Petition for Writ of Certiorari — Certain Interests in Property in Champaign County v. United States (No. 808)

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Supreine Court uf the Buiter States

OCTOBER TERM, 1959 Selene ee ‘

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‘CERTAIN INTERESTS IX PR PERTY. IN CQLAM sat

PYIGN COUNTY, STATE GE TLLINOES; CHANUTE

GARD XS ( ‘On PORATION and CH ANU TE APART.

MENPS COR PUBA ION, a" a

fe: id fitione rs. a loa

SE EERE: |

JUNTTED STATES OF AMERICA, ‘\ Rake

os PETITION FOR WRIT OF CERTIORARI TO THE: |

U NITED STATES COURT OF APPEALS FOR THE

) i SEVENTH CIRCUIT:

mi + | Saver Go.vstery, i

4 regs *M. Ronert Goupsters,

Arrive D. Gouostt1s, ” =

Attorne us for I’, fitione rs,

MI e Levy, °

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/* ‘TABLE OF CONTENTS

: ‘ th -¢ ar ae PAGE

Opinions Below. ...’..... 3 St peer m es ae

- Jurisdiction A SER ‘aienenss Shan nnwak sah See

Questions Presented for. «as sivnte sh EEE wake

Constitutional Provision and Statutes Anvolv ed... (VS

Statement of the Case. ; Nee aaeeeeEEe! pew eedeade <- 5

Bassons Wuy THE Writ Sects BE Gra tev -

f _1—Review should be granted to fesolve serious:

and novel questions affecting at least thirty -

pending Wherry cSudemnation eases involv-

: hans ¢} ing potential ‘awards .of sore $160,000,000, . 7

. especially in view of the executive _ sath

lative views that the measure

= — ee is ial and gr ie

en rrr ey ree ee ery ner ee 12

I1—In ruling that market value pense just

compensation in the absence of comparable

sales and in. the absence of market—and

. irrespective of whether market value is an

appropriate or the’best measure of value het »,

oe of the difficulty of finding it. orJof whether a

(e smanifest injustice resuits from its applica-.

_ tion—the Court below decided -federal con-*-

, ‘ stitutional questions in a way in conflict with sah

| ' applicable decisions of this Court. Its ruling,

ae that market value is the test to be applied in

3 a no-market situation because the interests

: involved are not sufficiently. unique has no

support in law ‘or in, fact. In rejecting re- .

production - cost less: depreciation as the

measure of value for Government-sponsored ©

projects taken to continue the” same public

use, th® Court below: rendergd a decision in

conflict with those of otherfederal appellate

courts ang in a way in conflict with applicable

decisions of this Court..... reer eee 14 a"

‘

: \ ii

< - There were rio comparable sin there was

no market for Wherry interests, and they |

were hon- SUITING ko o sleckckene seein .¢

‘B. This ¢ ourt has repeatedly ruled i in appli

_ cable decisions that market value is not-the-

test of just compensation when there is no.

market or in other special circumstances

‘present here... ...6.6.6--.. iiwace st edge

‘C. The ruling: below that the. interests here

condemned must be measured by, market

+ value becanse’ not. sufficiently unique has '

no support either in law or in fact. eee

D. In. rejecting the test af reproduction COst -

‘Aleks depreciation as the mea&ure. of value:

* for longterm. leasehold interests con-

structed ‘under Gover nment sponsorship

for: public purposes ‘and condemned, to:

continue stich. use, the Court below. ren-

+ - “dered a decision in conflict with those of

other federal appellate. courts and ‘in a

way in. conflict with applicable: decisions ”’

of this Cd ak Fis ass bss ohugne s

I1I1—In approying capitalization ‘of net: rental ‘in-

-come at a higher rate of return than the ceil-

ing rate of ,returit (615%) allowable ‘in

"Wherry projects, and in the’ absence .of com-

petent evidence on which such a higher rate

‘of return could bé*found, all in the absence:

of a market, the Court: below rendered a -

decision in a way in conflict with applicable

decisions of ES CONES os cede vie sseess

IV—In capitalizing only actual rentals hie than

. the,fair and reaso rable rentals which should

have been granite

low réndered a

with applicable 4

cision Hi a. Way in ‘conflict .

cisions of this Court..

under law, the Court be- -

. PAGE

28.

O-

OPO re eee kee : é

< Sipe > ge ; , A PAGE

ot V—The United States did not attompé. to 48

ees — dem, an: interest ‘‘subject to a mortg ae

*.. But in any event the United’ States may not :

% condemn a non- existent propertyci inférest, nor

—— does just compensation consist if making’ an

a, -” award for an interest’ in land minus the

: amount of the mortgage, lvaving the con.’

“demnee. liable~for ‘payment. -The decision

contra below, was in a way in conflict with

: apnticahle decisions e lis C

; bs Ne ,/ ed P . .

Cguelasion . Peat SR Mey et ne OFS 36

SO Cited |

, Braoks- Scanlon C rp. v. . United States, 265 U. S. 106,

‘64, 659.7 Riviowacay nd Sis baWistehvalauss cee chine 30

~ Clark vy, ‘nited States, 155 F, 2d 157, 160 (8th. Cir, erage S

> SO osetia: Seer Ore muh ans ier eae 18°

— De La. ais S.S. ody. United State :, 206 F. 2d

655 (2d Cir. 1953). : 22

De Luz Homes’ v. County of: San Diego, 4 5. Cal. 2d

+546, 569, 290 P. 2d 5 27

Erie Railroad Co. v. Tol ipkins, St vu, S. 64 2

Fox v. Stiyvesant Town, 1, wl N

greenies. a rece) y RS deep nN ae ee ra 29

‘Hanson Co. v. United States, 261 U. ne EE ae

In re United States Commission to Appraise W sa

_ ing to Market Co. Property, 295 Fed. 950, (D.C.

; _Cir., 1924), pet. for cert. dismissed on Gévern-

"+ ment’s’ motion, 265.U S$ » 598. .....: “eh Nidal u Soken 14, 23

Kimball Laundry Co. y . United States, “338 U.

) ek rr ee eet tan 16, 21,24

Konigsberg v. State Bar “of California, 353 U. Si H2- 28

. . 4 — al

. . ‘ ‘ [

: : Z ’

. . e : 2 6 F .

; . P ; ,

° oe

pe - A ¢ : aS \) -

oo “ K : 7 >

° ° : . “e

* .

\: ae BE se

: Manhattan Co. v. t ‘ommissione , 297 U.S S: 125, 134 "oe

McCandless y, Unite “i States, 298 U.S. 342, B45... 24¢

Monongahela Nav igation Co. ve U nited States, 148°

Ty, Te Gs oes eee, T ccbmeaseateaesss Seka 33; 23.

Q Offutt Housing: Company’ v. nt ‘vunty of ‘Sarpy, 351 )

U. &-363....... ey AP ope ae men aarneions 18

Olson v. United ‘States, 292 U. Ss. DAG. von oss, 16,3

Omnia Co. v. U nited States, 261 as S. 502, ol 34.... RZ,

Pennsylvania Coaf Co. ¥. Mahon, 260 U.S. S. 393, 415. 30°

; Riley v. Dai oS Rev elop. Land cae,

246 F. - 644 (D. C. Cir., 3987) (sitting en .

/ RE in ses uaa Cipkeves susedsinstaeees —

Syanson.. V: wv ited ’ States: 156 F. 2d 442 (9th Cir.,

1946), eert. den. sub wom Spokane Portland ny

~ Cement Co. v, Swanson, 329 U. & ROO. . seseees “ae yA

T hayer West Point’ Hotel Co. v. United States 64

» F. Supp. 565. (ct Cis. 1946), modified on ot ther

grounds 329. U.S. 585..... : ej aT eS Pane ‘eee 22, 23

' United States v. Causby, 28 U.S. 206......-- facs :

“United States v. Certain penta sts in Property, in ,

' Champaign County, ete., 271 F. 2d 379, 382. atc +g

Cir., 1959)... eee cece epee cece tees eee tees wee

‘United States v. Cetrain Interests in ‘Property in

Champaign C ounty, ete., 165 F. Supp. 404 (KE. D.

ta oeceeqeteteensccewencvscscesaseens 1,20.

United States v. Gommoilities Corp. 339 U.S. 121. 17, 26, 30

United States .v: Cors, 337 U.S. 2s es 16, 1%

l Tnited States v. Felin & Co., 334 U.S. 624. .16, 18, 25, 27,.28

United States v. 49,375 Square’ Feet of Land, ete.

(92 F, —. 384, 388, aff ‘d 193 .F. = 180, cert.

den., 343 DJ. S. 928)... 2... cee etee ecto we ee ee ses 22

United States v. General. Motors Corp., 3: 23-U. a °°

reer rrr tere, Si ere Yoo. . 16, 17,.32, 38

‘United States v. Miller, 317.U. s. Sere 3 15M », 16, 18

i . Bi s Ae

- Jags ' fe

t . Vv ': 3 j

23 ee ee : poed | “PAGE

United States ve New Rive er. -Colhieries Co, 262 Re Set

MN Purdie itn ili Boies’ Vhc v's oad i al lew Wie cha 3 aes “We,

United States v. 93.970 aeias of Land. 360 :'U. S, 328 “ “se

United States v. Powelson, 319 U.S. 206... ern 32.

United States v. Toronto Nav. Co., 338 U.S. 396.. 24, 25, =

_ United States v. View Crest Garden Apts. 55 Iike., 268 ©

F :2d 380 (9th Ci Mg SOUR)... e's 5 oes PPE NK Ole er! OF

Vogelstein & Co/v. Unitéd-States, : 162 U '§ a 27

Nelly pina a pics Constitution Cited

United States Constitution, Amendment Vi: eee Le

: * aa ° We Vig Ys ogc

' | ~ Statutes Cited, . :

: aie . 8

; - BUS. 5125401). ee Ey ori yeeeece Taw 2

40 U. S.C, § 258a-......... J) er Se) e

_ Capehart Act (1955), 69 Stat. 646, 2.22: ae 5,7, 27.4

* Capehart Act (1956), 70 Stat. 1091.'+....°:.:5,8,9, 135, ISA -

"National Housing Act, Section 608, 56 Stat. 303..

: 7 5, 17, 29, B24

Wherry “Act (1949), ca Sitar. ane ? 5, 6; 17, 29, 35, 254.”

peas ies 1 _ Miscellaneous -

Babcock, Valuation of. Real Estate (ist kia. ¥ 387 ae

~ Brief of the United. States as Counter “Appellant "~~ ~

and its Answer as “Appellee bi eo -of

FoF EP ane Le 1h:

Appeals) -........0.0...6. eee tee 2 ¥

Department of. Defense Letter to Subeammittee on >

- Heusing, 1956 ....... nave ni taecnn gous Sata ay ee

t ? PHAC omments on GAO Drait Report. on ‘Revi iew

of ery Housing ree Rentals aw herry).. 10...

graf ° a

> PAGE

F. H. A. Military Housing Let tte? No. 4 (Govt, Exh. |

UL) seer ete e eee eee eres Decececeedg eels es oFy 10,26

I. H. AL Mi’ utary, Housing Letter No, 53 (Govt. Exh

17)... kde oddcasvodasoerehunteqgnes senda XY )

F. H, A. Military . rial Letter No ial (Govt PERT ect

Exh: 18) <........ essboenre teen tones i afeozs 910. :

oi. Rep. No. 854; June 20, 1949, as printed in 2.U. S.

Code Congressional Service, Rist Cong., het Bess, ety ee

i ee ane tens beeen a ete ae

H.R. Rep. 2363, 84 Cong, 2nd Sess. hi June 15. 1956,

GR Si cevtasavenceseseenen RE RS ees .8, 13, 15,

Letter from - Office of: the Assistant See of . 3

Defense to Samuel Goldstein & Sons, Feb. 23,.1960 12 |.

Memorandum front Joel C. Wise, Esq. Chief Counsel,’

Rental Housing Section of F. H. A., Legal Division, y,

‘to Mr. R. W: Jefferson, dated March 12, 1957.....° % 10

1956" Hearings before Subcommittee on Housing, |

Committee on wing and Curreney, House of

Representatives, P. 186... .-6e eee Acaesetyesse 8

- Reply Brief of the U nited States 1 as 2c ounter- Appel ears

lant, p. BA Wis nk tics soneecuses navaensen ye aa ee:

- Report to the Congress of the U rijted States, Review

j of the Acquisition of Wherry Housing. by the De-

_-. partment of the Air Force, by the ¢ ‘omptroller Gen-

eral of the United States, Aug. ‘ 1998, p46 5+. A

BEA aiuteaaditia i oy

iran

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d ?

AE ‘ ae THE

Supreme Court of. the United States « ‘

/OCTOBER TERM, 1959 ine,

' No.

“ / 7 ee

yo =

Cerratn INTERESTS IN. “Propenry IN “CHAMPAIGN County,

. STATE OF ILLiNots ; CHANUTE GARDE NS C ’ORPORATION and

i. Ae HANUTE APAnTMENTS C ORPORATION, A

ci fea Pa Selah aa - Petitioners,

x v. ae Ser

Unirep Srares oy Americal) |

: , : " ra’ . id

4 ; UO

: PETITION FOR WRIT OF CERTIORARI TO tie

‘UNITED STATES COURT OF/ APPEALS FOR THE

SEVENTH CIRCUIT -

To the . Chief Justice and the Associaté Juntioes. of the:

Supreme Court of the United States:

Your petitioners hereby pefition for a w rit. of certiorari

to review the judgments of the United States Court of

Appeals for the: Seventh Cireuit whielt 1) affirming. (No.

12497), heid inter alia that ‘under the Fifth Amendment. to

the United States Constitution, the mefsure of .just eem:

pensation for’ the taking of long- term leasehold intérests ’

in on- -base ‘military ‘housing is ‘‘market value’? of such

_ interests, in the absence of a market. and in: the@&bsence-

: * of comparable sales, and which 2) revensing {No. 12498), -

held that the United States under federal law could and .

did: here condemn leaschold inthrests subject to a mortgage,

‘hough such an estafe is unknown to the law of the. state

W here the. prope rty is located.

‘term leasehold intérests in federally-controlled on-base .

ha Opinions . Below ‘a

The opinions delivered in the United States Court of |

Appeals for the Seventh Cireuit are. reportet tt 271, °F. *

2d 379,382. The opinion: of the United States District

Court for the Easterii District of [llinois, reference to which

38 necessary to ascertain the krodnds of the judgments” &

sought to be reviewed, is reported at 165 F. Supp. 474.

_ The’ opinions of the C ourt of Appeals and of the District

»Court are appended hereto as Appendix “A and Appendix:

B respectively.

- Jurisdiction .

The judgments sought 20 @e reviewed were made and

eo on Oetpber 21,,1959. An order denying timely

otion for reheaPing was made and entered‘on (November

24, 1959.. On January 29, 1960, Mr, Justiee Clark ‘of: this

Court. granted an order extending the’ time witbiz- which

‘to petition for certiorari to: and including. March 22, 1 °

' The ‘statutory. provision believed to confer on this C

jurisdiction to review the judgment in question is 28 U. yi C.

§ 1254(f). e,. 4°. nie

we ‘ty ert aad e ‘

7 ae ol : -

Questions Presented for Review - © —

; : oe 2 :

1. When the United States takes by condemnation -long-

military houswpg (iwgegrated into the base) in’ excellent

condition to continue the same use-%-such housing having

been constructed four years previously pursuant to the

>. Wherry Act (63 Stat. 570) by thie condemnee in accordance} -

with Government. specifications At a judicially-found rea-

sonable cost of some $9,200,000 ‘to fulfill military need—

‘and there were no ‘@mparable sales and.1o market for such

interests and they ‘were‘not transferable without Govern-

ment consent, ix the measure of just.compensation under the

Fifth Amenitinent to the -United States. Constitution at

‘“mirket value’? (here found to be $7,100,000), or reprodue..

tion cost léss depreciation (here found: to net, $8,750,000),

‘especially When } . ‘

. (a) no owner of such. interests had eyer heen

‘willing to sell them at market value when -a statute

authorized their’ purchase. by the United States at z

Inarket value,, |

. (b) after the Department of Defense had found

that such intérests cannot be Valued by n@mal an.

praisal methods beeause their value js dependent 3

upon military need, ana Congresstonal commiitee.

had¥ound that market value would be.» **erossly

unfair?’ measure of compensation for such interests, 2

- ‘ ° = 5 . . e ‘

the Congress amended the law to authorize purchase

of such intérests at a Neproduction cost Jess.depreciat

tron; Fy - i x ;

Pea)

(e) the Government was at ‘the. time of 1 tak- ,

‘ing erecting ‘additional (and substantially similar)

_inilitary housing at the same base at a unit cost of

‘5 approximately twice the unit price awarded <here

on the basis of market value? - fs x

; 1 2 When @ condemnation award for Wherry project in-

terests is primarily dependent... upon ‘a capitalization “of

rents, and the Government and the gondemnee have four |

years previously negotiated a rate of return on their itivest-

ments (averaging approximately 6% ), andthe Government

agency ‘in charge (F. H. A.) has fixed a waximium rate of

return upon all Wherry projects (61,0): may the Trial

* Court in capitalizing rents use an entirely theoretical rate

* of return higher than both, the actual and-the legally al- J

iowable, rate of return, anc higher than any capitalization ©.

