Conditional Cross Petition for a Writ of Certiorari — Manuel Rodriguez Trading Corp. v. United States

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LIBRARY * FEB 6 1958 |

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SMPREME COURT. U.S. - | JOMNT.FAY, Chek

’ ee : Sts

. «Noe 767

gn the Supreme Gourt of the Gnited States

OcroBer a 1957

THE Usrrep Srares, econ

Vv.

(

' Manvet Ropricugz Trapinc CorPoRaTION AND

MANUEL om

CONDITIONAL OROSS-PETITION FOR A WRIT OF CERTIOPARI TO

THE UNITED STATES COURT OF CLAIMS

, Attorneys,

3 Depertr<at of Justice, Washington 25, D.C.

at

Page

Opinion below- -- ----- ------------------------------- 1

Jurisdiction - -.--.-------- Sdbdintimedthusachien<4 Feces l

Questions presented . ---.-....------------ ee so A 2

Statutes and regulations involved. Fs A eta LS 2

Statement... .-.. 2. ----cccccecece+--e-- ae keane ; 2

Respondent’s gsi... .--.- iL ihalariawiel ole tea 2

The Government’s countere Jaim. ee ee eae 5

The court’s findings--.. - -- - - aah wate 6

The court’s computation of damages : Mica 14

Reasons for granting the writ. -, 17

Gencietielt....-.......-- “Le DS Aaa 28

Appendix A... -..-..--------4-----------+------+----- 29

Appendix B_-.------- Se aia ENE tee aegis éxwus 38

CITATIONS

Cases:

Buffum v. Peter Barcelour Co., 289 U.S. 227... ----- 21

Cliquot’s Champagne, 3 Wall. 114-----. ‘ 22

Federal Trade Commission v. Raymond (o., 263 U. S.

Rs se e caieeniinaccwenacceeewes 24

Green v. Victor Talking Machine Co., 24 F. od 278,

certiorari denied, 278 U.S. 602......-.-.-..---- sige 24

Helvering v. Mitchell, 303 U.S. 391 .--.----.-------- 22

Johnson v. Southern Pacifie Co., 196 U.S. 1 Pe

Margaret, The, 9 Wheat. 421. re » Se Sa 22.

Meacham Corporation v. l ‘nited States, 207 F. 2d 535,

certiorari . granted, eo Ps S. 922, dismissed by

stipulation, 348 U.S ee ae Gok Se

Pence v. United States, Jee v eee, _. 22,23

Rex Trailer Company v. United States, 350 U. 48__ 24, 27

Taylor v. United States, 3 How 197 _. 22

United States v. Bound Brook Hospital, Inc. Cc. A. 3;

No. 12,303, decided January 14, 1958)_-- , > 27

United States v. Newbury Mfg. Co., 36 F. Supp. 602 21

United States v. 21 Pounds, 8 Ounces of Platinum, 147

i DE Pi eis i wooed Keancc gence ys-- 22

II

Status:

Merchant Ship Sales Act of 1946, 60 Stat. 41, 50

U.S. C. App. (1946 ed.) 1735, et seq.: Page

Be Sf ge eo eee 3, 4, 29

i i Skcekscunedadecdwedeensatea—a 31

NG CE tect cais cab ednekdhowdiesnchabes 31

Sec. 1739 (a) (1) (2) (3) (4) eile etnd esi waa 31

Se cha daa austen hakakwacunchacunaap 32

Shipping Act of 1916, as amended, 39 Stat. 728, 46

U.S. C. (1946 ed.) 801, et seq.:

PRs tpancndéds dceaiiheninenoesae 18, 20, 21, 33

as ccakudsndicanecss aeaeanesan<cébans 34

Surplus Property Act of 1944, 58 Stat. 765__-.-.-.-- 27

Miscellaneous:

94 Cong. Rec. 751, 860, 1144, 1585, 1608-1609____- - - 25

Prosser, Torts, § 85 (1941 ed.)_-....--------------- 23

2 Restatement, Contracts (1932):

ee ee ee ee dad ee nek 23

es I Mn inc tesa nb eee mek 23

ee daw inenba rennin 23

Restatement, Restitution:

Sec. 128, comment f_-- - - - 5 sean de eee 26-27

oe ee en a een aaene 21

Senate Joint Resolution 173, Public Law 423, 80th Cong.

2d Seas., 62 Stat. 38, 50 U.S. C. App. 1739, Historical

NN ce aaa Cees ag 3, 6, 7, 19, 22, 24, 25, 35

Senate Report No. 856, 80th Cong., 2d Sess., p. 3___- 25

United “cates: Maritime Commission Genera! Order

No. 60, 11 Fed. Reg. 4459, April 23, 1946:

a ean wins marae a 36

Sec. 398.1 (4). .-<.-- CS a eo eit 36

Uniced States Maritime Comsniasion General Order

No. 66, Supplements 1 aad 3, 11 Fed. Reg. 4702,

I tO ee ee es wa teed Aa ben 36

iW liston, C entracte:

Sec. 286, pp. 843-4. _.- .-- abet wis coniets bogie Siuitwte dota 24

5 Williston, Contracts:

Sec. 1487. __. -- ne ee eset 23°

el see ee ecco 24

Gn the Supreme Court of the Wnited States

OcroBER TERM, 1957

No.—

THE UNITED STATES, PETITIONER

v.

MANUEL RopriGuEz TRADING COKPORATION AND

MANUEL RODRIGUEZ

CONDITIONAL CROSS-PETITION FOR A WRiT OF CERTIORARI TO

THE UNITED STATES COURT OF CLAIMS

The Solicitor General, on behalf of the United

States, prays that a writ of certiofari issue to review

the judgment of the United States Court of Claims

entered in the above case on July 12, 1957, in the

event that the petition in No. 664 is granted.’

OPINION BELOW

The opinion of the Court of Claims (Appendix B,

infra, pp: 38-78) is.reported at 153 F. Supp. 442.

JURISDICTION

The judgment of the Court of Claims was entered

on July 12, 1957 (RR. 69), and timely motions for re-

hearing by both parties were denied on October 9,

1957 (R. 110). By order of Mr. Chief Justice War-

1'The respondent in this case has filed a petition to review

the same judgment, No. 664, this Term. We are opposing that

petition.

(1)

2

ren, dated January 3, 1958, the time for the United 2

States to file a petition for a writ of certiorari was

extended to and including February 6, 1958.

' ‘

QUESTIONS PRESENTED

1. Whether respondent, who deliberately misrepre-

sented his status as a citizen-purchaser in order to |

procure two surplus tankers from the Maritime Com- A

mission and subsequently to obtain Commission ap- :

proval of the transfer of the vessels to Argentina, ©

thereby violated Section 9 of the Shipping Act of 1916, ©

prohibiting the transfer of American vessels to for-

eign registry without approval by the Commission.

2. Whether respondent is liable to the United States

for the profits obtained as the result of his illegal

transactions.

STATUTES AND REGULATIONS INVOLVED

The pertinent provisions of the statutes, regula-

tions, and contract provisions involved are set out in

Appendix A, infra, pp. 29-37.

STATEMENT

Respondent’s claim: Respondent? by contract dated

April 6, 1948, acquired from the United States Mari-

* Respondent, Manuel Rodriguez Trading Corporation, which

brought the suit below, was operated during its corporate §

existence by respondent Manuel Rodriguez as sole owner, and’

upon its dissolution on February 1, 1951, substantially all of

its assets were distributed to him (App. B, infra, p. 40). Manuel

Rodriguez was impleaded personally in the proceedings below .

and by order of the court joined.as a party-plaintiff. The

court below accordingly used the term “plaintiff” to refer

either to the corporation or to Manuel Rodriguez personally,

and we follow the same usage in this cross-petition with the

term “respondent.”

i i LS

3

time Commission two T-1 tankers, the Sugarland

and the Capitan, at a price of $887,019 each (App.

B, infra, p. 40). This price was set in accordance

with the Merchant Ship Sales Act of 1946, and ap-

plicable regulations governing sales to citizens of the g

United States (infra, pp. 29-36). The Merchant Ship

Sales Act provided that the Maritime Commission

might sell certain Government-owned war-built ves-

sels to a citizen of the United States, as defined in

the Act, at a “statutory sales price.’’ In the case

of tankers, statutory sales price was defined in Sec-

tion 3 (d) of the Act, 50 U. S. C. App. 1736, as

‘an amount equal to 871% per centum of the prewar

domestic cost of a tanker of that type’’, subject to

adjustments set forth therein. In the case of a

tanker, the adjustments could not reduce the sates

price to less than 50 percent of the domestic war

‘cost, and the price of the Capitan and Sugarland,

T-1-M-BT tankers, was fixed at the floor price of

$887,019 (App. B, infra, p. 41). Under certain con-

ditions, sales to non-citizens were authorized “‘at not

less than the statutory sales price,’’ but Senate Joint

Resolution 173, Publie Law 423, 80th Cong., 2d Sess.

(infra, p. 35), approved February 27, 1948, expressly

prohibited sales to non-citizens after March 1, 1948.

The contract with respondent provided for a re-

duction of price by an amount ¢ jual to the cost, as

determined by the Commission, which would be re-

quired to enabie the Commission to deliver the vessels

in class with valid certificates of classification and

inspection in accordance with the minimum require-

ments of the rules and regulations of the American

4

Bureau of Shipping and the United States Coast

Guard Marine Inspection (App. B, infra, p. 40).

Respondent filed claims for such price reductions and

was allowed $135,442.79, i. e., on the Sugarlana $4,094

for repairs and $15,259.37 for predelivery and main-

tenance expenses, and on the Capitan $94,067 for re-

pairs and $22,022.42 for predelivery and maintenance

expenses (App. B, infra p. 40). On the other hand,

the Maritime Commission determined that the tankers

contained “desirable features’’ within the meaning of

Section 3 (d) (3) of.the Merchant Ship Sales Act,

infra, pp. 29-30, and pursuant to the purchase contract

and respondent's consent, charged responuent the de-

preciated value of these desirable features, i. e.,

$27,650 on the Sugarland and $1,105.96 on the ¢ ‘apr-

tan (App. B, infra, p. 41). Finally, the Maritime

Commission determined that, since the vessels were

sold to respondent pursuant to the policy governing

sales to United States citizens, respondent should be

charged only $42 for unrecouped repair expenses in-

eurred by the Commission prior to the sales to

respondent (App. B, infra, p. 41).

Title to the Sugarland and Capitan, respectively,

passed to respondent on June 8, 1948 and August

20, 198 (App. B, infra, p. 41). On October 21,

1948, respondent applied for approval to sell the

tankers to the Argentine Naval Commission and to

transfer them to Argentine registry and flag (App.

B, mfra, p. 41). The Maritime Commission ap;

proved the transfer on December 7, 1948, on the

condition that the price reductions of $135,442.79,

which had been allowed respondent as a_ citizen.

*

5

purchaser, were paid to the Conuniszion, as well as

the charge of $28,756.81 for desirable features, which

he still owed the Commission (App. B, infra, p. |

41). Respondent agreed, and deposited with the ;

Commission a $200,000 check of the Argentine Naval

Commission (App. B, infra, p. 41). The tankers

were consequently transferred from United States

registry (App. B, infra, p. 41). Respondent's

subsequent attempts to obtain reconsideration by the

Maritime Commission of its requirement that the class

allowances be paid were unsuccessful (App. LB, infra,

p. 41), and respondent brought this action in the

court below, seeking recovery both of the $135,442.79

which he had been required to pay when he seught

to transfer the vessels to Argentine registry, and of

the sum of $28,756.81 which he had been charged for

“desirable features” (App. B, tufra, p. 38). Re-

spondent contended that the Maritime Commission

had no authority to condition its approval of the sale

and transfer upon payment of the class allowances,

and that he was improperly charged for the cost of

the desirable features’ (App. B, tfra, p. 39).

The Government’s counterclaim: The Goverpment

filed a counterclaim against respondent, contending

that he had procured the two tankers from the Mari-

time Commission and obtamed the price reductions

*In support of this latter contention, respondent urged that

the statutory formula provided by the Merchant Ship Sales

Act, infra, pp. 29-36, required the cost of desirable features to be

added to the statutory sales price and then depreciated, and

that this results in the cost of the desirable features for which

respondent was. charged being wholly absorbed and lost, al-

though the floor price is maintained (App. LB, infra, p. 39).

6

of $135,442.79 on the basis of ae ee that

he was acquiring the tankers as a United States

citizen for operation under American flag and reg-_

istry, and that respondent, knowing that sale of

these ships to nen-citizens was expressly prohibited =~

after March 1, 1948, by Public Law 423, 80th Cong. =

(ihfra, p--35), was “acquiring the tankers solely in . :

order to sell and transfer them to the Argentine Naval

Commission for operation under Argentine flag and

registry (App. B, infra, p. 39). The Government

denied liability for the sums sought by respondent, —

and demanded judgment on its-counterclaim for the ©

losses’ and damages sustained by reason of respond-

ent’s misrepresentations. :

The court’s findings: The Court of Claims found the

circumstances leading to the purchase and subsequent

resale of the tankers to be as follows (App. B, infra,

pp. 42-49) : | og

In November 1947, an employee of the Maritime

. Commission, John E. Jacobsen, advised respondent of

the porsibility that ten T-1 tankers might be pur-

chased from the Maritime Commission for resale to

Argentina. On December 19, 1947, respondent re- |

tained Jacobsen and Homer C. Clay to represent him

in bringing about the|sale of these tankers, Clay and .

Jacobsen to receivé dn a contingent basis a fee of

$25,000 for each ‘tanker purchased. On! December

“30 and 31, 1947, respondent conferred with represent-

_atives of the Argentine Naval Commission, 2 purchas-

ing commission of the’Argentine Government with its

Joeation in-New York City. Respondent advised the |

Argentine representatives that the present hasic sales

BA RADIATA I

t

i

é

price of the ten tankers was $887,019, but that he

would resell the tankers to them for $965,000 each (or

we if more than five were obtained), with title and

authority to transfer the ships to Argentine flag and

registry, the of offer_being subjeet-to- the afi roval - of

the Maritime Commission. On February 4, 1948,

Clay wired respondent that Congress would probably

prohibit sales of war-built vessels to foreign countries

after February 29, and urged him to file an applica-

tion immediately. Respondent and the Argentine

Naval Commission then entered into a contract, dated

February 14, 1948, whereby the Naval Commission

agreed to purchase ten tankers from respondent for.

$935,000 each, and delivered to respondent two checks,

for $1,000,000 each, payable to the Treasurer of the

Umited States.

Respondent on February 18, 1948) made written

application to the Maritime Commission to purchase

ten tankers at the statutory sales price for transfer

to the Argentine flag, stating that he was not then and

never had been engaged in the shipping business. On

March 1, 1948, the Maritime Commission disapproved

the application, but at 11:30 p. 12. that evening it ap-

proved the sale of one tanker to respondent on these

terms. m

Respendent “‘was quite aware’’ (App. Bb, infra,

p. 43) of the prohibition in Public Law 423, infra,

p. 35, against sales to noncitizens after March 1,

- 1948, and so wrote the’ Argentine Naval Commission

..on March 5, 1948. At the same time, he advised the

Naval Commission that he was endeavoring to obtain

one or two additional vessels as a citizen-purchaser,

7

8

and would continue these efforts... On March 7, 1948,

respondent’s attorney-in-fact, Homer C.. Clay, wired

‘the Secretary of the Maritime Compassion amending

~—yespondent’ s application ‘‘to eliminate all reference

to transfer of ships to Argentine registry’’ and ad-

vising that respondent,‘ desires to purchase as Ameri-

ean citizen.” (App. B, infra, p. 43.) On March

10, 1948, respondent filed a formal amendment to this

effect, striking, from his original application ali refer-

ences to the transfer of the vessels to foreign registry.

The amendment stated that respondent wished to pur-

chase the vessels ‘‘as a United States citizen * * *

for operation under the flag and registry of the

United States,” and that, if he were permitted to

purchase the vessels, respondent -would ‘‘obtain the

services of one of the established and experienced

ship operating companies”’

infra, p. 43).

On March. 11,, 1948, approval. of respondent’s

amended application was recommended to the Mari-

tiine Gommission by the Chief of its Large Vessel

Sales Division, who advised the Commission that re-

spondent intended to purchase the vessels as an Amer-

ican citizen, and? would obtain an experienced ship

erating company to operate the vessels in estab-

C gaa tanker trades. On Mareh 12, 1948, the Mari-

time Commission approved respondent’ Ss appheation

as-to three T-1 tankers. However, the Navy Depart-

ment .requested the transfer of one tanker, and the

Maritime Commission on March 31, 1948, approved

*The text of this letter is set out in the court's finding of

fact 1s, App. I, inyra, pp.: 59-61,

io operate them (App. B,

i

9

the sale to respondent of two tankers, the Capitan and

Sugarland, ‘‘for operation under United States flag’”’ -

(App. B, infra, p. 44).

On this same date, March 31, 1948, respondent con-

tracted to sell these tankers to the Argentine Naval

Commission with a view to their transfer to the Ar-

gentine Navy. The Naval Commission agreed to ad-

vance the official price of $887,019 each, and upon

respondent’s obtaining approval for transfer of the

vessels to the Argentine flag, the Nav&toCommission

would, pay the balance of the price fixed by the offer

of December 31, 1947, of |$965,000 each if one to

four tankers were acquired. The Naval Cexsmission

agreed to protect respondent from any loss in the

event that a legal transfer of the ships was not pos-

sible, and agreed to pay all expenses incurred by

respondent (App. B, infra, p. 44).°

In reliance, as the Court of Claims found, upon

respondent’s representations that he was purchasing

the tankers as a United States citizen for operation

under the United States flag (App. B; infra, pp.

