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Timestamp: 2019-04-20 13:30:12+00:00

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[265 U.S. 106, 107] Messrs. John Junell, of Minneapolis, Minn., and Jackson H. Ralston, of Washington, D. C., for Brooks-Scanlon Corporation.
[265 U.S. 106, 111] The Attorney General and Mr. Henry M. Ward, of New York City, for the United States.
This case arises out of the exertion of the power of requisition conferred on the President by chapter 29, 40 Stat. 182, approved June 15, 1917, known as the Emergency Shipping Act (Comp. St. 1918, Comp. St. Ann. Supp. 1919, 3115 1/16 d).1 There is involved the question whether [265 U.S. 106, 115] a certain contract for the construction of a ship was requisitioned, and, if it was, upon what basis is just compensation to be ascertained.
The act empowered the President (a) to order from any person for government use ships or ship material of kind and quantity usually produced by such person; (b) to requisition contracts for the building of ships; (c) to require the owner of any shipbuilding plant to place at the disposal of the United States the whole or any part of the output of the plant; (d) to requisition any shipbuilding plant or part thereof; (e) to requisition any ship in process of construction; and compliance with all orders issued under the act was made obligatory. By executive order of July 11, 1917, he delegated these powers to the United States Shipping Board Emergency Fleet Corporation. On August 3, 1917, the claimant was the assignee [265 U.S. 106, 116] and owner of a contract by which the New York Shipbuilding Corporation agreed to construct a ship, known as hull No. 193. The contract was made March 28, 1916, and after some modification it provided for the construction of a ship of 8,597 deadweight tons, to be completed and delivered on or before February 1, 1918. The contract price was $831,630.
Prior to August 3, 1917, the claimant or its assignor had secured the services of an architect, furnished plans and specifications to the builder, employed a bureau to inspect the work as it progressed, and had paid to the builder on account of the contract price installments amounting to $419,500, which with interest paid, architect's fees and the value of the plans and specifications, amounted to $473,710.58, exclusive of the cost of inspection.
Immediately after the execution of the contract, the builder ordered all materials required, for which sufficient data then existed, and, before August 3, 1917, completed its orders for substantially all that were needed to perform the contract. Between 35 and 40 per cent. of the required materials had been delivered to the builder ready for use, and, on that date, the ship was about 19 per cent. completed. The Court of Claims found that all materials so ordered were delivered at the prices fixed in the orders and were used in the construction of the ship, and that nothing was purchased after that date, except materials used for construction, at a cost of $31,000, ordered for military protection. At that time claimant held on deposit in various solvent banks a sum of money sufficient to pay all the remaining installments of the contract price, and the builder was ready and willing to perform the contract.
The builder accepted the order. The Fleet Corporation gave directions to the claimant not to make, and to the builder not to accept from claimant, any further payments on account of the contract.
On December 8, 1917, the Fleet Corporation made a contract with the builder and the American International Corporation relating to the completion and disposal of hull No. 193 and other ships requisitioned. It required the builder to complete the ship 'in accordance with the specifications annexed to the respective contracts under which such hulls were being constructed for the former owners prior to August 3, 1917. ...' It also provided that the Fleet Corporation should have credit for all sums theretofore received by the builder from former owners. The Fleet Corporation agreed to indemnify the builder from all loss or liability arising out of claims of the former owners occasioned by the requisition order, or any subsequent acts or orders.
Did the United States requisition claimant's contract?
The act of Congress conferred upon the President the power to take claimant's contract, and also to take the ship materials and the ship in process of construction. It required compliance with all orders issued under it. No question is raised or involved as to the obligation of the builder to comply with orders given it to complete the ship in accordance with the contract. It was ordered to do so, and it accepted the order. We are not here concerned with [265 U.S. 106, 120] its rights or obligations, but the orders given the builder show that expropriation of claimant's contract and rights was intended. By its orders it put itself in the shoes of claimant and took from claimant and appropriated to the use of the United States all the rights and advantages that an assignee of the contract would have had. The credit for, and advantages under the contract resulting from, payment of $419,500, made by claimant to builder were taken. The use of the plans and specifications for the construction of the ship as well as the benefit of inspection prior to the requisition date, August 3, 1917, were also taken over. The contract was not terminated. The direct and immediate result of the requisition orders and acts of the Fleet Corporation was to take from claimant its contract and its rights thereunder. Because of material ordered and furnished and work performed prior to requisition, the United States was enabled to obtain the ship earlier than it could have caused a like ship to have been planned and built, and secured the benefit of prices prevailing immediately after the making of the contract, when the builder ordered materials for the construction of the ship. At the time of requisition, costs were higher than the contract prices. At that time, and on February 1, 1918, the date fixed for completion, the value of such ships was greatly in excess of the contract price, and in excess of the amount awarded to claimant plus the amount paid by the Fleet Corporation to the builder.