Tile testified to as being usable wiler-the method of capital. + 4

ization purportedly used by the Trial Court? :

Sa,

: pe 4

ow hen.a condeninatica award i is primarily dependent

ace a capitalization of F. H. A.-céntrolled rents, which

‘rents should be ‘capitalized—those which would provide

-a fair and reasonable return, or the actual rents—in the

absence of any implementing rent regulations applicable -

to petitioners, and in a case where the actual rents had

been based upon an F. H, A. estimated construction éost

($7,413,000) some 20% less than the actual reasonable cost .

_ of construction ($9,200 ,000)* and thé F. H. A. had for three

years failed to act on-an, application for ine reased rentals

due to increased construction costs, though in many other

_ cases it had granted’i increasag on such basis?

4: Whet the United. States entes a notice of eon-

demnation, stating that a complaint-had theretofore been

filed in an ‘‘action to condemn an estate in fee simple’’

| _ in leasehold teal estate, and the declaration of ‘taking and

®13

the complaint purport t@®condemu all right, title and inter-

est of the lessee arising out of a certain instrument of .

lease subject to the interest arising out of a certain instru-—

ment of mortgage, and the subject real estate is located

in a state where a a mortgage is a mere lien anil a leasehold

minus a mortgage is therefore an estate unknown to state

iaw, did the United States purport to condemn a leasehold

interest subject to a mortgage; if so, was this a taking of ‘a

jeasehold minus the aniounts due on-the outstanding mort- .

gage indebtedness; and if so, did the United States feve

power ard: authority to do so!

Db. Under all the facts and ou of this case,

were .the petitioners denied just compensation under the

Fifth Amendment to the United States Constitution?

Pe pimp

eS Sr CRE ti 1

“5 a

‘Constitutional Provision and Statutes Involved

Amendment V, United States Constitution:

ae * * on shall private property be taken for

_ public use without just compensation,’? -

, The. pFovisions of the statutes involved ‘are lengthy ;

“1 their pertinent text'is set forth in Appendix © hereto. The .

citations therefor are as follows: a 2 x

The Wherry Act, 63 Stat: 576,

The 1955 Capehart Act, 69 Stat. 652.

The 1956 Capehart Act, 70 Stat. 1091, |

= 06 Stat. 303 ( Section 608, National Housing Act),

40S. ©. See. 258, se |

f Statement of the Case

On May 3, 1950, -the petitioners were selected by the

Air Force to erect the two military housing projects on the

Chanute Air Foree Basé in Hlinois, namely, Chanute

_» Gardens and Chanute’ Apartments, pursuant to the 1949

‘~ Wherry Aét, Since the Att had specifically eliminated*

the requirement in prior similar statutes of economic feasi-

bility, the projects were approved 6n the sole basis of .¢

_ Mhilitary need for. the housing (135a *).- Leases for a 75-

_ year terfM were executed pursuant to which the petitioners

Were to provide the housing projects in accordance with the:

plans and specifications of the Air Force and. the Federal

Housing Commissioner, and+pay a nominal rental, The —

a eteennes ; . .

* Such references are to the pages of the Appendix for Defendants-_

‘\ppellees/Appellants in the Court helow, filed here as part of the

record: /. ce elites ~

* leases (216a-236a), which were’ neither transferable nor tis-

-signable withotat the written approval, of the Air Foree

(224a),- provided that the bdildings and improvements

erected by the lessees **shall be and become, as completed,

real estate and part of the leased lands, and public buildings

of the United States, leased to Lessee for the purpose of

serving. the governmental and public purpose. of providing

military housing in accordance with Title VITT Of the Na:

tional Housing Act’? (the W herry Act) (226a). The pro-

visions of the leases dtaling with the contingencies under

which’ the. Air Foree might controkrents (223a-224a, 229a-

230a) are set forth in the margin below.*

— ee 6 ‘

‘*That if-at any time during the term of this lease there is’ no

‘mortgage insured under the. National ilousing .\ct scovering thé

interest of the Lessee and the leased premises are not under,,the |

control of the Commissioner, the rental rates for leases gr ranted’ in

agcordance with Condition 3 shall be such rates as are agreed upon

from time to time by the said Commanding Officer and the- Lessee,

provided, however, that, in cgse this lease shall be acquited"by the

‘Commissioner and, subsequently assigned or sold, the rents shall not

be reduced below’ the schedule of rents then in,ettect without the

consent of the then ewner and monde of the leasehold ‘interest.’

(Par. 4)

“That except as otherwise specitically provided in | this lease, alle

disputes concerning questions of fact or establishment of rental rates

or standards 6f maintenance and repair after there is no mortgage

held or insured by -the Federal Hlousing Administration on the

‘property and the leased _ premises are not under the control of the

Commissioner, which may arise under this lease, and which are not

disposed of by mutual agreement, shall. be decided by the said

Commanding Officer, who shall reduce his decision to writing and

_mail a:copy thereof to the Lessee ‘at its address shown herein. Within

thirty (30) days. from said mailing the ,Lessee may appeal to the

‘Secretary of ‘the Air Force, whose written decision or that of his

- designated representative or represeftgtives Gr-board, shall be final

and conclusivé upon the parties hereto. Peudfng deetsion of a dispute

- hereunder, the Lessee shall proceed with the’ pe ‘rformance’ of, this

lease and in accordance with the Conimanding Ofticer’s decision, ' The

provisions of this paragraph shall not be deenied to limit the provi-

sions of Condition + of this tease with respect to rents.” (Par. +18)*

| oe | q

YO oat. Os °

As stated iM F. Hy A. Military Housing’ Letter Nov 14

(Govt. Exh. 11, 237a-238a), nit rental income for Wherry

projects was limited to not more than 61.% of the Commis-

sioner’s initia] «estimate “of reproduction cost, the. initial’

‘estimate being subject to révision on the basis of actual

construction Costs (237a-238a). > The net rentals hegotiated—-———

for petitioners? {Wo projects averiged to approximately a.

6% return, , :

The Korean conflict broke out, and the resulting higher

' costs meant a4hat ‘the Original estimated reconstruction cost:

($7,413,452) Was substantially exceeded. It was stipulated

that the actual cost of construction, exclusive of builders’

and architects’ fees, was $8,297,969.23 ( 46a). It was com-

puted that the’ actual cost, with such «fees added. Was .

$9,205,383.71. The projects were completed in 1953.

: Because of the unanticipated Increase in-construetion. ;

cost, petitioners Sought a rental increase on sueh ground’.

. (241a); as allowed by Letter No: 14, This request was not.

acted upon by the Federal Housing Commissioner, . who

Pa awaited the now-forthcoming concurrence’ of the Air

Force. (243a), Before the application-was acted upon, the

Afr Foree.took’ over the projects under ‘an honest differ-

ence of opinion’* (208a) by a bluff (210a ),, continuing the.

_ take-over to the date of taking, Petitioners had no author- ¢ |

ity to press their demand for rental inerease, 2

In 1955, a new program of military housing was begun

under Ahe Capehart Act. This ‘provided mae inery for

purchase of Wherry projects by negotiations, at a price of:

faire Inarket value (69 Stat. 652). . The Department of

‘Defense the next year wrote Congress as follows: be

| rs Department believes that in the

determination of. purchase price, a formulais superior #

to independent appraisal because the value of most

praisal methods, Valuation by appraisal would vary

- Widely, depending on current financial ‘condition, n--

cluding anticipated income, while valuation by for-

mula would be-based on valué of the physical struc.

% ° o- a -

tures without regard .to financial condition."’ 1956

Hearings beforé Subcommittee on Hodsing, Commit- —

tee on Banking and Caproni, House af Representa-

The parinidiar Committee report CHL. Rep. No. 2363, 84

“tang. | 2d Sess., June 15, 1956, p. 44) noting that ** *.* * as

a pra étical matter no acquisition has taken place wrote.

that - % : +.

.©* * * our studies showed that the fair market

- value formula confain@) in present law, although”. -

equitable for some projects, would be grossly unfair ;

'to most of. the Wherry projects, particularly thidse_

« | with a high vacaticy ratio.’ HT

The resultant. legislation (70 Stat. 1091) provided for

purchase of W herry projects at a-maximum pride based

, Upon | reconstruction cost less de preciation, : 3

_April 1957, without having made any, offer -for

negotiations ‘looking ‘towards the purebase of petitioners”

, Wherry projects, the Air Foreé filed)a declaration taking

e**All right, title and intefest of” the. petitioners: Sarising

out of [the specified leases] * * * subject to the interest

, of [the mortgagee | * * * arising out of [the specified F.H-A--

~ Insureyl mortgages | °° (30a). On May 8; 1957, notice of eon--

demnation was served upon rs inte rhdted parties, inglud-«

ortgagee, stating that 4 complaint had theretofore

d in an action ‘to condenm an @state in, fee simple

leasehold property ( = me a which

- the dee ration of. ‘taking ( 50a). HF 7,

projects, taken under the authority of the Capehart

otlier — ape i were’ e very ond condi

ee ene tg

~ a ete B98 Diverse, Ce Le

‘coneur with the

that FLHLA. pr

a , F j eae _se

3 . meh 7 = a

same base] under -thé Capehart Act ( apa Which au-

thorized their cons ruction) at double 't 1¢ amounts author- -

ized under the W h pies v fies

~ A jury trial wa waiv

ernment and fetiti ners, The’ Government expert Kuehule

conténded that there. hail been two comparable sales

rates primarily from these/allegedly comparable sales, The:

_vther Governmen expert,/ Dunn,’ testitied as) to capitalized

value hased upon|what ‘a hypothetical willin buyer would.

pay, but giving ne consideration to the existérce of a age

thetical willing seller {23A).* Their tapitalization rates

Were based on ar **equif¥ method’? of capitalizing rentals

“after. deductions

also had as to original cost, reproduction

for mortgage payments (49a, Ki, Fga).

Feéstimony was

cost, and depreci tion. 4 «le #4] |

‘nt experts testified that the military must

“HLA. ig any rental increases ( fa), ane

‘Ss and regulations were that the dollar

t return established in the original pro®

The Governm

amount of thes;

essing could not be increased because of increased constrhc.

lion costs (68a46 » Toa, 76a), various PHA, Military

Housing Letters being submitted. as showing such controls

(No. 53, Ciovt. Kixh, 17, 249a-250a: No, 64, Gov't? Exij. 1s,

252a). . Actually, there “ no F.H.A, rules or regulations

applicable ty petitioners’ projects implembnting F.H.A.*s

power to control rentals under the Wherry Act: the unpub.

lished Military Housing Letters. did not: have thé fore? of

law **: and FLA, did hav@a-policy of grauting rental in.

a +———____.

* Such references are to pages of the -\ppendix hereto, ‘

** Memoranduii fram Joel C. Wise. bsg. Chief Counsel, Rental

Hdusing Séction of FHA. Lagal Division, to Mr. R. iW. Jefferson,

} +] : : \ , \ * :

. dated| March 12, 1057. }

. | . .

“The administrative letters “* * * do.not have the full force

and effect of law as Ep panes from the. Administrative Rules

‘a Regulators which are published in the Code of Federal

Regulations.” ‘ ene

«|

serts testified for the Goy.- .

‘ which cousisted af sales jot stock of lesseés of housing r

' Projects. He tes ified that he derived ao

¢ : , ee | | | 10

‘ ‘ o ' . ao - . '

’ eres ses because of incre: med colstruction costs—and had

granted them in many casés.* if, :

% -

The triak court capitalized. actual rentals; writing that

the Air Force controlled rentals‘under the leases. It found -

that- taere was: no ev idence of comparable sales. In de-

termining just compensation, the tyial court. ruled, it Would

consider ’** All the elements which go to. make up ‘fair cash

market. value’? (20.4), and made findings upon the factors

which. it deemed —— thereto, These or eee

+P H. 1 “Comme nts on GAO Draft Report ow Review of Mili-

tary Housing Project Rentals (iH herry), transmitted to Mr. A. Te.

* Samuelson, Director, Civil Ace umting and Auditing Division, US.

"General Accounting Office, Be Herman .F. Masson, Commissioner,

on, flan. 24, 1957. Said the I c.f Ay, at. pp. 10-11 of Fda. Com-

ments: “The [G. \O Dratt| rey wort. . ites that Eatontown Gardens,..

Projects Nos. 031-80002, 3 and 4,, Eatontown, New Jersey, Were

~ granted angincrease in rents due to an inerease in coristruction costs

in éxcess of the FILA estimates’ of replacement cost, contrary to

Military Housing Letter 64 This letter sets forth instructions only

with respect to, increases in rents due to increases in operating

expenses or taxes. Sitice the inception @f the Acnbal Hiousing —pro- —

gram, where an incréase in const rpietion cost has been encountered, i

recognition could be given to an increase in rent upon -satistyctory-——

juStification. . Section O08 Rerital Hotising Letter-No, 145 and Mii-

tary Housing Letter No. 14 specifically authorize increasgs in rents

on account of. in creases Im construction Costs and are not incomsistent

with Military Housing Letter NS! 64. ¢Furthermore, in a memo- .

fandum dade lressed to. Mr: Franklin D. Richards, then Commissioner,

dated Juhe 23, 1950, outiining the “Procedure for establishing ap-

proved réats.in Rental Housing’, covering Sections 608, 207, Title

- VILL, it js stated that ‘Rental incredSes may be given consideration

where it, 1s demonstrated ‘that during coustruction inereased costs

‘beyond-the control of the owner were encSuntered and such increased

costs ere established-to the satisfagtion of the insuring office’.”

The, Wise Memorandun: shows that’ stich “rental incré&ses were

granted in ten eases * 7 *",

'{ Thermofax copies of the’ FA. /. @omments. ind thee” ise Memo-

randum have been recently pr: caved throutsh the Library .of Con- °

gress at the request of a’member of Congrdss, since the same are not

publicly available. They are ory file in the office of Herbert Monty

Levy, Esq.)

ee , er ee

| .

a < ; 11, , .

reasonable cost (found to be $8,200,000) -without builders’ | ~

and architects’ fees, which with builders’ and architects’

_ fees added. amounted: to some $9,200,000. The trial court

found reproduction cost to be about $9,500,000, depreciation —

to be approximately, $750,000,. leaving a net. replacement

cost of around $750,000. In determining capitalization of \

rena! income, the trial court stated that amortization of

mortgage indebtedness shoald not be dedueted as an ex-

pense item, and ruled.as follows: eile

. ‘The capitalization ‘of net rents to determine

Si value would vary materially according to the miuJti-:

@ _ plier to be.used upon the determined net rentals. The

‘ applicable multiplier varied from Roe’s [defense

~ expert] 14.5354 to Dunn’s 6.8. © The court takine inte |

\ ‘consideration an estimated net rental and multiplier.

‘Which would satisfy both & willing \buyer and ‘a

willing seller tinds that based upon the ¢apitalization: -

of rent the value of the premises is about $6,950,000.”

a. Sena Pa

The Court did not state which multiplier (the inverse of

the ‘capitalization Taté) it used.. As shown mathematically

infra, p. 26, it-used a capitalization rate’ of greater than

615%. , — seit 7

It. thereupon’ found just’ compensation to be in the |

amount ‘of $7,100,000. It also found that the. entire lease-

“hold interest had been condemned, - eae

‘ Some two months after the decision, the Government

moved for an order declaring the judgment satisfied, set-

ting forth an agreement-dated some three months after the

taking under which the Government secured a release from

the mortgagee’ to petitioners, and purported to make itself ,

‘liable on the mortgage notes (350a-359a), The motion was

denied. |

-etitioners here appealed from the decision of the trial -

f on the question of whether jist compensation bad

-_ been\awarded; the Government counter-appealed, claiming

lz :

that the interests.condemned were subject to the mortgages,

and that interest should run on the leasehold. interests_

minus }the amount .of outstanding mortgage indebtedness.

The Court of Appeals affirmed the finding of just compen-

sation in ‘the .amount of $7,100,000, holding that market

value was the test-in the absence of comparable sales, but.

reversed the denial of the motion for an order declaring the —

judgment satisfied.

Issuance of the mandate _ been stayed below .and will.

under Rule 28 of the Court below be ea stayed |

— g¢ final determination here.

- _ REASONS ‘WHY THE WRIT SHOULD ;

iz BE. GRANTED

i Review should. be granted to resolve serious |

and novel questions affecting at least thirty pending.

Wherry condemnation cases involving potential awards

of some $160,000,000, especially in view of the execu-

tive and legislative views that the measure of just com-

perisation used below is improper and grossly unfair.

This is the first of at least thirty pending.conderhnation

cases involving Wherry projects,’ erected at an estimated

cost of some $160, 000,000.7 Since no reported decision except

a the one below has laid down. the standards for measuring

just compensation of W herry projects, review hére is war- |

ranted if for’no other reason, than to avoid,a multiplicity

of appeais. Any erroneous: deéisions would be most costly

3g — ry . ee 4

1 Letter from- Office ‘of the - nage oer Secretary of Defense to

Samuel Goldstein & Sons, Fels. 23, 1960. These figures are as of

Dec. 31, 1959. «They do not inch other Wherry’s not then con-

demned but which may or must be condemned under existing. lapy.

/ Seep. 55, —

2 This is based on a want cost’ price ‘of some $17 3,000,000 for 33

such projects purchased by the Giovernmert, the average being ad- ;

justed to-refl@ét the higher cost here. See Report to the Congress

of the United States, Review of the -legutsition of Wherry ‘Housing

by the Departament: of the Air Force, _by the Comptroller, General ‘of

"the United States, \ug.. 1959; p. 46.