44-45), the Maritime Commission on April 6, 1948,

entered into formal contracts, for the sale to respond-

ent of the Capitan and Sugarland, at a price of

$887,019 each. The down payments on the vessels

were made by the ‘Argentine Naval Commission, which

on April 2, 1948, issued two $88,701.90 cheeks; on

April 28, 1948, the Naval Commission paid respondent

*The texts of the contracts are set out in the court's finding

of fact 21, App. B, infra, pp. 63-65; they recite that respondent

was acting as agent of the Argentin» Naval Commission in

obtaining the tankers.

~

10

the $798,317.10 balance’ of the total purchase price

(App. B, infra, p. 45). oi ;

The Court of Claims found that hoth respondent’s

books and accounting records and his federal tax re-

turns showed that the tankers were purchased forSale

and not for operation (App. B, infra, p. 45). The

court found that respondent had never been engaged

in the shipping business and had no experience in

operating tankers, and that he made no éffort to ob-

tain the services of a ship operating company or to

hire officers or a crew (App. B, infra, p.45).

Following the Commission’s allocation of the

tankers, respondent was in constant consultation with

the Argentine Naval Commission over their control

and disposition. The Argentine representatives in-

spected the vessels, had work plans and specifications

submitted to them in advance, and prepared plans

and specifications for repairs which they sent to re-

spondent in August 1948. The bills of sale and mas-

ter carpenter’s ‘certificates were turned over to the

Argentine representatives as soon as respondent re-

ceived them from the Maritime Commission, and the

Argentine Naval Commission stationed its own crew

aboard the tankers to act as watchmen pending the

contemplated transfer (App. B, infra, p.45).

In August 1948, respondent inserted an advertise-

ment in two New York newspapers offering T-1l

tankers for sale; it received six responses, four indi-

cating a desire for foreign registry and two suggest-

ing domestic use, but respondent communicated with

none. On August 30, 1948, however, tae Argentine

Naval Commission ‘‘purported” (App. B,-1nfra, p.

aR

11

46) to answer the advertisement and offered to pur-

chase tankers with United States currency. A copy

of the advertisement was attached to the Naval Com-

mission’s letter (App. B, infra, p. 46). 7

On October 21, 1948, respondent etek 4 to the

Maritime Commission for approval of a proposed sale

and transfer of the Capitan and Sugarland to the Ar-

gentine Naval Commission. The application repre-

sented that the tankers had never been operated, and

that they had been on the market for sale to Ameri-

can citizens for three months prior to the application

but that no offers had been received. The proposed

' sale price was represented as “‘actual cost of vessel to

owner” payable in cash. The application attached

the Naval Commission’s letter purporting to answer

the advertisement, and represented that sale and

transfer to the Argentine Naval Commission was de-

sired as the tankers were unsuitable, conditions had

changed, the initial ‘‘cost and repairs for the owner’s

account” exceeded $1,800,000 and maintenance costs

were a threat to the company’s solvency.’

The Chief of the Maritime Commission’s Bureau of

Government Aids recommended that the application

be denied. However, at 3 meeting on December a

1948, Homer C. Clay and Ralph Immell appeared

before the Commission and, after referring to the in-

formation contained in the application, advised the

Commission that respondent had invested his entire

*In an attachment to the application, set out. in the court’s

finding of fact 25 (App. B, infra, pp. 68-70), respendent repre-

sented that he had made “diligent eiforts to employ the vessels

profitably in the domestic market.

12

personal fortune of $1,800,000.in the tankers, that to

cut expenses crews had ‘been reduced and guards put

on board, and that respondent was obliged to sell the

tankers or go into bankruptcy. It was also repre-

sented that the proposed sales price of $912,000, per

tanker, adjusted for the value of the heating coils,

might enable respondent to break even, but that he

stood to lose $45,000. ‘‘At the hearing Mr. Clay spe-

cifically, on behalf of the [respondent], denied any

possibility of an advance arrangement with the Ar-

gentine interests whereby later approval of the sale

and transfer would be sought” (App. B, infra, p.

47). The Commission, by a three to two vote, there-

upon approved the sale and transfer ““* * * upon the

condition that any and all allowances made to the

Manuel Rodriguez Trading Corporation for placing the

vessels in class and all monies due and owing the Com-

mission by the said Manuel Rodriguez Trading Cor-

poration shall be paid to the Commission prior to the

issuance of any orders authorizing the transfer of fiag

and registry of the said vessels and the company

waives any claims f>r allowances” (App. B, infra,

p. 47).

On Dr cember 10, 1948, the Commission notified re-

spondent of its conditional approval of the saies, and,

because respondent requested that transfer orders be

issued as early as possible, requested a $200,000 de-

posit. The Commission advised that the deposit

would not preclude reconsideration but “it is also

understood that any future action by the Commis-

sion on this matter will be acceptable to you as final.”’

TRAE EF SSR LES PER

SNL EOP le Be TP e ee ae ws

13

ndent accepted these prescribed conditions in a

letter dated December 14, 1948, noting that he ‘accepts

and agrees” and deposited a certifiea check of the

Argentine Naval Commission for $200,000 (App. 8,

infra, p..47). The transfer orders were thereupon

issued by the Commission (App. B, infra, p. 47).

On June 30, 1949, Clay and Immell filed application

on respondent’s behalf for reconsideration of the

conditions set by the. Commission.’ The Commission.

denied the request on August 12, 1949 (App. B, fefra,

p. 48).

os

seg Nt

ree

*The application repeated the safe representations which

~ .pespondent had previously made as to the sale to Argentina, and

stated (App. B, infra, p. 77) that the sale had — “after

issuance of the foreign transfer orders” and that since re-

spondent had sold the vessels to Argentina at the price he had | -

paid the Maritime Commission, he could not be reimbursed by

Argentina for the refund of the class allowances. Clay and

Immell stated (ibid.) :

“* ¢ * At the time these ships were purchased from

the Maritime Commission there was no understanding

that I know of, with anybody, that our client would

appear subsequently and ask for an order to resell. It

was definitely stated by people in authority for the

Commission that no such arrangement would be tolerated.

* * * * ‘i

“* ¢ * Tf this were purely a bookkeeping entry we

wouldn't be here. If the Rodriguez Trading Corpora-

tion, having purchased these ships, had let them sit

idle and then subsequently sold them to the, Argentine

Naval Commission, we feel of course that if that case

these allowances that you would make should be wiped

out and the Rodriguez Trading Corporation should not

profit by the extent of the allowances made for putting

the ships in class.”

Sat e4- 0

14

On the basis of the foregoing findings, the Court ©

of Claims concluded (App. B, tnfra, p. 48) : Zi

Prior to Mareh 1, 1948, and subsequently, —

the plaintiff was acting, in effect, as agent for

the Argentine Naval Commission in{@cquiring |

the tankers and that at all times plaintiff

planned in one way er_another to accomplish

their transfer from the Maritime Commission

to Argentina.

The court stated further (App. B, tnfra, p. 49):

* * * plaintiff was acting as agent for the

Argentine Naval Commission but by his actions

and assertations acquired the vessels as a citi-

zen of the United States, thereby circumvent-

ing the provisions of law regarding sale to a

noneitizen. Plaintiff procured the tankers and

obtained the price reductions or class allow-

ances on the basis of represeritations that it

was acquiring the tankers as a United States

citizen for operation under the United States

flag and registry, knowing that sale to non-

citizens was prohibited under Publie Law 423,

supra, whereas in fact it was acquiring the

vessels in order to sell and transfer them to a

noncitizen. |

The court’s computation of damages: In the light

of these findings, the Court of Claims proceeded to

consider respondent’s claims, and the counterclaim

hy the United States for damages sustained as a re-

sult of respondent’s misrepresentations. It found

(App. B, tafra, p. 48) that the Capitan and Sugar-

land were built in 1945, and that the Maritime

Commission pursuant to the Merchant Ship Sales

Act of 1946 had determined their domestie war cost

< :

15

to be $1,774,038 each; their 1947 costs would have

heen about 15 percent greater or $2,040,143.70 each.

Respondent paid the Maritime Commission a total

of $1,802,836.81 for these two vessels, including the

charges for desirable features and the class allow-

ances, or $2,777,450.29 less than their replacement

cost (App. B, infra, p. 48). The court found further

that the Argentine Naval Commission had paid respond-

ent a total of $2,202,223.87 for the tankets; and that ex-

clusive of the $200,000 check of the Argentine Naval

Commissien deposited in December 1948, respondent ’s

corporation made a gross profit on the sale of the two

tankers of $153,959.29 (App. B, infra, p. 48).”

Respondent sought to retain this profit and to re-

cover as well the sums of $135,442.79 for elass allow-

~anees and $28,756.81 for desiyable features. The Gov-

ernment, on the other hand, maintained that respond-

ent was properly charged these amounts, and since he

purchased the’ vessels for a non-citizen, he is liable

for the unrecouped cost of repairs to the Sugarland

in the amount of $49,852.01." In addition, the Gov-

ernment claimed as damages and losses sustained as

a result of respondent’s misrepresentations (a) the

*In addition to this gross profit of $153,959.29, respondent

apparently also kept the balance of some 335,000 which the

Maritime Commission returned to him after deducting from the

$200,000 deposit the cost of the desirable features and the now

disallowed class allowances.

°The Court of Claims found (App. I, infra, p. 45):

“During the time the Maritime Commission was authorized

to sell to noncitizens it charged noncitizens the unrecouped

cost of repairs. In the case of the Snaarland this would have

amounted to $49,894.01 but as a supposed citizen purchaser

plaintiff was charged but S42 or S49.552.01 Tess.”

454575—58——2

ree

16

value of the Capitan and Sugarland; (b) the differ-

ence between the amount paid for the tankers by the

Argentine Naval Commission and the amount re-

ceived by the Maritime Commission, or $399,387.06;

and (c) the gross profit made by respondent on the

illegal transaction.

The Court of Claims pointed out that, had the Ar-

gentine Naval Commission been permitted to pur-

chase these tankers, ‘‘certainly the United States

could have exacted’ the deductions for class allow-

ance and the charges for desirable features (App. B,

infra, pp. 49-50), and held (App. B, fra, p. 90) :

Under these circumstances we believe plain-

tiff is in the same position as the Argentine

Naval Commission, a noncitizen, would have

been had it negotiated and purchased the tank-

ers. That is to say, the Maritime Commission

had every right to charge the Argentine’ Naval

Commission more for the vessels than it could

have charged a citizen, and there is no reason to

believe that such a eharge would not have been

made. Thus the Maritime Commission, by rea-

son of the representation of plaintiff, lost the

difference in sale price and, if fraud were pres-

ent, we could think of no reason why plaintiff

should be permitted to profit thereby. How-

ever, no specific finding of fraud is made in

this case and in the absence thereof, plaintiff

would not be chargeable under a constructive

trust for the proceeds received from the sale

to the Argentine Naval Commission. Restate-

ment of the Law of Restitution, Ch. 13, see.

202; United States v. Newbury Mfg. Co., 36 F.

Supp. 602.

17

Under these circumstarces the Government

is entitled to retain the $135,442.79 which plain-'

tiff as a citizen saved under the floor price and

the $28,756.81 charged for desirable features.

Turning to the Government's counterclaim, the court

allowed ‘recovery only for the unrecouped cost of re-

pairs, or $49,894.01. ‘The court held that this sum

too, could have been charged a noncitizen purchaser,

and accordingly that the Government, which had lost

this money as a result of respondent's alleged pur-

chase as 2 citizen, was entitled to recover-this amount

just as if the tankers had “been sold directly to the

Argentine Naval Commission’? (App. B, ifra,_ p.

51). On the basis of its refusal to make ‘ta specific

finding of fraud,’ however, the court denied the Gov-

ernment reecsvery on the other elements of its

counterclaim.

REASONS FOR GRANTING THE WRIT

There is no legal justification for the failure of the

Court of Claims to award judgment to the United

States in substantially the full amount of its counter-

claims. The facts found by the court—that re-

spondent proeured the tankers Sugarland and Capi-

tan from the Maritime Commission and obtained

approval for their subsequent transfer to Argentine

registry by deliberately misrepresenting his status as

a citizen purchaser, “thereby circumventing the pro-

visions of law regarding sale to a noncitizen” (infra,

p. 49)—estabiish as a matter of law respondent's

liability both to forfeit co the United States the value

of the ships, and to surrender the profits of his illegal

18

transaction. “The court’s deliberate refusal to accord

to its own findings their necessary legal implications

has not only resulted in an injustice to the Govern-

ment, but has, in effect, countenanced eliberate

thwarting of an important statutory objective. We

believe that, if the case is taken, this Court should

require the Court of Claims to 2ward judgment to |

which the United States is entitled on the baSis of the

facts which that court itself found.

1. The facts found by the Court of Claims clearly

establish a violation of Section 9 of the Shipping Act

of 1916, as amended, 46 U.S. C. (1946 ed.) 808, infra,

pp. 33-34. This statute makes it: oe |

* * * unlawful, without the approval of the

United States Maritime Commission, to sell

* * * deliver, or in any manner transfer, or

agree to sell * * * deliver, or in any manner

transfer, to any person not a citizen of the

United States, or transfer or place under for-

eign registry or flag, any vessel or any interest

therein owned in whole or in part by a citizen of

the United States and documented under the laws

of the United States, or the last documentation

of which was under the laws of the United

States. :

The Section provides further that:

Any such vessel, or any interest therein,

* * * sold, transferred, or mortgaged to a per-

son not a citizen of the United States * * * in

violation of any provision of this section shall

be forfeited to the United States * * *.

The court below expressly found that, although re-

spondent represented that he was purchasing the

OT Rg OOO Oe a eee

19

tankers Captain and Sugarland for his own use as an

American citizen, ’e in fact procured them as an

agent of the Argen-ine government, intending at all

times to accomplish their transfer to Argentina

(infra, p. 49). In pursuing this unlawful scheme, he

obtained approval from the Maritime Commission to

transfer the vessels to Argentina registry by again

representing that he had purchased the vessels for op-

eration under United States registry, that he had in-

vested his entire personal fortune in the ships, that

he had made diligent but unsuccessful efforts to em-

ploy the vessels in the domestic market, that he had

received no responses to his-advertisement for the sale

of the vessels except from sources contemplating for-

eign transfer, and, specifically, that no prior arrange-

ment for such transfer had been made at the time

respondent purchased the ships (infra, p. 49). The

Court of Claims expressly found that each and every

one of these representations was deliberately false,

and was made in accordance with a preconceived de-

sign to circumvent the law (infra, p. 49).

Respondent’s actions in deceiving the Maritime

Commission into approving the transfer of the vessels

to Argentina thus plainly violated the statutory pro-

hibition against sales to non-citizens. It is clear that,

had the Maritime Commission known the true facts,

it would not—and indeed, under Public Law 423,

infra, p. 35, legaily could not—have approved either

the sale of the tankers to respondent or their subse-

quent transfer to Argentina. Since respondent ob-

tained the Commission's consent only as the result of

his deliberate misrepresentations, in legal effect there

20

was no approval; consent which is obtained by fraud

is, of course, no consent at all. Respondent’s transfer

of the tankers to Argentina accordingly violated the

express mandate of Section 9 of the statute. Mea-

cham Corporation v. United States, 207 F. 2d 535

(C. A. 4), certiorari granted, 347 U. S. 932, and

dismissed by stipulation, 348 U. S. 801.”

“In the Meacham case, the Court of Appeals he.u that the

transfer of a surplus tanker from the Commission to a citizen

corporation violated Section 9 of the Shipping Act of 1916

where the citizen orporation was in fact the alter ego of an-

other corporation and subject to the dictation of aliens who

controlled the latter corporation. In that case, as here, the

nominal citizen owner of the vessel put up almost none of the

money, the actual cost of the vessel being borne by its beneficial

owner, the alien-controlled corporation; and the latter group

had full control over the use and disposition of the ship. The

Court of Appeals foun! no difficulty in cutting through the

form of the transaction to its substance, 207 F. 2d at 543, and

holding the vessel forfeit to the Government. The court held

that the Shipping Act of 1916 and other statutes governing

transfer of American vessels “were designed to preclude the

very arrangement * * * whereby title to the ship was taken

in the name of an American corporation, while the beneficial

interest and actual control were passed to citizens of China”

(shid.). Rejecting the contention that the transaction was valid

because approved by the Maritime Commission, the court

pointed out that “all the facts were not disclosed” to the

Commission (207 F. 2d at 546), and stated (zo7 F. 2d at 547):

“Manifestly, a government authority which was unwilling to

sell the ships directly to United [the alien-controlled corpora-

tion] would have been unwilling to sel! them to United by the

indirect method, if all the facts had been placed before it.”

The Meacham case is directly in point here; respondent's viola-

tion of Section 9 is equally clear, and particularly in view of

the deliberate misrepresentaiions by which he accomplished his

circumvention of the statute, he is plainly Vable for the

statutory forfeiture.

21

Having thus violated the statute, respondent is liable

for the statutory damages, 1. ¢., forfeiture of the ves-

sels. Since he has sold the ships themselves, his lia-

bility is for their value as a constructive trustee of the

proceeds of the sale. Restatement, Restitution, § 202;

Buffum v. Peter Barcelour Co., 289 U.S. 227; L “nited

States v. Newbury Mfg. Co.,36 F. Supp. 602 (D. Mass.).

Accordingly, on the very facts found by the Court of

Claims, the United States was entitled to recover

$1,930,000, the Hnount received by respondent for the

ships which he transferred to Argentine registry in

violation of Section 9 of the Shipping Act of 1916."

