B-129330, OCT. 29, 1956

B-129330: Oct 29, 1956

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MARITIME ADMINISTRATION: REFERENCE IS MADE TO YOUR LETTER OF SEPTEMBER 24. IT WILL CONTAIN THE SOLE RECOURSE PROVISION AUTHORIZED BY SECTION 1104 (A) (10). THE MATSONIA WAS PURCHASED FOR $2. REQUIRES THE EXPENDITURE OF AT LEAST $10 MILLION TO RECONDITION THE MATSONIA FOR PASSENGER SERVICE AND THE CONTEMPLATED SECOND PREFERRED MORTGAGE IS TO SECURE THE LOAN TO BE OBTAINED BY MATSON FROM PRIVATE SOURCES FOR THAT PURPOSE. THE QUESTION POSED IS WHETHER. ASSUMING THAT THE CONTEMPLATED INSURANCE IS VALID IN ALL OTHER RESPECTS. THAT IN ALL OTHER RESPECTS THE CONDITIONS OF NON-RECOURSE UNDER SECTION 1104 (A) (10) ARE SATISFIED. YOUR LETTER STATES THE VIEW OF YOUR ADMINISTRATION AS FOLLOWS: "INSOFAR AS THE MARITIME ADMINISTRATION IS CONCERNED.

B-129330, OCT. 29, 1956

TO THE ADMINISTRATOR, MARITIME ADMINISTRATION:

REFERENCE IS MADE TO YOUR LETTER OF SEPTEMBER 24, 1956, REQUESTING OUR ADVICE AS TO WHETHER WE CONCUR IN YOUR VIEW THAT SECTION 1104 (A) (11) OF TITLE II OF THE MERCHANT MARINE ACT, 1936, AS AMENDED, AUTHORIZES THE PROPOSED INCLUSION OF AN APPROPRIATELY DRAFTED PROVISION IN A SECOND PREFERRED MORTGAGE (TO AID THE MATSON NAVIGATION COMPANY IN FINANCING THE COST OF RECONDITIONING FOR PASSENGER SERVICE THE S.S. MATSONIA--- FORMERLY THE S.S. MONTEREY) WHICH WOULD MAKE SUCH MORTGAGE A NON-RECOURSE OBLIGATION WHILE IN THE HANDS OF THE MORTGAGEE BANKS OR ANYONE CLAIMING UNDER THEM, OTHER THAN THE GOVERNMENT AS ASSIGNEE OF THE MORTGAGE. YOU ADVISE THAT INSOFAR AS CONCERNS THE SECOND PREFERRED MORTGAGE UPON ASSIGNMENT TO THE GOVERNMENT AS INSURER, IT WILL CONTAIN THE SOLE RECOURSE PROVISION AUTHORIZED BY SECTION 1104 (A) (10).

THE MATSONIA WAS PURCHASED FOR $2,543,010 BY THE MATSON NAVIGATION COMPANY PURSUANT TO THE AUTHORITY OF PUBLIC LAW 260, 84TH CONGRESS, 69 STAT. 542, AND THE GOVERNMENT HOLDS A FIRST PREFERRED PURCHASE MONEY MORTGAGE THEREON WHICH CONTAINS THE SOLE RECOURSE PROVISION OF SECTION 1104 (A) (10). PUBLIC LAW 260, SUPRA, REQUIRES THE EXPENDITURE OF AT LEAST $10 MILLION TO RECONDITION THE MATSONIA FOR PASSENGER SERVICE AND THE CONTEMPLATED SECOND PREFERRED MORTGAGE IS TO SECURE THE LOAN TO BE OBTAINED BY MATSON FROM PRIVATE SOURCES FOR THAT PURPOSE.

THE QUESTION POSED IS WHETHER, ASSUMING THAT THE CONTEMPLATED INSURANCE IS VALID IN ALL OTHER RESPECTS, AND THAT IN ALL OTHER RESPECTS THE CONDITIONS OF NON-RECOURSE UNDER SECTION 1104 (A) (10) ARE SATISFIED, THE INCLUSION IN THE SECOND PREFERRED MORTGAGE OF A NON RECOURSE PROVISION OF THE CHARACTER DESCRIBED IN THE FIRST PARAGRAPH HEREOF WOULD IN ANY WAY VOID OR IMPAIR TITLE II INSURANCE ON SUCH MORTGAGE OR RENDER INOPERATIVE THE NON-RECOURSE PROVIDED BY SECTION 1104 (A) (10).

