Petition for Writ of Certiorari — Henjes v. United States

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MAR 27 1950

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SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1949

No. 705

HELEN K. HENJES anp EDMUND F. BOWEN, as

Executors or THE Last Witt anv TESTAMENT oF Gerp

H. Henses, Deceasep, anp HENJES MARINE, INC.,

a CoRPORATION, Potltionere,

vs.

THE UNITED STATES

PETITION FOR WRIT OF CERTIORARI TO THE

COURT OF CLAIMS

Epmunp F. Lams,

Counsel for Petitioner.

Euus, Hovucnton & Eis,

Of Counsel.

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TABLE oF Cases CITED

Brooks-Scanlon Corp. v. United States, 265 U.S. 106. 9,11

Cooke v. United States,91 U.S. (1 Otto) 389... 20

S

wie 20h yc aay areas 0

Long Island Water Supply Co. v. City of Brooklyn,

ee 9,12

Lynch v. United States, 292 U. S. ER 9, 16, 20

Monogahela Navigation Co. vy. United States, 148

ee ete iat 9, 11, 12, 16, 22

Muschany v. United States, 324U.8.49..... 17, 22

Omnia Commercial Company v. United States, 261

ES teehee 11

Reading Steel Casting Co. v. United States, 268 U.S.

neni og 20

United States v. Bostwick, 94 U.S. (4 Otto) 53... 20

United States v. Cors, 69S. Ct.1086....... 22

Union Pacific Railroad Co. vy. United States, 99 U.S.

Mee ce 20

Statutes Crrep

Merchant Marine Act, 1936, as amended 46 U.S.C.

ere 24

28 U.S.C. 1255 (See. 3 (b) Act of February 13, 1925,

$0959 cine a RL ee oe oe ane 2

—7527

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SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1949

No. 705

HELEN K. HENJES ann EDMUND F. BOWEN, as

ExecutTors oF THE Last WILL aNp TESTAMENT OF GERD

H. HenJes, Decrasep, anp HENJES MARINE, INC.,

a CORPORATION,

Petitioners, |

against

THE UNITED STATES

PETITION FOR A WRIT OF CERTIORARI TO THE

COURT OF CLAIMS

The petitioners, Helen K. Henjes and Edmund F. Bowen,

executors of the last will and testament of Gerd H. Henjes,

deceased, and Henjes Marine, Inc., pray that a Writ of

Certiorari issue to review the judgment of the Court of

Claims entered in the above entitled case on January 3,

1950.

Opinion Below

The opinion of the Court of Claims (R. 18-31) is reported

in 87 F. Supp. 780.

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2

Jurisdiction

The judgment of the Court of Claims was entered on

January 3, 1950 (R. 32). The jurisdiction of this Court

is invoked under the provisions of 28 U. S. C. 1255 (See,

3 (b) of the act of February 13, 1925, as amended).

Statement

This is a suit to recover just compensation for the

taking by the United States of title to and possession of

the diesel tug Roperr Henses on August 1, 1942. The tug

Rosert Henses was owned by Gerd H. Henjes, deceased,

who was also the owner of all the capital stock of Henjes

Marine, Ine., a New York corporation (R. 19). Prior to

February 25, 1942, the Roserr HeNJEs was operated by

Henjes Marine, acting as the agent of Gerd H. Henjes

(R. 20).

On February 25, 1942, the tug was delivered to con-

tractors performing work for the Navy Department at

Floyd Bennett Field, Brooklyn, New York (R. 20). These

contractors, White Construction Co., Ine., Underpinning

& Foundation Co., Inc. and Riggs, Distler & Co., Inc., had,

on December 17, 1941, entered into a cost-plus-a-fixed-fee

contract with the United States, acting through the Chief

of the Bureau of Yards and Docks of the Navy Depart-

ment, for the expansion of facilities at the Navai Air

Station, Floyd Bennett Field, New York. The contract is

known as Navy Contract NOy-5176 (R. 20). This contract

recited that the parties thereto, being the United States of

America and the said contractors, ‘‘with the intent and

purpose to accomplish certain projects hereinafter men-

tioned within the shortest practicable time by cooperative

mont * * * & mutually agree as follows”? (R.12). The

contract provided that the work in the field on behalf of the

government should be in charge of an officer designated

, ae

by the Contracting Officer, and that no equipment costing

in excess of $200.00 should be purchased by the Contractors

and that no equipment should be leased by them at a

rental of more than $100.00 a month except by approval in

writing of the Contracting Officer or his representative.

This contract remained in full force and effect during

all of the times herein involved (R. 20).