2. In addition to his liability under Section 9 of

the Shipping Act of 1916 for the value of the tankers,

respondent is also liable, under the general law of

Respondent's liability for forfeiture or its equivalent, which

is fixed by the clear language of Section 9, is made even more

clear by a consideration of the purposes of the Shipping Acts,

objectives which respondent deliberately thwarted. As the

Court of Appeals said in the Meacham case, supra (207 F. 2d

at 542):

“The purpose of the statutes * * * is very « The pre-

amble to the Shipping Act of 1916, 59 Stat. xplicitly

states that it was enacted to * * * encourage, develop and

create a naval auxiliary and naval reserve and a merchant

marine to meet the requirements of the commerce of the United

States with its possessions and with foreign countries. * * *

“(Section 2] of the Act was amplified and strengthened so

as to prevent evasion of its intent by the Amendment contained

in the Act of July 15, 1918, 40 Stat. 960, which sets out the

terms of the present statute * * *.

“Section 9 of the statute has also been strengthened and

enlarged so as to effectuate the underlying purpose of the

legislation. * * *”

The forfeiture provisions of Section 9 were intended to aid

in the achievement of the broad policy of encouraging and pro-

22 >

fraud and misrepresentation, for the profits sustained

as a result of his illegal transactions. The. Court of

Claims «expressly found—as respondent acknowledges

in his own petition .or certiorari in No. 664 (p. a)

that respondent procured the Sugarland. and Captain

fron. the Maritime Commission ‘‘on the hasis of rep-.

resentations that [he] was acquiring ‘the tankers as a

United States citizen for operation under the United

States flag and registry, knowing that sale to non-

citizens was pronibited under Public ] aw 423, supra,

_whereas in fact [he] was acquiring the vessels in

order to sell and transfer them te a noncitizen. 7? Ho

om

clearer statement could be desired of the =

necessary to sustain an action hased on. fraud:'

false representation ( (that the tankers were ate

obtzined. for use under United States flag and rezis-

try), as to a materiaf fact (by statute, the vessels

could only have been sold for citizen use), and with

tecting this nation’S merchant marine so that it may serve the ~~

needs - of commerce and de fense. Consequently, *the entire

statute ait all of its provisions should be regarded as remedial

law, designed to foster and protect the many public interests ii.

the merchant marine, and should be construed: liberally SQ 35 to

accomplish most effectually the chine tives of Congress.’ Cf. The

Margaret, 9 Wheat. 421, 424-425; © liguot’« Champagne, 3 Wal.

114, 115; Teylor v. United States, 3. How. 197, 210; omy

States v. 21 Pounds, 8 Ounces, of Platinum; 147 F. 2d 78° (C. 2

4, 1945) (all involving forfeitures) ; Johnaon-v. Sduthern Po -

cifie Co., 196 U. S.1, 17; Helvering v Mitchell, 303 U; S. 391,

401.

*The elements of fraud have been defined by this Court in

P-~ce v. United States, 316 U. S. 332, 3338 as “(1)- a false

representation (2) in reference to a material fact (3) made

with knowledge of its falsity .(4) and with the intent to de-

ceive (5) with action taken in reliante upon the representat: on.

PO agar

.

Be ta) |) le \ ef eee Dee

NUE ST Ss eho” Bee 8 Be ee

i

a

a

mission’s. action, and from) these facts “the requisite

intent to deceive is presumed, and therefore need not

“be proven in the absence of countervailing evidence.”

Pence v. United States, 316 U. S. 332, 339. Thus, the

tefusal of the Court. of @laims to make “2 specific

finding of fraud”’ is, in these circumstances, without

significance; whether recovery by the Government is

bottomed upon eentract or tort, all of the elements

of a fraudulent misrepresentation have been estab-

lished. See 2. Restatement, Contracts (1932) 4 470;

Prosser, Torts §85/ (1941 ed. D5. 5 Williston, Contracts

§ 1487.” .

There is, of course, no question but that the Gov-_

- ernment was injured by respondent’s fraudulent

procurement of ‘the tankers: It is- well established

come cenepcatenmanne y on

's Indeed, the facts in this case are far stronger than those

* hypothesized iM the following illustration of a fraudulent mis-

representation set forth in the Res.atement of Contracts (§ 471,

‘T\ustration 4) :

“4, A is informed by B that B will never sell Blackacre to A.

Thereafter A employs C to secure a transfer to himself and

then to transfer to A. C knows the .facts. B in ignorance

that the transaction is intended for the. benefit of A, contracts

with C to transfer the land to him. A and C by implication,

have justified B in assuming that A is.not concerned in the

Bbeicmnepeate and therefore have made fraudulent misrepresenta-

- tions.” /

Likewise, the Restatement ($475) makes clear 2s a niatter

of ‘blackletter Jaw that “[a] contractual promise made with

the undisclosed intention of-net performing jt is fraud.” As

the Court of Claims found, respondent here represented that

he would operate the ships under United States flag and regis-

try but in fact planned “at all times * * * to accomplish theif

transfer from the Maritime Commission to Argentina.”

24

that a seller has the right to select his purchaser (see _

Federal Trade Commission v. Raymond. Co., 263 U.S.

565, 573; Green v. Victor Talking Machine Co., 24 F.

2d 378, 382 (C. A. 2), certiorari denied, 278 U. S.

602); and the law will protect a seller who has been

misled into making a s»'e by virtue of the purchaser's

false representation that“he be ‘longs to a class with

whom the vendor is be to deal, or that he is-pur-

chasing as a principal when in fact he is the agent

of an undisclosed principal with whom the seller 1s

unwilling to have any dealings. See 1 Williston,

Contracts § 286, pp. 343-4, fn. 12; 5 Williston, Contracts

§ 1517, p. 4241, fn. 9, and cases there cited.

This rule is particularly ‘applicable where, hs here,

the United States is induced by fraud to sell surplus

property to one who by statute is mot entitled to pur:

chase it. As the Covit recognized m Rec Trails ro

Company v. United States, 350 U. 8.148, 153, injury

in such cases results to the Government, quite apart

from any monetary loss, in the defeating of its pro-

gram for applying the surplus material to specified

purposes.“ The policy embodied in Public Law 423,

“Thus, She Court found that Rex Trailer Compe.iy’s

fraudulent purchase of surplus trucks injured the Government

in that it “precluded bona fide sales to veterans, decreased the

number of motor vehicles available to Goverument —

and tended to promote undesirable speculation.” 350 U.S. at

153. Similarly, where the Government was ‘dummy in-

duced to sell surplus medical supplies at a.small fraction of

their value on the represgntation that they were for the use

of a non-profit hospital forporation, the Third Cireuit held

‘that “[a]t the very least there was a less in tie defeating of

the Government’s ‘prograin for applying the surplus material

to beneficial social purposes.” nited States. v. ora Brook

er Ine, (No. iz, 303, decided January 14, 195

4

;

Has BARK

—

met A

ny

25

governing the sale of surplus tankers, was an im-

portant one, involving fundamental considerations of

national safety, as. well as the eeonomic wellbeing of

the American merchant marine. The report of the

Senate Comfnittee on Interstate and Foreign Com-

méree, in recommending approval of Senate Joint

Resolution 173 (later Public Law 423), concluded that

continued sales of surplus tankers to non-citizens

operated “to the detriment of the United States, whose

own merchant-fleet tonnage, both active and reserve,

might be lowered beyond safe, ecaxOmiec, and national-

defense standards.’ Senate Report No, 856, 80th

Cong., 2d Sess., p. 3.° See also 94 Cong. Ree. 751,

860, 1144, 1585, 1608-9.

Nor, in the circumstances of this ease, ‘js — any

difficulty in measuring the extent ‘of the recovery to

> which the Government is entitled as; a result of re-

spondent’s . fraud. Having acquired -the surplus

tankers from the Maritime Commission at a fraction

* After discussing the economic impact of such sales on

American sh’ pping, und finding (p. 2) that ‘the further sale

to foreigners of American vessels would, in the committee's

opinion, result in a competitive disadvantage to American-flag

operators,” the Committee stated (p. 3):

“Beyond all this is the basic question of what tonnage should

be retained in the American active and reserve flegts from a

standpoint of national defense. The importance* of ® lar; e

merchant fleet to render vitally necessary auxiliary and

logistical support to our military forces has been sharply

demonstrated in two world wars. * * * Whether [the present

number of vessels] * * * is ample for the Nation’s defense re-

quirements is yet to be established. But, in the opinion of the

committee, this is not the time to gamble with the future, or

take a chance that we will not require a large, quickly avail-

able merchant fleet.”

26

of their true value, respondent proceeded on the same

day to contract to resell them to the Argentine Naval

Commission at a price of $965,000 each, thereby real- .

izing, after adjustments, “‘a gross profit of $153,959.29

on the acquisition and transfer of the two tankers, ex-

clusive of the $200,000 deposit’? (App. B, infra,

p. 48).° Aside from any out-of-pocket loss to the

Government, respondent is clearly liable under prin-

ciples geverning unjust enrichment for this unfair

gain from the purchases. Restatement, Restitution,

6 The sum of $153,959.29 does not include the respqndent’s

liability for the class aliowances and cost of desirable features,

both of which charges he had paid the Maritime Commission

in order to transfer the tankers to Argentina, but which he now

seeks tu recover, in his petition in No, 664. As noted in the

Statement, supra, pp. 16-17, the Court of Clajms has recognized

the Government’s right to retain these payments, as well as to

- recover an additional sum of $49,852.01 for unrecouped cost of

repairs. Even under the Court's computation, however, re-

spondent is still left with profits of $14,167.28, ip addition to

the balance of $35,800.40 which was returned to respondent

after the cost allowances and cost of desirable features were

deducted by the Maritime Commission from the Argentine

Naval Commission's $200,000 check of December 1948, and for

which respondent has completely failed to account. Although

the Court of Claims made no specific finding as to the disposi-

tion of this latter sum, such a determination being unnecessary

under the measure of liability erroneovsly adopted by the

court, it seems clear that this money too must be included in

computing respondent's profits from the illegal transactions.

.

Sy pare hy (3

=

rod

»

«2

"

a

‘a

4

4.

“4

S

on Ah hee

CRS

paar

27

§ 128, comment f; cf. Rex Tatler Co. v. U nited States,

390 U.S. 148, 153, fcetnote 6.”

Since this recovery is based upon the quasi-contractual ac-

tion of assumpsit, with damages measured in terms of the

unjust enrichment of the wrongdoer, it is unnecessary to con-

sider the problems that might arise is. attempting to compute

the monetary luss to the Government as a result of respondent’s

fraud. Presumably, however, the amount of damages would be

approximately the same. Ci. United States v. Bound Brook

Hospital, Inc. (C. A. 3, No. 12,03, decided January 14, 1958),

holding that the United States is entitled to claim, as damage

for the fraudulent procurement of surplus property, at least

the difference between the price it received for surplus prop-

erty and the price at which the fraudulent purchaser, disposed

of the property. The defendant in that case had fraudulently

obtained surplus n§@dical supplies from the Government at a

substantial discount upon the representation that they were to

be used by a nonprofit hospital corporation. Instead, the sup-

plies were resold at a profit, and the Government brought suit

under the Surplus Property Act of 1944, 58 Stat. 765, for the

statutory damages of $2,000 for the fraudulent act “* * * and

double the amount of any damage which the United States may

have sustained by reason thereof * * *.” In computing the

Government's specific monetary damages, the cougt held (slip

on. 3-4): x

-“We do not believe the question to be a difficult one. The de-

fendant got property from the U nited States for about $2,000

which he resold for $34,000. The defendant is hardly in a

position to urge that the property could not Lave been sold

by the United States for as much as he got-for it. It seems

pretty clear, therefore, that the Government has suffered a

pecuniary loss of at least as much as the difference between

what it got from the defendant and what the defendant got

from his purchaser. Under equitable principles of restitution

the amount thus obtained by wrongful act could be retovered

from the wrongdoer. * * * We do not think the measure of

damages is any less under the terms of this statute * * *. The

Government is content with tis measure of damages and it 1s

certainly not one of which the defendant can make complaint.

Whether under other‘sets of fact a different method of ascer-

taining damages might be upheld we do not now decide.”

28

CONCLUSION

For the foregoing reasons, we respectfully submit

that this cross-petition for a writ of certiorari should

be granted in the event that the petition in No. 664

is granted.

| J. Les Rankin,

Solicitor General.

GrorGE CocHraNn Dovs,

Assistant Attorney General,

SAMUEL D. SLaDE,

Ropert S. GREEN,

Attorneys.

a a a a

FEBRUARY 1958.

APPENDIX A

STATUTES, REGULATIONS AND CONTRACT PROVISIONS

INVOLVED

1. STATUTORY PROVISIONS

The Merehant Ship Sales Act of 1946, 60 Stat. 41,

50 U.S. C. App. (1946 ed.) 1735, et seq., provided in

pertinent. part as follows (as it appears in the United

States Code) : !

§ 1736

= * + -_ *

(d) ‘‘Statutory sales price’’, as applied to

a particular vessel, means, in the case of a dry-

cargo vessel, an amount equal to 50 per centum

of the prewar domestic cost of that type of ves-

sel, and in the case of a tanker, such term

means an amount equal to 871% per centum of

the prewar domestic cost of a tanker of that

type, such amount in each case being adjusted

as follows:

(1) If the Commission is of the opinion

that the vessci is not in class, there shall be

subtracted the amount estimated by the Com-

mission as the cost of putting the vessel in

class.

(2) If the Commissien is of the opinicn

tl. -t the vessel lacks desirable features which

are incorporated in the'standard vessel used’

for the purpose of determining prewar do-

mestie cost, and that the st&tutory sales price

(unadjusted) would be lower if the standard

vessel had also lacked such features, there’

shall be subtracted the amount estimated by

the Commission as the amount of such result-

ing difference in statutory sales price.

(3) If the Commission is of the opinion

that the vessel cont¥ins desirable features

(29)

30

which are not incorporated in the standard

vessel used for the purpose of determining

prewar domestic cost, and that the statutory

sales price (unadjusted ) would be higher if

the standard vessel had also contained such

features, there shall be added the amount es-

timated by the Commission as the amount of

such resulting difference in statutory sales

price.

(4) There shall be subtracted, as represent-

ing normal depreciation, an amount computed

hy applying to the statutory sales price (de-

termined without regard to this paragraph )

the rate of 5 per centum per annum for the

period beginning with the date of the origina:

delivery of the vessel by its builder and ending

with the date of sale or charter to the appli-

eant in question, and there shall also be sub-

tracted an amount computed by applying to the

statutory sales price (determined without re-

gard to this paragraph) such rate not in ex-

cess of 3 per centum per annum in the case of

a vessel other then a tanker, and not in excess —

of 4 per centum per annum in the case of a —

tanker, for such period or periods of war serv-

ice as the Commission determines will make

reasonable allowance for excessive wear and

tear by reason of war service which cannot

be or has not been otherwise compensated for

under this subsection. }

No adjustment, except in respect of passenger

vessels constructed before January 1, 1941, shall

be made under this Act which will result in a

statutory sales price which (1) in the case of

dry-cargo vessels (except Liberty type vessels)

will be less than 35 per centum of the domestic

war cost of vessels of the same type, (2) in the

case of any Liberty type vessel will be jess than

3114, per centum of the domestic war cost of

vessels of such type, or (3) in the case of a tanker

will be less than 50 per centum of the domestic

war cost of tankers of the same type. For the

purposes of this Act, except section 5, all Liberty

31

vessels shall be cousidered to be vessels of one

and the same type.

* * * * *

(g) ‘‘Citizen of the United States’’ includes

a corporation, partnership, or association only

if it is a citizen of the United States within the

meaning of section 2 of the Shipping Act of

1916, as amended. The term “‘affiliated inter-

est’”’ as used in sections 9 and 10 of this Act in-

cludes any person affiliated or associated with

a citizen applicant for benefits under this .ic¢

who the Commission, pursuant to rules and

regulations prescribed hereunder, determines

should be so ineluded in order to carry out the

policy and purposes of this Act.

§ 1737 ,

(a) Any eitizen of the United States may

inake application to the Commission to pur-

chase a war-built vessei, under the jurisdiction

and control of the Commission, ut the statutory

sales price. if the Commission determines that

the applicant possesses the ability, experience,

financial resources, and other qualifications,

necessary to enable him to operate and main-

tain the vessel under normal competitive condi-

tions, and that such sale will aid in carrying out

the policies of this Act, the Commission shall

sell such vessel to the applicant at the statu-

tory sales price.

* * * * *

§ 1739

(a) Any person not a citizen of the United

States may make application to the Commis-

~ sion to purchase a war-built vessel (other than

a P-2 type or other passenger type and other

than a Liberty type collier or tanker), under

the jurisdiction and.control of the Commission.

If the Commission détermines—

(1) that the applicant has the Ainane ial re-

sources, ability, and experience necessary to

oO

32 :

enable him to fulfil! Jl obligations with re-

spect to payment of any deferred portico. of

the purchase price, and that sale of the vessel

to him would not be inconsistent with any pol-

icy of the United States in permitting foreign

sales under section 9 of the Shipping Act, 1916,

_as amended; and

(2) after consultation with the Secretary of

the Navy, that such vessel is not necessary to

the defense of the United States; and

(3) that such vessel is not necessary to the

promotion and maintenance of an American

merchant marine described in section 2; and

(4) that for a reasonable period of time,

which in the ease of tankers and **C”’ type ves-

sels shall not end before ninety days after pub-

lication of the applicable prewar domestic cost

in the Federal Register under subsection 3 (¢)

of this Act, suelh vessel has been available for

sale at the statutory sales: piice to citizens of

the United States, or fer charter under section

5 to citizens of the United States, and that no

responsible ofrer has been made by a citizen of

the United States to purchase or charter such

vessel ;

then the Commission is authorized to approve

the application and sell such vessel to the ap-

plicant at not less than the statutory sales price.

