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BROOKS-SCANLON CORPORATION v. U S, 265 U.S. 106 (1924)

U.S. Supreme Court

BROOKS-SCANLON CORPORATION v. U S, 265 U.S. 106 (1924)

265 U.S. 106

BROOKS-SCANLON CORPORATION
v.
UNITED STATES.

UNITED STATES
v.
BROOKS-SCANLON CORPORATION.

Nos. 367, 385.
Argued Jan. 8, 1924.
Decided May 12, 1924.

[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.

[265 U.S. 106, 114]  

Mr. Justice BUTLER delivered the opinion of the Court.

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.

On August 3, 1917, the Emergency Fleet Corporation served on the builder its order and notice requisitioning all of the ships, including hull No. 193, under construction in [265 U.S. 106, 117]   the builder's shipyard, and the materials necessary for their completion. The order required the builder to complete the ships. It stated that compensation would be paid for 'ships, materials and contracts requisitioned.' The builder was required to furnish plans and specifications of the requisitioned ships, and a statement of the payments made and amounts still due, and other information 'necessary to a fair and just determination of the obligations of the Emergency Fleet Corporation in taking over these ships and contracts.'

On August 22, the Fleet Corporation caused its district officer to deliver to the builder a formal written notice, which recited that the ships had been requisitioned, and that an order had been given the builder to complete them, and ordered the builder to 'proceed ... in conformity with the requirements of the contract, plans and specifications under which construction proceeded prior to the requisition of August 3, 1917 . ...' and stated:

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 August 28, the Fleet Corporation notified the claimant that it had issued to the builder notice of requisition, and inclosed a copy. The letter advised that the Fleet Corporation's district officer had been authorized to take over claimant's inspection officers. It requested a verified statement of the payments made to the builder prior to requisition. It said:

In requested [265 U.S. 106, 118]   a statement of indirect expenditures, such as the cost of superintendence, original design and interest on funds already paid, and said that the owner might submit any other matters deemed pertinent; that it presumed that it was addressing those entitled to receive compensation on account of the requisition of the vessels, and asked that there be included in claimant's answer 'all evidence of ownership which is necessary to establish the right of those who are entitled to receive the compensation provided by law.'

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.

January 23, 1920, the Fleet Corporation awarded claimant $442,683.82 as just compensation. It paid the builder for construction of the ship $ 412,130, which, added to the award, makes $854,813.82. This would be the total cost to it of the ship, if its award as to compensation were accepted. The contract price was $831,630. The cost of construction for military protection was $31,000. The Court of Claims found that at the time of the requisition, the value of such ships was $200 per deadweight ton, and was the same on February 1, 1918. The Court of Claims also found that claimant had paid to the builder $239,500 in cash, $180,000 in notes, and $28,433.33 interest on notes, [265 U.S. 106, 119]   making $447,933.33, and that it also paid architect's fees amounting to $5, 500, and furnished plans and specifications of the value of $20,277.25, making in all $473,710.58. The amount of the award was unsatisfactory to claimant, and 75 per cent. of it, $332,012.87, was paid. The judgment was for $231,549.12.2

Both parties appeal.

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.

The situation in this case is well stated in the dissenting opinion of the Chief Justice of the Court of Claims:

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.

The judgment of the Court of Claims was based upon the assumption that the money paid by claimant in furtherance of planning and building the ship was expropriated. In the opinion, it is said:

But plainly there was no requisition of money.

The United States contends that nothing whatever was requisitioned from the plaintiff, and that the judgment should be reversed and the claim dismissed unless claimant shall be held entitled to compensation for cancellation of its contract, and that, in such event, it should have judgment only for an amount sufficient with what already has been paid to it to make up 'the amount actually invested in the ship taken.' 3 As we hold that claimant's contract rights were expropriated, it is not necessary to consider what would be just compensation in case of mere cancellation of the contract. [265 U.S. 106, 123]   The contract rights of claimant taken are to be distinguished from its expenditures for the production of the ship. The value of property may be greater or less than its cost; and this is true of contract rights and other intangibles as well as of physical things. It is the property and not the cost of it that is protected by the Fifth Amendment. The Minnesota Rate Cases, 230 U.S. 352, 454 , 33 S. Sup. Ct. 729, 48 L. R. A. (N. S.) 1151, Ann. Cas. 1916A, 18. By the taking, the claimant lost and the United States obtained the right to have the completed ship delivered to it on or before February 1, 1918, upon payment of the installments remaining to be paid under the contract. It is settled by the decisions of this court that just compensation is the value of the property taken at the time of the taking. Vogelstein & Co. v. United States, 262 U.S. 337, 340 , 43 S. Sup. Ct. 564; United States v. New River Collieries, 262 U.S. 341, 344 , 43 S. Sup. Ct. 565; Seaboard Air Line Ry. v. United States, 261 U.S. 299, 306 , 43 S. Sup. Ct. 354; Monongahela Navigation Co. v. United States, 148 U.S. 312, 341 , 13 S. Sup. Ct. 622. And, if the taking precedes the payment of compensation, the owner is entitled to such addition to the value at the time of the taking as will produce the full equivalent of such value paid contemporaneously. Interest at a proper rate is a good measure of the amount to be added. Seaboard Air Line Ry. v. United States, supra; United States v. Benedict 261 U.S. 294, 298 , 43 S. Sup. Ct. 357; United States v. Brown, 263 U.S. 78 , 44 Sup. Ct. 92, 68 L. Ed. --, decided November 12, 1923

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.

