Mortgagee

A mortgagee who has not entered into possession of the mortgaged ship has no absolute right to the freight the ship may be earning and cannot compel its payment to himself by simply giving notice to the person liable to pay it. On taking actual or constructive possession the mortgagee becomes entitled to all the freight that the ship is in course of earning whether under an express contract or under a quantum meruit (as much as has been earned) if no express contract exists. He is not entitled to freight which has become due prior to his taking possession but is still unpaid at that time. A mortgagee is not bound by a charter entered into by the mortgagor, after the mortgage which does impair the mortgagee’s security. If the mortgagor deals with a ship in a manner that impairs the security, the mortgagee may take possession without commencing any proceedings and even though there has been no actual default under the mortgage. One of the benefits of ship registration to a lender of money on a ship is that his mortgage interest in the ship is capable of registration. In order that such an interest may be registered it must, according to English law, be a legal mortgage. Only a legal mortgage is capable of registration. To be a legal mortgage, the mortgage must be made upon the statutory form: Sections 31 – 46 of the Merchant Shipping Act 1894. A mortgage, not made in the prescribed statutory form, (for example a foreign mortgage) is not capable of registration and, therefore, by peculiarity of English law is not a legal mortgage but an equitable mortgage only.