Omnia Company v. United States, 261 U.S. 502 , 43 Sup. Ct. 437, does not support the contention that claimant's contract was not expropriated. There, claimant had a contract giving it an opportunity to purchase a large quantity of steel plate from a steel company at a price under the market. If the contract had been carried out, large profits would have resulted. Before any deliveries were made, the United States requisitioned the steel company's entire production of steel plate. No specific steel plate had been [265 U.S. 106, 121] appropriated to the contract, and no part of the purchase price had been paid. The action taken by the United States applied to the steel company only and created no relations with the claimant. The contract was not kept alive nor resorted to in order to determine anything involved in the transaction between the United States and the steel company; the benefit of the low prices was not taken; no payments made on account of the purchase price were taken; nothing belonging to the Omnia Company was taken. Damages claimed were held too remote. The differences between that case and this are essential and obvious.
It must be held that the claimant's contract, and its rights and interests thereunder, were expropriated.
Upon what basis is just compensation to be ascertained?
The expropriation enabled the Fleet Corporation to obtain the ship when completed by paying the builder the installments of the contract price remaining unpaid at the time of the requisition. The builder was not entitled to more, because the Fleet Corporation took over the contract and succeeded to the rights of claimant. [265 U.S. 106, 122] The award by the Fleet Corporation was made up of two items: One was stated to be the 'computed value' of material in the yard of the builder at the time of requisition, and the other the amount of progress payments 'in excess of the cost of the materials requisitioned.' The Court of Claims held that the materials were not the property of the claimant, but belonged to the builder, and should not have been taken into account in arriving at the compensation due the plaintiff. But we are of opinion that the amount of claimant's compensation did not depend upon the legal title to the materials during construction; that the progress payments did not constitute the amount claimant was entitled to have, and that the award was erroneous, because of failure to find the value of claimant's contract rights taken.
But plainly there was no requisition of money.
Claimant insists that just compensation is the value of the contract and its rights and interests thereunder, and is measured by the difference between the value of the ship, as found by the court, at the time of the taking and on the date specified for delivery, and the amount which claimant was then required under the contract to pay in order to get the ship.
We think it not permissible so to calculate compensation. It is the sum which, considering all the circumstances-uncertainties of the war and the rest-probably [265 U.S. 106, 124] could have been obtained for an assignment of the contract and claimant's rights thereunder; that is, the sum that would in all probability result from fair negotiations between an owner who is willing to sell and a purchaser who desires to buy.
This court has held in many cases that replacement cost is to be considered in the ascertainment of value,4 but that it is not necessarily the sole measure of or guide to value. We are of opinion that value, so far as material, rather than replacement cost, should be taken into account, for the ascertainment of just compensation. If the ship had been complete and ready for delivery at the time of requisition, claimant's just compensation would be the value of the ship, less the unpaid balance of the contract price. But the ship was not ready, and the builder was not bound to deliver before February 1, 1918. Claimant had a right to its delivery at that time, and the builder was ready to perform the contract. The Court of Claims, being of opinion that claimant's contract was not taken, did not find its value at the time of taking, and failed to find facts from which such value appears. Determination of just compensation is to be based on the fact that claimant's contract and its rights and interest thereunder were expropriated, and that it is entitled to have their value at the time of the taking. The value of [265 U.S. 106, 126] such ships at the time of requisition, and the then probable value at the time fixed for delivery, the contract price, the payments made and to be made, the time to elapse before completion and delivery, the possibility that by reason of the government's action in control of materials, etc., the contractor might not be able to complete the ship at the date fixed for performance, the loss of use of money to be sustained, the amount of other expenditures to be made between the time of requisition and delivery, together with other pertinent facts, are to be taken into account and given proper weight to determine the amount claimant lost by the taking ( The Minnesota Rate Cases, supra, 451 [33 Sup. Ct. 729]; United States v. Chandler-Dunbar Co., 229 U.S. 53, 76 , 33 S. Sup. Ct. 667; Boston Chamber of Commerce v. Boston, 217 U.S. 189, 195 , 30 S. Sup. Ct. 459; Monongahela Navigation Co. v. United States, supra, 343 [13 Sup. Ct. 622]); that is, the sum which will put it in as good a position pecuniarily as it would have been in if its property had not been taken ( United States v. New River Collieries, supra, 343 [43 Sup. Ct. 565]; Seaboard Air Line Ry. v. United States, supra, 305 [43 Sup. Ct. 354]).
