10. Rights of Mortgagee.—

These depend principally upon the stipulation in the mortgage. He is entitled to have his security made available to the satisfaction of his debt, but, until foreclosure, the ship is subject to many claims which may impair or destroy its value. If seized by admiralty process, the mortgagee may appear and protect his interest, as by taking possession under the usual claim and bond. Seizures or levies under local law are subject to the rights of the owner of a valid mortgage. Generally, the terms of the instrument will provide that, upon any default by the mortgagor or impairment of the security by acts of third parties, the mortgagee may take possession, declare the entire debt due, and foreclose. Where maritime liens affect the security, the mortgagee is entitled to pay them and be subrogated thereto, that is to say, after discharging the liens, he stands in the shoes of the lienors. Where the ship has been arrested and sold by a court of admiralty, and its proceeds are in the registry, he may appear and file an intervening petition for the protection of his interest therein. Where the admiralty disclaims jurisdiction over vessel mortgages, it will pay over surplus proceeds to the mortgagee in preference to the owner or the owner's general creditors. So the mortgagee may answer and contest the claims of the lienors in their proceedings against the ship.

11. Liabilities of Mortgagee.—

A mortgagee in possession of the ship becomes liable as owner for supplies furnished or repairs made at his request or at the request of those apparently authorized to act for him. So, if he operates the ship, he will be liable for the risks and expenses of the voyage.

12. Transfer and Payment.—

A vessel mortgage may be assigned or transferred like other similar forms of security. If the debt is evidenced by negotiable promissory notes or bonds, the transfer of them carries with it the security, although the more usual and convenient way is by a formal assignment of mortgage placed on record with the collector. The assignee succeeds to all the rights of the original mortgage. So the mortgage may descend to heirs or pass to creditors like other personal property, in accordance with the law of the owner's domicile.

On payment of the debt, the mortgage is automatically canceled and the mortgagor is entitled to have the fact placed upon the records by the usual certificate of payment and discharge.

In the case of "preferred mortgages" under the Ship Mortgage Act, 1920, the ship's documents may not be surrendered (except in case of forfeiture or judicial sale) without the approval of the Shipping Board which will be withheld unless the mortgagee consents, and the interest of the mortgagee will not be terminated by a forfeiture of the vessel unless the mortgagee was implicated in the act which caused the forfeiture. No rights under any mortgage of an American ship, whether preferred or not, may be assigned to any person not a citizen of the United States without the approval of the Shipping Board.

13. Foreclosure.—

A mortgage upon an American vessel, although necessarily recorded according to Federal law, is still only a chattel mortgage for many purposes and must be foreclosed in accordance with local law. This will be in one of three ways: by a suit in a court of competent jurisdiction to obtain a decree of foreclosure and sale, by a sale in accordance with local statutory provisions in respect of chattel mortgages, by exercise of the power of sale which is usually contained in the instrument itself. The last is the method best adapted to vessel property and carefully drawn mortgages usually contain plain and adequate provisions for that purpose. If, however, the mortgagee be an American citizen and the requirements of the Ship Mortgage Act, 1920, with reference to "preferred mortgages" have been complied with, the foreclosure proceeding is to be instituted in a United States District Court sitting in admiralty, and no one except an American citizen may purchase an American ship at a sale by admiralty decree in a suit in rem. The mortgagor's title can only be extinguished by foreclosure but stipulations giving the mortgagee the power, on breach of condition, to dispose of the mortgaged property, at public or private sale, and after applying the proceeds to his expense and debt, to account for the surplus to the mortgagor, are valid and may be executed without resort to a court. The mortgagor may appoint the mortgagee, as well as any other person, to sell his property for the purpose of satisfying his debts. The mortgagee should proceed strictly in accordance with the power of sale and carefully observe its terms in regard to notice, time and place. The conduct and fairness of such sales are open to investigation at the instance of the mortgagor and will be set aside on proof of unfair or oppressive conduct or deviation from the terms of the power or statute. It is not necessary to hold the sale on board the ship if the mortgage provides another place, but, in the absence of such a provision, it would be safer to so make the sale as there are authorities holding that the mortgaged property must be in view when the sale is made. There are numerous rules in the general law of foreclosure of chattel mortgages which are quite inapplicable to ships and much embarrassment may be avoided if the instrument is drafted with these in mind. The courts will enforce the contract as the parties make it, if its provisions are plain and are carefully observed. As in other cases, the sale may be adjourned from time to time and the mortgagee may employ an agent or attorney to make it. The debt may be used instead of money; the mortgagee may bid in the property himself and execute an appropriate bill of sale. The power of sale is merely cumulative and will not prevent a suit for foreclosure or an action at law on the debt. The sale is, of course, subject to all maritime liens superior to the mortgagee, but will extinguish all subordinate liens and subsequent titles if the mortgage was duly recorded.