C9 ew

13°

- ; ora roan ee

‘to the United States because of the running of interest

at 6% pending final appellate determination.

- Spéaking -of ‘one question below (also raised here as

_No.5),’the Government said: eae abet OO.

_ *SAs noted in the conclusion to our opening brief? °

(p. 78), because of the number of similar’ cases out-

Standing, it is of particular importance that. this

~ Court [the Court of Appeals} Spell out [the law]

in no uncertain terms *** *,* Reply Brief of thé

United States as Counter-Appellant, p.: 17.

: It is obviously of even greater importance that the Supreme

condemnation casés and the methods of fairly determini

Court spell out the measure of just ‘compensation in care sh

; F g

that edigpensation. Until then,.it can be anticipated that

. . i eo. eS 3 : . : he

the Questions Presented here will arise again and again

in Wherry condemnation cases, for they are ‘inherent in

every Wherry case. *

Moreover, as shown, supra (pp. 7-8), the executive

"department (through the Department of - Defense) has

stated that the value of Wherry projects cannot be deter-

mined b& normal appraisal methods ( Le., market value),

_ and ‘Congress has’ enacted legislation based ‘upen a con-

gressional committee report which found that -valuing. 3

_ Wherry projects at market value wonld be ‘‘grossly unfair’?

‘to_owners of most Wherry projects. The decision ‘below -

thus constitutes a judicial determination that the proper

. Standard for measuring just compensation ‘is ‘one which °

e 6

the executive rejects and-which the legislature-apparently

deems: ‘grossly unfair’’. While neither the Congress nor |

the executive can _deterniine. what is just Compensation, 9

this unbecoming conflict on a constitutional question be-

tween the legislative and executive departments on the one

hand, and a lower federal court*on the other, seems as

persuasiye a reason for granting certiorari.as is A conflict

between federal courts of appeal, which alone may be

a sufficiént reason for granting certiorari. |

a Sir capa A os ie

_ §% Monongahela Nazggation Co. v. United States, 148 U.S. 312.

H. -In ruling that market value, constitaites just

compensation in the absence. of comparable sales and

a) .

. in the absence of a market—and irrespective of whether

-. market value is an appropriate or the best measure. .

> of value. here, of. the difficulty of finding it, or of .

whether a manifest injustice results from its applica- -

tign-—the Court below decided federal canstitutional

: questions in a way in conflict with applicable decisions

of this Court. ‘Its ruling that market value is the test’

~' to be applied in a no-market situation because the

" ‘interests involved are not sufficiently unique has no

support in law,or in fact. In ragecting reproduction

_cost less depreciation as the meaéure of ‘valee for

Government-sponscred projects taken to continue the.

| _ same public use, the Court below rendeted a decision

— in conflict,with those of other federal ‘appellate courts

and in a way in conflict with applicable decisions of

this Court. = Ried Chiba, ule os

Pe A. There were no comparable sales, there was no market

for Wherry interests, and they were non-marketable. | .

e The.-Trial Court ‘found that there were no comparable _

sales; and the Court of Appeals affirmed this finding. We

note, too, that atthe times when federal law had .provided

for purchase by the Géverament-of Wherry projects at

‘‘market value’’, no transfers, ever oceurred (supra, p: 8).

: - But not-only was there no.market for Wheray projects

- and nocomparable sales—they’ were in fact-nonm-marketable.

‘ ° . .f :

‘None had ever been sold. And the governing leases pro- °

. . ° oe : ,

* %

-_ ees |

4 While the long-term. leaseholds had never been sold, there wert .

in fact two sales of. stock .in- corporations owning housing projects,

which the courts: below correctly hele to be: non-comparable sales.

In re United Statés Commission to Appraise Washington Market Co.

Property. 295 Fed. 950), O54 a te, 1O2+), pet. for cert. dis-

<2 * o 4 missed, 265. U, a SUS. Phe *possibilits ots such stock wales being

made® without dny -necessity | fr’ Goverunrént approval, further

negates any poss'bility of sales ot, the leasehuld. interests. .

> . ° a

, : h ‘ : ax [

\ | | ys as Ne es see

. |

_ vid iat they could not be alienated without, federal _

—consent (224a). That any such consent would have been —

sought or would have been forthcoming was most unlikely—

as the Government itself noted below, ‘ * * * it was declaged

matter. of public poliey that W herry housing should be

istered from private hands to ow nership’ by the mili-

tary. 2? Brief of the United States, p. 24, fn. 9.5.

®& ‘

B. Thig Court bie repeatedly ruled in ctplteabhe Ditters

‘that market value is not the test of just compensation

present here.. irk

The Court ‘below cited Olson v. United: ‘States, : 292 U. SS

246, 255, for the proposition: that -the ractical standard

of just compensation is ‘*market value hi

However, there ‘was a char market the interests con: .

. demned in Olson, and no questjon was involved in ‘that:

-ease of. the measure of compensation in the absence of a..

‘market. In’ every case: decided by this. Court thereafter,

however, this Court has ruled that mnmarket value is aot

_. the.test/ in the’ absence of a market—and, furthermore,

-- that it.is*not the test if market value be difficult to find cr

under other. special cireumstances. The. cases are legion:

_. L The decisions of this ¢ ‘gurt’ that market value is. not

the test-‘in absence of a market or in.other spectal circum-

. stances:

: “Where, for any reason, property we no market, °

resort must be had to other data to ascertain its

The Gove ernment cited, among other sources, H. Rept. No. 2363,

S4th Cong., 2d Sess., p. 44; 3 U. S. Code & Cong. “Agmin, Néw's,

S4th rate , 2d Sess., 1956, p. 4551. oe

+ when there is no market or in other special aperee

irly’ determined a Ne

‘

| ae - 16 ess

Mien : $7 eS

value ™*-* *. ae 8 nited States v. Milir r, 317 U. S. S. 365;

eo SS Se ieee.

ee ihe ordinary ease, for want of a better standard,

ts Syarket valiie, so called, is the criterion of that value.

ie some cases this criterion cannot be used, either

_ because the viterest condemned Las no market value,

or because, in the circumstances, market calue fur-

nishes an inappropriate measure of actual value.’

United States vo General Motors Corp. gaze v.. &.

. 373, 379 (Eiaphasis added. ix ;

“The conventional eriterion for determining what is”

‘just commperisation” for private: property taken. for -

public use is what it would bring in the free, gpen

market. ** * Bul there mustbeamarket to make the

rhs ag available” Cited States’ v, Aes ad Co.

334 17, S. 624, 629-: 0 ( Emphasis added. ».

The Court-im ani « ndeavor to find wor king. r les that

would ‘do substantial justice Ras adopted practical

standards, ineluding that of. market value, * * * But.

it hascri fuséd to make a fetish even oP market value,

since that may not be the best measure of value in

, dda (Emphasis hdded. )

“But when the property. is of “a kind seldém ex-

S changed, it has no ‘market price,” and then recourse

must’ be had to other means of ascertaining value, in-

_ eluding even value to the = verte Kimball

Laundry Cory. d,s States, 338 U.S. 1, 6.-

LA PE EEE

oP erefiBaically. ‘the Court below relied almost -completely ,on

Miller ( Olson’ was the only other “case reked’on in holding that

market ‘value controls even when thére is io. market. We ‘submit

that it was able to arrive at this startling result only by applying a

quotation (JI7 U.S. at 374-5) dealing with tie, ordinary case—

avhere there ts a market--to the extraorslinary case where no market

exists, and thus reaching the conchision that because market value *

may not be found with nigety in the ‘orditiary situation, it can and

should be found even ‘when there is ne tarket because market value

is emly an informed guess anyhow in she ordinary wation, The:

@Surt below thus uses Willer to arrive ata pride iple of law directly

contra to Miller. :

some aases.”’ > United, States v. @Gars, 5387 UL S. 320,

‘So / — 7

17 .

es - ° **** * But-when market value hasbeen too difficult ©. .

— to find, or when its application would result in mani- |”

fest injustice to owner br public, courts have fash-

~ ioned and applied other standards.’ United States:

2? v. Commoilities Corp., 3389 U.S. 121, 123,

2. Even,if there were a market, other special circum-

stances would rendér the market: value test inappropriate

here. - oe “, =

_ As the cases just.cited show, market value is’ not the test

—-even where there is a market—if (a) ‘tin the cireum-

stances, market value ‘furnishes*an mappropriate measure

of actual value’'( General Motors), or if it is pot “the best

measure of value’? in the particilar ease (Covs), or (b)

‘‘when market value has been too difficult to find, or (c)

‘when its application would result gn manifest injustice to

. owner or public’? (Commodeties). . . ?

As to (a): that there is a serious and substantial ques-

tign as to whether market value of a Wherry project is an .

appropriate or the best measure of value, appears from the

fact tliat the ‘Department of Defense has rejected market

value as an appropriate measure of valuation for Wherry

proPcts, and that Congress has found market value to be a Ko

‘*gressly unfair’? measure of such” valuation.’ Moreover;-

, the very concept of valuing dn integrated part of p military

~ base at a — value’? is eonceptually repugnant, Tod

a military howsing as an ordinary commercial propexty

susceptible of exchange in the market place_is most inap-

propriate in view of the fact that the military housing was

‘constructed in accordance with government: specifications

to fulfill military need, and not on the basis of ardinary com-

mercial feasibility’; to treat it as susceptible of exchange in

*“The primary difference between the mortgage ifisurance pro-

posed under the new Title VILE Ithe Wherry Act} and ‘that available

under Section 60S [of the National Housing Act] is that the bill

does not require the | FHA] Commissioner to make a degermination

vt acceptable risk.” House Rept. No. 854, June 20, 1949, as printed

in U.S. Code Congressional Service, STsi Cong., Ist Sess. at p. 1738.

bp cat . ade §

>» + °:

218

« #

oI . *

a. private market Ww hen it was never sold on & private mar-

ket approaches ‘the realm of uneality~ espec tally when the

granting of consent therefor would seem to be inconsistent

with the publie poliey of government acquisition of Wher ry

projects. To attempt to find the price that a willing buyer

would have paid a willing. sellers (Uuited States v. Miller,

sfipra) ia-a free and open market -(U nite dl States v. Felin

& Co., supira) must surely be van inappropriate attempt

when there gs not and never haw beei either a willing

-buyer, a x ter, or a free and open market.

As to (b): that market Value is not the test when it is

too diffgult to find. Here, the Government *s experts pro-

ceeded on the- theory that the purchaser of Wherry. projects

was buying a stream of income*. But these experts had a

practical difficulty in tixiag the present value of that income

—for they could have no idea whatsoever what any person

would purchase that income for when_it came:from a

W ze Ane me In short, there was iio experience what-

determine without too much diffieulty what such

a cash flow was worth. -

- The Government experts attenipted to surniount these

difficulties by imaginary hypotheses, bused. solely on their

opinions, unsupported by any faets er cireumstances—a

test of litde valne *. They merely gave unsupported opin--

ions as to what yield per annum a purchaser would expect

from his Wherry investment—e.g.. 12° (111aj—not |

based on any market for Wherry prejects which alone:

could have showed the yiel® the market would expect.2 (In

_.&3 ‘

8 This was of course an inappropriate’ approac h mitself, tor they

did not attempt to value the leaseheld, but mstead arrived at a “cash

tlow” atter improperly deducting gamer for r amortization, interest.

and mortgage insurance (seUmpra, p. 27).° This Court has held,

however, that “the full \e¢lue of ~ ouildings and improvements Is

“attributable to the * * *tineerest” of a Wherry project lessee. Oghutt.

Housing Company v. County vo, Sa rpy. STU. S. S262. :

* Clark v. ! nited®States, 153 . 24 157, 160 (Sth C\r., 1946).

i ae ‘ 19 ee

rae nee eo 2 } | | |

by deterthining what a hypothetical willing’ purchaser would:

pay a hypothetical willing seller on a basis ‘of ‘eapitaliza-

' tion of rents, Government expert. Dunn stated that. ‘he

gave no consideration to the existence of a hypothetical’

willing. seller’* (23A infra); ‘and the only other Govern-

ment expert testifying’on this question (Kuehnle) based

his capitalization rate ‘on two sales. of stock interests (56a)

which the courts below ‘held to be non-comparable sales

(fn..4, supra).) (See also, p. 21, infra.) -—

_ Nor did the District. Court state how it arrived at,its |

final figure for’ market valué; the Court of Appeals was

unable to discern how it was done. ° :

- «ls to (c): that market value is -not the test vhen ‘‘its

_application results in manifest injustice to owndr or pub:

he.’’. The injustice to, the owners here. could hardly be

morg manifest. These projects had a reasonably cost pf

coustruction of some $9,200,000 ;-four years later the prop-

erty—still in fine hape.and the best of its kind (196a ). and ©

taken to continue its use—is found to nave -the value of:

$7,100,000. Of the original reasonable $9,200,000 invest-

.ment, only $7,100,000 is left! What happened to the miss-

ing $2,100,000? It did not vanish in obsolescence? ; the build-

ings were in excellent shape, and condemned to continue

their use. Depreciation was found to be only some $750,000.

This accounts for $750,000 of $2,100,000—-but leaves

$1,350,000 unaccounted for. Surely there is manifest in-.

equity here, oe aM :

Put it another way: the eash investment over anck ahove

‘mortgage loans was some 2,720,000—with amortization

payments, it amonnted to $3,050,000, The cash returned on

condemnation over and above the outstanding morigages”

was. only some $954,000.. Where did the missing values.go?

Is this not ‘*manifest injustice???

> > . ° :

Moreover, the Goveriment at the time of taking was

erecting similar additional military housipg on the. seme

: ae a ‘ .

S. bis hg

base af about twice the. wuit price received on the eon-

demnation here, though the new units are” only slightly .

larger than the ones condemned. The Government, through

a condemnation. forcing a loss of about 11. million dollars

‘to petitioners, is securing militger y housing from petitioners

-at a cost of only half its prese nt construction costs. This

windfall to the Gove rime nt at petitioners’ “expense is a

ae injustice. oe

C. The ruling below that the interests here condemned

must be measured by market value because not suffici-

ently — has no support either in lawor i in fact.

Ruled. the Court of Appeals: -*We are not satisfied

that the ‘property interest taken inthis case is so unique

ds to take it outside the general rule’? of market value.

The decisions of this Court fail to reveal any doctrine

or decision holding that an interest mut Je of some (un-

stated) degree of uniqueness before it is to be taken outside

the general rule of market value. This novel doctrine of

the Court below is, of course, necessarily inconsistent with

the many precedents we have previously cited which hold

the market value test inapplice ble for reasons other than

uniqueness. P . ms

But even if uniqueness be the criterion, we submit, then

W herry projects are about as unique interests as one can

tind. It may be enough to say that we have been able to

find only two eases in which similar interests were invoived

(in both of which the federal courts awarded reproduction

. cost’ less depreciation, see infra, pp. 22-23). . But we note

the following unique aspects ' of Wherry projects: (1)

they consisted of private leasehold interests in govern-

ment-owned military housing ‘in the middle of’ a military

base (76a) (unpree «dented in our history so far as we are

aware); (2) they we re ereeted in accordance with govern-

ment specifications; (3) they we re integrated gto the mili-

tary base; (4) under the statutory scheme for their eree-

21 | i paeee

tion, there was no consideration of economic soundness,

but only of military need; (5) rents and operations were

‘controlled by the Goverment; (6) they’ were not alienable

without government. consent; (7) no sales of such interests

had ever occurred anywhere; (8) no owners of such in-

terests were ever willing to sell them at market value. The

interests here condemned were surely sui generis.

Perhaps the Court below merely méant that these were :

leasehold interests returning income whith could be capi-

talized and were therefore not safticiently unique. The

answer to this: this type of leasehold interest was so

unique as to give no basis whatsoever for determining what

rate-of capitalization should be used in valuing the expected

return.'’ For there was simply no experience on. which |.’

to base-even an expgrt’s opinion. Income from this kind .

of source had never been traded on the market and there

was therefore ne yardstick, no criterion, to measure what

investors would, pay for this income. |

D. In rejecting the of reproduction cost less deprecia-

' tion as the measure of value for long-term leasehold

interests constructed under Government sponsorship

for public purposes and condemned to continue such use,

. thé Court below rendered a decision in conflict with those

of other federal appellate courts and in a way in conflict

with applicable decisions of this Court. :

Quite apart from the fact that ‘*Cost of reproduction

is a method of valuation usually resorted to ‘where the

character of the property is such as not to be susceptible

‘ . . ; :

1° Cf. Kimball Laundry Co. v. United States, 338 U. S. 1, 17, nz8..

“The importance of varyin® in accordance with varying risks the

percentage at which income isgeapitalized to obtain business value his

heen emphasized * * *,” ren gas

Here, not only were the risks (or absence thereof) unique, but so

was the type of real estate from. which the income stemmedl.

wh ae :

“—

‘to the applicatibn of the are value doctrine’ ’’,*! the

federal courts have uniformly held that the proper measure —

of just compensation i is reproduction cost less-depreciation

when the real estate was—as ‘here—constructed under

Government sponsorship on Goyernment property for-

- public purposes) and is takerto continue such use.