In case of application submitted by a citizen of

the Commonwealth of the Philippines, para-

graph (4) of this subsection shall not apply.

Notwithstanding paragraph (4) of this subsee-

tion, not to exceed ten ‘*C”’ type vessels, except

C-3’s, may be sold to noncitizens at any time

after such date of publication at not less than

the statutory sales price. 3

(b) Notwithstanding any other provision of

law, no war-built vessel shall be sold to any per-

son not a citizen of the United States, except

in accordance with subsection (a), or upon

terms or conditions riore favorable than those

at which such war-built vessel is offered to a

citizen of the United States, but where the ves-

sel so sold is being transferred to foreign regis-

ter and flag, the mortgage securing the unpaid

balance of the purchase price and interest

thereon shall contain provisions according to

such mortgage the priorities over other liens

and eneumbrances accorded such mortgages on

merchant vessels under the laws of such regis-

try and flag.

The Shipping Act of 1916, as amended, 39 {stat.

728, 46 UL S. C. (1946 ed.) 801, ef seq., provides in per-

tinent part as foilows (as it appears in the United

States Code):

§ 808

Any vessel purchased, chartered, or leased

from the United States Maritime Commission,

t persons who are citizens of the United

$tates, may be registered or enrolled and

licensed, or both registered and enrolled and

licensed, as a vessel of the United States and

entitled” to the benefits and privileges apper-

taining thereto: Provided, That foreign-built

vessels admitted to Ame:ican registry or en-

rollment and license under this chapter, and

vessels owned by any corperation in which the

United States is a stockholder, and vessels sold,

leased, or chartered by the commission to any

person a citizen of the Umited States, as pro-

vided in this chapter, may engage im the coast-

wise trade of the United States while owned,

leased, or chartered by such a persen.

Every vessel purchased, chartered, or leased

from the commission shall, unless otherwise

authorized by the commission, be operated only

under such registry or er~olhaent and license.

Such vessels while employeau solely as mérchant

vessels shall be subject to «'' 'aws, regulations,

and liabilities governing merchant vessels, -

whether the United States be interested therein

as owner, in whole or in part, or hold any

mortgage, lien, or other interest therein.

\

\

Ww

34%.

Except as provided in section 1181 oi this

title, it shall be unlawful, with-ut the approval

of the United States Maritime Commission, to

sell, mortgage, lease, charter, deliver, or in any

manner transfer, or agree to sell, mortgage,

lease, charter, deliver, or in any manner trans-

fer, to any person not a citizen of the United.

States, or transfer or place under forcign reg-

istry or flag, any vessel or any interest therein

owned in whole or in part by a citizen of the

United States and documented under the laws

of the United States, or the last documentation

of which was under the laws of the United

States. =

Any such vessel, or any interest therein,

chartered, sold, transferred, or mortgaged to a

person not a citizen of the United States or

placed wider a,foreign registry or flag, or oper-

ated, in violation of any provision of this sec-

tion shall he forfeited to the United States, and

whoever violates any provision of this section

shall be guilty of a misdemeanor and subject

to a fine of not more than $5,000, or to im-

prisonment for not mare than five years, or

both. %

+ x % %, *

§ 839

- Whenever by section 808 or 835 °of this title

the approval of the commission is required to

render any act or transaction lawful, such ap-

proval may be accorded either absolutely or

upon such conditions as the commission pre-

scribes, Whenever the approval of the com-

mission is accorded upon any condition a

statement of such condition shall be entered

upon its records and incorporated in the same

document or paper which notifies the applicant

of such approval. A violation of such condi-

a

30

tion so incorporated shall constitute a misde-

meanor and shall be punishable by fine and

imprisonment in the same manner, and shall

subject the vessel, stocks, bonds, or other subject

matter of the application conditionally ap-

proved to forfeiture in the same manner, as

though the act conditionally approved had been

done without the approval of the commission,

but the offense shall be deemed to have been

committed at the time of the violation of the

condition. i

Whenever by this chapter the approval ef

the cOmmission is requxtd to render any act\ \

or transaction lawful; whoever knowingly

makes any false statement of a material fact

to the commission, or to any member thereof,

or to any officer, attorney, or agent thereof,

for the purpose of securing such approval,

shall be guilty of a misdemeanor and subject

to a fine of not more than $5,000 or to 1m-

prisonment for not more than five years, or

both. : |

Senate Joint Resolution 172, Publie Law 423, 80th

Cong., 2d Sess., 62 Stat. 38, 50 U. S. C. App. 17339,

Historical Note, provides in pertinent part as follows:

(b) Notwithstanding the provisions of sub-

section (a), no contract of sale under section 6

of the Merchant Ship Sales Act of 1946 shall

be made after March 7 1948; and nothing con-

tained in this or any other Act shall be deemed

to authorize the United States Maritime Com-

mission to charter any war-built vessel (as de-

fined in the Merchant Ship Sales Act of 1946)

to any person who Is not a citizen of the United

States (as defined in the Merchant Ship Seles

Act of 1946. )

36

2, REGULATIONS

United States Maritime Commission General Order

No. 60, 11 Fed. Reg. 4459, April 23, 1946, provides

in pertinent part:

§ 299.1

* * * * *

(h) Citizen of the United States. ‘*Citizen

of the United States’? includes a corporation,

partnership, or association only if it is a citizen

of the United States within the meaning of

section 2 of the Shipping Act, 1916, as

amended, and section 905 (¢) of the Merchant

Marine Act, 1936, as amended. The Secretary

of the Commission will furnish, on request,

copies of memoranda dealing with citizenship.

(i) Affiliated interest. The term ‘‘affihated

interest’’ shall include any person or concern

that directly or indirectly through one or more

intermediaries, controls, or is controlled by, or

is under common control with, the applicant.

The term ‘‘control’’ Gancluding the terms **con-

trolled by’? and ‘‘under common control with’’)

as used in this paragraph means the possession,

directly or indirectly, of the power to direct or

eause the direction of the management and poli-

cies of the applicant, whether through owner-

ship of voting securities, by contract, or other-

wise.

* * * *% *

General Order No. 60, Supplements 1 and 3, 11

Fed. Reg. 4702, 8972 set forth the computations of

the domestic war cost and the floor price of TI-M-D'T

tankers.

3. CONTRACT PROVISIONS

The contract appears as an Appendix to the original

petition in the Court of Claims, filed in June 19, 1991.

It provides: |

* * * ¥% %

ARTICLE 1. Agreement to Purchase.—Subject

to the provisons hereinafter set forth and to

37

all applicable provisions of the Act and Reg-

ulations, whether specifically referred to or not,

the Buyer agrees to purchase from the Com-

mission and the Commission agrees to sell to

the Buyer the vessel(s).

It is understood and agreed that if for anv

reason the vessel(s) cannot be delivered by the

Commission to the Buyer as herein provided,

similar vessel(s) acceptable to the Buyer, ey &

pursuant to an addendum to this agreement,

delivered by the Commission in ketbutine

therefor.

* * *% ¥* *

ArTICLE $. Purchase Price(s) of the Ves-

sel(#).—The Commission has determined, pur-

suant to the provisions of the Act, giving ‘effect

to all adjustments (except for the absence or

snag of desirable features as defined in

clauses (2) and (3) of See. 3 (d) of the Act)

permitted by the Act and applicable to the

vessel, that the purchase price thereof shall be

as set forth in Exhibit “A’’ attached hereto

and forming a part hereof.

* * * * *

ARTICLE 9. Documentation of the Vessel(s).—

The (each) vessel shall be documented under

the laws of the United States by the Buyer im-

mediately after sale and delivery thereof to the

suver,

= * * > +

EXHIBIT A

¥ * * * e

I. Purchase Price(s) of the Vessel(s). * * *

The Buyer agrees, if it shall be determined

hy the Commission upon examination of the

(each) vessel, that the vessel lacks or contains

desirable features as defined in clauses (2) and

(3) of See. 3 (d) of the Act, then sueh pur-

chase price shall be decreased, within the limits

of the floor price of the vessel, or mereased, by

such amounts, if any, as may be determined by

the Commission pursuant to said clauses.

APPENDIX. B

OrpiINION AND FINDINGS OF THE Court OF CLAIMS

Gn the United States Court of Claims

No. 50197

(Decided July 12, 1957)

MANUEL RODRIGUEZ TRADING CORPORATION

ann MANUEL RUDRIGUEZ v. THE UNITED

STATES

Mr. Homer C. Clay for the plaintiff.

Mr. Edward L. Metzler, with whom was Mr. Assistant

Attorney General George Cochran Doub, for the defendant.

OPINION

Laramore, Judge, delivered the opinion of the court:

| This isa suit by plaintiff, Manuel Rodriguez Trading Cor-

‘poration, to recover sums of $135,442.79 and $28,756.81 paid

to the U. S. Maritime Commission. The defendant counter-

claims for damages, and Manuel Rodriguez has been joined

as a party plaintiff under rule 23 of this court.

The $135,442.79 was paid to the Maritime Commission by

plaintiff under an agreement made in December 1948 that

the Commission would approve plaintiff’s sale of the tankers

Capitan and Sugarland to the Argentine Naval Commission

and their transfer to Argentine registry and flag, which was

accomplished. The $135,442.79 represented reductions in

the statutory sale price of the two tankers which had been

acquired by a contract dated April 6, 1948. The reductions

were allowed plaintiff by the Maritime Commission under

section 3 (d) (1) of the Merchant Ship Sales Act of 1946, 60

Stat. 41, as amended 62 Stat. 1196, 1199. The $28,756.81

represents the Maritime Commission’s charges for “desirable

features” not found in standard vessels, payment for which

was agreed to by plaintiff in the contract dated April 6, 1948,

and by an agreement made in Jecember 1948.

(38)

39 —

Plaintiff contends that it is entitled to recover the $135,-

449.79 under the decision of this court in Norton Clapp v.

United States, 127 C. Cls. 505 and asserts that the Maritime

Commission did not have authority to condition its approval

of the sale and transfer by requiring that the class allowance

be refunded, and that such requirement was also a breach of

contract.

Plaintiff contends it is entitled to recover the $28,756.81

paid for “desirable features” under the decision of this court

in A. H. Bull Stéamship Co. v. United States, 123 C. Cls. 520.

It contends that the statutory formula provided by the

Merchant Ship Sales Act, supra, requires the cost of desir-

able features to be added to the statutory sales price and

then depreciated, and that this results here in the cost of

desirable features being wholly absorbed and Jost, although

the floor price is maintained. Plaintiff further contends that

a citizen’s purchase of tankers after March 1, 1948, for the

purpose of resale to aliens, would not violate Public Law

423, 62 Stat. 38, if the Maritime Commission approved.

The defendant contends that plaintiff procured the two

tankers from the Maritime Commission and obtained price

reductions of $135,442.79 on the basis of misrepresentations

that it was acquiring the tankers. as a United States citizen

for operation under American flag and registry, and that

plaintiff, knowing that sales’to noncitizens were expressly

prohibited after March 1, 1948, by Public Law 423, was not

acquiring the tankers for American flag ownership and opera-

tion, but in order to sell and transfer them to the Argentine

Naval Commission for operation under Argentine flag and

registry.

Public Law 423 provides in pertinent part as follows:

(b) Notwithstanding the provisions of subsection

(a), no contract of sale under section 6 of the Merchant

Ship Sales Act of 1946 shall be made after March 1,

1948; and nothing contained in this or any other Act

shall be deemed to authorize the United States Maritime

Commission to charter any war-built vessel (as defined

in the Merchant Ship Sales Act of 1946) to any person

who is not a citizen of the United States (as defined in

the Merchant Ship Sales Act of 1946).

40

The government further contends that it is entitled to judg-

ment on its counterclaim for the losses and damages sustained

by reason of plaintiff's misrepresentations.

The facts as found by the Commissioner and adopted by the

court are as follows: |

‘The Manuel Rodriguez Trading Corporation was, from

January 1947 to February 1951, a New York corporation

with its principal place of business at 220 Broadway, New

York City, New York. Only 80 shares of the corporate stock

were issued. During the corporate existence Manuel Rod-

riguez was the president and actually operated as sole owner.

As of September 2, 1948, he had formally acquired the 30

shares issued Januarv 30, 1947, in the name of his wife,

Adela Rodriguez, a citizen of Cuba. As of December 29,

1950, the assets of the corporation were distributed to the

two remaining stockholders, Rodriguez receiving $336,191.81 .

and Louis Russell $4,255.59. A certificate of dissolution was

filed February 1, 1951, dated December 29, 1990.

Manuel Rodriguez has been impleaded personally and by

order of the court joined as a party plaintiff. The term

plaintiff as used herein refers to the corporation or to Man-

uel Rodriguez personally. F

Plaintiff by contract dated April 6, 1948, acquired from

the U. S. Maritime Commission two T-1 tankers, the Sugar-

land and the Capitan, at a price of $887,019 each. The price

was in accordance with the Merchant Ship Sales Act of 1946

and the rules and regulations issued pursuant thereto as set

forth in the Maritime Commission’s General Order 60. The

contract provided for a reduction of price by an amount

equal to the- cost, as determined by the Commission, which

would be required to enable the Commission to deliver the

vessels in class with valid certificates of classification and

inspection in accordance with the minimum requirements of

the rules and regulations of the American Bureau of Ship-

ping and the U. S. Coast Guard Marine Inspection. Plain-

tiff iiled claims for such price reductions and was allowed

$135,442.79, 2. e., on the Sugarland $4,094 for repairs and

$15,259.37 for predelivery and maintenance expenses, and on

the Capitan $94,067 for repairs and $22,022.42 for pre-

delivery and maintenance expenses.

41

Title to the Sugarland and Capitan, respectively, was

transferred to plaintiff on June 8, 1948, and August 20, 1948.

Plaintiff thereafter, on October 21, 1948, apphed for ap-

proval to sell the tankers to the Argentine Naval Commission

and to transfer them to Argentine registry and flag. On

December 7, 1948, the Commission approved the sale and

transfer on the condition that the price reductions or class

allowances were paid. Plaintiff agreed and deposited a

$200,000 check of the Argentine Naval Commission. The

tankers: were consequently transferred from United States

registry. On June 3, 1949, plaintiff requested that the Mari-

time Commission reconsider its requirement that the $135,-

442.79 be paid, but the Maritime Commission adhered to its

decision, and denied a request for reconsideration.

The Maritime Commission also determined that the tankers

contained desirable features and pursuant to the purchase

contract and plaintiff's consent charged plaintiff the depre-

ciated value of the desirable features, 7. ¢. $27,650 on the

Sugarland and $1,105.96 on the Capitan. The Maritime

Commission alsu’ determined that undet Article 1V of the

contract applying to a citizen sale plaintiff should be charged

only $42 for unamortized repairs made on the Sugarland,

deducted this amount from a deposit and refunded the

balance. ;

THE GOVERNMENT'S COUNTERCLAIM

The Merchant Ship Sales Act of 1946 provided that the

Maritime Commission might sell certain Government-owned

war-built vessel a citizen of the United States, as defined

in the act, at a “statutory sales price.” In the case of tankers

statutory sales price was defined in the act (section 5 (d) to

mean “an amount equal to 8714 per centum of the prewar -

domestic cost of a tanker of that type” subject to adjust-

ments set forth therein. In the case of a tanker the adjust-

ments could not reduce the sales price to less than 50 percent

of the domestic war cost and the price of the Capitan and

Sugarland, T-1-M-BT tankers, was fixed at the floor price

of $887,019. Under certain conditions sales to noncitizens

were authorized “at not less than the statutory sales price”

but Senate Joint Resolution 173, Public Law 423, 80th Con-

gress, 2d session, epproved February 27, 1948, expressly

42

prohibited sales to, noncitizens after March 1, 1948. The

questioned trarsactions occurred subsequent to March 1, 1948.

In November 1947 an employee of the Maritime Commis-

sion, John E. Jacobsen, advised Rodriquez that ther. was a

possibility that ten T-1 tankers might be purchased from

the Maritime Commission for resale to Argentina. At that

time the Argentine Government had a purchasing commis-

sion known as the Argentine Naval Commission located in

New York City. The Naval Commission was headed by

Rear Admiral Athos Colonna, and Captain Julio Mazzoli,

Naval Architect, was in charge of ship inspections. On De-

cember 19, 1947, plaintiff retained Homer C. Clay and Jacob-

sen to represent it in bringing about the sale of ten or less

tankers. Clay and Jacobsen were to receive on a contingent

basis a fee of $25,000 for each tanker purchased. On Decem-

ber 30 and 31, 1947, Rodriguez conferred with representa-

tives of the Argentine Naval Commission advising that the

present basic sales price of the ten tankers was $887,019 but

that he would sell them for $965,000 each (or less if more than

five were obtained) with title and authority to change the flag,

etc., the offer being subject to approval of the Maritime Com-

mission. On February 4, 1948, Clay wired Rodriquez that

there wus a strong’probability Congress would prohibit sales

of war-built vessels to foreign countries after February 29

and urged filing an application immediately. Plaint #? and

the Argentinle Naval Commission then entered into a con-

tract whereby the Naval Commission was to purchase ten

tankers from plaintiff for $935,000 each and delivered two

checks, payable to the Treasurer of the United States, for

$1,000,000 each. The checks were certified respectively by

the Chase National Bank and the National City Bank, both

of New York City on February 16, 1948.

On February 18, 1948, plaintiff made written application

to the Maritime Commission to purchase ten tankers at the

statutory “ales price for transfer to the Argentine flag stating

that it was not then and never had been engaged in the ship-

ping business. On March 1, 1948, the Maritime Commission

disapproved the application but at 11:30 P. M. March 1,

1948, approved the sale of one tankerto plaintiff for transfer

to Argentina.

