B-122909, JUL. 8, 1955

B-122909, JUL. 8, 1955

TO HONORABLE CLARENCE MORSE, ADMINISTRATOR, MARITIME ADMINISTRATION, DEPARTMENT OF COMMERCE:

REFERENCE IS MADE TO A LETTER DATED FEBRUARY 8, 1955, FROM YOUR PREDECESSOR, INQUIRING AS TO WHETHER WE AGREE THAT THERE WOULD BE NO OBJECTION TO ACCEPTING NON-RECOURSE MORTGAGES IN CONNECTION WITH THE PROPOSED PURCHASE FROM THE MARITIME ADMINISTRATION BY THE OCEANIC STEAMSHIP COMPANY TO TWO MARINER VESSELS.

THE QUESTION PRESENTED IS WHETHER THE PURCHASE OF THE MARINERS (CARGO VESSELS) FOR CONVERSION INTO PASSENGER VESSELS WOULD AUTHORIZE THE ACCEPTANCE OF A MORTGAGE WHICH WOULD, BY ITS TERMS, BECOME A SOLO RECOURSE OBLIGATION UPON COMPLETION OF THE CONVERSION WORK, PROVIDING THE TERMS OF THE STATUTE ARE OTHERWISE COMPLIED WITH.

THE MARINERS WILL BE SOLD UNDER THE TERMS APPLICABLE TO TITLE V VESSELS, PURSUANT TO SECTION 704 OF MERCHANT MARINE ACT, 1936, WHICH PROVIDES, IN PERTINENT PART, THAT---

"ALL VESSELS TRANSFERRED TO OR OTHERWISE ACQUIRED BY THE COMMISSION (ADMINISTRATION) IN ANY MANNER MAY BE CHARTERED OR SOLD BY THE COMMISSION (ADMINISTRATION) PURSUANT TO THE FURTHER PROVISIONS OF THIS ACT.'

SECTION 503 OF THE MERCHANT MARINE ACT, 1936, WAS AMENDED BY P.L. 586, 82D CONGRESS, 66 STAT. 760, 761, TO AUTHORIZE ACCEPTANCE, UNDER CERTAIN CONDITIONS, OF FIRST-PREFERRED, NON-RECOURSE MORTGAGES IN PASSENGER VESSELS. IT PROVIDES, IN PERTINENT PART, THAT WITH THE APPROVAL OF THE FEDERAL MARITIME BOARD, A FIRST-PREFERRED MORTGAGE ON A PASSENGER VESSEL MEETING THE REQUIREMENTS STIPULATED THEREIN,"MAY PROVIDE THAT THE SOLE RECOURSE AGAINST THE PURCHASER OF SUCH A PASSENGER VESSEL UNDER SUCH MORTGAGE, AND ANY OF THE NOTES SECURED THEREBY, SHALL BE LIMITED TO REPOSSESSION OF THE VESSEL BY THE UNITED STATES AND THE ASSIGNMENT OF INSURANCE CLAIMS.'

THE FOLLOWING STATEMENT APPEARS IN SENATE REPORT 295, 82D CONGRESS, OF THE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE ON S. 241, WHICH BECAME P.L. 586, 82D CONGRESS:

"A WELL BALANCED MARITIME FLEET MUST INCLUDE PASSENGER VESSELS, PARTICULARLY BECAUSE OF THE PECULIAR VALUE OF THIS CLASS OF VESSELS TO THE NATIONAL SECURITY.... IN FACT, TODAY'S PASSENGER TONNAGE IS ONLY HALF THE CAPACITY OF PRE-WORLD WAR DAYS ... THE EVIDENCE ALSO SHOWED THAT SHIPPING COMPANIES INTERESTED IN PURCHASING THE LARGE, FAST, PASSENGER VESSELS, ESPECIALLY THOSE DESIGNED FOR A PARTICULAR SERVICE ARE LOATHE TO DO SO BECAUSE THE SUCCESSFUL OPERATION OF SUCH SHIPS IS DEPENDENT IN LARGE MEASURE UPON THE CONTINUANCE OF STABLE ECONOMIC AND POLITICAL CONDITONS IN THE AREA TO BE SERVED. IN THE LIGHT OF UNSTABLE WORLD CONDITONS TODAY, THE SHIPPING COMPANIES TAKE THE POSITION WITH CONSIDERABLE MERIT, THAT THEY CANNOT MAKE THE LARGE INITIAL INVESTMENT REQUIRED TO ACQUIRE A PASSENGER SHIP UNLESS THE BALANCE OF THE PURCHASE LIABILITY IS LIMITED TO THE SECURITY VALUE OF THE VESSEL. TO INSURE THAT THE GOVERNMENT, IN WAIVING THE RIGHT TO A DEFICIENCY JUDGMENT, WILL OBTAIN A USABLE MILITARY AUXILIARY IF THE OPERATOR DEFAULTS IN PAYMENTS, THE BILL PROVIDES THAT THE PASSENGER VESSELS MUST BE APPROVED BY THE NAVY AS DESIRABLE FOR DEFENSE PURPOSES, AND THE SHIP MUST BE DELIVERED TO GOVERNMENT IN GOOD ORDER AND CONDITION, ORDINARY WEAR AND TEAR EXCEPTED, FREE OF LIENS AND IN CLASS, AS WHEN ACQUIRED BY THE CHASER....'

A SIMILAR STATEMENT APPEARS IN THE HOUSE REPORT, 2221, 82D CONGRESS, OF THE COMMITTEE ON MERCHANT MARINE AND FISHERIES ON S. 241. SIMILAR CONSIDERATIONS MOTIVATED CONGRESS IN AMENDING TITLE XI BY P.L. 781, 83D CONGRESS, TO AUTHORIZE MARITIME TO INSURE NON-RECOURSE MORTGAGES ON CERTAIN PASSENGER VESSELS.

ACCORDINGLY, INASMUCH AS OCEANIC'S PURCHASE OF THE MARINER CARGO VESSELS FOR THE SOLE PURPOSE OF CONVERTING THEM INTO PASSENGER VESSELS AND THE CONCURRENT EXECUTION OF SHIPYARD CONTRACTS FOR THAT PURPOSE CAN BE CONSIDERED AS THE EQUIVALENT OF THE PURCHASE OF PASSENGER VESSELS, AND SINCE THE SAME FACTORS THAT MOTIVATED THE CONGRESS TO ENACT PUBLIC LAW 586 AND PUBLIC LAW 781 WOULD BE PRESENT IN THIS CASE, WE AGREE THAT THERE IS NO OBJECTION TO THE PROPOSED ACCEPTANCE OF FIRST-PREFERRED MORTGAGES WHICH CONTAIN A CONDITION THAT THEY BECOME NON-RECOURSE UPON THE COMPLETION OF THE CONVERSION TO PASSENGER VESSELS.