This contract also provided that in addition to the

fixed fee to be paid to the contractors, the contractors

should be paid the actual net cost of the materials actually

furnished and the services and labor actually performed

under the terms of the contract (R. 14-15) ; it being stated

to be the intent of the contract that the contractors shall

be reimbursed for all out-of-pocket expenditures made by

the contractors for or on account of the contract ‘‘which

are specifically or impliedly authorized, sanctioned or ap-

proved by the Contracting Officer or by his direction,’’

and that ‘‘actual net cost’’ will include ‘the amount of

rental approved by the Contracting Officer for plant and

equipment owned or procured by the Contractors”? under

the provisions of the contract, ‘‘for use in connection with

the work’’ under the contract (R. 15).

On March 11, 1942, the contractors, with the written

approval of the officer-in-charge under Navy Contract

NOy-5176, entered into a written contract with Henjes

Marine, Ine. for the charter or lease of the tug Roperr

Henyes at the rent of $100.00 per 24-hour day. This char-

ter was on a bare-boat basis under which the contractors

agreed to furnish the crew and pay all other expenses of

operation. There was no specified term in the lease and

the contractors reserved the right to terminate the lease

at any time that it appeared to the Government’s advan-

tage to do so. However, it was further specifically pro-

vided that unless the title to the equipment passed to the

a

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4

Government at an earlier date, the rental period would

terminate when the equipment was removed from the site

of the work, provided this was done within a reasonable

time after notice from the contractors or the officer-in-

charge that the equipment was no longer required (R. 21).

There was contained in the charter agreement a specific

provision requiring the lessor to deliver title to the equip-

ment to the Government when and if the total rental paid

for the equipment should equal the valuation thereof

plus 1% per month for each month or fraction thereof

such piece of equipment had been in use, and whereby

upon completion of the work performed by any piece of

equipment under Navy Contract NOy-5176 or upon ter-

mination of the charter, as otherwise provided in the

charter, the Government might, at its option, purchase

any piece of equipment by paying to the lessor the differ-

ence between the valuation thereof plus 1% per month for

each month or fraction thereof such piece of equipment

had been in use, and the total rentals which had been paid

for such piece of equipment. By the charter agreement,

the tug was appraised at $100,000.00 (R. 21).

While the tug Roserr Henses was working under this

charter agreement upon the expansion of the facilities at

Floyd Bennett Field under Navy Contract NOy-5176, on

July 20, 1942, a Procurement Officer of the Navy Depart-

ment requested the War Shipping Administration to requi-

sition title to the tug. The request was made, as stated

therein, ‘‘by the Naval Air Station, Floyd Bennett Field,

New York. Tug to be acquired by the Navy and turned

over to Officer-in-Charge, Contract No. NOy-5176, Naval

Air Station, Floyd Bennett Field, New York, for further

transfer to the contractor under charter agreement’’ (R.

22). In accordance with this request on August 1, 1942, the

War Shipping Administration acting pursuant to Section .

__ —

902 of the Merchant Marine Act of 1936, requisitioned

title to and possession of the tug Rosert HenJes together

with all her tackle, apparel, spare parts, gear and equip-

ment, stores and supplies on board, and simultaneously

delivered the vessel at its then iocation at Floyd Bennett

Field to the Navy Department, and the vessel was there-

after continued in use for the expansion of the facilities

at Floyd Bennett Field under Navy Contract NOy-5176 to

and including January 23, 1943 (R. 22). No notice had

been given by the contractors or by the officer-in-charge

under Navy Contract NOy-5176 terminating the charter

or requesting the removal of the tug from the site of the

work.

If the Ropert Henges had not been requisitioned on

August 1, 1942, the plaintiff, Henjes Marine, Inc. would

have earned bare-boat rental amounting to $15,100.00 for

the continued use of the tug on the expansion of facilities

| at Floyd Bennett Field under Navy Contract NOy-5176 up

until January 23, 1943 (R. 25).

If the Government on August 1, 1942, exercised the

option to purchase the tug granted it by Article VII of

the charter agreement, the price which it would be required

to pay is $91,900 (R. 25).

: On October 5, 1942, the War Shipping Administration

| wrote Gerd H. Henjes advising that it had appraised the tug

at the sum of $51,781.00 and offered him that amount as

|

5

just compensation for the vessel (R. 23). This offer was

declined, whereupon the Government advised Mr. Henjes

that he had the privilege of accepting 75% of that amount

and suing the United States to recover such additional sum

as would be just compensation. After considerable corre-

spondence between the parties, during which Mr. Henjes

insisted upon his right to recover compensation in accord-

ance with the terms of the charter agreement, an arrange-

_—_—a

6

ment was worked out whereby Mr. Henjes was paid the sum

of $38,835.75, being 75% of $51,781.00, reserving to him

the right to sue the United States for such additional sum

as ‘‘will make up such amount as will be just compensation

for the vessel as provided by the Constitution and Laws

of the United States’’ (R. 24). Immediately thereafter,

Henjes Marine instituted suit in the Supreme Court of the

State of New York against White Construction Co., Inc,

Underpinning & Foundation Co., Inc., and Riggs, Distler &

Company, Inc., the contractors under Navy Contract NOy-

5176, to recover the amount of $15,100 for the use of

the tug from August 1, 1942 to January 23, 1943, in accord-

ance with the terms of the charter agreement of March 11,

1942. The contractors were defended in that action by the

United States Attorney, and after a trial of the issues by

the Court without a jury, a judgment was entered dismiss-

ing the complaint on the ground that the taking of the

vessel by the Government effectuated a frustration of the

contract between Henjes Marine and the said contractors

(R. 24-25). The present action followed.