43 , i

Senate Joint Resolution 173, as stated, proh:bited the sale

of a war-built vessel to a nencitizen after March 1, 1948.

Rodriquez was quite aware of the prohibition which had been

imminent and so wrote the Argentine Naval Commission on

March 5,1948. At the same time plaintiff advised that Com-

mission that Rodriguez was endeavoring to obtain one addi-

tiona] tanker on the premise the corporation was a citizen

purchaser, as well as still another vessel, and that their ef-

forts would be continued.

On March 7, 1948, plaintiff’s attorney in fact, Homer C.

Clay, wired the Secretary of the Maritime Commission as

follows:

APPLICATION MANUEL RODRIGUEZ TRADING CORP. HEREBY

AMENDED TO ELIMINATE ALL REFERENCE TO TRANSFER OF

SHIPS TO ARGENTINE REGISTRY APPLICANT DESIRES TO PUR-

CHASE AS AMERICAN CITIZEN TERMS CASH’ ON DELIVERY

WITH TWO MILLION DOLLARS NOW DEPOSITED WITH APPLICA-

TION TO BE APPLIED ON PURCHASE PRICE.

On March 10, 1948 plaintiff filed a formal amendment to

its February 18, 1948 application by striking therefrom:

* * a * *

* * * All reference to the transfer of the vessels re-

/) ferred to therein to foreign flag or registry and to pro-

vide that the applicant will purchase any one er more

of the yessels referred to in said application as a United

States citizen (applicant is a New York corporation)

for operation under the flag and registry _— United

States and to further provide that should applicant be

granted the right to purchase any vessel or vessels pur-

suant to its amended epplication, applicant will obtain

the services of one of the established and experienced

ship operating companies taoperate said vessel or vessels.

On March 11, 1948, plaintiff’s amended application was

referred to the Maritime Commission by memorandum from

the appropriate officer, the Chief of the Large Vessel Sales

Division, James L. Pimper, who recommended the sale of

two, Ti-M-BT tankers with the advice that the “applicant

wishes to eliminate original reference to transfer to Argen-

tine registry and purchase as an American Citizen” and to

pay cash in ‘ull on delivery. The Commission was advised

that:

44

Applicant claims no shipping experience but states

that it will obtain the services of one of the established

and experienced ship operating companies to operate

the vessels when purchased.

* * * * *

* * * since the applicant offers to pay cash in full for

*

‘ the vessel, the Commission is justified in considering that

the applicant possesses the necessary financial resources.

* * * * *

_ Applicant proposes to operate the vessels in established

tanker trades, chiefly from North Atlantic ports to the

River Platte and occasionally from Veusdudlen ports to

the River Platte.

* * * * *

On March 12, 1948, the Commission approved plaintiff's

application as to three T—-1 tankers. However, the Navy De-

partment requested the transfer of one tanker and the Mari-

time Commission on March 31, 1948, approved the sale of

two tankers, the Capitan and Sugarland, “for operation un-

der United States flag,” the terms of payment to be “cash

in full on delivery.”

Under date of March 31, 1948, the date the Maritime Com- _

mission approved the sale for operation under Umted States

flag, plaintiff and the Argentine Naval Commission entered

into contracts relating to the Capitan and Sugarland. The

contracts recited in part that plaintiff sold said tankers to

the Naval Commission with a view to their transfer tc the

Argentine Navy, that the Naval Commission would turn over

the official price of $887,019 each, and upon obtaining plain-

_ tiff’s approval for transfer to the Argentine flag the Naval

Commission would pay the price fixed by the offer of Decem-

ber 31, 1947; 7. e., $965,000 if 1 to 4 tankers were acquired.

Paragraph G of the contracts provided that in the event a

legal transfer was not possible and in the event of a dis-

‘agreement over settlement the ships would be sold without

loss to plaintiff, or 20 percent of the profits. In the event

of United States expropriation its payment was to be imme-

diately transferred to the Naval Commission. The Naval

Commission was also to pay all other expenses incurred,

subject to its written approval. ~

In reliance upon plaintiff's representations that the tank-

ers were purchased by plaintiff as a United States citizen for

45

operation under the flag of the Uni‘ed States for Maritime

Commission, under date of April 6, 1948, entered into the

formal sales contract referred to in finding 2 for sale of the

Capitan and Sugarland at $887,019 each.

The Argentine Naval Commission made the down pay-

ments on the Capitan and Sugarland on April 2, 1948, by

issuing two $88,701.90 checks.

On April 28, 1948, the Argentine Naval Commission paid

plaintiff the $798,317.10 balance of the $887,019 floor price

on each tanker.

Plaintiff’s books and accounting records show the tankers

were sold to the Argentine Naval Commission in April 1948,

that the tankers were purchased for resale and not for oper-

ation and that they were carried as merchandise inventory

unti? June 20, 1948, when the books showed the Argentine

Naval Commission had advanced $965,060 on sales contracts

on each of the tankers. Plaintiff's Federal tax returns also

show the purchases were for sale rather than operation.

Neither Rodriguez nor the corporation had ever been en-

gaged in the shipping business and had no experience in

operating tankers. No effort was made to obtain the services

of a ship operating company or to hire officers or a crew.

Following the allocation of the tankers Rodriguc.: was in

constant consultation with the Argentine Naval Commission

over the control and disposition of the tankers. The Argen-

tine representatives inspected the vessels, work plans and

spécifications were submitted to them in advance, and they

prepared plans und specifications for repairs and sent them

to Rodriguez in August 1948. Upon closing the sales with

the Maritime Commission in June and August 1948 the bills

of sale and master carpenter’s certificate were delivered

to plaintiff’s attorney-in-fact, Homer C. Clay. These docu-

ments were promptly turned over to the Argentine repre-

sentatives. Pursuant to arrangements between Rodriguez

and Admiral Colonna, the Argentine Naval Commission also

stationed its own crew aboard the tankers to act as watchmen

pending the contemplated transfer.

In August 1948 plaintiff inserted an ad in the New York

Journal of Commerce advertising T-1 tankers for sale:

“United States flag. Immediate delivery. Principals only.

46

All cash in dollars.” A similar advertisement was inserted

in the New York Times of August 29,1948. Four’ responders

indicated a desire for foreign registry and two suggested

domestic use, but plaintiff communicated with none.

Under date of August 30, 1948, however, a letter was pre-

pared to plaintiff from the Argentine Naval Commission over

the signature of Rear Admiral Colonna in which the Argen-

tine Naval Commission purported to answer the ad appear-

ing in the New York Journal of Commerce for August 27,

. 1948; and offeréd to purchase tankers with U.,S. currency.

A copy of the ad was attached to the Naval Commission’s

letter. . f

On October 21, 1948, plaintiff transmitted to the Maritime

~ “Commission its application for the approval required by -

Seetions 9 and 41 of the Shipping Act of 1916, as amended,

of a proposed sale and transfer of the Capitan and Sugar-

land to Argentine registry and sale to an alien, namely, the

Argentine Naval Commission. The applications repre-

sented that the tankers had never been operated, and that

they had been on the market for sale.to American citizens for

three months prior to the application but no offers had been

received. The proposed sale price was represented as “actual

cost of vessel to owner” payable incash. The application at-

tached Admiral Colonna’s letter purporting to answer the ad,

- and represented that sale and transfer to the Argentine

Naval Commission was desired as the tankers were unsuit-

able, conditions had changed, the initial “cost and repairs for

the owner’s account” exceeded $1,800,000 and maintenance

costs were.a threat to the company’s solvency.

The Chief of the Maritime Commission’s Bureau of Gov-

ernment Aids recommended that the application be denied.

However, at a meeting on December 7, 1948, Homer C. Cla

and Ralph Immell appeared before the Commission |

after referring to the information contained in the appli-

cation, advised the Commission further that plaintiff's presi-

dent had invested his entire personal fortune of $1,800,000

in the tankers, that to cut expenses crews had been reduced

and guards put on board, and that plaintiff was obliged

to sell the tankers or go into bankruptcy. It was also repre-

sented that the proposed “sales price of $912,000 per tanger,

ZS

47

adjusted for the value of the heating coils, might enable

Rodriguez to break even but he stood to lose $45,000. At

the hearing Mr. Clay specifically, on behalf of the plaintiff,

denied any possibility of an advance arrangement with the

Argentine interests whereby later approval of the sale and

transfer would be sought. At the December 7, 1948 meet-

ing the Commission by a 3 to 2 vote approved the sale and

transfer “* * * upon the condition that any and all allow-

ances made to the Manuel Rodriguez Trading Corporation

for placing the vessels in class and all monies due and owing

the Commission by the said: Manuel Rod“guez Trading

Corporation shall be paid to the Commission prior to the

issuance of any orders authorizing the transfer of flag and

registry of the said vessels and the company waives any

claims for allowances.” By memorandum of December 9,

1948, the Commission auvised its Chief, Bureau of Govern-

ment Aids, of its conditional approval, and on December 10,

1948 the Commission also notified plaintiff of its approval

under the conditions noted above, and, because plaintiff re-

quested that transfer orders be issued as early as possible

requested a $200,000 deposit. The Commission advised that

the deposit would not preclude reconsideration but “it is

also understood that any future action by the Commission

on this matter will be acceptable to you as final”. Tiaintiff

accepted these prescribed conditions in a letter dated De-

cember 14, 1948, noting it “accepts and agrees” and deposited

a certified check of the. Argentine Naval Commission for

$900,000.

Subsequently the Commission delivered transfer orders

to plaintiff authorizing the sale of the tanl&rs to the Argen-

tine Naval Commission and their transfer to Argentine reg-

istry and flag. The conditions were not repeated in the

transfer orders as neither the Commission’s regulations nor

practice required this.

* The Maritime Commission had agreed to reconsider its

action on the charges if plaintiff would accept such action

as final. Plaintiff agreed to this. On June 30, 1949, Clay

and Ralph Immell also filéd a formal application for re-

consideration repeating the same representation’ as were

made before the sale to the Argentine Naval Commission.

toa

They stated the sale ocqurred “after issuance of the foreign

transfer orders” and as\plaintiff had sold/at the price paid

the Maritime Commission it could not be reimbursed by the

Argentine Naval Commission because of the refund of the

class allowances. It was stated that there was no under-

standing that Rodriguez would appear subsequently and ask

for an order to resell and that if the corporation “having

purchased these ships, had let them sit idle and then subse-

quently sold them to the Argentine Naval Commission”

the allowances should be wiped out and the plaintiff should

not profit by them. The Commission denied the request

August 12, 1949, and plaintiff was so advised.

Prior to March 1, 1948, and subsequently, the plaintiff was

acting, in effect, as agent for the Argentine Naval Commis-

sien in: equiring the tankers and that at all times plaintiff

planned in one way or another to accomplish their transfer

from the Maritime Commission to Argentina.

The Capitan and Sugarland were built in 1945. The Mari-

time Commission pursuant to the Merchant Ship Sales Act

of 1946 determined that their domestic war cost was $1,774,-

038 each. Their 1947 costs would have been about 15 percent

greater or $2,040,143.70. In March 1948 the Argentine Naval

Commission offered to pay $965,000 for each vessel. The

Argentine Naval Commission paid $2,202,223.87 for the

tankers. According to plaintiff’s available records, which

do not show what occurred with respect to the $200,000

deposit made by check of the Argentine Naval Commission,

plaintiff corporation made a gross profit of $153,959.29 on the

acquisition and transfer of the two tankers, exclusive of the

$200,000 deposit. 3

The Maritime Commission received a total of $1,802,836.81 .

for the vessels which would have cost $4,080,287.40 to replace

or $2,777,450.29 less than the replacement cost.

During the time the Maritime Commission was authorized

to sell to noncitizens it charged noncitizens the unrecouped

costs of repairs. In the case of the Sugarland this would

have amounted to $49,894.01 but as a supposed citizen pur- -

chaser plaintiff was charged but $42 or $49,852.01 less. ‘The

Government also counterclaims for this item.

49

The facts clearly show and the court has found that plain-

tiff was acting, in effect, as agent for the Argentine Naval

Commission in acquiring these vessels and that at all times

plaintiff planned in one way or another to accomplish the

transfer of these vessels from the Maritime Commission to

the Argentine Naval Commission. x

In this climate what then is the result of such action.

Plaintiff says this court’s decision in the Norton Clapp case,

supra, decides the question. However, we are not inclined

to that view. The plaintiff in the Vorton Clapp case ac-

quired the ship in question in 1949 from an owner who had

previously acquired the same from the Maritime Commission

in 1947. Tn 1951 Norton Clapp contracted to sell the ship to

a Finnish corporation and applied for approval of the same.

The Maritime Commission approved the sale upon payment

of the sum of $7,500 as “consideration for release of obliga-

tion to operate vessels under United States laws.” The court

in the Norton Clapp case held that the limitation of sale to

domestic bidders was because the Maritime Commission at

that time was unwilling for ships to be sold to aliens at any

price and that in 1951 the reasons for the restriction were

no longer present. The court further found that price had

nothing to do with either the restriction or the removal and

the $7,500 charge was irrelevant.

It must be borne in mind that the plaintiff in the Vorton

Clapp case was a citizen of the United States. Here the

situation is different—plaintiff was acting as agent for the

Argentine Naval Commission but by his actions and asser-

tions acquired the vessels as a citizen of the United States,

thereby circumventing the provisions of law regarding sale

{oa noncitizen. Plaintiff procured the tankers and obtained

the price reductions or class allowances on the basis of repre-

sentations that it was acquiring the tankers as a United

States citizen for operation under the United States flag

and registry, knowing that sale to noncitizens was pro-

hibited under Public Law 423, swpra, whereas in fact is was

acquiring the vessels in order to sell and transfer them to a

noncitizen. .

Had the Argentine Naval Commission been permitted to

purchase the tankers, certainly the United States could have

vU

exacted the $135,442.79 and could further have charged for

the desirable features.*

Under these circumstances we believe plaintiff is in the

same position as the Argentine Naval Commission, a non-

citizen, would have been had it negotiated and purchased the

tankers. That is to say, the Maritime Commission had every

right to charge the Argentine Naval Commission more for

the vessels than it could have charged a citizen, and there is no

reason to believe that such a charge would not have been

made. Thus the Maritime Commission, by reason of the

representation of plaintiff, lost the difference in sale price

and, if fraud were present, we could think of no reason why

plaintiff should be permitted to profit thereby. However, no

specific finding of fraud is made in this case and in the ab-

sence thereof, plaintiff would not be chargeable under a

constructive trust for the proceeds received from the sale

to the Argentine Naval Commission. Restatement of the

Law of Restitution, Ch. 13, sec. 202; United Staies v. New-

bury Mfg. Co., 36 F. Supp. 602.

Under these circumstances the Government is entitled to

retain the $135,442.79 which plaintiff as a citizen saved under

the floor price and the $28,756.81 charged for desirable

features. |

Defendant counterclaims for losses and damages sustained,

z. e., (a) the value of the Capitan and Sugarland; (b) the

differences between the amount paid for the tankers by the

Argentine Naval Commission and the amount received by the

Maritime Commission, 2. e., $399,387.06; (c) the gross profit

made by plaintiff on the illegal transaction; and (d)

$49,852.01 for unrecouped repairs.

1The case of Esso Nederland N. V., etc., No. 689-53, decided May 8, 1957,

presented a similar situation wherein a noncitizen sought relief from payment

for desirable features pursuant to A. H. Bull &teamship Co. v. United States,

supra. The court in the Esso Nederland case held that the specific intention

which the parties intended and incorporated in the contract was that the

desirable features were to be paid in addition to the already known floor prices

of the ships. The contract provision in the instant case is exactly the same

asin the Hsso Nederland case and is as follows: |

: “The Buyer agrees, if it shall be determined by the Commission upon

——~examination of the (each) vessel, that the vessel lacks or contains

desirable features as defined in clauses (2) and (3) of Sec. 3 (d) of the

Act, then such purchase price shall be decreased, within the limits of the

floor price of the vessel, or increased, by such amounts, if any, as may be

% determined by the Commission pursuant to said clauses.”

51

We believe the defendant should be put in the same posi-

tion as if the transfer had not been made to plaintiff. That

is to say, had the tankers been sold directly to the Argentine

Naval Commission, the Government could have charged

$135,442.79 as class allowance and $28,756.81 for desirable

features. These sums had been paid to the defendant and

we hold that the defendant is entitled to retain them. The

only other damage defendant has suffered is the cost of un-

amortized repairs which would ‘be charged to noncitizen

purchasers.

The findings show that “during the time that the Commis-

sion was authorized to sell to noncitizens, it made a charge to

the buyer of the unrecouped cost of repairs made subsequent

to January 1, 1947, less depreciation at the rate of $6,000 per

month for each month of operation. This, for the Sugarland

would have amounted to a charge of $49,894.01. Ifthe policy

respecting sales to citizens required a charge of the cost of

unrecouped repairs made after July 1, 1947, the charge in

the case of the Sugarland was $42 ouly, or $49,852.01 less.”

Under section 6 of the Merchant Ship Sales Act, supra,

the sale price to noncitizens was merely the iinimnfh statu-

tory price. Therefore, plaintiff's purchase asa citigen saved

$49,852.01 which defendant could have charged :a péncitizen.

The Government lost that amount and is ‘eXtitled to recover

the same under its counterclaim. eis

Since as a result of the dissolution of the plaintiff pe

tion, Manuel Rodriguez acquired all but $4,255.59 of the

corporate assets and has been made a party plaintiff to

answer the defendant’s- counterclaim, we hold that judgment

will be entered against the plaintiff corporation and Manuel

Rodriguez personally.