Mr. Justice SUTHERLAND took no part in the consideration of this case.
This case is of special importance because of the immense sums involved in similar pending claims. Ten ships-some larger than No. 193- were requisitioned at Camden alone. Speaking with constraint, the findings of the Court of Claims leave much to be desired for ready understanding; but enough appears, I think to support its final judgment.
Through change of name, the Brooks-Scanlon Corporation became successor to Carpenter-O'Brien Company and [265 U.S. 106, 127] party to the written contract of March 28, 1916, under which the New York Shipbuilding Corporation undertook to construct at its Camden Yard a steamship of about eighty-five hundred tons (freighter No. 193), according to designated plans, on or before February 1, 1918; $595,000, payable in installments, was the price first stated; prior to May 25, 1917, because of changes, this was increased to $811,130. The East Coast Transportation Company and the New York Shipbuilding Company were the original contracting parties. The Brooks-Scanlon Corporation acquired the former's interest; the New York Shipbuilding Corporation those of the latter.
'(a) To place an order with any person for such ships or material as the necessities of the government, to be determined by the President, may require during the period of the war and which are of the nature, kind and quantity usually produced or capable of being produced by such person.
'(b) To modify, suspend, cancel, or requisition any existing or future contract for the building, production, or purchase of ships or material.
'(c) To require the owner or occupier of any plant in which ships or materials are built or produced to place at the disposal of the United States the whole or any part of the output of such plant, to deliver such output or part thereof in such quantities and at such times as may be specified in the order.
(d) To requisition and take over for use or operation by the United States any plant, or any part thereof without taking possession of the entire plant, whether the United States has or has not any contract or agreement with the owner or occupier of such plant.
'(e) To purchase, requisition, or take over the title to, or the possession of, for use or operation by the United States any ship now constructed [265 U.S. 106, 128] or in the process of construction or hereafter constructed, or any part thereof, or charter of such ship.
'Hull No. 193; type, cargo; d. w. tons, 8,100; date of contract, 3-28- 16 (assigned 5-24-17).
'Under date of August 23d you advised that this contract had been assigned to you.
'The corporation's district officer having charge of vessels in the district in which the shipbuilders are located has been instructed to take charge, for the corporation, of the completion of vessels now under construction, and has been authorized temporarily to take over your local inspecting officers at their present compensation. Will you please inform the district officer, Mr. G. R. McDermott, at room 302, 1319 F. Street N. W., Washington, D. C., the names of your representatives and their compensation, sending a duplicate to this office. Your co-operation with the corporation is invited.
'The corporation will consider payments to the contractor accruing since the date of requisition, upon the receipt of proper vouchers and adequate information to be forwarded through its district officers.
'You are requested, as soon as possible, to report to the corporation a statement in detail of the payments already made by you on each ship named above prior to the date of the requisitioning, August 3, 1917. This statement should be accompanied by the original vouchers and receipts and should be verified under oath by the proper corporate officer of your company.
'It is the present intention of the corporation to reimburse you promptly, so far as funds are available, for the payments heretofore made to the shipbuilder if after investigation of data submitted by you such payments are found in order and in conformity with the contract requirements.
'At your further and early convenience you are requested to submit to the corporation a statement of such [265 U.S. 106, 131] indirect expenditures as you have made on account of each vessel; for instance, the cost of superintendence, original design, interest on funds already paid, and the like. The matters mentioned will require careful audit, and in addition you may submit any other matters you deem pertinent.
'It will be perceived that the corporation presumes it is addressing this letter to the owners, or responsible representatives of the owners, or persons entitled to receive compensation on account of the requisition of the vessels listed above. The corporation requests that there be included in your response to this letter all evidence of ownership which is necessary to establish the right of those who are entitled to receive the compensation provided by law.
August 22, 1917, the Fleet Corporation, through General Manager Capps, forwarded the following letter to Agent McDermott, and, as directed, the latter promptly delivered a copy thereof to the New York Shipbuilding Corporation with request that it govern itself accordingly.