: In Thayer-W est Point Hotel Co. » Unit nited |States, 64

F. Supp. abo (Ct. C'ls. 1946), modified on otlvey grounds,

329 U.S. 585, residential accommodations had? been con-

‘Structed-by-along-terny I lessee for military authorities on

a military resurvation, the Government owned tlie property

and controlled the-rentals—a virtual duplicate of the situa-

tion here. Though. the proceeding was wet in eminent

domain, the case involved. de termination of ‘*just-eompensa-

tion’’ pursuant tovontract. Aftet rejecting the apphenbifity

of the market value test because ‘*There was! no market

to which resort might be had for ad judging value’ er

" Riley v. District of Colenbia Redevelpp. L oalt; duyency. 246 E.

2d O41, 644 (D. C. Cir. 1937) (sitting’ en| bane) ) accord, Brooks-

and

- Scanlon Corp: v.-United States, 263 °U. S.| 106, 125; Le 'La Rama

SS. Co. v. United States, 206 F. 26-6335 (24 Cir., 1953). In Dé La

Rama, supra, where there had been no comparable sales, the Second

Circuit did not seek market value, and net feprodietion cost (225%;

more than original cost three vedrs earliér) controlled.- Here, the

search fur-a, “market value”. resuited in thé trial court weighting net

‘reproduction cost at less thin 10°. the weight it.gave to capitalized

value. . .

The Covrt below cited oliter dictum purpentediy.. to the contrary

. of the en bane ruling of the Cotirt of Nppeals nm Riley. supra. It’

- cited United States V. $9735 Square eet U}- Land..cte.. ¢92 F. Supp.

384, 388, affd. 193 F> 2d. 180; cert. den... 443 UL S. 928) for this —

proposition : “Defendant's contentin that the district court should

he confined to a. consideration of reprodtiction cost less depreciation

is aot well taken in this case, and such meth xl eee is held ta

be ne of the least refiable in licia of market value.” But it was not

market value we were seeking to indicate-— stace there was no market.

"Our contention is that, in the absence of a ° market. reproduce:

‘tion cost less depreciation ts itseli the Jest measure of value—and

the writer of the United Stafes v. 49.275 opimon relied upon here

below did snot disagree? See 92 F. Supp. af J88.n. 2.

. *-. bs

ans a : ‘ “ ge

——

it ; \

* ed

‘SS 23 =

- iy

* eo oo 4

} . - «

‘hee: 1use the realy’ was a Government milifary: reseryation

(64 F. Supp. at 568), the Court, ¢onsidered ‘the: history

an cireumsfances”” and placed ‘main reliance * * *-apon

ee 8 93

re ring only original cost in addition thereto).

taken the approach that tota! reliance must be hadenpon

reproductign cost less depreciation in such circumstances, Ih

In re cade States Commission to Appraise Washington

Market Ch Property, 295 Fed. 950 (D.C. Cir., 1924), .pet.

for cert. digmissed on Government's motion, 265 U.S. 598,

| a market for publie purposes ou esa property was

constructed by a long-term lessee 2

‘cording to Government

\* specifications, and the property was condemned to continue

its use—the identical situation as in the Gase at bar, save

that petitioners here constructed military housing on a

stressing ‘that ‘‘the government in taking over this prop-

erty is doing so with the view of.gontinuding the business,

1ot for the purpose of destroying the plant’ (id. at 953),

ached this conclusion: :

“We are of opinion ‘Gat - the only just and legal

_ method of arriving at the. fair value of the preperty

* * * is to determine first the cost of reproduction

based.upon present Values and deilucting therefrom

the amount of. dey rreciation, “eg (Id. at 954-5)

But we urgé that the te ‘gal picture is still more deservi inst

of clarification in view ofthe question of the applicability

of prior deeisions of this Court which may vield even other

results. 1) In Olson «. United States, 292.0. S. 246, JG,

this Court stated: ‘Nor does the fact that it {the property].

may be or is being acquired by eminent domain negdtive

consideration of availability for us¢ in the publie service.”’

‘Tf this becan elpment 6 value, was it not ignored below?

Is the criterion of value the need of the military——as ruled

hy the Defense Department (see supra, pp. 7-Sy—, and if so,

sound value, that is; reconstruction new less depreciation

The Court of Appeals of the District of “Columhi a has,

military Wiase rather than a market... The Court of Appeals, |

how 1 ‘1s that need to be valued—at the cost of reconstruction

by the Government | ? 2) ‘The ruie is we ‘Il settled that, in.

condemnation. cases, the .most profitable yse to which the

land can probably be put in the reasonably near future may

be shown and considered as bearing upon the market value °

** 9) McCandless vy, United States, 298-U. S. 342, 340."

But the only use to which this. land could legally be ‘wet is

military housing—and surely that cannot be measured on

a market value basis. What basis to use, then—the value

to the military? Is this the amount it saves’ by taking over

the project? But this weuld run headlong into the doctrine

‘that gain. to the take? is irrelevant. 3) But ‘‘gain to the

taker’ is “rejected as a measure of publie obligation”’

because it **‘may be wholly unrelated to the deprivation

imposed upon the owner’? [Kimball Laundry Co. v. United’

States, supra, 338 U.S: 1, O|, e.g., the ‘taking of land of.

little Falue to use.in a valuable and differenteway. But

does this doctrine apply when the preperty is taken to con-

tinue the same use?—for then gain to the. taker and the 23

deprivation on dhe owner are not unrelated, but are indeed

identical. 4) Thus, where thé taker, acquires going-con-

cern value, as when a utility is taken over for- continued

government operation and the owner is tus put out of

vusiness, ‘the taker fully’ gecupies the pwner’s shoes’

the going-concern value must be paid. Jd. at 12. What:

is the going-concern value of military housing? |

. * . * i 2

’ The Government will doubtless cite to this Court its |

dictum in United Weates v. v. Toronto Nav, Co., 338 U.S.

396, 403, that- reproduction cost Is an iiappropriate meas-

ure of value “ewhen ‘no one would: think of reproducing

the property’’, then go. on -to cite testimony that nobody

would think of reproducing this property under present

conditions of financing (the favorable FHA ‘loans avail-

“able under Wherry Iegislation no longer being used for

military housing), and conclude, tiat reproduction cost

a -

‘ :

. . ;

\ /

\ : . .

\ . /

; oe

. *

is thus an inappropriate measure of determining value.

The answer is fourfold: (1) in Toronto, this Court was

referring to property which no one would reproduce because

it was obsolescent, not because it was economically unsound

to do\so;'* (2) W herry projects were erected without any

concern for economic feasibility, and ‘to take-'them on a -°

basis.,of economie feasibility. would be forbidden—‘‘ the

transaction cannot be torn from the context’’ [Felin &

Co., supra, 334 U.S. at-632]}, and the Gévernment, having

invited the construction ona non-economic basis, may

be estopped, from securing a valuation on an economic.

basis [ef. Monongahela Navigation Co. v. United States,

supra, Where the measure of just vompensation ?‘rested

. -primarily upon the doctrine of estoppel, as this Court.

has in several cases since pointed out.’’ Omnia Co. ¥.

United States, 261 U.S. 502, 513-4]; (3) it cannot be said

that ‘‘no one would think of reproducing the property’,

since the Government itself: was building new and similar

housing (the units being slightly larger.) on military bases, .

including the one -here—-and nd one else could do that

building under the law at the time of the taking; (4) if it

be inappropriate to award reproduction cost when ‘‘no one

would think of reproducing the property’’, it is just as.

inappropriate to award market value when no one ever was

v. : illing: to sell. this type of property at market value.

12 This is the full context of the quotatioi, dealing with"an ‘obso-

dete ship: “Original cost is well termed the ‘false standard. of the

past’ where, as here, present market value in no way reflects that

cost. So with reproduction cost, where no’ one would think’ of re-

producing the property.’” /bid. ;

no support in the. record..

+. 26

‘

II]. In approving ‘capitalization of net ‘rental in- .

come at a higher rate of return than the ceiling rate of

return (614%) allowable in Wherry projects, and in

the absence of competent evidence on which such a

higher rate of return could be found, all i in the absence

of a market, the Court below rendered a decision in

"a way in conflict with applicable. decisions of this

Court.

. o

‘The isin, pent capitalized net rental inepme at a ‘rate

greater than 64. »%.'* In so doing, however, the trial court

improperly c: ipitalized rentt als at a greater rate than that

allowable -for. Wherry projects, and at a rate wh ich had

A. The rate of return allowable by line-Land its effect.

Wken the Government establishes ceiling prices, they

normally control the determination of market value. United

States v. Commodities Corp., supra. Here we have the con-

verse of Commioditie s—the Governinent here established a

rate of eapitalizatio: for Wherry’s was to be 614% (Govt.

Exh. 11, 237a-8a). if C ommadities was bound by the Gov-

ernment’s ceiling prices, mugt ‘not the Government be bound

_ by. its ceiling rate of retur—especially since ' there was 110

. ?

——

~—

"13 The trial Court's ‘capitalized ai was $6,950,000. If th®

court had used a. 614% capitalization rate Ath: net rental value used *

by the court must have been $451,750 (614% x S6; 950,000). Haow-

ever, the Government expert Kuchnie testifiett to a net rental¢value

of $472,885: ($321,515 plus $119,370 (T4A) ; us § $32,000 (16A)].

If the court used Kuehnle’s figures as the net re urn to arrive at its

capitalized value of $6,950,000 (and ‘his figures of ‘et rental income

were the only Government figures alluded to by it), “he court's rate

of return was some 6.9¢¢.or more than 645%. [f the a

-any greater net rentals by reason of Kuehnle’s improfieNy deducting

amortization. payments fiom income. (23A), or for any \other ‘tea-

son, then to find a capitalized, value .of- 56. ),000 the rate ‘nf return

" would haye had to be even higlier than 6.9%.

6 ' « - <= many oe

ceiling rate of capitalization when it ruled that the maximum -

“.° the condemnor.** Hanson Co. v. United States, 261 a

ee ida DE ai

market for Wherry leaseholds which would pay a greater

rate of capitalizations * Uan the Government say, when

authorizing a W herry, we will not allow.you. greater thanea

' 644% rate of return; which we deem reasonable ; and then,

king a W herrx, take it at a higher rate of return

n it itself set as reasonable? Is there adifferent rule

-when the Government takes then when it contracts?, This |

- Court has held that the doctrine of estoppel fsa. gga

the Government in condemnatien eases, , Oniia “Co.

United States, supra. : ‘ ‘

-°. Besides holding that ceiling. prices : peeved in deter-_

mination of ‘value, this Court has @iso-held that that pfice

. controls which is fixed voluntarily between the industry

and the condemnor [Vogelstein € Co. vy. United States,

262 U..S. 337] or between the particular condemnee and

581; United States v. N ew River Collieries Co., 262 U. 8.3

| B. The use of a capitalization rate higher. than 6% .

had nq foundation in the record. The trial court purported

~ to use the ‘‘free and clear’’ method of capitalization—

~ ¢apitalizing. net rentals before deductions for mortgage

J~amortization payments,'® mortgage interest_and insurance —

/ payments—rather than the incorrect ‘‘equity’’ method of “

/ deducting all mortgage payments as expense items, capi-

talizing, and adding the © amount. of the —-.:

‘ 14 Cf, Messrs. Justices Reed, Black and Murphy, coneurring in

*“nited States v. Felin & Co., 334 U. S. at 643: “Under the circum-

stances of this case, any other. value than’the ceiling price is illusory.”

. Since the actual - rates of, retiirn negotiated sor petitfoners’

projects was less than 614% (averaging about, 6%), this in turn

raises another serious and novel question, upon which. ‘his Court has

not passed which controls—the ceiling rate of return, or: that actu-

- ally _ peotiated between the parties?

“Babcock, Valuation of Real Estate Cist Ed. ),*387 = DeLus

iad s Vv. County: of San Diegg, 45 Cal. 24 546, 569, 290 P. 2d 544,

558. Said the trial court here: “\mortization of niortgage indebted-

- Ness is not an expense item, and to treat it as such would improperly

-Feduce the valuation” (23A). :

Og ae

, | 3

But the‘only: rate of capitalization given for valuation

on a free and clear basis ‘was the one given by petitioners’

_ expert, the Government experts having refused to give

~any valuation or multiplier on -a_ free and clear basis,

rejeéting and. repudiating any method of valuation except

‘the incorrect equity method (49a; 59a, 66a). Thus, no

apPlicable rate of capitalization existed in the record save

those testified to lp petitiogers’ expert. The use of such

rate of pane op (6140) applied even to the trial

court’s estimate of net rentals ($472,885) yields a figure

for capitalized. value some $400,000 higher than the judi-’

cially-foutid $6,050,000.. "The error here was in using as -

. ‘‘applieable”’ (to quote the trial court's own words) (23A) a.

multiplier whose very basis was properly. rejected by the -

_ trial court4—in using a finding of a multiplier which was

both basvless in fhet and law. Such a composite conclusion

of fact and law ‘may, ev en if not clearly erroneaus, be

reversed in constitutional cases. J'nited States v. Féelin &

Co., supra, 334 U.S, at 689-640; Konigsberg vy. State Bar of

California, 353.U. $. 252. et ey Z ‘

e ~

°.

IV. In capitalizing only actual rentals rather than

the fair and reasonable rentals which should have been

granted under law, the Court below rendered a deci-

sion in a way in conflict with applicable decisions of .

_ this Court. .

The trial court, erroneously finding that the Air Foree-

controlled Sa ene failed to consider what ad-

‘Neither statute nor regulation can be found: requiring ‘military

acquiescence in’ rental increases. Though the trial eourt quoted

verbatim provisions of’ the leases (12A- 13A) which it held.

.“requir[ed} Air Force consent for halal increases * (23A), these

provisions giving the Ait Foree such power. came into effect only

‘“f at any time there is no niortgage insured: under the National

Housing : Act” ( Par. 4) and “after there is no mortgage held or in-

sured by the Federal Housing. \dininist: wien” (Par, IS) (E Smphasis

added). Buit there were such mortgages at all times prior to .the

taking—anid they were tot to be paid off for more than three decades.

>? ao

justme nts shoftd have ‘been made in “the rentals . because:

of the 20% increase in construction costs, capitalizing only

actual rentals, :

But it was the FHA ‘white did control the» is,“ and

though jt had failed to grant increases h®re because of P

improperly seeking Air Force acquiescence, its policy was -

_to grant réntal increases on thecgrounds of increased cér-

struction costs.'* And it was under a statatory mandate

to grant reasonable rental increases heeause ot i

construction costg: when Congress enacted-the Wherr y Act;

. With specific language ‘prov iding for FHA-rent controls, \it

must be conclusively presumed to have. had knowledge that:

the New Jersey Supreme Court had approved the FHA’s|

construction of identical language ‘re FHA rent ‘controls

(in § 608 of the National Housing Act) to mean that FHA

had’ "the power and authority to grant ‘reasonable’ rental

increases due to increased construction costs. By reenaet-

ing the same statutory language i in referenee to Wher ry’s,

the Congress must be held to have apprey ed the said New ;

Jersey interpretation in For v. Stuyvesant Town, 31 N. J.

2d 408, 66 A? 2d 4%> Moreover, though FHA had promml-

vated no regulations ge rent controls applicable to peti- -

tioners’ projects, any regulations adopted would have had -

to be both ‘reasonable’ and ‘‘consistent with the ‘statute.”’

Manhattan Co. v. Commissioney, TT. S..129, 134. And

this requirement woukp have required the granting of in-°

creased rents due to increased construction costs, as held in’

For. “Surely petitioners ¢dnnot be held to ave lost their

‘right to reasonable rentals by virtue of FHA failure to

adopt régtlations. {though the Wherry Act ‘had directed |

the FHA to adopt regulations), ard subsequent failure to

implement even its own policy” of granting reasonz ble

increasés. ;

'* See supra, p: 10; footnote. . While. the increased costs would

‘have had ‘io be established, there is no stich problem here, for the

triak court found the reasonable cost of constructiori to be $9,290,000,

though the original estimated cost was $7,413,452.

. “

f increased. °

20.

« .

; If the rentals existent im the projects were not in fact

fair at the day of the taking—and*the Govertiment experts

admitted they did not provide a fair return (78a-74a, 287a- .

‘,288a)*—it is manifest that’ any condemnation award based

‘upon ‘a capitthization of such unfair rents is-per-se tinfair

and therefore cannot eyual juste compensation, Though

this would seem axiomatic, it is of course reinforeed by:

the cases. . J). If ine reases ‘should have beet granted, then

the past rentals were “nl significant, for. Past [rentals f.

are significant only whien: they tend to retleet future -re-

turns.’’ United States v.Toroute Nar. Co. .. 888 U.S. 397,

$03. 2) In United Stites v. Commadities C Corp., supra, it~

was ruled that special hardship or‘unfairness in a particu-

lar case arising from prige controk ‘should he considered in .

— determining: just. compertation. Here, the failure of F..H.

A. to exercise its dut®of fixing fair rentals clearly resulted |

in unfairness-and hardslip tope titioners, “3) Tha Govern. |.

“ment may not: unfairly and illegally fix reiits and then have

such rents used as ih hasis for aseertaining just compensa-

Pe _ tion. “This gots too far, PAs this, ‘ourt stated (per: Holmes,

“3h, The general rule ‘at least-is, that whtie property. may

- be regulated to a certain extent, if regulation, goes too far

it will be recognized as a taking.’* Pe nnsylvania Coal Co.

v. Vahon, 260. U.S, 393, 445." ‘Here, the failure to eyen con. |

sider petftioners’ application’ for rental increase not only

deprived petitioners of their right to receive. fair rents

before the taking, -hut-—volne umcorreeted by the courts

~ below—resulted’in a capitalization based upon illegal and

unfair reits.