The plaintiff is not entitled to recover, and the petition of

Manuel Rodriguez Trading Corporation is dismissed.

Defendant is entitled to recover of and from the plaintiffs,

Manuel Rodriguez Trading Corporation and Manuel Rodri-

guez, on iis counterclaim the sum of $49,852.01.

It is so ordered.

Mappen, Judge; Wuiraker, Judge; Lirrieron, Judge;

and Jones, Chief Judge, concur.

a2

FINDINGS OF FACT

The court, having considered the evidence, the report of

Commissioner George H. Foster, and the briefs and argu-

ment of counsel, makes findings of fact as follows:

1. The Manuel Rodriguez Trading Corporation was from

January 1947 to February 1951 a corporation organized pur-

suant to the laws of the State of New York with principal

place of business located at 220 Broadway, New York, New

York. Manuel Rodriguez was the principal stockholder,

and he, in his capacity as president, actually operated as sole

owner. Hereinafter, the term plaintiff refers to the corpo-

ration or to Manuel Rodriguez personally.

2. Plaintiff, by contract dated April 6, 1948, acquired from

the United States Maritime Cmusiacion two T-1 tankers,

the Sugarland and the Capitan at a price of $887,019 each.

The price was in accord with the Ship Sales Act (50 App.

U.S. C., sec. 1739) and the rules and regulations issued pur-

suant thereto as set forth in General Order 60 of the U. 5.

Maritime Commission.

3. The contract provided for a péduction of price by an

amount equal to the cost, as determined by the Commission,

which would be required to enable the Commission to deliver

the vessels in class with valid certificates of classilication

and inspection in accordance with the minimum require-

ments of the rules and regulations of the American Bureau

of Shipping and the U. S. Coast Guard Marine Inspection.

4. Plaintiff filed claims for reduction of price and reduc-

tions were allowed in the total sum of $135,442.79. Pursuant

to the contract, said reductions were based on the following:

The Sugarland

$4,094.00 for repairs.

15,259.37 for predelivery and maintenance expenses.

The Capitan

$94,067.00 for repairs.

22,022.42 for predelivery and maintenance expenses.

Title tothe Sugarland was transferred to the plaintiff on

June 8, 1948, and title to the Capitan was transferred August

20, 1948.

5. On October 21, 1948, plaintiff applied to the Commission

pursuant to sections 9 and 41 of the Shipping Act for ap-

proval to sell the vessels to the Argentine Naval Commission.

53,

On December 7, 1948, the Commission approved the pro-

posed sale to the Argentine Naval Commission.

6. On December 14, 1948, plaintiff sent a certified check for

a deposit as required. The vessels were thereafter trans-

ferred from the U. S. Registry.

7. On June 3, 1949, plaintiff requested the Commission to

reconsider the requirement that the allowance of $135,442.79

be paid to the Commission. The Commission refused to

change its decision and upon request for reconsideration

thereof, the request was denied. Plaintiff was so advised

on September 12, 1949. ;

8. The contract of purchase contained the following

provision:

The Buyer agrees, if it’ shall be determined by the

Commission upon examination of the (each) vessel, that

the vessel lacks or contains desirable features as defined

in clauses (2) and (3) of Sec. 3 (d) of the Act, then such

purchase price shall be decreased, within the limits of

the floor give of the vessel, or increased, by such

amounts, if any, as may be determined by the Commis-

sion pursuant to said clauses.

On June 8, 1948, plaintiff wrote to the Maritime Commis-

sion with reference to the Sugarland. The letter contained

the following:

* * - * * *

The absence or presence of desirable features not hav-

ing been determined by the Commission, in accorcance

with the terms of the contract of sale, we agree to pay

to the Commission the cost of such desirable features

chargeable to the Buyer under the terms of the contract

of sale or the Commission will make an allowance, within

the limits of the floor price of the vessel for the absence

of such features.

* _* Sa * *.

Homer C. Clay, who was acting as attorney in fact for

plaintiff, on August 20, 1948, wrote similarly relating to the

Capitan.

The Commission determined that both on the Sugarland

and on the Capitan there were desirable features and desig-

nated them as follows:

54

Sugarland: Depreotated value

Heating coil installation. siciaibaniteiai $23, 284. 2

I innccitcnnscetnencncccnanenns 3, 238. 12

Low pressure Evapcrating plant_ pitecimpananiiaineniiavies 1, 128. 50

Capitan: v .

Low pressure Hivaporating plant.............. 1,106.96

In response to a request for information as to the amount

of the charge for the heating coil, the Commission on

October 7, 1949, advised as follows:

» * * * s

In this connection, your attention is drawn to Con-

tract MCc-61155, Exhibit A, Paragraph 1; and Gen-

eral Order 60, Subpart A, Section 299.1 (f) (3). Pur-

suant to the ‘above, the Bureau of Engineering has

advised that at the time of delivery of the MV SUGAR-

LAND to you there were on board certain heating coils.

The unadjusted statutory sales price (87% of the pre-

war domestic cost) is $24,200, against which deprecia-

tion at the rate of five percent per annum from the date

of installation of such coils (sep tember 5, 1947) to the

date of title transfer (June%8, 1948) is allowed. After

depreciation for this period is deducted the charge for

the heating coils is $23,284.23, which will be charged to

your account.

. s * s *

The depreciated values charged for the other features

were derived as follows:

Sugarland

Diesel generator: Statutory Sales Price Unadjusted. $3, 760. 00

Depreciation:

Normal: 5% from 8-31-45 to 6-8-48____ $520. 85

War Service: %*%% from 8-31-15 to

al a 1. 03 é

521. 88

BERS GHG ccincigitminicnnninmcwnnindeiin 3, 238. 12

Floor Price of Desirable Features___._._.__---- 2, 625. 00

Sugarland |

Low Pressure Evaporating Plant: Statutory Sales

PETRI SY ee ee ee 1, 310. 00

Depreciation :

Normal: 5% from 8-31-45 to 6-8-48___. $181. 47

War Service: %% from 8-31-45 to ,

ARETE DERE IE, are nics OLD HO . 03

181. 50

TT I iii iii iin aici incieeenitadenthininiehibin ~ 1,128.50

Floor Price of Desirable Features___._..____-__ 900. 00

oo

Capitan

Low Pressure Evaporating Plant: Statutory Sales

Prine Te aot rittiticincncntnostddaccctenes $1, 310. 00

Depreciation :

Normal: 6% from 7-14-45 to 8-20-48___ $203. 14

War Service: 13:% from 7-14-45 to

DOU nitsiseiecitiicnenienciletiiiceapancnivibiiguaidiaintetamidsieian 90

204. 04

pC eer ¢ --. 1,105.96

Floor Price of Desirable Features__..-...---- 900. 00

9. Due to a shortage of privately-owned tanker tonnage to

meet the demand for oil, the Maritime Commission operated

its tankers and kept them in repair. In cases where the

tankers were solid before the Commission had recouped the

repair expense from operations, the Commission required

the buyer to pay a part of these repair expenses.

The Sugarland and the Capitan were sold to plaintiff pur-

suant to the pulicy governing sales to U. S. citizens and Act

IV of the contract covered this repair expense.

On June 8, 1948, plaintiff wrote the Commission with re-_,

spect. to repair expenses on the Sugarland and depusited

$20,834 to cover repair costs.

It was later determined by the Commission that only $42

for repair expenses should be charged and the balance of

the deposit was returned.

THE GOVERNMENT'S COUNTERCLAIM

10. The Government has filed a counterclaim for the pro- —

ceeds received by plaintiff from the acquisition of these two

tankers and the subsequent transfer of them to the Argentine

Naval Commission. In connection with the counterclaim,

the Government impleaded Manuel Rodriguez personally as

a party plaintiff/

11. During the corporate existence of the Manuel Rodri-

_ guez,Trading Corporation, Manuel Rodriguez was the presi-

' dent of the corporation. The stock of the corporation was

originally issued on January 30, 1947. ‘Manuel Rodriguez

was issued 49 shares, his wife, Adele Rodriguez, a citizen of

Cuba, was issued 30 shares, and one share was issued to Louis

Russell. Of the stockholders, Manuel Rodriguez alone paid

consideration for the stock.

56

As of September 2, 1948, Manuel Rodriguez acquired the

stock of his wife, and as of December 29, 1950, the assets of

the corporation were distributed to the two remaining stock-

holders as follows: |

Manuel Rodriguez_-__.......-~-- .---------- $336, 191. 81

Louis Russell__--..---------------------- 4, 255. 59

The corporation was dissolved by a certificate of dissolution

filed February 1, 1951, but dated December 29, 1950.

12. The Merchant Ship Sales Act of 1946 approved March

8, 1946 (60 Stat. 41), provided that the Maritime Commis-

sion might sell certain Government-owned war-built vessels

to a citizen of the United States, defined in the act to include

a corporation, if such corporation is a citizen of the United

States within the meaning of sec. 2 of the Shipping Act of

1916, mended. (39 Stat. 729, 46 U.S. C. sec. 802.)

The sales to citizens were to be at“a “statutory sales price.”

Statutory sales prices in the case of tankers was defined in the

act (sec. 3d) to mean “an amount equal to 8744 per centum

of the prewar domestic cost of-a tanker of that type” subject

to adjustments set forth therein. Under certain conditions

also set forth in the act (sec. 6) sales to non-citizens were

authorized. By act of February 27, 1948 (62 Stat. 38), sales

to non-citizens were prohibited after March 1, 1948.

13. On April 13, 1946, the Maritime Commission promul-

gated rules and regulations and supplements thereto (dated

August 17, 1946) which recited that the estimated cost of

T-1-M-BT tankers as of January 1, 1941, was $994,000, the

domestic war cost $1,774,038. The unadjusted statutory sales

price of 8714 per centum of the 1941 cost was $869,750. A

limitation on the adjustments provided for in the act, was

that in case of a tanker, no adjustments should-reduce the

statutory sales price to less than 50 percent of the domestic

war cost, thus fixing a floor price of $887,019. The regula-

tions and supplements were published in the Federal Regis-

ter of April 23, 1946, April 30, 1946, and August 17, 1946.

(11 Fed. Reg. 4459, 4702.)

14. In November 1947, John E. Jacobsen, then an em-

ployee in the Bureau of Operations of the Maritime Commis-

sion,’ advised Manuel Rodriguez that there was a possibility

2 Jacobsen was or annual leave from August 31, 1947, to December 22, 1947,

and on “furlough” thereafter to February 28, 1948.

57

that ten T-1 tankers might be purchased from the Maritime

Commission for resale to Argentina.

At that tima there was located in New York City an Argen-

tine Government purchasing commission, known as the

Argentine Nava] Commission.

On December 19, 1947, plaintiff retained Homer C. Clay

and John E. Jacobsen to represent it in bringing about the

sale of ten or any less number of tankers, for which services

Clay and Jacobsen were to receive on a contingent basis a fee

of $25,000 for each tanker actually purchased. _

15. On February 18, 1948, the plaintiff made written ap-

plication to the Maritime Commission to purchase ten desig-

nated tankers at the statutory sales price. In the application,

it was stated that two of the three stockholders and directors

were citizens of the United States, namely, Manuel Rodriguez

and Louis Russell. The application stated that plaintiff was

not then and never had been engaged in the shipping business.

In connection with the application, there was forwarded

to the Maritime Commission as evidence of good faith two

certified checks, each for $1,000,000, drawn by the Argentine

Naval Commission by its chief on February 14, 1948, payable

to the Treasurer of the United States. One check was drawn

on the Chase National Bank and the other on the National

City Bank of New York, which banks certified the checks

on February 16, 1948.

16. Prior to the formal application, Manuel Rodriguez had

on December 30 and 31, 1947, conferred with members of the

Argentine Naval Commission in New York and on December

31, 1947, wrote to that commission sending specifications of

the ten tankers which had been discussed at the December 30

and 31 meetings.

The letter contained the following:

* * * * =

PRICE.—Originally the price of these vessels, to the

United States Government, was $1,774,038.00. If these

vessels were to be built today, according to the present

cost of labor, the price would be $2,040,/48.00 as you can

easily verify.

The present basic sale price is $887,019.00 for each vessel,

and we are selling them to you at the following prices:

dey ae vd

ee

iia oa

1 to 5 ousnthe... oceans iti ec adic aliiitesabiinsdaieaa $965, 000. 00 each.

6 to 8 vessels__-_-_----------==>=-—.------- 950, 000. 00 each.

8 to 10 vessels------.- iniibiemeannck a

INSPECTION:—They can be inspected as soon as yo

wish, since we already have the required permits from

the U. S. Maritime Commission to go to inspect them, as

we indicated to you. 7

PUBLIC SALE.—These vessels are not on public sale,

-but.we have very good and well-founded reasons, accord-

ing to the letters that I showed you, to believe that we

can obtain them immediately. In the difference between

the basic price and the price that we quoted you there

would be included all the necessary expenses for obtain-

_ing the vessels for you, including transfer of “titles,”

change of “flag,” transfer expenses, fees, etc. For this

reason we believe this is a very convenient offer for you.

DELIVERY —These vessels are to be delivered

immediately. :

We want it clearly understood that this offer is subject

tothe approval of the U.S. Maritime Commission, and in

addition, we bind ourselves to obtain the “flag” change. ©

In the event that we are not able to obtain the change of

flag, this sale becomes null and void and the deposit that

you made by check to the name of the U. S. Maritime

Commission will be returned to you immediately.*

On February 4, 1948, Clay had wired Rodriguez as follows:

STRONG PROBABILITY THAT CONGRESS WILL PROHIBIT SALES

WAR BUILT VESSELS TO FOREIGN COUNTRIES AFTER FEBRUARY

29. URGE APFLICATION BE FILED IMMEDIATELY. wi

Also, previous to the formal offer, plaintiff and the Argen-

tine Naval Commission on February 14, 1948, entered into a

contract whereby the Argentine Naval Commission agreed

to purchase, and plaintiff agreed to sell, ten tankers for

$935,000 each. The letter of agreement contained the

following:

+ 2 * * *

FOURTH .—The Seller promises to obtain a change of

flag and an export ermit, if it is necessary, so that these

vessels can be legally transferred to the Govecument of

the Republic of Argentina. It is expressly established

that if for any reason the legal transfer of same can-

not be effected, this Contract becomes null and void,

* This is a translation from the Spanish of the original letter.

ag

i

59

and that neither party will demand from the other in-

demnification of any kind. In this event, the deposit

: to the U. S. Maritime Commission in the offer to

buy will be returned immediately to the Argentina Naval

- Cemmission. - |

FIFTH-—In order to effect the offer to purchase these

vessels from the U. §. Maritime Commission, the Argen-

tina Naval Commissién delivers in advance to the Seller

the sum of Two MILLION v. 8. pottaRs (U. S. $2,000,-

000.00) in two checks made to the order of the Treasurer

of the United States; one for ONE MILLION U. 8. DOLLARS

(U. S. $1,000,000.00) against The National City Bank,

No. 1859, and another for the same amount against The

Chase National Bank, No. 1391, both signed on the same

date as this Contract. : Joie

SIXTH —It is expressly indicated that this Contract

will be executed as a public document efter the *p-

proval of the sale by the U. S. Maritime Commission.‘

* * * * *

17. When the formal application was filed with the Mari-

‘time Commission on February 18, 1948, it was referred to

various officers .6f the Maritime Commission for comment,

making reference to the request that purchase would be on

condjtion that. transfer to Argentine registration be per-

mitted. At a meeting of the Maritime Commission pa

March 11, 1948, the application for purchase of the ten

tankers; for sale and transfer to a foreign registry and flag

however, the sale of one tanker to plaintiff for transfer: to

Argertina was approved.

Senate J. R. 173 approved February 27, 1948, 62 Stat. 38,

prohibited the sale of a war-built vessel to a non-citizen

after March 1, 1948.

18. On March 5, 1948, Rodriguez wrote to the Argentine

Naval Commission as follows. |

was formally disapproved.® At il: in M., Merch 1, 1948,”

As you well know we presented our application to

the U: S. Maritime Commission on February 18, 1948,

for the right to purchase ten (10) petroleum tankers

with the right to transfer the title and registry of the

same to the Argentine flag.

-

4A translation from the Spanish.

5On the same date similar actiom was taken with reference to other offers ;

one tanker for transfer to Panamanian flag and 3 tankers for transfer to the

Argentine flag. ’

“2

60 <

At11:30P. M., on March 1, 1948, one-half hour before

such sales would become forbidden by law, we signed

with the Maritime Commission for the purchase of one

- tanker. , |

* : * * * *

Meanwhile, it was evident that a law would be

enacted which would affect our application and on Feb- _

ruary 3, 1948, I personally informed you thereof by

telephone. There was a great probability that the Con-

zress would forbid the sale of these types of vessels to

foreign countries following February 29, 1948, and the

application had tu be presented immediately.

On February 18, 1948, our fears were realized. The

House of Representatives of the United States passed

a bill forbidding such sales to persons who were not cit!-

zens of this country, or representatives thereof, alter

March 1, 1948. A few days later the same bill was passed

by the Senate and signed by the President of the United

States. Hence, our application coincided with the Con-

gressional action which discontinued the sale of the

types of vessels in which we were interested, after

March 1. mn

The result was an “avalanche” of applications for

these and other types of vessels for foreign governments

and their representatives. A member of the Maritime

Commission informed us that they had more than forty

applications for the purchase of the tankers which we

were endeavoring to buy. ae

Not only did the demand increase due to the immi-

nence of the date of expiration of the law, but on Feb-

ruary 18, when our application was finally presented,

only six tankers remained unsold. The other four which

we wanted had already been sold prior to our applica-

tion. The competition for these T-1 tankers produced

a terrible pressure upon the Maritime Commission.