In the present action, the plaintiffs have contended that

they were entitled to be paid as just compensation the

amount which the Government would have been required

to pay for the tug Ropert HenJes as upon the exercise

of the option to purchase under Article VII of the charter

agreement, $91,900.00, less the prior payment of $38,835.75;

alternatively that they should be paid as part of just com-

pensation, in addition to the value of the tug, determined

aliunde the charter agreement, the sum of $15,100.00—the

value of the bare-boat charter hire which would have been

earned by the tug under the charter agreement until the

completion of her work at Floyd Bennett Field under Navy

Contract NOy-5176, had not the tug been requisitioned on

August 1, 1942 (R. 29-30).

The Court of Claims rejected both these contentions (R.

30) and held that the value of the Roserr Henves on the

date of requisition, exclusive of any enhancement in value

due to the causes necessitating the taking, was $60,000.00

(R. 27). Judgment was entered accordingly (R. 32).

7

Statutes Involved

The pertinent portions of the Merchant Marine Act, 1936,

as amended, 46 U.S. C. 1242, are set forth in an appendix

hereto, pu. 24-25.

Contract Provisions Involved

The applicable articles of the charter agreement between

the Henjes Marine, Inc. and the Navy contractors covering

the tug Ropert Henges provide as follows (R. 8-9):

ArticLte IV

The Lessor shall initiate shipment of the equipment

to the site of the work immediately. It is estimated

that the equipment will be used for approximately ....

working hours, but the Lessee reserves the right to

increase or decrease the rental period, or to termi-

nate at any time that it appears to the Government’s

advantage to do so, and payment of rentals then due

shall constitute payment in full.

ARTICLE V

A. The Lessor shall be paid at the rate prescribed

in Schedule ‘‘A’’ attached hereto and made a part

hereof. The rental period shall begin on the delivery

of such equipment to a common carrier for shipment

to the site of the work, as evidenced by bill of lading

covering such shipment or other evidence satisfactory

to the Officer-in-Charge, and shall terminate, unless

tile to the equipment passes to the Government at an

earlier date, on the date of removal of such equipment

from the site of the work, as evidenced by a receipt

signed by the Lessor, provided such equipment is re-

8

moved within a reasonable length of time after notice

by the Lessee or the Officer-in-Charge to the Lessor

that such equipment is no longer required. If the

equipment is not removed within a reasonable length

of time, the rental shall terminate on the date of the

notice that such equipment is no longer required. * * *

Articte VII

The Lessor shall deliver to the Government title to

any piece of equipment free of all liens and encum-

brances when and if the total rental paid to the Lessor

for such piece of equipment shall equal the valuation

thereof, plus one percent per month for each month or

fraction thereof such piece of equipment has been in

use, and at the completion of the work performed (by

any piece of equipment) under the principal Contract

or upon termination of the contract as provided in

Article VI, the Government may at its option purchase

any piece of equipment by paying to the Lessor the dif-

ference between the valuation of such piece of equip-

ment plus one percent per month for each month or

fraction thereof such piece of equipment has been in

use and the total rentals theretofore paid for such

piece of equipment, provided that if such payment is

made by the Government, the Lessor shall deliver to

the Government title to such piece of equipment free

of all liens and encumbrances.

Questions Presented

1. Where the United States takes property, which has

been leased to a contractor employed by the Government to

perform by cooperative effort with a department of the

Government work authorized by Congressional appropria-

tion, for the express purpose on the part of the United

States of re-leasing the property to the contractor for use in

the performance of the authorized work, must not the

United States pay as the ‘‘just compensation’’ required

by the Fifth Amendment, damages of appropriation for

9

the taking of the lease in addition to the value of the prop-

erty taken?

9. Where the United States, in the exercise of its para-

mount powers, takes property which it has an existing option

to purchase at a stipulated price, is not, the price stated in

the option agreement the measure of just compensation

under the Fifth Amendment?