5 " ° * . . s +

_ .

& lnited Statesv. Powel son, supra, 319 U.S, at 284: “The

“4 * United States no mote than a state can be exensed from paying just

/ @. . compeysation measured by the value of the property at the time of the

taking ‘merely because it could destroy that valhe through appropriate

. -. egish: ition or reguiation.” my

Sm LE, ME REE mse NENW metre ha POLI OC OT

7°

al’

31 |

V.. The United States did not attempt to condemn

an interest “subject to a mortgage”. But in any event

'-the United States may not condemn a non-existent

property interest, nor does just compensation consist in |

making, an award for an interest in land minus the

amount of the mortgage, leaving the condemnee liable

- for payment, The decision contra, below, was in a way

in conflict with applicable decisions of this Court.

So far as we: are aware, this case presents the first

-instance in which it has been held that the United States

may condemn an ‘interest in real estate’? whiche is an

‘iftterest unknown to the state whose law creates the real -

estate interests. ‘Fhe questions arising from such a pur-

ported taking have grave implications not merely: for the |

‘taking of Wherry projects (or other projects financed with

large F.-H. A.-insured mortgages) but for all condemnation

cases, :

A) The interest taken. The Court below. ruled that

there here’ was a taking of- a leasehold. subject ‘to a

_tnortgage, but to do so it had to discayd the following

ie italigized language of the declaration: that the taking was

subject to’ the interest arising out of the specified mortgage.

‘Dhe-s interest arising out of the UWlinois mortgage. is, of

course, merely a lien {Swanson v. United States, 156 F. 2d

442 (9th Cir., +1946), cert. den. sub. nom. Spokane Portland

* Cement Cov. Swanson, 329 U.S. 800], Illinois: being a lien

. theory state (19A). We wibmit that-the phrase must there-

fore have been used as a description of the ownership of the

defendants: under the laws of Illinois, indicating merely

that the leasehold ‘interest was subject to. the lien of the

-mortgage, which would in no way whatsoever diminish the

ieasehold interest. If the government were to be substitut-

jng-its ownership for that. of petitioners by the taking, as

is the general. rule,*” then the phrase would have precisely

such meaning. We contend that refererice to the notice of

condemnation shows that it has that meaning, the notice

-of condemnation purporting te condemn an estate im fee

simple and so characterizing the interest.

B. The ruling below thatdhe government may condemn

_ a non-existent interest in réal estate and leave the con-

demneée liable-for the mortgage debt without eompensating

him therefor, was a ruling ina way in conflict with applica-

ble decistous of this Court. This for several reasons.

First, as this Court has stated, ‘*The constitutional

provision’ [of eminent domain] is addressed to every sort

of interest the citizen may possess.”’ United States v.

General Motors C orp.. 323 U. 8.373, 378. This is the first

case in which a court bas held that the Government may

take an interest which the citizen may not possess. And

‘ the type of interest which a citizen may possess is deter-

‘ mined by state, not federal, law,?"| No one. in Filinots could

possess the interest which the Court below ruled wads taken.

Secondly, the Court below ruled that the definition of

the interest-taken is to be made entirely without reference

to local law.. This would seem to be in direet confliet with,

the following (lnited States v,.Powelsou, 319 U.S. 266,

279): .

‘power of eminent domain i is ‘comple te in itself’ cand

“When the’ sovereign exercises the power of eminent heiite,

It sideidiiaaaestiedtl in relation to the physical thing in question in

place of him who formerly bore the. relation to that thing, which

we denominate ow nership.” United States v. General Motors Corp..

323 U.S. 373, 328. bens

| &F The Court! below held that “federal law * * * governs” (8A).

tut we know of aig federal law of real property. Since if it existed

at would be substantive. law rather than procedural, it wotuld not

apply under the éamiliar principle of E#te Railroad Co. v. Tompkins:

304 U.S. G4. °

-— ‘The right of the United States to exercise the .

33 - : ee

‘can neither be enlarged nor ¢liminished w a ‘State.’

" * * Though the meaning of “nroperti’ as used

in * * * the Fifth Amendment is a federal question,

it will tormalles obtain its content by reference to

local law.”’ (Emphasis added.)

-Thirdiy, the vice of, the, decision below is that it

takes the leasehold interest, and yet would have left the

“«endemnee personally liabie for the payment of the mort-_

gage note. If the mortgagee had elected to sue the eon-

demnee for the amount of the note; there would not he any.

way in which the condemneé could obtain freedom from

liability, so far as we are‘aware. What the government

did, then, was to divide the property inte non-existent

interesty in order to avoid full payment of just compensa-

tion. But as tais Court said in United States v. General

Motors Corp., supra, 323 U.S. at 382: |

“Tt is altogether aticther matter ‘whet the-gov-

ernment does not take his entire interest, but by the.

form of its proeseding chops it into bits, of which

it takes only what.it wants, however. few or.minuté,

and leaves him holding the remainder, : which may

- then-be altogether useless to hint “* *. This: is

~ neither the ‘taking’ nor the ‘just compensation’ the

Fifth Amendment ‘contemplates.’

*In.the-case at bar, ‘the government did not me ‘rely take a

‘“Sninute bit-of the interest, leaving the-condemnee holding

‘the remainder, but left the condemnee holding a liability for

a large sum.?? Just compensation does nat consist of sub!

. jecting the condemnee to. an additional liability. ‘* This, is

neither the ‘taking’ nor the ‘just compensation’ the Fifth |

Amendment contemplates’ *. Ibid. : 2E ens

The reasoning of the _C ourt below, reaching a contrary

_conclusion, raises other serious .problems in. federal con-

=? The balanwee of the acaasalicy inortgage indebtedness was

over $6,000,000 ; the cash above the Moraes under the award

was the sum of $954,000. :

stitutional law. . Thus, while it agrees that, under Swanson

y. United States, supra, the extent of the titlé-of one

condemnee as opposed to another is. detérmined by local

‘law even When the dispute arises in the course of federal

condemnation proceedings, it holds such ‘is not the case

when a ‘‘direet federal. interest’ is ‘‘involved’’. Butea.

‘direct federal interest’? is ‘‘involved’’ in every federal

condemnation case: This curious proposition announced .

below would necessarily result in the untenable paradox

that the federat condemnation results in one sct-of rights

in a dispute between mortgagor and mortgagee determined

by: ‘*federal law’* when ‘the condemnor is a party, while state

law yields another set of different rights between mort-

gagor and mortgagee when the condemnor is not a party.

Confusion is compounded upon the taking, too, for the

-condemnor then is in the mortgagor’s shoes (see p. 24,

supra)—and which set of rights governs then?

We ‘contended’ below that, as ‘the, District Court had

held,’ state law should apply under: that section of the

’ Wherry Act, which provides that ‘*(a) the term ‘mortgage’

. Means a first mortgage on real estate, in fee" simple, or on”

a leasehold * * * and the termi ‘first mortgage’ means such

classes of first ! lien as are commonly given * *\* under the

laws of the State iti which the real estate is'‘loested * * *%."’

-The Court below rejected our argument on the purported

authority of Unité! States ». View Crest Garden Apts.,

Tne., 268 F. 2d 380 (9th Cir., 1959), where the Ninth Cireuit

‘held that federal law determines whether a receiver should

be appointed. But View Crest clearly stated that it is state

definitions of mortgage liens whieh control, net federal law,

noting that a different set of factors came into play after

the mortgage agreement was terminated .w here the only -

situation presented was one of remedies, where federal

law. applies. ”

28 This of ee is all that was held by.this Court in Unitéd States

v. 93.970 Acres of Land, 360 U. S. 328, so heavily-retied on below.

The court below next relied on Congressional intent

found from the Capehart Act reference to housing ‘‘ac-

quired,”’ in which case the Government may. pay the mort-

gage. It held that ‘*Since this is not limited to situations

where there is a purchase, this would Seem to imply an intent

that-the goverfumeni can condemn a leasehold, subject to a

‘mortgage.”’ (Emphasis the Court’s.)** But the Court failed

to note that subseetion (¢) provides that **concemnation pro-

ceedings instituted pursuant to this seetion shall’ be con-

‘dueted in accordance with the provisions of seetion 207

of Title 40, or any other applicable federal statute.’” And

it further ignored Section SUL (d) of the Wherry Act (quoted

infra at 27A), providing that the mortgagee may upon

condemnatiow elect to receive the benefits of the mortgage

insurance—which he of votrse could not do if the Govern-

ment tould assume the mortgage obligation. ;

We suggest that a thore explicit Congressional intent

would have to appear before the Congress could be held to

have authorized the taking of a non-existent real estate

interest, at variance with centuries of custom and practice.

“It should also be noted that the condemnation in the case .

at bar was, among other statutes, pursuant to 40 U.S. C.

—

“4 The court. below did. not note in, this conriection that, even if

the Government could have paid the note ‘upon the .taking, it did

not do so. Ite was many months after the taking before the Govern-

ment secured a release of the mortgagor from-the mortgagee (350a-

5la).: The Government then also purported to assume the liability

on the mortgages, after petitioners had been liable on taem for several

months., “Even assuming that it could. asstime the mortgage without

the mortgagor's consent. the time hiatus shows that .just’ compensa-

tion was lacking, for “the owner is entitled to reasonable, certain

and adeguate provision for obtaining conmpensation before his octu-

pancy is disturbed.” Cherphee Nation vw Southérn Kansas R. Co.-

135 U. S.°641, 659. Here there was no certainty at all, at the time

of the taking, that petitioners would be released from the mortgage

obligations. Thus, no matter what the declaration purported te con-—

demn, it was'the gntire leasehold interest that was taken. Cf. United

States v. Causby, 328 U.S. 256. .

"> -

36 —_ me

* “~" §258a. But this section provides that **The Court shall

have power to make such orderg in respect of encumbrances; °

liens, * * * as shall be just and equitable.’’. Of course, the

rg, of the Court below renders nugatory the effeet of

258(a), for if the Government may carve out an interest

’ <a to a lien, the lien is not a part of the-condemnation

proceeding, and the Court weuld hot -have any power: what-.

svever to make an order i in respect thereof discharging the

lien-—the very order the Government here sought. But if,

on the other hand, there would still be some power in the

Court to make an order in respect of-liens, even without”

the lienor before it, its only power would-be to make such

orders ‘‘as shall be just and equitable’ ‘and it seems clear

that an order preseribing the takitre of property, while

leaving the condemnee liable on the mortgage, is not a just .

and equitale order.*® | a

°°

CONCLUSION

The petition for certiorari should be granted.

? Respectfully submitted, wae:

SAMUEL GOLDSTEIN,

M. Rosert Goupstern,

s Artuver D. Goipstery,

: - “Attorneys for Petitioners.

Hersert Monte Levy,

of Counsel, : “e

“3 As the, Court below feted, the Gottrnment contends that the

practical effect of acceptance of our oo would be an. additiona!

“$148,000 to petitioners, which the Government terms a “windfall”.

‘However, had the Government initially deposited in Court a reason

able sum instead of its estimated condemnation award of $2.00 (2a),

the problem discussed. supra would never bave arisens If it be

“windfall”, it 4s entirely of the Governmem’s own making.

_ eo ee ae. Se). ae

1A -

«) : ee

Appendix A :

(Opinions of the United States Court of Appeals

for ba Seventh Circuit)

Before |

HAsTiNus, Chact Judqe, \

: \

Parkenson and Casite, Circuit Judges.

Hastinds, Chief Judge, j

“ This action Was brought DY thes U nited States fo con-

demn ‘defendants’ interests in‘ two so-called **W herry’ 1

housigg projects located outhe Chanute Air-Foree Base at. -

Rantoul, 'linvis, subject to the interests of-the mortgagees.

The distriet court awarded $7,100,000 as just compe nsation.

In No. 12497, defendants. appellants appeal from the sut-

ficieney of the amount awarded, asserting: errors: in’ the

measure of just COMpenszAwOn adopted, in the admission of

certain valuation ¢\ vidence and in conclusions of law. In

No, 1: 2498, the plaintiff appeGant appeals from rulings with

respect to the interests being acquired, the law applicable

to this federal eminent domain proceeding and from other

conclusions ef law by the district court, all directed, not

to the valuation issue, but to the qnestion whether: the.

United Siates was empowered to condemn defendants’ in-

terests subject to outstamling mortwages.-

There were two housing projects built by Jonathan

Woodner,Company as sponsor and organizer of defend-

ant corporations, Defendant Chanute Garder Is Corpora-

— oe -

“WV eves Act”, 12 U. Se GC. AL § 1748 et seq,

2 The opinion “ot the district court 8 reported at 165 F.Supp.

174 and contains findings of facet, conchistons ot law, various provi-

sions of the pertinent leases aid_a fesutne of the evidence taken in

this case. In the interest oi Drevity, these will not be set out in detail

here and reference is made fo Chief Judge [Matt's opinion. for such

matter: G }

as a 2A "

ts ¥ -

tion is the owner of. -Chanute Gardens (apartments for

non- -commissioned officers) and ¢ ‘hanute Apartments Cor-

poration is the owner of Chanute Apartments (apartments

for commissioned officers).* It was stipulated that con.

struction. begau on February 1, 161 and was completed

in Mareh, 1953, at a cost to the builder of $8,297 969.25,

exclusive of builder's and architect.’s fees, and trial by «. °

_ jury was waived.

The land on which the projects were erected’ (69 acres

for Chanute Gardens ane 27 aeres for» Chanute “Apart-

ments):-was owned by the United States and Téased by the

‘Secretary of the Air Force to the defendant corporations

for a period of 75 years at a nominal annual rental, *‘to

be used for the purpose of erecting, maintaining and op-

erating a housing’ project.’") Among other things, tlie

'- Jeases provided that the premises be leased to persorinel

designated by the Air Force; set out the method of: de-

termining rental rates; required the lessees to pay any

local taxes levied upon the leaseholds; prohibited any

assignment without. Air Foree consent; specified that. thie

buildings and improvements as erected and completed

. become ‘‘real estate and part of the leased Tands, and:

public buildings of the United States ;’” and stated that

‘upon the expiration of this lease, or earlier termination,

all improvements made upon the leased premises. shall

_remain the property of the Government without compen: .

‘ sation,’’ except as to certain utility facilities. °

The declaration of. taking was filed May 1, 1957, and

on‘that date each leasehold was encumbered by a mort-

gage owned by the New York State Employee’s Retire--

ment Systera and guaranteed by the * Federal Housing

‘Administration. There way also an outstanding loan made

by the Air Force to the builder to enable ‘it to ‘complete

‘the projects. It was stipulated. that as of May 1, 1957,

there was a total balance due on the mortgages of $6,145,

694.31, and a balance due on the Air Force loan of $410,-

771.26, subject to atiy credits and offsets in favor of de fend.

ants.

3A o .

No.. 12497 ‘a ® he

The ‘court viewed the premises and heard’ evidence in-

troduced by, both parties. on the issue ‘of just comperisa-

~ tion, Fn atidition there was a stipulation of certain uncon-,

~troverted facts. There was no evidence of comparable sales.

* After reviewing the evidence ou the various factors found .

by the court tobe re evant to just “compensation (see the

memorandum opinion referred to in footnote 1), the trial

court found that the reasorable coustruction cost of the two

projects’ was approximately’ $8,200,600, w ithout builder’s

and-architeet’s tees; and that the: fair cash. market value’

pbased on capitalization of vents was about $6,950,006. The

court then finally foundsthat ‘*based upon the: competent

evidence and the view of: the premises, that the defendants

as uwners of the ‘ aschold interests are-t™ititled to just

compensation as’ May 1,. 1497, in the amount, of

~ $7,100,000, °" and Racist was entered accordingly, the

award to include the amounts due on the mortgages ane

the Air Force loan aud to bear interest-at the rate of 6%

rr ided J ju the Declaration of Taking Act, 40 U.S.C.A.

\ vo8a. s

Defendants: contend that the sniiiaa slinuid be .re-

versed and a mandate issued. directing judgment based

on a proper finding of re production cost less de ‘preciation

in the sum of $9,190,000 as established by thei ‘it evidence.

The government mikes no complaint ax to the amount of:

- the award of $7,100,000 iisotar. as the district. court adopted

fair market value as the measure of just compensation.

We have carefully conside ‘ved the several rulings of the

trial court with reference ‘to the evidence and find no

prejudicial error. We hold’ that there is more than ampie

competent evidence to supports the award of $7,100,000.

We are not required to guess or speculate on how the dis

‘ triet court, arrived at this final figurec Where there is

no evidende of comparable sales it has been aptly said:

vise assessment of market valuy involves the use of

ee ae

os ‘acme

assumptions, which make it unlikely that the. appraisal

will ‘reflect true.value With nieety * * * Land, that this}

involves, at best, a guess by) infermed persons."? United

States v. Miller, 317 U.S. ee (1943). ( Emphasi»

added. ) | - 3 “

It is well settled that: in Zondernation preecedings | the

award of just compensation ‘‘should be measured: in vari-

ous ways depending upon the cireumstances of such case

and that no general.formula should be used for the pu?-

pose’’, the courts retaining the concept of market value as

a practical. standard.’ United States v. Miller, supra, at

pages 373-374. Or, as it has been more concisely stated;

it is ‘*market value fairly det ermined, we Olson v. United

States, 292°U.S. 246, 255 (1934)... 3

Defendants’ contention tliat. the district court should

be confined to a consideration of reproduction cost less

depreciation is not well taken i in this ease, and such method |

generally is held to be one of the least reliable indicia

of market value. United States w. 49,375 Square Feet of

Land, etc., D.CS.D. N. Y., 92 F. Supp. 384,- 388 (1950), - |

aflirmed United States v. Tishman Realty & Const. Co.;

2 Cir, 193 F. 2d 180 (1952), cert. denied, 343 U.S. 928.

We are not satisfied that the property interest taken in

We have carefully examined defendants’ many arguments

‘to the contrary and the cases on which they seek to rely

and do not find them to be controlling here. _

Much hasbeen written on the subjeet of ‘‘just compen-

‘ sation’’. and the eases are legion giving various expressions

as*to how it should be determined. In‘the final analysis,

however, when the condemnee has been awarded just com-

pensation based on market value fairly determined, hav-

ing regard fdr the various factors dictated by the cireum-

‘ stances of each particular case, he may be said to have

been made whole.

