The jurisdiction in admiralty of a libel in rem against a vessel is based upon the existence of a maritime lien upon the vessel which may be enforced by seizure of the vessel and a sale of it by the marshal under a decree. [i] According to 28 USCS § 2464, the owner of any vessel may deliver to the United States marshal a bond with sufficient surety and the court shall stay execution of all process against such vessel so long as the amount secured by such bond is at least double the aggregate amount claimed by the libellants.
The surety is therefore entitled to certain indemnity rights under the transaction in relation to the res. However, law prohibits a surety from enforcing subrogation rights against the vessel. This prohibition is based on the logic that the surety’s rights stems from the plaintiff’s rights in relation to the res. The giving of a bond dissolves the plaintiff’s claim against the vessel, both as to current indebtedness and as to future claims, and the surety’s subrogation rights, which are derived from the plaintiff’s rights are also thereby extinguished. However, the surety is entitled to enforce its subrogation rights personally. The right to indemnity does not create any lien under maritime law. Hence a surety is not entitled to proceed against the vessel and the surety has no subrogation rights against the vessel.
Further, a surety may also not be subrogated to the rights of creditors in the fund created by sale of the vessel. According to settled law, all liens upon a vessel are completely extinguished by the sale of the vessel pursuant to the decree of a court in a suit in rem. Subsequent to the sale, no lien for a pre-existing debt could be transferred to the surety company, nor can it be revived or enforced by the surety. Courts have held that the bond amount deposited in the court stands in place of the ship and the liens in favor of those creditors who were paid by the surety company were displaced by the release bonds and no lien in favor of the surety company is attached to the ship because the money was not advanced until after the ship was sold. On the other hand, the liens of the creditors were existing before and at the time of the sale. Hence, the creditors are entitled to the balance amount in the registry and the surety has no right over such amount.
[i] Fid. & Deposit Co. v. Crowell & Thurlow, 286 Mass. 124, 125 (Mass. 1934)