Reasons for Granting the Writ

1. What was here taken was not merely the tug Rosert

Henses but the contract with the contractors under Navy

Contract NOy-5176. The tug Roperr Henses was requi-

sitioned at the specific request of the Navy Department for

the express purpose of being simultaneously transferred to

the Navy and turned over to the officer-in-charge under

Navy Contract NOy-5176 ‘‘for further transfer to the con-

tractor under charter agreement’’ (R. 22). Such a trans-

fer to another department of the Government is specifically

authorized by See. 902 (e) of the Merchant Marine Act

(Appendix, p. 24, infra). The tug actually continued to

be employed in connection with the expansion of the fa-

cilities at Floyd Bennett Field under Navy Contract NOy-

5176 to and including January 23, 1943 (R. 22). In holding

that under such circumstances the damages which plaintiff

suffered by the loss of charter hire which it otherwise

would have earned ‘‘were damages of frustration and not

of appropriation, and are not compensable,’’ the decision

of the Court of Claims is in conflict with the decisions of

this Court in Brooks-Scanlon Corp. v. United States, 265

U. S. 106; Monongahela Navigation Co. v. United States,

148 U. S. 312; Long Island Water Supply Co. v. City of

Brooklyn, 166 U. S. 685; and Lynch v. United States, 292

U. S. 571. The decision of the Court of Claims is also in

conflict with the rationale of this Court’s recent decision

7

10

in Kimball Laundry Company v. United States decided

June 27, 1949, 93 (No. 17) L. Ed. Adv. Op. 1420.

In the Brooks-Scanlon case, the Government requisi-

tioned a number of ships under construction in the ship-

yard of New York Shipbuilding Corporation, among which

was a hull known as #193 which the shipbuilding corpora-

tion was under contract to construct for the claimant. The

requisition order required the shipyard to complete con-

struction for the Government, and the Government subse-

quently entered into a contract with the shipyard for the

completion and disposal of the said hull. The Fleet Cor-

poration awarded the claimant as just compensation the

amount of payments previously made to the shipbuilder and

the Court of Claims slightly increased the award following,

however, the same method of ascertaining just compensa-

tion. This Court held that by the taking of the uncompleted

hull and entering into a contract with the shipbuilder to

complete the hull in accordance with the claimant’s contract

with some modifications, the Government expropriated the

claimant’s contract and that the claimant was entitled to

be compensated for the value of his contract and not merely

for the monies which he had expended and the plans and

specifications which had been taken over by the Govern-

ment, saying (265 U. S. 120):

‘‘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.’’

and further (at P. 121):

‘*It must be held that the claimant’s contract and

its rights and interests thereunder, were expropriated.”’

The Court of Claims in the present case cited for its

ruling that the damages sustained by petitioner were dam-

a

11

ages of frustration and not of appropriation, the decision

of this Court in Omnia Commercial Company v. United

States, 261 U. 8. 502. In that case it was not the claimant’s

contract which was appropriated but the product of a steel

mill not owned by the claimant. The facts were that

claimant had made a contract with a steel mill for its entire

output but while the contract was still entirely executory,

no steel having been delivered, none having been appro-

priated to the contract and no part of the purchase price

having been paid, the Government requisitioned the steel

company’s entire production. The requisition was made

not for the purpose of completing or performing the steel

mill’s contract with the claimant but for other use. Re-

covery was denied to the claimant in that case because

nothing belonging to the claimant had been taken. The

distinction between the Omnia case and the present one is

well pointed out in the decision of this Court in the Brooks-

Scanlon case at 265 U. S. 120, 121.

Moreover, the Omnia case itself specifically recognizes

the obligation of the Government to make compensation for

the taking of a contract as well as any other property for

public use, saying (261 U. S. 510):

‘Tf, under any power, a contract or other property

is taken for public use, the government is liable; but if

injured or destroyed by lawful action, without a taking,

the government is not liable.’’

In the present case the Government took plaintiff’s con-

tract with the Navy contractors just as truly as it took the

claimant’s contract in the Brooks-Scanlon case.

That mere compensation for the physical value of the

thing taken is not the measure of just compensation, where

by the taking the owner is deprived of and the Government

acquires rights of value in addition to the thing itself, is

firmly established by the decisions of this Court in Monon-

12

gahela v. Umted States, 148 U. S. 312, and Long Island

Water Supply Co. v. City of Brooklyn, 166 U. S. 685.

In the Monongahela case, the United States, by condem-.

nation proceedings, appropriated a lock and dam of the

Monongahela Navigation Company located on the Monon-

gahela River near Pittsburgh, Pennsylvania. The Act of

Congress pursuant to which the appropriation was made

provided, ‘‘That in estimating the sum to be paid by the

United States, the franchise of said corporation to collect

tolls shall not be considered or estimated’’ (148 U. S. 313),

An award was made to the plaintiff in the condemnation pro-

ceeding pursuant to the proviso of the said Act in the amount

of $209,000.00 ‘‘not considering or estimating in this de-

cree the franchise of this company to collect tolls’’ (p. 319).