We-hold that the district court, in its finding of just

compensation in the amount of $7,100,000, did not err ix

‘ \e

‘

- this case is so unique as to take it outside the general rule. -

Peers

a a rt ee

Nits interpretation of the evidence and its findings based *

thereon and that it applicd the correct legal criteria in...

*-sv doing. As to. the appeal in No. 12497 the judgment is |.

AFFIRMED.

; No. 12498. ~

AN :

In its declatation of tabind the.gov ernment specifically

condemned all right, title and interest .cf defendants ‘in ~

each of the leascholds, subject to each mortgage. _ The

distriet court held, in effect, that state law (Illinois). ap-

plies to the definition, ot the property interest. the’ gov-

ernment can condemn; that @ leasehold interest subject

/to a mortgage is not a recognized legal estate in Illinois,

since in [llimois a mortgage®* has only a lien and not a

vested interest in the Jeasehdld ;;and that the entire lease-

hold must be condemned, including’ the interest of the.

Inortgagee, and the lien of the: morigagee to be transferred _

to the award, This holding=is the subject of the counter- °

tppeal by the United States in No, T2498, the government’s

‘ contention being that federal and. not state law equtrols.:

The contested issue is whether the féderal government

can, under its power of eminent domain, and more spe-

cifieally under its pag to condemn ‘military housing

‘pursuant to 42 U.S.C.A. § 1594a, condemn. a leasehold in-

terest subject to a mortgage, ‘a property interest unknown

to the law of Illinois:

The practical effeet of the hol ling. of the distriet court

is to grant to defendant. 3‘ intere st on the amount of* the

award for the period from.May 1, 1957, the, date ‘of tak-

ing, to July 15, 1958, the date of- payment of the judgement.

This results, so the government contends, in a ‘windfall”’

-to defendants of approximately $148,843.57, which ‘ts 20%

interest for this period on the amount, of the mortgages

(the difference between the 4% interest’ payable under the

terms of the motions es and the 6 interest payable under

the Deelaration of Taking Act). °°

‘The govertiment sought to prevent’ this by filing a

motion for an order declaring the’ judgment satisfied, in

which. motion it recited, “iiffer alia, the facts concerning

the mortgages and the balanee due on the Air Foree,loan,

deposits made by the government, and the government’s

position that defendanf& ‘thave neither in law nor jn faet

any right to the amount representing the unpaid balance

of the Said mortgages nor any vight to interest on the por-

tion of the award equivalent to the unpaid’ balance on said

mortgages.”? The government’s motion was denied by

the district court in its order entered on July 17, 1958.

The district court reasoned “that <its holding was dic-

tated’ because Tlinois is alien theory state. and state law

gaverns, citing Swanson vy. ‘nited’ States, 9, Cir, 156 F.

2d 442, 447 (1946), 170 A.LAR. 258, cert. denied, Spokane

Portland Cement Cow-v. Sie Anson, 329 U.S. 800, for the’.

proposition that : the mortgagee’ s rights are determined.

by state law. We think the district court's rolianee on

Swanson is misplaced. In that ease, the’ dispute was be-

tween the mortgagor and the mortgagee as to their re-

spective rights, and the court properly held that: the extent

of the title or right of one condemnee. as opposed to an-.

other coridemnee is determined by local law whef?. such

a dispute arises in the cotmrse of federal condemnation pro-

ceedings. No direct federa! interest: was involved., In

_ the ease beforg us .here we have an entirely different ques-

tion presented. There is no’ dispute here between defend:

ants and the-mortgagees, the latter mot even being parties

to'this proceeding. The sole issue is whether the United

States has the power to condemn only the interests of*

defendants and’ te exclude the rights of others not made

parties.

The district court s vodeata’ the covernment ’s contention

that it has Tegal authority to condemn the interest wih.

S nti e TA e )

Sect to the Invrtgage by virtue of 423 U.S.C re <4: 94a. We.

agree that a literal reading of the statute ics not reveal

any such express authorization. . Nor do we find any such

specitic authority inthe original Housing Amendments of

1955, 69 Stat. Gd2. yow codified into. Section 1o94a. ° Hoéw-

ever, it should be

state laws applicable. Besa oyy!

Defendants contémi that state law: should ‘apply by

citings Seetion 1707, 12 U.S.C.A,, ihe original Wherry Act,

which provides that ‘*(a).'The term. ‘mortgage’ means at

firs’ mortgage on real estate, in fee simple, or ‘on a lease-

‘hold * * * and the term ‘first mortgage’ means such classes

of first‘liens as are commoniy given * * “eunder the laws

of the State in which the real estate is located ore fs

The argument that: this section, per se ineorporates

state law on all issues of law was rejected ine Unated St Slates

. View Crest Garden Apts., Inc., 9 Civ, 268 F.2d 380—

(1989), In that case, there was a wath as to whether

state law or federal law applied with. reference to thé ap--

pointmeént of-a receiver in an action to foreclose an‘ FHA,

mortgage. In construing Section 1767 of 12 U.S.C.A., the

Ninth Circuit found that, it, a¢eepted and incorporated .

~ some of the incidences of state definition of, mortgages, :

but thet it was not Congressional intent to. iricérporate

all state laws. The court held that federal law controls

in such a situation-and re ‘manded the case for a determina-

“tion as a metter of federal daw whether the: faets war-

_ ranted the appointment of a recelyer, — + A

There is some indieation of ¢ AEE ‘intent from

the statute under whic +h this action is brought. Subsee-

tions (e), (ft) and (&) of 42 © BCA, 94a," ¥efer to hous-

inky aequired under this seetion and provide that. the Lov-

Se ernment may thereupon rent the property, py ‘the mort-

gage, insurance and other charges: and expenses, Since

this-is not Jimited to situations Whe Te the re is a purchase,

\ @~

winted out that nowhere in the statute

under scrutiny does Congress expressly choose to make

° -SA , -

» * xe

this would seenry to imply an intent’that the government 4

ean condemn a leascholil subject to va mortgage. . Suen is

“the express holding of another distriet court in United

States v. Certain Interests in Property i Macaml County,

Michigan, Selfridge Apartments, Inc., et al., Civil No.

- 17772, E.D. Mich. So. Div., (July 18, 1958).8

Finally, in. our- opinion, tha Supreme Court of the

United States in a recent opiniet: has made,it abundantly

clear that federal law rather than state law ‘governs in

federal eminent domain eases. United States v.° 93.970

Acres vf Land, 360 U'S. 328 (1959). -In that case, the

government revoked a ‘lease pursuant te the terms of the

lease itself, but rather than lifigate. the question of its

‘right to such revocation, in order to avoid delay, it also

condemned whatever interest the lessee might retain.

‘Under Illinois law,. the owner of the leasého}d- claimed

that the condemnation. proce éding was an elettion of rem-

edies and that thereby the government must ‘abandon.

its revocation’ and that this- was an implied recognition

that certain property was retained by the lessee fer which

it would be entitled. to just compepsation. -This cireuit,

in 258 F. 2d 17, 24 (1958), -with.one judge dissenting, did

not pass upon the question of .hether state or federal

law applies in federal condemnation pregeedings as to

election of remedies, deciding that both federal and state

law compeiled such an election hy the government in that

ease. The Supreme Court reversed, holding as a matter

of federal law that there need be no election and: that

staté law did

Black, 360 U.S. a page 332, is signifieant :

: _ “Respondents arene, however, that lection of

Dea remedies is part of the law of Llinois and that 1H.

§ The.memorandum « pmo of this district court does not appear

-to have been reported act is Set out as an appc ie to the govern-

ment’ s reply brief.,

t control, The lanenave of Mr. Justice «

> «

setae aetna te

stp tens ©

;

©}

es, |

Rens AE

nois law applies here, We cannet agree with this -

view. Condemnation involves essential covernmental

functions. See! Kohl vy. United States, 91 U.S. 367.

We have eften held thattwhere essential interests of

the Federal Goeernment are conterned, federal law.

rules unless Congress chooses to make state laws

: applicable. It is apparent that no such choice has

been availe here. (Footnotes omitted, y

‘ Ceniliiaation babar “a essential svetiinuibel fune-

tiom and Congress hot having chosen te make. state law

appheable, ty the definition of ‘property interests con-

de med by the governnient, if follows that the United

' States is: not limited to condetination in terms known to.

the state, but rather mi iw define sueh inte rests in terms of

seder 1! law.

’ We hold, therefore, that the United States can con-

demn a leasehold interest subject to an existing mortgage .

‘jen thereon, and that the distriet court erred in applying:

"linei? law to the contrary.

It is Ordered that, that. part of the judgnient of ‘the.

ilistrict court entered in this aetion on sune 25, 1958,

which ineludes the amounts due on the mortgages ‘and

interest thereon, and the further order of the district court

entered in this action on July 17, 1! 58, denying the motion. —

of the U nited States for an are r declaging the judement

satisfied, bt reversed, atl tha# this cause be remanded to

the district for the entry of judgement ane such further

proceedings as may be necessary not inconsistent with this

inion, [Tt is furthen ordered that, consistent with our.

holding in No. 12497, the valuation of defendants’ interests:

ay determined by the district court be not disturbed.

JOA

. Appendix B a .

(Opinion of United tee District Court, ie the

. Eastern District of Illinois).

This is a condemnation suit duiy instituted by the

United States to take two housing projects ereeted ander

the provisions pf:the ** Wherry Act’, 12 U.S.C. A. § 1748"

et seq, upon Chanute Air Foree Base at Rantoul, Llinois.

The declaration of taking was filed on May. £7 TY57.— One

project, known as ‘se Chanute Gardens, consists of apart-

. ments for non-commissioned officers and is owned by the

. defendant, Chanute Gardens Corporation. -The other

project,-known as the ¢ ‘hanute Apartments, contains apart

ments for commissioned officers and is owned by the es |

ferdant, Chanute ‘Apartme nts Corporation. Both projects

were, built by-the Jonathan Woodner Company, who was

the sponsor of the projects and the organizer of the de- 2

fendant corporations. It was stipulated that the construe-.

‘tion started on or-about February 1, 1951, and that the

projects were completed in Mareh, 1953; that a jury would

be Waived and the cause submitted to the court to det ter-

min just compensation in the aggregate tor the two proj-

ects} that the — cost_to Jonathan Woodner Company —

was 288,297, 969.23, exclusive of builder's and archiieet*s

fees, and that the court would view the premises.. It was

further stipulated that as of May 1, 1957\ there was a need

for an additional 450 units of military hosing at Chanute

Air Force Base.

The court has viewed the preniises and ex zamined the .

interior of two five-room’apartnients inyeach project and

one six-room apartment. in Chanvte Apartments. The two

projects are similar in outward appearance and construe-

tion. The Chanute Gardens. consists of 12 storage sand

maintenanee ‘buildings and 102 buiidings containing 378

five-room apartments, eack with SI% square feet, and 224

six-reom apartments containing 1050. square feet. The

ThA

Chanute Apartments consists of 5 separate stqrage and

, maintenance buildings and 37 baildings.containing 120 five-

“room apartments each with 922 square /eet, and 78 six-room

apartments cach containing 1050 square: feet, Some of the

storage aud maintenance buildings have laundry facilities.

The construction is wood frame with brick veneer fac-

ingen the first floor frout®and street: side, and asbestos -

shitigles covering the coniposition sheeting on: the wood

frame elsewhere. ‘The foundation is concrete block, The

apartments are heated by a forced warm-air heating sys-

tem, from a was fired furnace ‘in each unit located in ar

eticlosed closet in the kiteffen. . Hach unit “has individual

let water hoaters. ‘The first floor is about two feet above

tee ground surface. ‘The floors are plywood placed on?

2” x 8” floor joists and covered’ with asphalt tile. There

are -sliding metal door closets in the bedrooms, and one

guest closet with sliding doof on the fitst floor, The win-

dows are steel casement and sash. The walls aré one-half

inch dry wall finish with the seams taped. Each apartment ,

has a bath with ‘*tylac!’ lining around the bathtub. All

of the apartments are painted, have front and rear en-

trances and inside doors on the bedrooms. The first floor

in each apartment contains a living room, dining room and

kitchen, -The bedroonis are loeated on the second floor.

‘Gable roofs are covered with asphalt shingles:

Land improy%ments inelnde cireular streets with asphalt

surtace and te necessary se wage, water, electric and gas

comnections ;

“The grfand consisting of some 69 acres for the Chanute

GardenSand 27 acres for the ‘hanute. Apartments (the,

legal Zescription appears in the leases), was leased by the

. Sperttary of the Air Force ty the corporation fora ‘period

“ol 7 years, at an annual rental of $100.00 for ‘Chanute

Giirdens and $110.00 tor ¢ ‘hanute Apartments, ‘to be used

forthe purpose of erecting, maintaining and operating-a

housing project’. ie

rwre 4

The jeases provided that the premises should be leased

to military and civilian personnel designated by the Com-

manding Officer of the Chanute Air Force Base, provided

thfat it. might be leased to others after 30 days -vaeancy.

The Commanding Officer was’ also giv en the privilege to

replace nen- military occupants.

Paragraph 4 of the leases prov ided:.

‘*That if at any time. during the term,of this lain :

there is no mortgage insured under the National’

Housing Act covering the interest of the Lessee atid

the leased premises are not under the control of the

Commissioner, the rental! rates for leases granted. in

serene with Condition 3-shall be such rates as

are agrevd upon from time to time by the said Com-

manding Officer and the Lessee, provided, however,

that, in case this lease shall be acquired by the Com-

niissioner and. subsequently’ assigned or sold, the

rents: shall not be reduced below t e schedule of

rents then in e flec} without the consent of, the then

owner and holder of the leasehold intérest.’ ig

Paragraph 18 of the leases provided:

“That except as otherwise specifically provided

in this | leasé, all disputes concerning questions of

fact or establishment of: rental ratés or standards

of maintenance and repair after there is no nortgage”

- held or insured by the Federal Housing Administra:

tion on the property and the leased premises are

not under the control of the Commissioner, ‘which

may arise ‘under this lease, and which are not dis- -

posed of by mutual agreement, shall -be deecidéd by

the said Commanding Officer, who shall reduce his

decision .to writing and mail a copy thereof to the’

hessee at its address shown herein,, Within thirty.

(30) days from said mailing the Lessee may appeal.

to the Secretary of the Air Foree,, whose written

decision or that of his designated representative or

represe ntatives or board, shall be final and conclu. —

- sive upon the parties herete. Pending decision of a

‘dispute hereunder, the Lessee shall proceed with the.

performance of this lease and in accordance with the

Commanding Officer's decision, The provisions of

this paragraph shal! not be deemed to limit the pre-.

visions of ¢ ‘ondition 4-of this-lease with respect to

rents.’’

~The leases further prov ided that ‘no assigument could

be made" without the Air Force consent, and that any local

taxes levied upon the lease holds) would be paid by the

lessees. Also upon termination of the leases the buildings

and improvements were’ to remain the property of the

' Government without compensation.

As of May 1, 1957, each leasehold was encumbered by

a mortgage held by the New York State Employee's Re-

tirement Systen, and guaranteed bythe Federal Housing

Adininistration. There was also outstanding’a loan to the

‘defendants from the Air Foree to complete the projects.

At the start of the trial it was stipulated that as of May 1,

1957, there was a total balance due on the mortgages of -

-$6,145,694.31, and a “balance due on the Air Force lean of

1 Such: leaseholds are taxable.” Offutt ‘Housing Co. v, Sarpy ;

* County 351° U.S. 253 (1956). But see P. L. ey § 511 (Aug. 7,

1956) in 42 U. S. C. A. $1594 (note?,-and U. S. Code Congres-

_ sional Service, Vol. -p. 1315, 84th Cong.. 2d ne ss. (1956).

Defendants seared m evidence without .objectian the decree of

. the Circuit Court of Champaign County, Illinois, dated May 22, 1957,

in a suit by the defendants against the Board of Review of Cham-

paign “County, Ilinois, et al, The decree fixed the amount of the

taxes payable to the County ‘of Chatmpaign and its political sub-

divisions, for all assessments-from the beginning of the “Wherry”

projects to the date of the decree, and enjoined further assessment

of taxes’ on the ground, that, the United States Government had paid

large sums to local authorities’ which were found to “be set-offs

against future taxes under P. L. 1020, ibid.

14A

$410,771.26, wiibeal: to any credits end otfseis which the

defendants might have.