Each*applicant, of course, tried to obtain favorable

consideration for his application. As you well know,

we were active. We contacted persons having high

connections with the majority of the officials of the

Maritime Commission and we received the strongest

possible promises that they were going to give us two

or more tankers, but they were unable to give them to

us due to an application of the Standard Oil Company

(a corporation of the United States) for three vessels

for the service of the Dutch East India [sic], which

application by law had to receive preference.

We continued and shall continue to maintain contact

with members of the Maritime Commission and we had

ol

and still have officials of the United States making repre-

sentations on our behalf. Likewise, thanks to the kind

efforts on your part, the Argentine Embassy in Washing-

ton sent a note to the Department of State recommendin

the sale of these t ‘of vessels to the Argentine, and,

thereby, along with the influential persons whom we

know in said Department of State, we have been able

to obtain great pressure from the s&me in favor of our

— . Needless to say, the promises made to us

that we would receive two or more vessels did not

materialize.

We are stall endeavoring to obtain one additional T-1

tanker on the premise that we, the purchasers, are citizens

of this country (a corporation of the State of New York)

and that, therefore, the law does not deprive us of making

these purchases. Furthermore, there is a remote possi-

bility that we may obtain still another vessel, the one

which they are endeavoring to obtain for us. It may

well be that we will be successful ; however, at this time

we cannot evaluate the possibilities.

* x + * *

You can rest assured that we will continue our efforts

and, as we obtain favoruble results, we will communicate

the same to you.

19. On March 7, 1948, plaintiff’s attorney in fact, Homer

C. Clay, wired the Secretary of the Maritime Commission

as follows:

APPLICATION MANUEL RODRIGUEZ TRADING CORP HEREBY

AMENDED TO ELIMINATE ALL REFERENCE TO TRANSFER OF

SHIPS TO ARGENTINE REGISTRY APPLICANT DESIRFS TO PUR-

CHASE AS AMERICAN CITIZEN TERMS CASH ON DELIVERY WITH

TWO MILLION DOLLARS NOW DEPOSITED WITH APPLICATION

TO BE APPLIED ON PURCHASE PRICE.

Or March 10, 1948, plaintiff filed a formal amendment to

the application of February 18, 1948, by striking therefrom:

* * * * ; *

* * * 91] reference to the transfer of the vessels referred

to therein to foreign flag or registry and to provide that

the applicant will purchase any one or more of the vessels

* referred to in said application as a United States citizen

(applicant is a New York corporation) for operation

under the flag and registry of the United States and to

further provide that should applicant be granted the

- ©Translation from the Spanish.

62

right to purchase any vessel or vessels pursuant to its

amended application, applicant will obtain the services

of one of the established and experienced ship operating

companies {0 operate said vessel or vessels.

20. March 11, 1948, plaintiff’s amended application was

referred to the Maritime Commission by memorandum from

the appropriate officer, the Chief of the Large Vessel Sales

Division, James L. Pimper, who recommended the sale of

two T1-M-BT tankers with the advice that the “applicant

wishes to eliminate original reference to transfer to Argen-

tine registry and purchase as an American Citizen” and to

pay cash in full on delivery. The Commission was advised

that:

* * * * *

Applicant claims no shipping experience but states

that it will obtain the services of one of the established

and experienced — companies to operate the

vessels when purch

* e * J *

* * * since the applicant offers to pay cash in full for

the vessel, the Commission is justified in considering that

the applicant possesses the necessary financial resources.

« * * ¥ *

Applicant proposes to operate the vessels in estab-

lished tanker trades, chiefly from North Atlantic ports

to the River Platte and occasionally from Venezuelan

ports to the River Platte.

s * * * *

March 12, 1948, the Commission approved plaintiff’s appli-

cation as to three T-1 tankers. | 7

By memorandum of March 26, 1948, Mr. Pimper advised

the Commission that plaintiff had been “allocated the last

three remaining tankers of this type” but the Navy Depart-

ment had requested the transfer of one tanker for military,

operations so that he recommended that the action of March

12, 1948, approving the sale of three tankers be modified to

approve of the sale of two only. This recommendation was

approved by the Commission March 26, and on March 31,

1948, the Commission advised plaintiff's representative of

the approval of the sale “for operation under United States

flag,” the terms of payment to be “cash in full on delivery.”

ee

65

21. Under date of March 31, 1948, plaintiff and the Ar-

gentine Naval Commission entered into a contract relating

to the Capitan as follows:

FIRSTLY: The Seller sells to the purchaser and the

latter buys from the former, a Diesel tanker, T1-M-BT1,

with the following description :

Former name: Klickitat.

Present new name: Capitan.

Builder’s No.: 83.

U. S. Maritime Commission Hull No.: 2624.

The other characteristics of the said ship are already

known by the Purchaser. This tanker Is at preseyt

the possession of the U.S. Maritime Commission.

SECONDLY: The Seller, on February 18, 1948. with

the previous authorization and in accordance with the

Argentine Naval Commission, applied to the U.S. Mari-

time Commission. for the purchase of ten T-1 tankers,

which application was accomp: nied by the deposit of 2

certified checks drawn by the Argentine Naval Commiis-

sion in favor of “The Treasurer of the United States”

for the amount of $2,0600,000.00 (two million dollars)

and requested on that occasion the approval of the U.S.

Maritime Commission to transfer the registration and

title of the said ships to the Argentine flag.

THIRDLY: Since it is the desire of the Argentine

Naval Commission to obta’‘n morg tankers like the ten

opportunely offered, in order to satisfy the needs of the

Argentine Navy, and in order not ta lose the possibilities,

of purchasing which exist at present, Manuel Rodriguez

Trading Corporation is requested to serve as Intermed!-

ary in the acquisition of the aforementioned oi! tankers, »

this commitment being subject to the feasible. future ©

transfer of the same to the Ministry of the Navy, pf the

Argentine Republic. This transfer should bee made”

wnen circumstances permit it to be done legally. ~

FOURTHLY: Theaforementioned transfer must be

made within four months after the signin, of this con-

tract. In case this commitment — be fulfilled, the

Argentine Naval Commission will befable at the end of

this time to grant an extension of two months, at the

most, or to arrange the sale of those ships thus recovering

the money invested up to that moment in the purchase,

preservation, insurance, maintenance, etc., of them.

FIFTHLY: Therefore, and in consideration of the

mutual benefits to be obtained in this contract, and other

good and valuable considerations, Manuel Rodriguez

a, ¢

454575— 58——_5

Ot

Trading Corporation and the Argentine Naval Com-

mission mutually agree to the following :

A. The Corporation shall be able to modify the ap-

plication dated February 18, 1948, made to the U. 5.

Maritime Commission in any way which may be neces-

sarv in order to obtain the approval for sale of the

tankers to the party applying as a corporation of the

United States. ;

3. The Corporation promises te try to obtain on its

own account from the U. S. Maritime Commission the

greatest number of tankers within the number of ten

which appears on the application mentioned in A.

('. The certified phe of the Argentine Naval Com-

mission for $2,000,000.00 (two million dollars) which

are at present deposited with the U.S. Maritime Com-

mission, will be able to remain there as a guarantee for

the application as it has been modified, until May 31 of

this year.

D. If the request is approved, the Corporation will

‘be able to receive the title ot the number of tankers

which are granted to it and the money to pay for them

will be turned over by the Argentine Naval Commission,

at the official price of 887,019 dollars, fixed by the U.S.

Maritime Commission, and in case the latter should

change it, an attempt should be made to come to an agree-

ment on it by both contracting parties.

_ E. Once the Corporation has received the title or

titles of the ships as is mentioned in the preceding para-

graph, the Cor tion will take steps with the U. S.

Maritime Commission to get its approval for the chan

of title-to the Argentine Naval Commission, and of the

flag and registration to the Argentine Republic and to

obtain and provide for this Naval Commission without

any expense to the Purchaser, all the necessary docu-

mentation so that the ships can be used without any

ebstacles by the Argentine Government.

F. When the Corporation has obtained the legal trans-

fer of the title of ownership to the Argentine Naval

Commission, the change of flag to the Argentine Repub-

lic and the aforementioned documents the Commission

will pay to Manuel Rodriguez Trading Corporation the

amount remaining between the price paid to the U. 5S.

Maritime Commission and the prices fixed in the offer

of December 31, 1947 and an explanation added on the

day of the date.

G. In case the laws or governmental provisions make

it impossible to obtain the legal transfer of the title to

the Argentine Naval Commission and the change of

flag to that of the Argentine Republic, both contracting

«3

65

— will consult with one another for the purpose of

nding an appropriate solution to the problem presented,

and in case they cannot come to this agreement, they will

p&ceed to sell the ships’on the account of the Argentine

Naval Commission, without any loss to the Corporation,

and from the profits, 20 % will be credited to Manuel

Rodriguez Trading Corporation to compensate for any

expenses which it might have incurred in the sale of the

ships. In case the Government of the United States of

North America should expropriate the ships, it is under-

stood that the payment mh it makes will immediately

be transferred to the Argentine Naval Commission..

H. Expenses for Lnsurance and Other Expenses: 'The

expenses for insurance as well as any other expenses,

as for example, expenses for the wharf, towing, fuel. etc.,

will be paid by the Argentine Naval Commission. It

is also understood that all the arrangements which are

made for the insurance, wharf expenses, etc., will always

be subject to the written approval of the Argentine

Naval Commission.

SIXTHLY: From’ the moment this Contract is

signédsthe Argentine Naval Commission will be able to

dispose of the ship in any way which it will deem con-

venient, but respecting the obligations of the flag.

SEVENTHLY: The Argentine Naval Commission

will have a guarantee in this purchase by receiving in

deposit from Manuel Rodriguez Trading Corporation,

the titles or ownership of the ships and the receipts for

the payments made by the said Corporation.

EIGHTHLY: Inspection: This ship has already

been inspected by the Argentine Nava! Commission, and

it has accepted it. |

As proot of the conformity of both contracting parties,

four copies of the same kind and for one single effect

are signed in the offices of the Argentine Naval Commis-

sion, on March 31, 1948.7

Accepted by the Seller

Manuel Rodriguez (Signed)

MANUEL RODRIGUEZ TRADING CORPORATION

Accepted by the Purchaser

(Signature illeyible)

ARGENTINE NAVAL COMMISSION ’

A similar contract relating to the Sugarland was made

the same day.

* Translation from the Spanish.

66

22. In reliance upon representations that the tankers were

purchased for operation under the flag ef the United States,

under date of April 6, 1948, the Maritime Commission entered

into a formal sales contract for the sale of the Capitan and the

Sugarland to plaintiff at a floor price of $887,019. A copy of

the contract is printed as Exhibit A to the petition and is

incorporated herein by reference.

23. Theetwo checks drawn by the Argentine Naval Com-

mission and deposited with the Maritime Commission were

not applied us payment for the two tankers. The checks were

subsequently returned uncashed, one in April 1948 and the

other in June 1948 after payments of the purchase price of

the two tankers had been completed.

24. A summary of the payments for the tankers as re-

flected by the records of the plaintiff corporation is 2s follows:

1948: Capitan Sugarland Totals

OS ae $88, 701.90 $88,701.90 $177, 403. 80

CE TEEN 606, 600.00 600,000.00 1, 200, 000. 00

Sie T . . . c smcntsccineedoaties _ahiiiaipaiasiainas 194, 223.10 © 194, 223.10

, SS Se eee eee oe 104, 250. 10

NN i ae 792, 952.00 882,925.00 1, 675, 877. 00

Less :

Nov. 9, 1948, refund by the

U. S. Maritime Commis-

sion for class work allow-

OS EARLE Sean 22,022.42 15, 259.37 37, 281. 79

4

Net payments for ves-

a ak ecianiahins 770, 929.58 867,665.63 1, 638, 595. 21

Other Costs:

(a) Payment for repairs

(under par. IV, exhibit

A of contract) upon de

SES ET 7 ea ae Coie GIRS) seccdedhapiieeidesatii

Less refund to plaintiff,

i reek. caine Be Ee | ncoicicneee

Net additional cost on

ie nlale, ~ dasiuiensmmennttn 42. 00 42. 00

(b) Payment to U.S. Mari-

time Commission upon

delivery for consumable

ROE ia citi taciGabiaees 5, 516. 00 7,512.00 ~~ 13,028.00

(c) Inspection, repairs, in- ;

surance, and agency ex-

Seen sasiticlaiaieiuiiagbvs 133,908.78 62,690. 59 196, 598. 37

| RRR 910, 354.36 987,910.22 1, $48, 264.58"

OF

In accordance with the agreements, the Argentine Naval

Commission advanced sums to plaintiff for payments of the

tankers at the times, end in the amounts, as follows:

a ee a ee

BE Fie FOF s wane mecca

Subtotal (official price) —

Dec. 23, 1948, balance__-_--.

Total price of Dec. 31,

Captain

$88, 701. YO

TOS, 317. 10

887, 019. 00

77, 981. 00

965, 000. 00

Sugarland

S88, 701. 90

TOS, 317. 10

887, 019. 00

77, 981. 00

965, 000. 00

Totals

$177, 403. 80

1, 596, 634. 20

1, 774, 088. 00

155, 962. 00

1, 930, 000. 00

Add:

Oct. 25, 1949, additional

payment for certain

expense as provide:

under 5th {H) of the 7

72, 223. 87

agreements.............. 41,826.07 30,397. 80

Total of amounts re-

MERE 1, 006, 826. 07 995,397.80 2, 002, 223. 87

The funds advanced by the Argentine Naval Commission

for the full official price of the ships were received by plaintiff

corporation before it was required to make such payments to

the United States Maritime Commission under its agreement

to purchase them.

Plaintiff corporation’s records contained no evidence of

the receipt of the $200,000 deposit required by the United

States Maritime Commission in December 1948, upon the

approval of the transfer of title of the ships to the Argentine

Naval Commission, nor of any refiind of any portion of the

same. |

On the basis of the above accounts, the plaintiff corporation

made a gross profit on the acquisition and transfer of the two

tankers of $153,959.29.

25. On October 21, 1948, the plaintiff transmitted to the

Maritime Commission application for the appre val required

by sections 9 and 41 of the Shipping Act of 116, as amended,

of proposed transfer to Argentine registry and sale to an

alien, namely the Argentine Nava! Commission, of each ef the

twotankers. The applications were on forms of the Maritime

Commission which required statements by the applicant de-

signed to elicit infermation desired by the Maritime Com-

mission for consideration of the requests.

Item No. 3 of the application form requested information

as to the total complement of the vessel and whether employ-

6S

ment would be available for the officers and crew if the ship

was sold. To this inquiry, plaintiff stated that no officers or

crew were employed because the vessel was not in operation.

Item 4 relu:ed to the operation of| vessel under American

registry. To this, plaintiff stated, that because of facts set

forth in the attached memorandum, |the vessel had not been

- operated since owner acquired title. \ Under this item it was

also stated that the vessel had been offered for sale to Ameri-

can citizens; that it had been on the market for sale for three

months prior to the application and no offers had been re-

ceived. It stated further that the proposed sales price was

the “actual cost of vessel to owner,” to be paid in cash.

Attached to the application was a letter from the Argentine

Naval Commission under date of*August 30, 1948, as follows:

In reply to the attached ad which appeared in the New

York Journal of Commerce, August 27, 1948, there is no

evidence of the number of T-1 tanker [sic] you have for

saie. For this reason, we herewith submit our bid to

purchase such T-1 tankers as you may have for sale up

to five vessels. We are prepared to pay in U.S. currency

for five vessels or whatever number of vessels you may

have less than five. In order to arrange*for an inspection

and to discuss the price, please contact us at once.

The “attached ad” was as follows: ‘

T-1 TANKERS

FOR SALE

U. 8. flag. Immediate delivery

Principais only. All cash in dollars

Box Y 955, Journal of Commerce

Another attachment was in part as follows:

* * * * *

When the Commission offered the tankers to the Man-

uel Rodriguez Trading Corporation in March 1948, the

company was influenced to accept them by the fact that

the demand for tankers at that time was so strong as to

be perhaps unprecedented in peacetime. Private charter

rates stood well above the Maritime Commission rates

and the market price of vessels generally well above the

statutory and floor prices. This situation induced ap-

plicant to believe that domestic employment of the ves-

sels would be possible and seotitabhe

The company accepted the vessels with the knowledge

that it could operate, charter or sell the vessels in the

domestic market, and/or under appropriate and mer-

ov

itorions circumstances could apply to the Commission in

accordance with the law for pe Bae to change registry.

Although the vessels were allocated in March 1948,

when the tanker market was strong, it was not until

August 20, 1948, that repairs were completed on the sec-

ond vessel and title was tendered to the Manuel Rodriguez

Trading Corporation. During this period a_ drastic

change occurred in the tanker market. Charter rates fell

below the Maritime Commission scale, and there became

a surplus of tonnage. .

ad * * * *

Notwithstanding the adverse and discouraging market

situation, the company has made diligent etforts to em-

ploy the vessels profitably in the domestic market. Ad-

vertisements offering the vessels for sale were placed in

the Vee York Times and the New York Journal of Com-

merce on August 25, 26, 27 and 29. In its efforts to find

a market for the vessels, the company has‘been in fre-

quent communication with brokers and operators in the

oil transportation business. It has been found that no

demand for these vessels exists. The only promising in-

quiries were from sources that desired to purchase for

a transfer.