This Court held that it was not ‘‘concluded by the declara-

tion in the Act that the franchise to collect tolls is not to

be considered in estimating the sum to be paid for the prop-

erty’’ (p. 328); and held that the Government was re-

quired to pay as just compensation under the Fifth Amend-

ment, not merely the value of the physical property taken

but also the value of the franchise to collect tolls; saying

(p. 341):

‘‘The theory of the government seems to be, that the

right of the Navigation Company to have its property

in the river, and the franchises given by the state to

take tolls for the use thereof, are conditional only, and

that whenever the government in the exercise of its

supreme power assumes control of the river, it de-

stroys both the right of the company to have its prop-

erty there, and the franchise to take tolls. But this

is a misconception. The franchise is a vested right.

The state has power to grant it. It may retake it, as it

may take other private property, for public uses, upon

the payment of just compensation. A like, though a

superior, power exists in the national government. It

may take it for public purposes, and take it even against

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13

the will of the state; but it can no more take the fran-

chise which the state has given than it can any private

property belonging to an individual.’’

and further (p. 343): ;

‘Tt is also suggested that the government does not

take this franchise; that it does not need any authority

from the state for the exaction of tolls, if it desires to

exact them; that it only appropriates the tangible

property, and then either makes the use of it free to

all, or exacts such tolls as it sees fit, or transfers the

property to a new corporation of its own creation, with

such a franchise to take tolls as it chooses to give. But

this franchise goes with the property; and the Naviga-

tion Company, which owned it, is deprived of it. The

government takes it away from the company, whatever

use it may make of it; and the question of just com-

pensation is not determined by the value to the govern-

ment which takes, but the value to the individual from

whom the property is taken; and when by the taking

of the tangible property the owner is actually deprived

of the franchise to collect tolls, just compensation re-

quires payment, not merely of the value of the tangible

property itself, but also of that of the franchise of

which he is deprived.’’

In the Long Island Water Supply case, the City of Brook-

lyn pursuant to statutory authority condemned the physical

properties and franchise of the Water Supply Company,

which at the time had a contract with the City as the suc-

cessor to the town of New Lots, for the providing of water

for which it was paid a fixed fee for each hydrant. The

condemnation was opposed by the Water Supply Company

on the ground that the legislative act authorizing the con-

demnation was a law impairing the obligations of contract.

In affirming the decision of the New York Court of Appeals

upholding the condemnation, this Court said (166 U.S. 690) :

‘‘Second, a contract is property, and, like any other

property, may be taken under condemnation proceed-

14

ings for public use. New Orleans Gaslight Co. v. Loui-

siana Light & H. P. & Mamufacturing Co., 115 U. 8.

650, 673. Its condemnation is of course subject to the

rule of just compensation * * *.’’

Similarly in the instant case the plaintiff had a subsist-

ing contract whereby it was to receive a fixed bare-boat

charter. rental per day for the use of its tug on a govern-

ment project which was in process but far from completion.

The plaintiff had a continuing right to receive such bare-

boat charter hire as long as the tug continued to be em-

ployed on the project. The Government took the tug and

with it, the right to collect charter hire for the use of the

tug while it continued to be employed on the project; for

it took the tug for the express purpose of continuing it

under charter to the contractors. If the taking in the

instant case were for a public use not related to the proj-

ect upon which the tug was then employed, a different prob-

lem would be presented. The owner of the tug could conceiv-

ably carry on his business with the contractor by substitut-

ing an equivalent tug to perform the contract. But here

he was deprived of that opportunity; for it was not only

his tug but also his contract which was taken. The situa-

tion is analogous to that existing where the Government

condemns business property with the intention of carrying

on the business where, as noted by this Court in its recent

decision in Kimball Laundry Company v. United States,

supra, the taker is obligated to pay not merely for the

value of the physical property taken but also for the going-

concern value. As this Court also noted in the Kimball

Laundry case, where the owner is allowed no more for the

taking of fee title to business property than the value of

the physical property, it is upon the justification that the

going-concern value has not been taken because the owner

is left free to move his business to a new location. Although

in the Kimball Laundry case there was not a taking of fee

_

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title but merely a taking of temporary use, the rationale

upon which this Court proceeded in holding that ‘‘since

the Government for the period of its occupancy of peti-

tioner’s plant has for all practical purposes preempted

the trade routes, it must pay compensation for whatever

transferable value their temporary use may have had,’’ is

equally applicable here. The rationale of that case is that

an ‘‘exercise of the power of eminent domain which has

the inevitable effect of depriving the owner of the going-

concern value of his business is a compensable ‘taking’ of

property.’’ The tug Roserr Hensges in the instant case

was a business property having a going-concern value in

the sense that at the time of the taking it had a subsisting

earning capacity, free and clear of expenses, of $100.00

per day. That going-concern value was taken by the Gov-

ernment in the instant case just as much as the res itself,

since by the taking under the circumstances here present

the owner was deprived of the opportunity of substituting

other property (the equivalent of moving his business to

a new location) to continue to realize the going-concern

value of his business.