In re Mersey Docks and Admiralty Commissioners, [265 U.S. 106, 1920]   3 K. B. 223, is a case quite similar to this. There, the admiralty requisitioned a barge nearing completion, altered her construction, and paid, or undertook to pay, the builder the original contract price. It was impossible for the board, for whom the barge was being constructed, to replace her by another at a cost less than three times the contract price of the original barge. By agreement, the ascertainment of compensation to be paid by the admiralty to the board was referred to an arbitrator. The board claimed the difference between the contract price and cost of replacing the barge, regard being had to the fact that replacement would be impossible for three years, and also claimed compensation for loss of services during the period required for replacement. The admiralty contended that the measure of compensation should be the difference between the contract price and value of the vessel when taken. A special case was stated by the arbitrator. The Earl of Reading, Lord Chief Justice, gave judgment, and held that the board was entitled to recover the difference between the contract price and the increased cost of replacing the barge; that the board was not entitled to any compensation for loss of services, the damage being too remote. He said (page 233):

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]).

Reversed and remanded for further proceedings in conformity with this opinion.

Mr. Justice SUTHERLAND took no part in the consideration of this case.

Separate Opinion of Mr. Justice McREYNOLDS.

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.

The Act of Congress approved June 15, 1917, c. 29, 40 Stat. 182, provides:

(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.

July 11, 1917, the President delegated his powers granted by the statute, to the United States Shipping Board Emergency Fleet Corporation- the 'Fleet Corporation.' Purporting to act as thus authorized, and referring to ten vessels then under construction at the Camden Yard, the Fleet Corporation notified the New York Shipbuilding Corporation, August 3, 1917:

August 18, 1917, the Fleet Corporation addressed a letter to the East Coast Transportation Company (predecessor of Brooks-Scanlon Corporation) giving notice of the requisition order of August 3d, and on August 28, 1917, served on the Carpenter-O'Brien Company a substantially identical letter, which stated:

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.

Very truly yours,

Replying, September 20, 1917, the Shipbuilding Corporation advised the Emergency Fleet Corporation:

September 13, 1917, the Fleet Corporation telegraphed the Shipbuilding Corporation:

December 8, 1917, the Shipbuilding Corporation and the Fleet Corporation agreed.

The amended petition, filed June 12, 1920-prior to our decision of Omnia Commercial Company v. United States, 261 U.S. 502, 513 , 43 S. Sup. Ct. 437-and upon which the cause was tried, alleges:

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.

The order of August 3d, addressed only to the Shipbuilding Corporation, plainly recites that:

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.

On September 20th the Shipbuilding Corporation recognized that the ship had been requisitioned by the order of August 3d and promised to complete upon payment of compensation named in original contract and 'such additional compensation as may be agreed upon.'

The telegram of September 13th referred to 'requisitioned ships.' The contract of December 8th recites that 'on August 3, 1917, all of such ships, together with the materials assembled therefor, were requisitioned by the Fleet Corporation.'

The notices addressed to East Coast Transportation Company and Carpenter-O'Brien Company, August 18th and 28th, indicate that on August 3d the Fleet Corporation was unaware of the parties to or the terms of the building contract. These notices declared a purpose to 'consider payments to the contractor accruing since the date of requisition,' and an intention 'to reimburse you promptly, so far as funds are available, for the payments heretofore made to the shipbuilder,' and further:

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 amended petition upon which the cause was tried proceeds upon the theory that claimant was owner of the vessel; that prior to August 3, 1917, the builder had duly contracted for all necessary material and supplies to complete the ship, performed much labor thereon, and had paid for all these things out of moneys received from the owner. It distinctly alleges:

That the Fleet Corporation, 'by its order of August 3, 1917, on behalf of the United States, took over all the property of the claimant in or under said contract, including the said ship under construction [265 U.S. 106, 141]   and all materials, machinery, equipment, outfit and commitments therefor, and all labor performed thereon necessary for its completion, meaning thereby everything in existence and as expressed in said order 'required to complete the construction of said requisitioned ships under construction.' ... That said requisition order was fully complied with and all of the property of said owner, the claimant herein, hereinbefore described, was taken by the said United States Shipping Board Emergency Fleet Corporation for and on behalf of the United States, and was thereafter retained by and used for the purposes of the United States as provided by law.'

The court below-rightly, I think-declared:

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.

Footnotes

[ Footnote 1 ] 'The President is hereby authorized and empowered ...

[ Footnote 2 ] Claimant paid out:

Architect's fees $ 5,500 00 Cash to builder 239,500 00 Notes to builder 180,000 00 Interest on notes 28,433 33 ___ Total $453,433 33 Value of plans and specifictions 20,277 25 ___ $473,710 58 Less 75 per cent. of award 332,012 87 ___ Balanace $141,697 71

Interest was computed and allowed as follows:

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.

Total of interest $ 89,851 41 Added to 141,697 71 ___ Produces amount of judgment $231,549 12

[ 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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