The Government presented two real estate. appraisers —

as witnesses. Mr. Walter Kuehnle, an experienced ap-

praiser, testified that, in kis opinion, the market value of

- the defendants’ interest in the leasehold, which he termed

their ‘‘equity’’, as of May 1, 1957, subject to’ the mortgages

but not the Air Force loan, was $360,000.00, for the Gardens

and $250,000.00 for the Apartments, for a total af $610,-

000.00. He defined market value as ** what a willing ptr-

chaser not forced to buy wiil pay to a willing seller not

‘forced to sell, both familiar with the property and ‘the con-

ditions.’’ In reaching his eonelusion- Kuehnle studied, .

among other things, the community off-the- base to, deter--

mine the economic rental potential, and the terms. and

restrictions of ‘the mortgages and: the Air Foree leases.

He determined that the maximum net rental income was

limited to $321,515.00 for the Gardens and $119,370.00 for

the Apartments. He baked this upon his consideration of

the FHA directives and {he original project analyses com-

piled by the FHA whie +h\ purported to limit the net rental

— return to 614% of the original estimated construction cost.”

-Kuehnle also considered: the audits of rents ‘and expenses |

for the years 1953 through 1956, raising dnd lowering vari-

f our items which he thought justified according to his knowl-

| edge and | experience in the management of such rental prop-

.erty, He noted an increas¢ i in monthly rentals for |\Chanute

Gardens of $8.60 per apaytme nt granféd in June, 1954,

and a flat monthly charge of $8.40 per -apartment| in each

project to cover the cost: of cooking gas and electricity,

which were not provided for in the original project an--.

alyses. Kuehnle believed this property to be investment

property, and_ noted ihat the typical purchaser of.such real

estate resorts ‘to financing. | Finding: that the cost of the

2 There was evidence ‘that de had made several other’

requests for .rental increases, which were not allowed.

i = | : |

(ape

| IDA

‘ tration was 4% plus !2% required=for, the payment ot

mortgages g oe by the Federal Housing Adminis-

mortgage insurance, he t testified that, in his opinion, these

mortgages were qui ite Favorable, “considering ‘prevailing

niortgage interest rates as of *May 1, 1957, and that if the . .

properties were free and*clear-of these mortgages the value’

of the premises would be less. Kuehnle valued the: proj-

ects accorditg to capitalization of prospective income and

replacement. vatuch His’opinion was that reproduction cost

less depreciationt of $635,008.00 amounted to $8;733,561.00 —

on May 1, 1957. He estimated the remaining useful life

of the projects at 37 years. Kuchnie rejected net replace-

“ment-cost.as- represe uting the fair cash niarket value for

the reason that the income produced was not sufficient to

justify -it. He determined that prospective net, income,

after payment, of ‘mortgage ,principal and insurance but

before depreciation allowance, would amount to $35, 164.00

for Chanute Gardens and $35,199.00 for Chanute Apart- .

ments.’ In capitalizing this income, Kuehnle estimated that

a willing purchaser would require a 15.4% yield on Chanute

Gardens and a.14.3% yigld on C ‘hanute’ Apartments,. and

therefore- multiplied the prospective income of the Gardens

by 6.5- ‘and, of the Apartments by 7.4 to arrive at market

value. Kuehnle referred to the sale of an apartment build-

ing in St. Louis, Missouri, in. July, 1957, and to the -sale

of a housing project at Fort Devins, Massachusetts, on

Mareh 31, 1956, which attracted investments at yields of

14.5% and 16.1% respectively. -Both of these projects were

constructed undey the, Natiowal Housing Act. . ans

The evidence disclosed that the defendants defaulted-in

their repayment of the Air Forée loan and the Air Force

took over the management of the projects on May 28, 1954.

it was determined that a mee savipgs in expense could

be attained by the purchase of ra asieouate system for

mpted to.induce the Air.

electric ‘ity, and the defendants \

Force to alloy the purchase of distribution system. Pur

chase contracts were conchadst/ but the purchase Was never

- 16A

consummated. In-determining the net prospective rentals

Kuehnie | took into consideration ‘the sav ings which, would

have resulted from the purchase, and added $32,009.00 a.

year to the net rentals.

Mr. Dominick Dunn, the second real estate appraiser,

testified that.it was his opinion that the value of the de-

fendants’, interest in the leaseholds, subject to the mort-

gages but not the Air Force loan, amounted to $527,858.00

as of May 1, 1957. This valnation was determined by eapi-

talizing prospective net income, after payment of mortgage,

principal, interest, and insurance. Dunn estimated prospec-

_ tive retits from the audits of the corporations and the pre-

-vailing non-military rents in the community. He also con-

sidered the.terms and restrictions in the mortgages and

leases, and ihe inherent.risk of investment in property *. i,

this‘natare.. Dunn concluded that a purchaser would strive

to recoup his investment in 15 years and would demand a

12% return on his investment. Dunn estimated replace-

ment cost, less depreciation, at $8,251,585.00, but rejected

this as determinative of market value.} Jn his opinion

deprecigtion ‘amounted to approximately $916,800.00 on

May 1,)957, with the projects having a-remaining useful’

life of years.

Mr. Allen C. Gardne T, ‘a mortgage analyst, testified for’

the Government, ‘and though he was not fanfiliar with the -

premises here involved he estimated that a- purchaset- of

' the leaseholds subject to the mortgages might be satisfied

with a return as low as 11% on his investment. Most of

his testimony was incompetent’ and immaterial.

_ Phe defendants offered the testimony of Mr. Stanley.

Roe, a real estate appraiser... Roe concluded thatthe market

value between a willing seller and a willing purchaser of

the defendants” leaschold interests as of May 1, 1957 was. :

inchis Opinion, $8,743,914.00 free and elear of encumbrances.

This valuation was attained by capitalization of prospee-

tive neg income, the same method used by the Government

wiinessps.. In determining prospective rent he ineluded

17A

certain income from laundiy facilities w nick Pere not bei sing

condemned. ‘Therefore, th) xbove ‘valuation. should be re-

dueed by _ approximately. $48,000.00, Roe disregarded the

mortgage instruments afd }lid not deduct ‘the payment of

mortgage principal and interest from luis capitalized rental

inéome. To reach capitalized valye he used a multiplier

of 14.5854 w hich would provide a return of 61% upon the .

investment and also return the investme nt after 46 years.

Roe compared the rents on the base with those oif the base

hut determined prospective income on the basis of free and

fair rents without consideratjon of the | terms of the leases ~

or the actual rentals charged.

change the valuation of the

__. the Tents were controlied. but, later said that‘in his valua-

tion he assumed that the Gove ‘ument officials would be rea-

sonable and thus would grant reasonable rental: ‘inereases.

It was his epinion that the FHA mortgages, with their

He first stated that he would

low interest rates, would not enhance the value of the lease-

holets, Ree fixed the replacement cost’ less depreciation,’

as of May 1, 1957, at $9,150,00).00. His estimate of depre-

ciation was $350,000.00 and that of the remaining useful

life. of the premises was 46 years

The defendants also pre esented Mr. Geor ve Duso, a cost

estimator, as an expert witness to determine the replace-

ment cost of the-leaseholds as of May 1,1 957. He coneluded

that the replacement cost, excluding builder’s and archi-

-teet’s fees, of Chanute Gardens was $6,722,868.00, and

~~ ==

$7,551,125.00 including the fees. The replacement cost, as

of the same -date, of Chanute Apartments was estimated.

at $2,345,138.00, without the. builder's and architect’s fees,

and, $2,634,058.00 including sach fees. Upon eross- eXami-

uation Duso said: that bids submitted by contraetors_on a.

ten million dollar project would range up or down from his

estimate by some 5% to 20%. , | . ’

Mr. Robert A. Nathan, a consulting economist from

Washineton, PD: (. testified for the defendants that, based.

upon the study of construction cost trends, it was his opiti-

yremises if he assumed that..

6 . °

A °° | * -#* Ss

aa _ Nic

ion ‘that. construction Gost inereased 14.207 from 1951 to

May, 1957. He, noted that the original net rentals whew’

the projects were Jirst’ planned’ between the Government:

avd the defendants*were limited to 614° of costs esti- |

~mated as of 1950. in his judement n 1957 capitalization.

of rents, which rentals were based npor 1950 estimated eon-

‘struction. cost, would not fairly reflect the fair cdsh mar ‘ket

value as of May 1, 1957, due to the sharp rise in cost ‘of

building starting with the’ Korean War.

Mr. Russell Law testified for the defendants.that he was

bookkeeper for Jonathan Woodner Company duting the

constru¢tion of the projects: He-verified the amounts spent

for materials and labor, and stated that he managed the

projects for said Company until May 28, 1954. -Subse-

quently Law continued as manager of the projects but. took

his orders ‘from the Air Force. and was paid by the

defendant. corporations. ,

Mr. Nathan B. Filbev testified for the dcteutiete nets

the correctness of the financial sfmtements.of the two eo~ -

porations offered by thé Government starting in 1953 when .

the projects were completed through 1956.

This is ‘a brief, summary of the evidgnee. From all the

competent evidence and its view of the premises the court °

must determine what, would be just compensation for’ the

two projects. — : ‘

— The Government cantend§ that the. compensation

awarded should be for the terest of the ‘defendants

_ subject to the amount.dne ox: tH notes secured by the mort-

gages. The complaint alleges that the interest condemned

is: al right, title and interest of ‘the defendants “in the"

leaseholds, subject to each mortgage., The extent and kind

of estate to be acquired is to he determined by Congress.

‘ United States vy. Kansas City, Kan., 10 Cir., 1946,.159

F. 2d 125. The mortgagec’s rights are determined aceord-

ing to state law. Swanson :y. United State’. 9 Cir., 1946,

156 F. 2d 442, 447, cert. demied 329 LGS..800. -Since in

illinois the mortgagee has only a lien and not a vested

? ‘

inh eee : " J9A

interest ‘inthe leaseholds, the Government will be vested

with the entire title,to the leascholds and the mortgagee’s

lien is transfetred to the awara. City of Chicago v. Sal--

inger, 1944, 384 Il, 515. The same-rule is aprlicable in

other lien states. United States v. Certain Lands in Bor-

ough of Brooklyn, 129 F. 2d A777; United States v. 53%

~ Neres of Land, More or Less, ete., 139 B. 2d 244; Swanson

vy. United States, supra. The mortgagee has a lien but no

-title in the leasehold. ‘The Government could. have carved

out a lesser estate, such as al easement, oy leasehold‘ for

- ondy ten years, but clearly the Government is taking all of

defendants’ title or interest in .the jeaseholds: An interest

subject te a mortgage is, het disrecognized legal estate in-

Illinois. ~ :

The Government. insists that it has legal authority to

condemn the interest subject to the mortgage by virtue of

42 U.S. C. A. 6 1594a. Section 1594a(c) specifically refers

to condemnation. proceedings and states: . 3

~ +*Condeyination proceedings instituted pursuant

» ‘to this section shall be conducted in- accordance with:

the provtsions of. Section 297 of Title 40, or-any

other applicable Federal statute.” .

There is no reference to condemnation subject to a mort-

cage in.any other subsection of .1594a nor is there any

applicable statute which the Government has cited which

authorizes directly or indirectty condemnation of the entire -

estate subject to a nortgagg. !

The mortgage indebtedness will be considered when the

award is distributed... The mortgagee has been given notice ,

of the taking of the interest of the — but it must

he noted that in the notice no mention is made of taking”

subject to the mortgages. The Government insists that it

mayassume the mortgage indebtediiess. The assumption of

the indebtedness is yot before the court, at this time nor is’

there any evidence of sucli assumption. ‘Upon distribution

—

= S . Q0A.

Le e

% <

™“ R

the Gévernment may obviously assumét tlie mortgages, tf

agre*able to the. mortzagee, Ini such case the mortgagor ts

entitled to"be relievetl of his liability and will be so relieved

by the transfer ef the yiortgage lien to the award. « ‘There-

. _@ ¢ ~ + ° ? os y,

‘fore, the words ‘tsubject to the mortgage"! are not apph-

eable-to the interest condemned. They dp,advise the court

of outstanding mortgages to be. considefed whep the distri-

bution is made. At this time these words musi be.omitted

mane FO ei ; ar

The’ Govérnmeng: contends that ionly the capitalization

of rents should be a fe in-the Valuation of the Hefend-

ants’ interest” The Got Ye is iné@nsistent in this con-

tention since it offered ey

bver. the Government objected to original cast, but such

cost was lpss than reproduction cost. There was no evidence :

~ of-vomparable sales. The witness Kuchnle only referred

. to certain sales to obtain information as to what percentage

of returfi a purchasér might require on his jtivestmert. In

the absence of comparable: sales evidence of the original

_¢est and the-reproduction cost as well a¥ the capitalization: .

of rental income is competent in the determination.of what

is: just compeysation. - See eg., Clark vv. United States;

8 Cir., 1946, 155 F.2d 157. Capitalization Of rents need

1 Cir., 1948, 168, F, 2d 264, 266. The just compensation

should rot be determined by seleetjng any -one formula of:

valuation and pursuing that to the very end. This would

- inevitably give a wrong regait.. Sce United States vy. 49,375

Square Feet of Land, Ete ND. C. S. DN. Y., 1950, 92 FL

f Supp. 384, 387, eget 193 F. 2d 180, cert. denied 343 U.-S? Ss

928. All the elements which go to make up fair cash market

‘Value should be considerett singe such value can’ only be an .

informed guess: United*States v. Miller, 317 U. S. 369.

a 4

974-375: The court, therefore; will diseuss these factors

whieh ‘are rélevant to’ just compensation, «> |

‘nee of reproduction cost. More- —

- hot be‘solely adopted. _Demetria Sifuentes ¥. United States, ’

7 . ” a

ye 21A 2

a \ f

OriginaL Cost 7 °«*

It was stipulated that the cost to Jonathan Woodner -

Company of the propects, exclusive of builder’s and arctfi-

~ teet’s fees, was $8,297,969.232 The projects were completesi

in Mareh,.1953: The witness Liaw testified that'there was

a stoppage in theawork dugto lack of finayeing and he esti-.

mated that the stoppage increased the cost about $18,000.00. —

“$le testified that supplies and materials ayere purchased

and.subeontracts were let ona conypetitive bid basis, ‘ There

was evidence that a‘ standard builder’s fee was 8% and

architect’s .fee was 4%" after the builder’s fee is added.

The witness Nathan estimated the original tost at about

$8,000,000.00; exclusive of puilder’s and architect’s fees.

Thissestimate was reached by assuming a construction cost

of $9,063:000.00, exclusive of builder's and architect’s fees,..

on May'l, 1957, as testified to by the witness Duso. Nathan

projeeted back to the date of actual construction. The court -

‘finds that the reasonable cost of the 4wo projects was

approximately #8,200,@00.00, without bnilder’s and archi-

tect’s fees. . ; : .

Repropuction Cost \

The testinjony varied on’ the estimated reproduction

“cost as ef May 1, 1957, including builder's and architect *s

fees, from $9,168,206.00 to $10,185,193.00. he top esti-

mate was* given by Duso as an estimate upon which con-

‘tractors bid’ to obtain, % contract for the construction of a

projects, He further testifiéd that a bid submitted -by a -

contractor on such projects as ere involved would vary 5%

to 20%- from his estimate. There was ‘evidence that the :

reproduction cost as of May 1,, 1957 would. be greater than

the original cost.: The court finds from all the competent |

ase

evidences that the reproduction cost, as. of .May 1, 199%".

oie pis |

would be ‘about £9,500,000.00. Tn the replacement cost the

builder's and architect’s fees: should be and aré ineluded.

9 Pace: eet jhe

DEPRECIATION’

As of May 1, 1957; the buildings were about four years

old. All the avideuse i is to the effect that the property had

depreciated. | The ‘amount of depreciation. varied from

Rée’s estimate of - $350,000.00. to’ Dunn’s estimate of

$916,000.00. - The estimated, remaining useful life ‘of the

.. buildings: varied from 35 to 46 years. Naturally this would.

affect the amount .of the depreciation.. Roe confined his

“estimated depreciation to what he observed. Obviously this.

* would not be an accurate estimate because there are: many

ents in the phvsical structure which could not "be seen.

‘The court finds that the fair depreciation for the four year

period would be approximately $750,000.00 leaving a net -

a saceamaatee cost of arourid $8,750, 000.00 as of May 1, 1957.

CAPITALIZATION OF RenTat INCOME x

The -court finds from all the competent yebieane that

the fair cagh market value with a buyer wiiling to buy anid

. a seller’ willing to sell varies from Dunn’s estimate of

$6,673,552.31 to Roe’s estimate of $8,685,914.00. Kuehnie,

fixes a fair cash market value’ of $6,755,694.31. The court

in arriving at these figurés has agded .the- mortgage im—

- for the defendants’ ‘‘equity?’. The court has deducted from

Roe’s estimate of market value $58,000.00 which he improp-

erly included for laundry facilities. Sia a

The defendants complained that the valuation of their.

‘interests subjec}to the mortgages Was unfavorable and

improper. 2 Dunn a ee onnidoniid that the

‘The veault. ther efore, Pe. not hatm the

defendants whether their interest ‘is valued subject. to the

mortgages and the mortgages added, or the entire interest

is valued free and clear of the mortgage indebtedness.

23A

~ The valuations -of Dunn and Kuehnle gave no credit for -

‘payment of the mortgage principal. They subtracted the

‘payments on the principal frem net rental ineome and

capitalized thé resulting amount. Amortization of mort-

gage indebtedness is not an expense item, and to treat it aS

such would improperly reduce the valuation, See: De-Luz

Homes v. County of San Diégo, 290 P. 2d 544 (Calif, 1955).