15

In denying the plaintiffs below any recovery for the

loss of rental or lease monies which they sustained, the

Court of Claims points to the fact that the charter agree-

ment was for an indefinite term and stipulated that it

could be terminated at any time it appeared to the Govern-

ment’s advantage to do so (R. 30). The termination,

however, which was envisaged by the contract was a ter-

mination by return of the equipment to the owner (Article

V of the Charter Agreement, R. 8); it was not a termina-

tion by the taking of title to the equipment unless title were

taken pursuant to the option provided for in Article VII

(R. 9). To treat the taking of the title to the tug, unless

the Government thereby exercised its purchase option, as

“=

= ai

16

a termination of the charter contract in accordance with its

terms, is to prefer the form to the substance.

As this Court ‘said respecting the Fifth Amendment,

writing by Mr. Justice Brewer in Monongahela v. United

States (148 U. 8. 312, 325):

‘‘And with respect to constitutional provisions of

this nature it was well said by Mr. Justice Bradley,

speaking for the court, in Boyd v. United States, 116

U. S. 616, 635, ‘Illegitimate and unconstitutional prac-

tices get their first footing in that way, namely, by

silent approaches and slight deviations from legal

modes of procedure. This can only be obviated by

adhering to the rule that constitutional provisions for

the security of person and property should be liberally

construed. A close and literal construction deprives

them of half their efficacy, and leads to gradual de-

preciation of the rights, as if it consisted more in sound

than in substance. It is the duty of courts to be

watchful for the constitutional rights of the citizen,

and against any stealthy encroachments thereon.

Their motto should be obsta principits’.’’

Rights against the United States, arising out of contract,

have the same constitutional protection under the Fifth

Amendment as other contracts. Said this Court in Lynch

v. United States, 292 U.S. 571, 579:

‘‘The Fifth Amendment commands that property

be not taken without making just compensation. Valid

contracts are property, whether the obligor be a

private individual, a municipality, a State or the

United States. Rights against the United States

arising out of a contract with it are protected by the

Fifth Amendment. United States v. Central P. R.

Co., 118 U. 8. 235, 238, 30 L. ed. 173, 174, 6 S. Ct. 1038;

United States v. Northern P. R. Co., 256 U. S. 51, 64,

67, 65 L. ed. 825, 828, 830, 41 S. Ct. 439.”’

2. The decision of the Court of Claims in rejecting peti-

tioners’ claim to the option price of the tug as stipulated

_ ——e

17

in the charter agreement or lease, is in direct conflict with

the decision of this Court in Muschany v. United States,

324 U.S. 49.

The Court of Claims has attempted to distinguish the

Muschany case from the present one on the ground that

in the Muschany case the contract was directly with the

Government and stipulated that if condemnation was re-

sorted to, the option price should measure the land owner’s

compensation, while there is no such obligation found in the

instant case (R. 30). Petitioners urge that the attempted

distinction is invalid.

The contract for the leasing by the Navy Contractors

of the tug Ropert Hengezs, entered into with the authoriza-

tion and approval of the contracting officer of the Navy

(R. 10), was as much a contract of the United States as if

it had been made and entered into directly between the

plaintiff and the Navy Department.

The charter party or lease of the tug Ropert HenJes in

the instant case could only be entered into by the contractors

with the authorization and approval of the contracting officer

of the Navy in charge (R. 12-13). The agreement, by its

terms, was made subordinate to the principal contract (Navy

Contract NOy-5176), and it was entered into for the use and

benefit of the United States (R.7). It was terminable when

it appeared to the advantage of the Government to terminate

it (R. 8) and it contained an express provision binding the

owner to convey title to the United States upon the fulfill-

ment of certain conditions, and gave the United States

the opinion to purchase for a stipulated price (R. 9).

The contract in the Muschany case, as will be observed

by reference to that contract (pp. 342-4 of the Record in the

Muschany case, Nos. 31 & 32, Oct. Term 1944) was no more

a direct contract with the United States than was the

charter agreement in the instant case in respect of the

option agreement. The option contract in the Muschany

18

case was negotiated by a real estate broker, appointed by

the United States but to be compensated by the land owner,

and the only action taken by the United States in respect

of the contract was the mere marking of the option agree.

ment ‘‘accepted’’ by an officer in the War Department

(se foot note 1 at 324 U.S. 70).

The charter agreement in the instant case was both au-

thorized and approved by the Navy officer-in-charge under

the principal contract (Navy Contract NOy-5176), and by

the principal Contract the Government obligated itself to

reimburse the contractors for the hire paid for the tug

(R. 15).

