This is security for a loan on marine interest created on the cargo. It may be created by the cargo-owner, at home, if he sees fit, but ordinarily, only arises out of necessity during the course of the voyage. The master has the same authority to borrow on the security of the cargo as he has in cases of bottomry. The proceeding must be sanctioned by great necessity and liability to communicate with, or obtain relief from, the owner of the goods. The duty of communication is the same as in the case of bottomry bonds (see preceding sections). The rule with respect to interest is the same as that governing bottomry bonds. The instrument may be in any form which expresses the facts and conditions; an ordinary bill of sale may be used or the form of a bottomry bond. The instrument is not required to be recorded.
The case of Ins. Co. v. Gossler, 6 Otto 645, contains an example of a bond, which was both bottomry and respondentia. The bark Frances en route from Java to Boston with a cargo of sugar encountered a hurricane which compelled the master to cut away her mast to save the vessel and put into Singapore for repairs. Destitute of funds and without credit, the master executed a bond with maritime interest at 27½ per cent., secured upon the boat, cargo and freight. When nearing the completion of her voyage the bark was cast away on the shore of Cape Cod. She could not be salved as an intact vessel, but was sold as a wreck and subsequently broken up by the purchaser in order to make use of the parts of her. Some of her cargo was saved. The Court held that the salvaged portion of the cargo and the wreck as she lay on the beach must respond to the obligation of the bond, saying that nothing but an utter annihilation of the thing hypothecated would discharge the borrower on bottomry, the rule being that the property saved, whatever it may be in amount, continues subject to hypothecation.
Unless the ship be actually destroyed and the loss to the owners absolute, it is not an utter loss within the meaning of such a contract. If the ship still exists, although in such a state of damage as to be constructively totally lost, within the meaning of a policy of insurance; ... she is not utterly lost within the meaning of that phrase in the contract of hypothecation.
Thus, the doctrine of "constructive total loss," which is important in the law of marine insurance, has no application to bottomry. It is customary in bottomry and respondentia bonds to insert a clause reserving to the lender, in case of utter loss, any average that may be secured upon all salvage recoverable.
4. Necessity for Advances.—
The lender of money on a bottomry bond is under obligation to satisfy himself that the supplies or refitment for which the money is borrowed are necessarily required by the vessel. The act of June 23, 1910 (discussed in § 9 of preceding chapter), apparently has no application to money advanced on bottomry bonds and certainly has no application to respondentia bonds. If the actual need for the advance sought to be secured by the bottomry or respondential bond does not exist, the bond will not constitute a lien upon the vessel or cargo.
5. Mortgages.—
These are species of chattel mortgages. The ship is a chattel or personal property, for many purposes. Prior to June 5, 1920, these mortgages were not recognized as maritime transactions. The Merchant Marine Act of that date makes radical changes in the law governing ship mortgages. The new provisions are to be found in Section 30, which is to be cited, independently of the rest of the statute, as the "Ship Mortgage Act, 1920," and is printed in full with the rest of the Merchant Marine Act in the Appendix.
6. Are Mortgages Maritime Contracts?—
An ordinary mortgage upon a vessel, whether made to secure the purchase money or to obtain funds for general purposes, is not a maritime contract. This is the rule in this country, as announced by the Supreme Court in the J. E. Rumbell, 148 U. S. 1, although it is different under the general maritime law in other countries. Accordingly, courts of admiralty in the United States, have no jurisdiction of a libel to foreclose a mortgage or to enforce title or right to possession under it. If, however, the ship has been sold under admiralty process, and there are proceeds in the registry after satisfying maritime liens, the court will pay over the surplus, to a mortgagee in preference to the owner or general creditors.