppliers, like Wiley, vho sell durable goods to vessels. It begins with a review of priority rules for liens on vessels. Next is a summary of the nature of general maritime liens, followed by the requirements for a mari- time lien for necessaries. The lien for necessaries is the usual result of sales of goods for use aboard vessels. For a large debt, a preferred ship mortgage may be feasible, anJ so this type of lien is also described. Details of state law liens are beyond the scope of Sea Grant Marine Advisory Program, Corvallis, OR 97331

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