The statement by the Court of Claims in its opinion that

the option in the Muschany case ‘‘stipulated that if con-

demnation were resorted to, the option price should measure

the landowner’s compensation’’ (R. 30), is not entirely

accurate. The provision respecting resort to condemna-

tion in the option in the Muschany case read as follows:

(Muschany Record, p. 344, Fol. 495; Nos. 31 & 32, Oct.

Term 1944):

‘“‘If for any reason the title to the land is not ap.

proved by the Attorney General, the Government will

proceed to acquire the land by condemnation proceed-

ings instituted in the District Court of the United

States in which said property is located, under a con-

sent verdict fixing the award at the agreed valuation

and in accordance with all the terms and provisions of

this option and will upon filing its petition in such pro-

ceedings deposit said agreed purchase price with the

clerk of said court, same to be disbursed by said officer

pursuant to the decree entered in such condemnation

proceedings.’’

Thus the condemnation proceeding stipulated for in the

option was a consent proceeding designed to clear title.

The condemnation proceeding actually instituted by the

—

19

Government in the Muschany case was not instituted under

or pursuant to the option but was instituted without regard

thereto, and the Government’s position in the said proceed-

ing was that it was not bound thereby. The fact that the

option in the Muschany case provided a means of clearing

title by the institution of consent condemnation proceed-

ings; whereas the option in the present case merely im-

posed upon the owner the obligation of giving a clean title,

affords no distinction in principle between the two option

contracts. Resort to requisition by the War Shipping Ad-

ministrator under Sec. 902 of the Merchant Marine Act

for acquisition by the Navy, which is authorized by Sec.

902 (e), was as much an exercise of the option to purchase

in the instant case as the resort to condemnation in the

Muschany case; or conversely, the taking of title in the one

case by requisition under Section 902 of the Merchant

Marine Act and in the other case by the declaration of tak-

ing without regard to the option agreement, were each

equally an attempted repudiation of a valid existing con-

tract.

Section 902 (a) of the Merchant Marine Act under which

the taking was effected here, provides: ‘‘When any such

property * * * is so requisitioned, the owner thereof

shall be paid just compensation for the property taken

* * *»? Just compensation for the property taken where

there is an existing option to purchase for a stipulated price

is, it is urged, the price so stipulated as much where the

taking involves a vessel requisitioned under Section 902

of the Merchant Marine Act, as it is the stipulated price

in the case of lands taken by condemnation proceedings.

3. The decision of the Court of Claims is in conflict with

the well-established and traditionally respected principle,

frequently emphasized by this Court, that the United States

is bound by its private contracts to the same extent as

——

20

individuals and may not by the exercise of its paramount

powers abrogate its contract obligations. Cooke v. United

States, 91 U. S. (1 Otto) 389; United States v. Bostwick,

94 U.S. (4 Otto) 53; Union Pacific Railroad Co. v. United

States (Sinking Fund Cases), 99 U. 8. (9 Otto) 700; Freund

v. United States, 260 U. S. 60; Reading Steel Casting Co.

v. Umted States, 268 U. S. 186; Lynch v. United States,

292 U. S. 571.

Writing by Mr. Justice Butler, this Court said in the

Reading Steel Casting Co. case (268 U.S. at p. 188):

‘‘The contract is to be construed and the rights of

the parties are to be determined by the application of

the same principles as if the contract were between

individuals. Smoot’s Case, 15 Wall. 36, 47; Amoskeag

Mfg. Co. v. United States, 17 Wall. 592, 595; United

States v. Smith, 94 U.S. 214, 217.”’

and in the Lynch case (292 U.S. at p. 580) by Mr. Justice

Brandeis:

‘‘But Congress was without power to reduce ex-

penditures by abrogating contractual obligations of

the United States. To abrogate contracts, in the at-

tempt to lessen government expenditure, would be not

the practice of economy, but an act of repudiation.

‘The United States are as much bound by their con-

tracts as are individuals. If they repudiate their obli-

gations, it is as much repudiation, with all the wrong

and reproach that term implies, as it would be if the

repudiator had been a State or a municipality or a citi-

zen.’ Sinking Fund Cases, 99 U. S. 700, 719.’’

The tug Rosert HenJes at the time of its requisition was

under charter to contractors employed by the Navy Depart-

ment to perform, by cooperative effort with the Navy De-

partment, a public work authorized by Congress. The

contract between the United States and the contractors

forbade the contractors to purchase any equipment costing

in excess of $200.00 or to lease any equipment at a rental

A

21

of more than $100.00 per month except after approval in

writing by the contracting officer or his representative (R.

20). The contract for the charter or lease of the tug Rospert

Henses was approved by the Navy officer-in-charge (R. 10)

who by the terms of the construction contract, NOy-5176,

was the representative of the contracting officer (R. 13).

The contract for the charter of the tug was made by the

contractors under and pursuant to the construction con-

tract, NOy-5176 (R. 7) for the use and benefit of the

United States in the performance of the authorized work.