* * x * *K

The lack of domestic market for 'T-1 tankers is not

surprising in view of the characteristics and history of

these particular vessels. The Manuel Rodriguez Trad-

ang Corporation is now informed that these vessels were

never designed with any idea that after the war they

would be useful or practical for ordinary commercial

use. It is generally conceded that T-1 tankers are too

small, too slow, and too expensive to operate to compete

successfully in the present market. Although a crew of

approximately 34 is required to operate the vessels, their

capacity is only approximately 31,090 barrels, their

speed only 10 knots. These characteristics place T-1

tankers at a distinct competitive disadvantage in rela-

tion to the average tanker which employs a crew of per-

haps 40, has a speed of 14 to 16 knots and a carrying

capacity four times as great as that of a T-1 tanker.

These vessels were intended for use by the U.S. Navy

and by foreign governments. Perhaps the best indica-

tion of their lack of suitability for domestic operation

is the fact that, with three exceptions (excluding the

Manuel Rodriguez Trading Corporation, the Maritinne

Commission has sold these vessels to foreign buyers.

The following record of the dispesition of T-1 tankers

is significant :

/10

Argentine Government—_...--- .-- ---------------------- a

Manuel Rodriguez Trading Corp. for Argentine Govgrninent—

Govermment of Turkey —----------- Baad artes aa ok Seti eke

Compagnie Petroleo Lago en a oc ce wince en pri

Standard Oil (Central America) —-------------=-+4----------

Dutch Subsidiaries of Standard Oil_--------------------- ‘

Five sold doniestic as follows: \

Manuel Rodriguez ‘Trading Corp_------- aE ENTE Or

Standard of California_.------------------------+----

Texas (Co_..-.---------.------------<--=---------=----

Tidewater Oil Co_-}---------------------------------

Although the company lacks direct information as to

the use to which the three other American buyers have

put their tankers, it is believed that they are use'l by

their owners for transportation of their own products

in 5 ae: sttuations where shallow draft small vessels

‘an be utilized and expense, of operation and speed are of

no great importance. |

Still another indication of the undesirability of T-1

tankers fot: Anterican operations may be seen in the,fact

that the Maritime Coinmission still holds three of these

vessels and apparently is unable to dispose of them to

-any American bayer: ,

‘\fter more than two: years of availability, including

thefrecent period of drastic oil shortage, no American

buyers found these three ships desirable. Z

From the above indications it therefore seems clear

a+ little donestic demand exists or is ever likely to |

exist for T-1 tankers. as

To retain these vessels under American registry is |

apt to mean that they will lie idle. If they are trans-_

ferred to foreign registry they will be in use and to that ,

extent help prevent worldwide shortage in oil trans-

ortation..

~The initial cost and repairs for the owner’s account

- of the Capitan and Sugarland exceeded $1,800,000.00.

The cost of maintenance is rapidly becoming an oppres-

sive’ burden, and constiivtes a grave threat to the

solveney of the company. g ;

— Under these circumstances it is hoped that the Com-

mission wili see fit to grant the application of the Manuel

Rodrignez Trading Corporation for the right to sell and

deliver these two T-1 tankers to a citizen or to the

eovernment of the. A reentine and for the right to trans-

fer registry of the vessels consistent with said sale.

% While the letter of August 30, 1948, attached to the ap-

plication for authority to sell to a foreigner indicated that

the Argentine Naval Commission was, offering to buy in re-

sponse to the blind ud in the New York Journal of Commerce,

ew et eS eS DD

et et DD

the Argentine Naval Commission had contracted with plain-

tiff corporation to buy the two tankers owned by plaintiff

corporation on March 31, 1948, and had advanced the funds

by which they had been purchased by plaintiff. “Plaintif’,

having delivered to the Argentine Naval Commission the

bills-of-sale and master carpenter's certificate, documents

necessary for American registration (46 U. S. C. sec. 24),

sale by plaintiff to American purchasers for domestic oper-

ation would have required the Argentine Naval Commission

to consent thereto, at least to the extent of returning to piain-

tiff these documents. Plaintiff, however, in, August 1948,

inserted the advertisement mentioned in the attachement to

the request for authority (finding 25) as well as similar

advertisement in the New York Times of August 29, 1948.

At least six responses were received to the ¢ advertisements not

counting the Argentine Naval Commission. Four responses

indicated a desire for foreign registration and two suggested:

domestic use. Plaintiff did not communicate with any of

the 6 responders.

The application for transfer authority stdted that the

vessels were to be sold to Argentina at the actual cost to

plaintiff. Homer Clay, plaintiff’s attorney ‘n fact, on No-

vember 9, 1948, wrote to the Maritime Commission, that Mr.

Rodriguez had instructed him to advise that the proposed

sales price to the Argentine Naval Commission was $912,000

for each tanker subject to adjustment for the heating coils

and other items in the original cost of the vessels to plaintiff.

27. Following the allocation of the two tatkers to plain-

tiff, the Argentine Nava! Commission was consulted by Rod-

riguez with respect to actions takenJn connection with the

tankers as follows:

Vhen the Sugar/and arrived in Boston, Apri! 28, 1948, the

Naval Commission’s engineers were on hand to inspect it.

A letter dated May 19, 1948, from Admiral Colonna of the

Argentine Naval Commission to Rodriguez requested infor-

mation “concerring the transportation of naphtha and pe-

troleum derivatives in the tank vessels that we have obtained

from your firm.” Rodriguez promptly obtained and fur- -

ished such information to the Naval Commission by letter

of May 25, 1948, without questioning the statement. When

work was to be done on the Suyariand or Capitan, the plans

-_,

(2

were submitted by plaintiff to the Argentine Naval Com-

mission in advance. When the sale of the Sugarland was

closed with the Maritime Commission, June 8, 1948, the

bill-of-sale and master carpenter’s certificate were delivered

to Homer C. Clay by the Maritime Commission afid these

documents together with a memorandum of the closing and

a statement of account were transmitted to the Naval Com-

mission by Rodriguez June 10, 1948, and the same action was

taken with respect to the Capitan documents later. The

Sugarland was delivered to Rodriguez at Hoboken, New

Jersey, on June 8, 1948. Pursuant to arrangements between

Rodriguez .and Admiral Colonna the Argentine Naval Com-

mission stationed a crew of about fifteen men aboard both the

Sugarland and Capitan to act as watchmen pending the con-

templated transfer to the Naval Commission. In August

1948 the Argentine Naval Commission also sent its plans

and specifications for modifications and repairs on the Suar-

land to Rodriguez in order that he might obtain quotations

from various firms.

28. Plaintiff’s books included both the Sugarland (which

was delivered June 8, 1948) and the Capitan as part of

plaintiff’s merchandise inventory and as having been sold

to the Argentine Naval Commission in April 1948. Plain-

tiff’s accounting records show that the tankers were purchased

for resale and not for operation. Plaintiff's books were

revised as of June 30, 1948, and then showed the Argentine

Naval Commission had advanced $965,600 on each of the

sales contracts for the two tankers, the vessels not having

ther. been form lly delivered. Plaintiff's Federal income-tax

return for the iiseal year ending June 30, 1948, is consistent

with the view that the two tankers were purchased for sale

and not for oper ton. :

29. Neither plaintiff nor its president, Rodriguez. had ever

been engaged in the shipping business and had no experience

in the operation of tankers, After acquiring tifle to the two

tankers, plaintiff made no efforts to obtain the services of a

ship operating company to operate the vessels. No oflicers

or crews were hired.

30. Plaintiffs epplication fer authority to transfer the

vessels was considered by the chief of the Bureai. of Govern-

ment Aids of the Maritime Commission who, on November

73

26, 1948, recommended to the Commission that the applica-

tion be denied. The application came before the Commis-

sion at a meeting of December 2, 1948. It -vas then con-

sidered but not acted upon.

At a meeting of the Commission on December 7, 1948,

Homer C. Clay and Raiph Immell represented plaintiff and

after referring to the information contained in the applica-

tion, advised the Commission further that plaintiff’s presi-

dent had invested his entire personal fortune of $1,800,000

in the tankers; that in order to cut down expenses, the crews

had been reduced and guards put on board and that plaintiff

was obliged to sell the tankers or go into bankruptcy. It was

also represented that the proposed sales price of $912,000

per tanker adjusted for the value of the heating coils, might

enable Rodriguez to break even but he stuod to lose $45,000.

One of the commissioners at this meeting inquired of

plaintiff's representatives as follows:

Let me ask one other question. I don’t know whether

be have it of your own knowledge, but it would have a

earing. Is there any information that you have re-

ceived, directly or indirectly, that could lead into a

possible implication that your client had an arrange-

ment in advance made with the Argentine interests prior

to their filing an application, with the view that they

would later come before this Commission and seek for

approval of the sale and transfer?

The following answer was given by Mr. Clay:

No, sir. I think it would be absolutely impossible

for such an implication to be made. I «advised Mr.

Rodriguez when the new law went into effect that he

must buy those ships, own them outright, that he must

pay for them himself, that he could not even make any

commitment or agreement to sell in the future. He has

had that understanding 2nd I have made him adhere

most rigorously to the, an in regard to his purchase of

these vessels. ;

Thereafter the Commission took action as follows:

* x * » *

A motion was made by Commissioner Carson, sec-

onded by Commissioner Mellen, that the application of

Manuel Rodrigvez Trading Corporation New York,

Now York, for the approval required by Section 9 of

the Shipping Act 191360 asamenaed (46 U.S.C. 80s) of

74

the sale of 2 TI-M-BT1 tankers to the Argentine Nayal

Commission and the transfer of said vessels to Argentine

registry and flag be approved, upon the condition that -

any and all allowances made to the Manuel Rodriguez

Trading Corporation for placing the vessel in class and

all monies due and owing the Commission by the said

Manuel Rodriguez Trading Corporation shall be paid

to the Commission prior to the issuance of any orders

authorizing the transfer of flag and registry of the said

vessels and the\Company waives any claims for

allowances. | . |

Upon a vote being taken, Chairman Smith and Com-

missioners Carson and Mellen ‘voted “yea,” and Com-

missioners Coddaire and McKeough voted “nay,” to the

foregoing motion.

The proper ofticers of the Commission were authorized

and directed to take any and all actions necessary and °

proper to carry the action of the Commission as above

set forth fully into effect.

By memorandum of December 9, 1948, the Commission

advised the Chief, Bureau of Government Aids, that at its

méeting of December 7 it had considered his memorandum

and approved plaintiff’s application, part of which merm-

orandum reads as follows: ,

* * * ae | *

* * * upon the condition that any and all allowances

made to the Manuel Rodriguez Trading Corporation fur

placing the vessels in class and all monies due and owing

the Commission by the said Manuel Rodriguez Trading

Corporation shall be paid to the Commission prior to

the issuance of any orders authorizing the transfer of

flag and registry of the said vessels and the company

waives any claims for allowances.

‘

31. On December 10, 1948, the Commission advised plain-

tilt xs follows:

This isto advise you that in the Maritime Commission

at its meeting December 7, 1948, gonsidered and ap-

proved, pursua it te Section 9 of the Shipping Act 1916,

as amended (4. TT. S.C.808), the sale of your two T1-M-

BTL tankers SUGARLAND, O. N..249212. and CAP-

ITAN, O. N. 256418, to the Argentine Naval Commis-

sion, en agency of the Argentine Government, and the

traysfer of said vessels to Argentine registry and flag,

upon the condition that, prior to the issuance of formal

Transfer Orders in evideace of the approval of the traps

~~

io

fer of these tankers to Argentine ownership and registry

as above set forth, any and all allowances made to your

corporation for placing these vessels in class and all

monies due ang owing the Commission by your corpora-

tion in connection with the sale by the Commission shall

be paid (or provision therefor by way of deposit be

a to the Commission and upon the receipt from

your company of a waiver of any claims for allowances.

Since the exact amount of these allowances and ad-

justments has not yet been determined and, in view of

the fact that you desire that the sail Transfer Orders be

issued as early as possible, you arg requested to deposit

with the Commission a certified check for $200,000.00,

ujon the receipt of which the Commission will issue the

aforesaid Transfer Orders. If the final amount of your

indebtedness is found to be less than the amount of your

deposit, the difference will be refunded to you. If addi-

tional sums are required to meet your indebtedness, vou

will deposit such additional sums to the Commission

upon request.

Your counsel has informed us that you will wish to

request the Commission’s reconsideration of the appro-

yropriateness of certain of these charges against. you.

t is understood that the deposit of the above-mentioned

certified check will not preclude you from requesting Ue

Commission for such a reconsideration, but it is also

understood that any future action by the Commission on

this matter will be acceptable to you as final.

Plaintiff aceepted the prescribed conditions in its letter

dated-December 14, 1948, which states:

Receipt is hereby acknowledged of letter signed by

Mr. A.J. Williams, Secretary of the United States Mari-

time Commission, dated December 10, 1948, advising

of Commission approval on December 7, 1948, of the

sale by this Corporation of the two tankers S/’@ALR-

LANP and CAPITAN to the Argentine Naval Com-

mission, an agency of the Argentine Government and

the transfer of said vessels to Argentine registry and

flag, upon and = subject. to the conditions therein

contained.

The Manuel Rodriguez Trading Corporation, a cor-

poration organized and existing under the laws of the

State of New York, with efices at 220 Broadway, New

York 7, New York, hereby accepts and agrees to the

conditions contained in said letier and pursuant to the

terms and conditions thereof, herewith delivers to the

United States Maritime Commission a certified check

76

bearing date December 13, 1948, and No. 2419, drawn

upon The Chase National Bank ef the City of New

York, Rockefeller Center Branch, payable to the order

of the United States Maritime Commission in the

amount of $200,000, drawn by the Argentine Naval

Commission, signed by officials designated as Accountant

and Chief, Naval Commission, respectively, to be held in

a special deposit by the Maritime Cominission subject to

the terms and conditions in said letter of December 10,

148.

Subsequent to the exchange of the correspondence dated

December 10 and 14, 1948\the Commission delivered trans-

fer orders to plaintiff authorizing the sale of the tankers to

the Argentine Naval Commission and their transfer to

Argentine registry and flag. The transfer orders did not

recite the conditions under which issued because neither the

Commission's regulations nor practice required this.

32. In fixing the price for these two tankers, the Maritime

Commission reduced the floor price of $887,019 by the sum

of $135,442.79 as the cost of putting the vessels in class to

operate under the flag of the United States. In order to

comply with the conditions attached to the grant of author-

ity to transfer the vessels to Argentina, there was deposited

by plaintiff a certified check of the Argentine Naval Com-

mission dated December 13, 1948, for $200,000 to cover this

allowance. . |

On April 20, 1919, the Commission advised plaintiff as

follows with regard to the requirements:

* * * * *

As to paragraph 5, the Commission, as above indi-

eated, required your company? as a condition of its

approval of the transfer tg, Argentine registry and flag,

to deposit with it the sum of $200,000 to insure that all

ciuss allowances and moneys due the Commission from

your company in connection with the’ sale would be re-

paid to the Commission. This sum is still on deposit

and no part has been refunded to you. The Commis-

sion has agreed to reconsider the appropriateness of

certain of;these charges against you upon the condition

that any future action by the Commission on this matter

Will be acceptable to you as final.

On June 30, 1949, Clay and Immell filed a formal application

on plaintiffs behalf repeating the same representation as

~—

before as to the sale to Argentina and stated that the sale

occurred “after issu: f the foreign trans.er orders,” and

as plaintiff had sold ee vessels to Argentina at the price paid

by plaintifl to the Maritime Commission, plaintiff could not

be reimbursed by the Argentine Commission for the refund

of the class allowance, and

* * * At the time these ships were purchasea from the

Maritime Commission there was no understanding that I

know of, with anybody, that our chent would appear

subsequently and ask for an order to resell. It was defi-

nitely stated by people in authority for the Commission

that no such arrangement would be tolerated.

* * * * *

* * * Tf this were purely a bookkeeping entry we

wouldn't be here. If the Rodriguez Trading Corpora-

tion, having purchased these ships, had let them sit idle

and then subsequently sold them to the Argentine Naval

Commission, we feel of course that in that case these

allowances ihat you would make should be wiped out

and the Rodriguez Trading Corporation should not

profit by the extent of the allowances made for putting

the ships in class.

The Commission denied the request on August 12, 1949,

and plaintiff was so advised. Had the vessels been sold to a

non-citizen, the allowance of $135,442.79 below the statutory

sales price would not have been made. Also, during the time

that the Commission was authorized to sell to non-citizens, it

made a charge to the buyer of the unrecouped cost of repairs

made subsequent to January 1, 1947, less depreciation at the

rate of $6,000 per month for each month of operation. This,

for the Sugarland would have amounted to a charge of

$49,894.01. Asthe policy respecting sales to citizens required

a cnarge of the cost of unrecouped repairs made after July 1,

1947, the charge in the case of the Sugarland was $42 only,

r $49,852.01 tess.

33. The two vessels involved were built in 1945 and the

Commission determined that the domestic war cost was

$1,774,038 each. This amount was approximately 15 percent

less than the 1947 costs. The Argentine Naval Commission

offered to pay $965,000 plus for each yesgel in March 1948.

34. The evidence establishes that prior to March 1, | 948,

and subsequently, the plaintiff was acting, in effect, as agent

78

for the Argentine Naval Commission in acquiring these

vessels and that at all times plaintiff planned in one way or

another to accomplish the transfer of these vessels from the

Maritime Commission to Argentina.

CONCLUSION OF LAW

Upon the foregoing findings of fact, which are made a part

of the judgment. herein, the court concludes as a matter of

law that the piaintiff, Manuel Rodriguez Trading Corpo-

ration, is not entitled to recover iad its petition is dismissed.

The court further concludes as a matter of law that the

defendant is entitled to recover of and from the plaintiffs,

Manuel Rodriguez Trading Corporation and Manuel Rod-

riguez, on its counterclaim the sum of forty-nine thousand,

eight hundred fifty-two dollars and one cent ($49,852.01).

0. 8 GOVERNMENT PRINTING OFFICE 1988