'The ships now under construction at your plant and referred to above having been requisitioned by the duly authorized order of this corporation and title thereto taken over by the United States, and an order having been placed with you by due authority to complete the construction of said ships with all practicable dispatch, you [265 U.S. 106, 132] are further ordered by the President of the United States, represented by this corporation, to proceed in the work of completion heretofore ordered, in conformity with the requirements of the contract, plans, and specifications under which construction proceeded prior to the requisition of August 3, 1917, in so far as the said contract describes the ship, the materials, machinery, equipment, outfit, workmanship, insurance, classification and survey thereof, including the meeting of the requirements of the said contract and all tests as to efficiency and capacity of the ship on completion, and in so far as the contract contains provisions for the benefit and protection of the person with whom the contract was made, but not otherwise.
'All work will proceed under the inspection of such persons as have been or may hereafter, from time to time, be designated by this corporation for that purpose.
'For the work of completion heretofore and herein ordered the corporation will pay to you amounts equal to payments set forth in the contract and not yet paid: Provided, that on acceptance in writing of this order you agree that on final acceptance of the vessel to give a bill of sale to the United States in satisfactory form, conveying all your right, title, and interest in the vessel, together with your certificate that the vessel is free from liens, claims or equities, with the exceptior of those of the owner, and then only to those set forth in the contract. Compensation to the shipbuilder for expedition and for extra work will, when deemed appropriate, be made the subject of a subsequent order.
'This order applies only to vessels actually under construction and in accepting it the corporation expects you to inform it of the actual stage of construction of each vessel or the part to be assembled therein on the date of requisitioning, August 3, 1917. The corporation reserves the right to decide whether or not a vessel was actually under construction on August 3, 1917, on consideration of the ascertained facts. [265 U.S. 106, 133] 'In replying to this communication, please arrange to specify separately the vessels to which this order refers, and refer to the corresponding contract in sufficient terms for identification of it.
'Please furnish a copy of this to New York Shipbuilding Corporation and ask for an early reply.
'We understand that by the Act of Congress of June 15, 1917, entitled 'An act making appropriations for the Military and Naval Establishments on account of war expenses for the fiscal year ending June 30, 1917, and for other purposes,' and the executive order dated July 11, 1917, made by the President with respect to said act, and transmitted to us by the Emergency Fleet Corporation under date of August 3, 1917, we are under obligation to comply with the order of the Emergency Fleet Corporation dated August 3, 1917, requisitioning ships at this company's plant.
December 8, 1917, the Shipbuilding Corporation and the Fleet Corporation agreed.
'Due to war conditions, such contract prices have proved and will prove to be less than the actual cost of constructing such ships. On August 3, 1917, all of such ships, together with the materials assembled therefor, were requisitioned by the Fleet Corporation, acting in accordance with the provisions of the Urgent Deficiency Act of June 15, 1917, and the executive order of July 11, 1917. The Shipbuilding Corporation by such requisition was directed to complete such ships on behalf of the United States.
The ship was finally completed and delivered September 20, 1918.
Departing from the theory of the complaint, petitioner now maintains that its right and interest in the shipbuilding [265 U.S. 106, 138] contract were expropriated by the United States for public use; that the contract itself was requisitioned, not frustrated; and that compensation must be made for the full value of the contract as of the date when so taken. The Court of Claims denied this demand, but held petitioner should receive the sum of partial payments which it made to the shipbuilder under the contract prior to the requisition order of August 3, 1917, with interest.
I can find no sufficient basis for holding that the Fleet Corporation expropriated the claimant's contract or intended so to do, or consciously assumed liability for the value thereof. Claimant never had either title to or possession of the vessel. It was only a responsible party to an executory contract for construction, always subject to frustration by condemnation of the vessel.
On that date the Shipbuilding Corporation had possession of the ship as well as title thereto. The United States then assumed control and the immediate result was to frustrate the building contract. Frustration by the exercise of the power of eminent domain was an implied condition. The United States became liable to the owner-the Shipbuilding Corporation-for the value of property actually taken. What that value was we need not inquire; the builder accepted the requisition-order and the agreement of December 8th, and does not now seek to recover more.
Certainly, no notice concerning requisition went to the Brooks- Scanlon Corporation prior to the letters of August 18th and 28th, whereas the building contract had been frustrated by taking the ship on August 3d. [265 U.S. 106, 139] The communication of August 22d to the Shipbuilding Corporation referred to the vessels in the yard as having been 'requisitioned under the corporation's order of August 3d, precedent to the final examination of the contract for the vessels in question,' and 'title thereto taken over by the United States,' directed their completion in conformity with contract, etc., which existed on that date, and stated that 'for the work of completion heretofore and herein ordered the corporation will pay to you amounts equal to payments set forth in the contract and not yet paid,' with a certain important proviso.