The United States obligated itself by the terms of the con-

struction contract, NOy-5176, to pay the amount of the

rental provided for in the charter (R. 15) and the charter

agreement by its terms required the owner to convey title

to the tug to the United States upon receipt by the owner of

charter hire equivalent to the agreed valuation of the tug

plus 1% per month and gave the United States an option

to purchase the tug during or at the termination of the

charter by paying the lessor the difference between the

amount of rental theretofore paid and the value of the tug

as stipulated in the charter agreement. It is urged by peti-

tioners that this contract was a contract binding upon the

United States, and upon the owner of the tug in favor of

the United States, as much as if it had been entered into

directly between the owner and the Navy Department with-

out the intermediation of the contractors of the Navy De-

partment. To permit the Government, under such circum-

stances, to take title to the tug by the exercise of the requisi-

tioning power given to the Adminisirator of the War Ship-

ping Administration under Section 902 (a) of the Merchant

Marine Act of 1936 for transfer to the Navy Department

and delivery by the Navy Department back to the Navy con-

tractors, without requiring the Government to pay as just

compensation either the option price or the value of the

charter hire earned by the tug until the completion of its

a

work under Navy contract NOy-5176, is to sanction a re.

pudiation by the United States of its contract obligations,

4. The questions presented are of general public im.

portance.

In United States v. Cors, 69 8. Ct. 1086, this Court granted

certiorari because of the importance of the decision ‘jn

the settlement of claims arising as a result of the requisi-

tioning program during the period of recent hostilities.”

The present case presents another phase of the same

problem.

Additionally, it presents the problem of the extent of

the constitutional protection afforded the individual against

the demands of the Government. As this Court said in

Monongahela Navigation Co. v. United States, 148 U. §.

312, 324:

‘‘The question presented is not whether the United

States has the power to condemn and appropriate * * *

for that is conceded, but how much it must pay as com-

pensation therefor. Obviously, this question, as all

others which run along the line of the extent of the

protection the individual has under the Constitution

against the demands of the government, is of impor-

tance; for in any society the fullness and sufficiency of

the securities which surround the individual in the

use and enjoyment of his property constitute one of

the most certain tests of the character and value of the

government.’’

22

The case also presents the problem of the validity of

obligations assumed by the United States under a contract

made by contractors employed by it, with its approval and

for its benefit. As this Court said in Muschany v. United

States, 324 U.S. 49, 66:

‘‘Tt is a matter of public importance that good faith

contracts of the United States should not be lightly

invalidated.’

>

23

Conclusion

For the reasons stated, it is respectfully submitted that

this petition should be granted.

Epmunp F. Lams,

80 Broad Street,

New York 4, New York,

Counsel for Petitioner.

Of Counsel:

Exus, Hovexton & Eis,

Southern Building,

Washington, D.C.

24

APPENDIX

The pertinent portions of the Merchant Marine Act,

1936 (Act of June 29, 1936, c. 858, Title IX, Sec. 902,

49 Stat. 2015) as amended August 7, 1939, c. 555 Sec. 3, 53

Stat. 1255, 46 U. S. C. 1242, provide as follows:

Sec. 902 (a) Whenever the President shall proclaim

that the security of the national defense makes it advisable

or during any national emergency declared by proclama-

tion of the President, it shall be lawful for the Commission

to requisition or purchase any vessel or other watercraft

owned by citizens of the United States, or under construc-

tion within the United States, or for any period during

such emergency, to requisition or charter the use of any

such property. The termination of any emergency so de-

clared shall be announced by a further proclamation by

the President. When any such property or the use thereof

is sO requisitioned, the owner thereof shall be paid just

compensation for the property taken or for the use of

such property, but in no case shall the value of the property

taken or used be deemed enhanced by the causes necessi-

tating the taking or use. If any property is taken and used

under authority of this section, but the ownership thereof

is not required by the United States, such property shall

be restored to the owner in a condition at least as good as

when taken, less ordinary wear and tear, or the owner

shall be paid an amount for reconditioning sufficient to

place the property in such condition. The owner shall

not be paid for any consequential damages arising from a

taking or use of property under authority of this section.

(e). The Commission is authorized to repair, recondi-

tion, reconstruct, and operate, or charter for operation,

any property acquired under authority of this section.

The Commission is further authorized to transfer the

possession or control of any such property to any depart-

ment or agency of the Government of the United States

upon such terms and conditions as may be approved by the

President. In case of any such transfer the department or

eee

_

25

agency to which the transfer is made shall promptly re-

imburse the Commission for its expenditures on account of

just compensation, purchase price, repairs, reconditioning,

reconstruction or charter hire for the property trans-

ferred. Such reimbursements shall be deposited in the

construction fund established by section 206 of this Act.

(7527)