YOUR LETTER STATES THE VIEW OF YOUR ADMINISTRATION AS FOLLOWS:

"INSOFAR AS THE MARITIME ADMINISTRATION IS CONCERNED, WE FEEL THAT THE NON-RECOURSE PROVISION WOULD BE AUTHORIZED UNDER SECTION 1104 (A), WHICH PROVIDES THAT TO BE ELIGIBLE FOR INSURANCE, A MORTGAGE, AMONG OTHER THINGS

"/11) SHALL CONTAIN SUCH OTHER PROVISIONS AS MAY BE AGREED UPON BETWEEN THE MORTGAGOR AND MORTGAGEE, WHICH ARE NOT INCONSISTENT WITH THE PROVISIONS OF THE PRECEDING PARAGRAPHS OF THIS SUBSECTION (A) AND WHICH ARE NOT DISAPPROVED BY THE SECRETARY OF COMMERCE.'

"ASSUMING THAT THE PROVISION IS AGREED UPON BETWEEN THE MORTGAGOR AND THE MORTGAGEE, THERE APPEARS TO BE NO INCONSISTENCY, EXPRESSED OR IMPLIED, WITH THE OTHER PROVISIONS OF SECTION 1104 (A).

"MOREOVER, SINCE IN THE HANDS OF THE GOVERNMENT, IT IS EXPRESSLY PROVIDED THAT THE MORTGAGE MAY BE NON-RECOURSE, THERE APPEARS NO REAL BASIS FOR THE GOVERNMENT'S DISAPPROVAL OF A NON-RECOURSE PROVISION IN THE MORTGAGE WHILE IN PRIVATE HANDS, ALTHOUGH THE PRESENCE OF SUCH A PROVISION COULD CONCEIVABLY HAVE THE EFFECT OF INDUCING ASSIGNMENT TO THE GOVERNMENT IF DEFAULT UNDER THE MORTGAGE SHOULD OCCUR. IN ADDITION, AS POINTED OUT IN THE ENCLOSED OPINIONS, SUCH A PROVISION WOULD BE CONSONANT WITH THOSE PROVISIONS OF THE 1936 ACT WHICH AUTHORIZE LIMITED RECOURSE MORTGAGES AS AN INDUCEMENT TO THE INVESTMENT OF SUBSTANTIAL FUNDS IN PASSENGER VESSELS, AND CONSISTENT WITH THE PURPOSE OF TITLE XI, AS AMENDED, OF FACILITATING THE PRIVATE FINANCING OF SHIP CONSTRUCTION, RECONSTRUCTION AND RECONDITIONING. IN SUMMARY, IT IS OUR VIEW THAT THE PROVISION IN QUESTION WOULD NOT ONLY BE PROPER UNDER SECTION 1104 (A) (11) BUT ALSO WOULD BE WITHIN THE POLICY OF THE ACT, AND THAT SUCH BEING THE CASE, THE PROVISION WOULD IN NO WAY RENDER INOPERATIVE THE NON-RECOURSE PROVIDED BY SECTION 1104 (A) (10).'

IN ADDITION, INASMUCH AS THE SOLE RECOURSE PROVISION OF SECTION 1104 (A) (10) WAS INTENDED TO ENCOURAGE INVESTMENT IN PASSENGER VESSELS, IT WOULD TEND TO DEFEAT THE PURPOSE OF THAT SECTION TO DENY A SHIPOWNER THE OPPORTUNITY OF PROVIDING THAT HIS MORTGAGE WOULD BE A NON-RECOURSE OBLIGATION IN THE HANDS OF ALL MORTGAGEES OR THEIR ASSIGNEES.

ACCORDINGLY, WE CONCUR IN YOUR VIEW THAT THE PROPOSAL TO INCLUDE AN APPROPRIATELY DRAFTED PROVISION IN THE SECOND PREFERRED MORTGAGE SO AS TO MAKE SUCH MORTGAGE A NON-RECOURSE OBLIGATION WHILE IN THE HANDS OF THE MORTGAGEES OR ANYONE CLAIMING UNDER THEM WILL NOT PREJUDICE THE GOVERNMENT'S RIGHTS AS A POTENTIAL ASSIGNEE THEREOF AND WILL NOT VOID OR IMPAIR TITLE XI INSURANCE OF SUCH MORTGAGE OR RENDER INOPERATIVE THE SOLE- RECOURSE PROVIDED BY SECTION 1104 (A) (10).