The reported facts seem inconsistent with any definite purpose by the Fleet Corporation to requisition the contract, [265 U.S. 106, 140] as distinguished from the vessel itself-certainly, there was no apparent reason for any such action. It expressed a purpose to reimburse for payments made under the building contract and to consider such sums when seeking to determine compensation for the shipbuilder. It also demanded that the builder should complete the vessel as provided by the contract. The builder acquiesced, and its rights are not now in controversy. The right of the claimant to reimbursement for the actual payments which it made under the contract prior to frustration is not challenged; it was properly considered in adjusting the sums to be paid to all parties. I can see no sufficient reason for awarding the value of a contract which perhaps might have been realized if the United States had not exercised their clear right to take over the partially completed vessel. No such claim was advanced by the petition; there was ample power in the Fleet Corporation to frustrate the building contract; and there seems no necessity for interpreting its action as accomplishing more. The Fleet Corporation evidently intended to requisition the vessel, and when claimant filed its petition in 1920 it does not seem to have thought the contract had been requisitioned. A few vague and general words used in the hurry of the times and without full information ought not to place an enormous, wholly unnecessary and unanticipated burden on the public treasury.
'The intent and purpose of the Shipping Board was, therefore, to requisition ships under construction, which was done in unmistakable language. It is admitted that the ships under construction, the materials, and so forth in the yard of the New York Shipbuilding Corporation were the property of that corporation, and the title to that property was in the Shipbuilding Corporation alone. Among the ships under construction so requisitioned was hull 193, which the Shipbuilding Corporation was building for the Carpenter-O'Brien Corporation, but it is not contended by the plaintiff that it had any title to or interest in said ship or the materials for its completion. All the interest it had was the right to the delivery of the ship when it should be completed. It follows that the United States did not take or requisition the ship or materials from the Carpenter- O'Brien Corporation nor did the United States take over or requisition the contract which the Carpenter-O'Brien Corporation had with the Shipbuilding Corporation.
'It was made plain to the Carpenter-O'Brien Corporation that the United States did not intend to requisition the contract, for on August 28,1917, after notifying the [265 U.S. 106, 142] Carpenter-O'Brien Corporation that it had taken over and requisitioned this ship from the Shipbuilding Corporation, the Shipping Board by letter of that date, stated what its intention was. A copy of said letter is set forth in full in finding VI. As further evidence showing the intention of the Shipping Board, reference is made to the letter of the board to G. R. McDermott, its officer, and which was communicated to the Shipbuilding Corporation. A copy of this letter is set forth in finding VIII. And as final evidence that the United States did not requisition the contract, and never intended to, the United States entered into a contract with the Shipbuilding Corporation for the completion of all ships under construction in its yard, included in which ships was hull 193, thereby making its own contract for the completion of this ship. This contract is set out in finding XVI. It is true that the plaintiff by reason of the requisitioning of the ship by the United States was deprived of the right to have delivered to it the ship when completed.
The evidence fails to show any definite purpose by the Fleet Corporation to requisition the contract. Up to the time of instituting suit the claimant evidently was unaware of any such requisition. And it seems to me clear enough that the court below rightly concluded that the demand now advanced is without merit.
Mr. Justice SANFORD concurs in this opinion.
'(d) To requisition and take over for use or operation by the United States any plant, or any part thereof without taking possession of the entire plant, whether the United States has or has not any contract or agreement with the owner or occupier of such plant.
'(e) To purchase, requisition, or take over the title to, or the possession of, for use or operation by the United States any ship now constructed or in the process of construction or hereafter constructed, or any part thereof, or charter of such ship.
On $473,710.58 minus $28,433.33, or $445,277.25, from August 3, 1917 ( date of requisition), to February 24, 1920 (date of payment of 75 per cent. of award), $68,350.06.
On $445,277.25 minus $332,012.87, or $113,264.38, from February 24, 1920 to April 23, 1923 (date of judgment), $21,501.35.
[ Footnote 3 ] The figure contended for is $425,000, made up of $419,506, paid by claimant to builder, and $5,500, architect's fee. Nothing is included to cover the value of plans, interest or cost of inspection.
[ Footnote 4 ] Southwestern Telephone Co. v. Public Service Commission, 262 U.S. 276, 287 , 43 S. Sup. Ct. 544, and cases cited; Bluefield Co. v. Public Service Commission, 262 U.S. 679, 689 , 43 S. Sup. Ct. 675; Georgia Railway v. Railroad Commission, 262 U.S. 625, 629 , 43 S. Sup. Ct. 680.

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