Also, ‘Dunn on cross-examination . stated he gave no con-_

sideration to the existence of .a hypothetical willing seller,

‘stating that the capitalization niethod, of determining mar-

ket value only requires the existence of a willing purchaser.

On. the other hand, Roe. in reaching his estimated fair

cash market value based estimatedfgross rentals largely on

the higher rents charged for hous ne-off the base and did

not give sufficient weight to the provisions” of the leases |

_ requiring Air Force consent for rental inereases. He testi-

fied that his gross rentals were reasonable. However, ke

only considered reasonableness from the standpoint of the

two corporations and not froin the standpoint of a niajor

purpose of these ._projects, namely, to provide reasonable

rentais to Air Force personnel. At-one point: in his testi-

mony he said that he would reduce his.estimated value if,

in fact, the terms of the lease did control the rentals. In

viving controlling importance to off-base rentals, Roe gave

inadequate consideration to the fact that off-base housing

woultWlikely be constructed on and owned in fee which

would have

have been: subject to all local taxes.

The capitalization of net rents to determine value would

* vary materially according to the multiplier to be used upon

the determiined net rentals. “The applicable multiplier varied

from Roe’s 14.5354 to Dunn’s 6.8. The court taking into.

consideration an estimated net rental and multiplier which.

would satisfy both a willing buyer and a willing sejler finds

that based upon the “apitalization of rént the value of the

premises is about $6,950,006.00. .

Hs .

re)

‘quired an additional investment and would |

.-.

244A

The defendatits offered no :evidence ‘to prove that any

; value inhered to the remaining term.gf the 75 year lease-

holds after, the termination of the useful life of the build-

ings. The defendants would be liable for payment -

ground rental, but under the terms of the lease it is doubt- |

; ful that the buildings would be reproduced. -

*The court therefore. finds, based upon the ‘competent

evidence and the view of the pre mises, that the defendants

as owners of the. leasehold interests aré entitled: to just

compensation as of May 1, 1957, ‘in the amount of:

$7,100,000.00.. On distribution the’ amount due on the-in-

debtedness secured by the mortgages and the Air Force *

loan must be deducted. in accordance with the stipulated

amounts due. - $s

\. The Government: and the defendants have submitted

suggested findings of fact. The court in this opinion has—

made sufficient findings of fact and conclusions of law and

these may stand in lieu of separate findings. Those findings

of fact réuested. which are not ‘included are deemed un-

necessary as ultimiate findings of fact. . .

" Order may be submitted in accordance?’ herewith.

Dated tliis “12th day ‘of May, 1958.

* Casper Puarr

United States District Judge

° . - ; 254 p

, AppendixC . §- 2° .*

Se ‘Tue. Wuepry Act 63 Star. 570 - mY

“Tite VUI—Muinirary Housixe INSURANCE

Sec. 801. As used-in-thistitle—

‘(ap The term ‘mortgage’ means a first mortgage on

‘eal estate, in fee simple, or on a leasehold (1) under a

se for not less than ninety-nine years which is renew-

pole ; or (2) under a lease fora period.of not less-than fifty

. “years to tun from the date'the mortgage was executed ; and °

the term ‘first mortgage’ means: such elasses of first liens

as are commonly given to secure such advances on, or the un-

paid purchase price of, real estate, under the laws of the

State in we he real estate is loeated,.together with the

credit instruments, if any, secured thereby. ve eae

for insurance under this title a

~ —

‘*(b) To. be eligible su

. mortgage shall meet the following conditions: ~ '

(1) The mortgaged property shall be held by a mort- *

vagor approved by the Commissioner. The Commissioner

may, in his diseretion, require such mortgagor tobe regu-

lated or restricted. qs to rents or sales, charges, capital

structure, rate of return, and methods of operation. The

Commissioner may make ‘such contracts with, and-aequire

for not to exceed $100 stock or interest in, any such mort-

gagor, as the Commissioner may deem necessary Yo render

effective such restriction br regulation. Such stock or in-

terest shall be paid for out of the Military Housing Insur-

ance Fund, and.shall be redeemed by the mortgagor at par-

upon the termination of all obligations of the Commis-

sioner under the insurance. |

(2) The mortgaged property shall be designed for .

rent for residential use by civilian or military personnel of.

the Army, Navy, Maritie Corps, or Air Foree, ( including

Government contractors’ employees) assigned Yo duty at.

ce @ ‘ oy) . > .

. o fe‘ e oon

% ”

ye , age

the military installation at or in the area of whieh such

property is constructed.; Notwithstanding the. provisions

of any other law, preference or. priority of opportunity in.

thie occupancy of the mortgaged property for such person-.

nel and" their immediate. families shall he’ provided under

, y such regulations and provedires as may be prescribed: by

_.__—— the Cgmmissiener—-No Mortgage shall be insured under

this title unless the Secretary. of Defense designee

shall have certified to the Commissioner

with respect to which the mortgage is m

tary Establishment, and that there is ho present intention

to substantially curtail activities at such installation. :

a in an amount—

(A) not to exeeed $5,000,000: and |

**(B) not to. exceed 90 per centum of the amount

which the Commissioner estimatés will be the re-—

placement cost of ‘the property or project w hen the

‘ proposed impfovements are completed ; ; and

**(C) not to ex. *ed an average of $8,100 per fam- |

. ily unit for such part of such property or project as

y may be -attributable to dwelling use, except that

Z _ » Where the Secretary of Defense or his designee i in ex-

ceptianal cases certifies and the C ommissioner con-

curs in such certification that the needs would be

* better served. by single-family detached dwelling

abo units the mortgage may. involve a ‘principal obliga-

tion not to exceed’ $9,000 per family unit for such

/* part of such property as may he. attributable to such

dwelling units. <\?

“The mortgage shall provide tor complete nmortization by

periodic payment within such terms ‘as ‘the Commissioner

* shall prescribe, ‘and shall ber interest (exelusive of pre-

baat

housing.

eis necessary -

»to provide adequate housing for such personne, that such..

‘installation is deemed to be a permanent part of the Mili-.

68) The mentgnge shall invotes. a-prineipal obligation. Ae

- Ad * /

. < y o% .

= a a - . ol \ e

aie 6 a : rs a

mium charges for insurance) at not to exceed 4 per centum

per annum of the amount of the principal obligation out-

. standing.at any time. * * * ”’

. ““(d) * * * Lf, during the time the mortgage is insured

and before the mortgagee has received the benefits ‘of the

_:___ insurance, the United-States acquires, or commences emi-

nent domain proceedings to acquire, all or a substantial |

~- °, part (as defined by the Commissioner) of the mortgaged

property for the use of the National Military Establish-

ment, the mortgagee may, at its election, within such time

_and ii accordance witle such regulations as the Commis-

sioner may ‘prescribe, receive the benefits of thé insurance

- as provided in this subsection, notwithstanding the fact.

that the mortgage may ‘not be in default--—— :

}

)

> _* .* * ‘ “

7 3 . 4 . > "

‘Sec. 808. ‘Phe Commissioner. is authorized and di-

_ rected to make stch rules and regulations ds may be nec-

essary fo carry out the provisions .of this ee:

- ae 1955 Capenanr Act (69 Stat. 646) -

es “See. 401, Titie VIII of the National Housing ‘Act, as

i ” amended , is hereby amended to-read as follows:

**(3) The mortgage shall’ involve a_ principal obliga-

* *

tion in an amount— *

‘*(B) not toexceed an ayerage of $13,500 per family unit

' for such part of such property or project as may be attrib

utable to dwelling uses ; Provided, That'the replacement cost

of the property or projeeT as determined by the Commis-

sioner including the estimated. value of any usAble utilities .

within the boundaries of the property_ or. project where

“owned by the United States*and not provided for out of the

-- proceeds of the mortgage, shall pot/exceed an_ averuge of

* $13,500 per family unit; and Ags na ie

28.\, Bot

“Sec, 404. Whenever the Secretary of Defense or his:

designee shall deem ‘it necessary for the purposes of this.

title, he may acquire by purchase, donation, or other means

of transfer, or may cause proceedings to be instituted in any

court having jurisdiction, of ‘such. proceedings to aequiré by

condemnation, any unimproved land, or (with the approval

of the: Federal Housing ¢ ‘ommissioner ) any housing financed

- With mortgage’ insured under the provisions ot title VIIL-

of the. National Housing Act as in effect prior to the: enaet-

‘ment of the Housing. Amen lments of 1955. Notw ithstanding

the provisions of any other law, the price paid for any such _

unimproved land or housiig purchased by the Seeretary |

under, this or any other law shall be the’ fair market value .

of such land or housing as determined by the Secretary on»

the basis of an independent appraisal, and, in. connection’

with any agreements to purchase such’ housing, the.Seere-

tary of Defense or his designee may assume, or purchase

: / ;

subject to, any such saad aa lng li CRA te mete

“The 1956 Careuder Aer (70. Stat, 1091)".

* This is referred to in the opinion of thé Court of Appeals (ZA, -

*8A) as 42 U. S. C. A. '§ 1594a:

. “Spo: 505. “Section 803 ( b)( (3)(B) of al Act i is amended

to read as follows : ¢ ee xe

o (B) not to exceed an av erage of $16, 500 per family unit

_ for such part of such property or ‘groject (including ranges; .

refrigerators, shades, “screens, and fixtnres), as may be

attributable to dwelling use; Provided, That the ‘yeplacement

cost of ‘thé property or project is determined by the Com-

missioner, including the estimated value of any usable ‘utili-

ties within the bonndaries of the property dr project where

owned by the ‘United States and not. provided for out of

the proceeds of ;the mortgage, ‘shall not exceed an average |

’

of $16,500 per family unit, and.”’ NC

“a

i SO

Sec. 512. » Section 404 of the Housing. ,Amendments Ge ds

1955 is: amended to read as follows: ahs’ ne ph

; _. Ba. 4 . (a) Whenever the Saretary of rt his °

designee deen it necessary.for the purpose of this title, he

“may acquire by purchase, donation ,gondemnati n, or other

- means of transfer, any land of (with ° the ay roval of the .

Federal Housing Commissioner) any housing financed with

‘ emottgages insured under the prov sions “of title VIII of

*, the National Housing Xet, as in effect: prpr to the enactment

ofthe Housing Amendnients of 19557 The ‘purchase price

-of any such: housitig ‘shall not: i the Federak Housing

Commissioner’ s estimate of the replacement cost of such -

housing and related ‘property (not including the yalue of |

bs any improvements installed or constructed with appropri-

i atey | funds) as of the date of final endorsement for mort-

gage insurance reduced’ by an appropriate allowanes for:

physical .depréciation/ as determined by the Seerétary of

DefenSe or his designee, upon the advice of the Commis-

‘sioner: Provided/That in any case where the Secretary or .

his designee acquires a project held by the Commissioner,

the price paid shall not exceed the face value of the deben- —

tures (plus accrued interest thereon) which the Commis-

. "> sioner issued in acquiring such project.

TPA RCciadlanin is,

. “%

, °'(b) Notwithstanding any provision of ‘subscetion- (a)

. to the contrary, the Secretary of Defense or his designee

. Shall, in the manner provided ir subsection tay acquire

E by purchase, donation, or other. means ‘of transfer or, if

8 the parties cannot agree upon terms for acquisition by such

* — means-by condemnation, any housing constructed. under the .

mortgage insurance provisions of title VIII of the National

. . Housing Act (as in effect prior to the enactment of -the

oe Housing -Amendments of 1955) which is located at or ne ar

_ @ military installation where the construction of ‘housing

4 under the Armed Services Housing Mortgage Insurance

: carcass been approved by the. Secretary.

3 a oo ° re a

“3 .

at - : ¢ .

‘ >

- : j . % a

. .

: . '

° { A . :

' °

. A *

" : . ‘ ‘ 2 ae

° an

Fo... SPAL eee ae

‘*(¢) Condemnation proceedings instituted pursuant to.

this section shall be cofducted in aceordance with the provi-

sions of the Act of August 1, 1888 (25 Stat. 357; 40 UL So.

see. @57) as amended, or any other applicable Federal

‘statute. Before any such condemmfation proceedings are in--

- stituted, an effort shall be made to acquire the property in- .

i 3:

Volved by negotiation. In any condemnation proceedings

instituted pursuant to thés section, the court*shall not order

the party in possession to surre possession in advance -

_ of final judgment unless echavation of taking has been

_ filed, and a deposit of the amount estimated to be just com-

pensation has beén made, under .the first section of the

Act of February 26,1931 (46 Stat: 1421), providing for such

declarations. Unless title is in dispute, the court, upon

application, shail promptly pay to the owfier at least 75 per

centum of the amount so deposited, but such payment shall

be made without prejudice to any party-to the proceeding.

In the event that condemnation proceedings are instituted -

in accordance with procedures under sugh Aet of February —

* 26, 1931, the court shall order that. the amount deposited:

shall be paid in a lump. sum or over a.period not exceeding

’ five years in accordance with stipulations executed by the

parties in the proceedings. In connection with condemna-

tion proceedings which do not utilize the procedures undet

such Act, the Secretary ot his designee, after final judgment

of the court, may pay or agree to pay in a lump sum or, in

accordanee with stipulations executed by the parties to the

proceedings, over a period not exceedings: five year's*the

difference between the outstanding principal obligation, plus

accrued interest, and the price for the property fixed by the

‘court. Unless such payment is made in a lump sum, -the

unpaid balance thereof shall bear intérest at the rate of 4.

-per-centum per annum.

“pied, used, and improved for the purposes of this section—

prior to the approval! of title by the Attorney Gereral/as

required by section 355 of the Revised Statutes, as amended.

O3laA

. ‘ . re ie. 4 * : f . fi

‘*(e) The Secretary or his designee may, in ‘the case of

any housing acquired or to be acquired under this section,

make arrangements with the mortgagee whereby such mort-.

gagee will agree to. release and waive all ‘requirements of

accruals for reserves for replacement, taxes, and hazard -

insurance provided for ‘under the cor porate ‘charter and:

indenture agreement with respect to such housing, upon the

éxecution of a written agreement by the Secretary or his

‘ designee ihat the purposes for which suck reserves and

‘other funds were. acerued will be carried out. ica ‘

““(f) Any housing acquired under | this gection. may "be

(1) assigned as public quarters to. military personnel and

their dependents ; or (2) leased to’military and ¢ivilian- per-

sonnel for eceupancy by them and their dependents, upon.

terms and conditions as will in the judgment of the

Secretary of Defénse or his designee be j in the best interest

of the United States, without, loss to military personne!

of their’ basie allowance for quarters: or appropriate allot-

ments." Amounts equal to the quarters allowances or appro-

priate allotments of military personnel to whom such hous- .

ing is assigned as public quarters under clause (1), and the

rental eharges realized under clause (2), shall be deposited

iti the revolving fund created by subs&tion ( 8).

‘é. (g) There is hereby erented a fund which shall be.used |

by the Secretary of Defense or his designee as a-rev olving

fund for the purpose of pay ing for housing and related prop- ”

erty acquired under this section, paying interest, principal,

mortgage insurance premiums, and other obligations’ (ex-

cept those for maintenance and operation) with respect-to

such housing, and paying expenses incurred in the altera-

tion, improvement, rehabilitation, and repair of such hous- *

ing. _The amounts and charges * referred to int the last ~~

sentence of subsection tf) of this section, and any. savings .

realized i in the operation of section 405, shall. be deposited

im such fund. _ Kor the purposes of the pr eceding sentence,

the term ‘sav nits tealized in the Gperation of section 405’

means the difference between’ the amount made available

for payments - under séetion 400 and the amount actually’

used in making such payments.

a: &

se Ne 5

“(h) The Secretary” of the Treasury is authorized and

direzted to establish on ‘the books of the ‘Treasury Depart-

ment the revolving fund created pursuant to the authority of

this’ section. -To provide capital for such fund, there. is. .

o to be appropriated a sum not to exceed -$50,-

000,000 and the Seeretary of Defense, with the approv al of.

‘the Presdent,. is authorized to transfer from unexpended |”

. balances of any appropriations of the military departments

not carried to the sarplus.fund of the Treasury such sums

as may be determined by the Secretary of Defense to be |

necessary to Provide sieced Xs capital for the revolving

fund.’’ Pore ; are ar

56 Srar. 303 (Secrioy,-608 or THE Nerionan Housrxe. Act)

Sic. 11. Title VI of the National Housing Act,’ as

“amended, i is hereby further amended by adding the. new

ing new, section at the end thereof :

«Spe: 608. (a) In addition to eacliiinie imeured cilia

~ section 603 of. this title, the Admirfistrator ‘is authorized to

insure mortgages as defined in section 601 of this title .

(ineluding advances on. such mortgages during cénstrac:

tion) which a.» eligible for insurance as hereinafter pro-

vided. |

J “(b) To be eligible for insurance’ under this section a

mortgage shall meet the followi ing conditions :

**(1) The mortgaged property shall be held by a mort-

gagor approved by the Administrator. The Administrator

may, in his discretion, require suclt mortgagor to be reg-

ulated ‘ or restricted ‘as to rents, or sales, charges, capital ‘i

structure, rate of return, and ‘imgthods of operation. clad Ri

40 U.S. C. § 2588

‘Re e2 The court shail have power to make such orders

. in respect’ ef encumbrances, liens, rents, taxes, assess-

“ments, insurance, and other charges, if any, .as: shall be

just and d equitable. oe

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.