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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