Armstrong v. United States

• Decision Date: 28 March 1960
• Docket Number: No. 270,270
• Parties: Cecil W. ARMSTRONG et al., Petitioners, v. UNITED STATES of America
• Court: U.S. Supreme Court

364 U.S. 40

80 S.Ct. 1563

4 L.Ed.2d 1554

Cecil W. ARMSTRONG et al., Petitioners,

v UNITED STATES of America.

No. 270.

Argued March 28, 1960.

Decided June 27 1960.

Mr. Burton R. Thorman, Washington, D.C., for petitioners.

Mr. Samuel D. Slade, Washington, D.C., for respondent.

Mr. Justice BLACK delivered the opinion of the Court.

In this action petitioners assert materialmen's liens under state law for materials furnished to a prime contractor building boats for the United States, and seek just compensation under the Fifth Amendment for the value of their liens on accumulated materials and uncompleted work which have been conveyed to the United States.

The United States entered into a contract with the Rice Shipbuilding Corporation for the construction of 11 navy personnel boats. The contract provided that in the event of default by Rice, the Government could terminate the contract and require Rice to transfer title and deliver to the Government all completed and uncompleted work together with all manufacturing materials acquired by Rice for building the boats. Petitioners furnished various materials to Rice for use in construction of the boats. Upon Rice's default, the Government exercised its option as to 10 of the boat hulls still under construction; Rice executed an itemized 'Instrument of Transfer of Title' conveying to the United States the hulls and all manufacturing materials then on hand; and the Government removed all of these properties to out-of-state naval ship-yards for use in the completion of the boats. When the transfer occurred, petitioners had not been paid for their materials and they have not been paid since. Petitioners therefore contended that they had liens under Maine law which provides that '(w)hoever furnishes labor or materials for building a vessel has a lien on it therefor, which may be enforced by attachment thereof within 4 days after it is launched * * *. He also has a lien on the materials furnished before they become part of the vessel, which may be enforced by attachment * * *.' Maine Rev.Stat.1954, c. 178, § 13.

Claiming valid liens on the hulls and manufacturing materials at the time they were transferred by Rice to the United States, petitioners asserted that the Government's action destroyed their liens by making them unenforceable and that this constituted a taking of their property without just compensation in violation of the Fifth Amendment.¹ The Court of Claims, relying on United States v. Ansonia Brass & Copper Co., 218 U.S. 452, 31 S.Ct. 49, 54 L.Ed. 1107, held that petitioners never acquired valid liens on the hulls or the materials transferred to the Government and that therefore there had been no taking of any property owned by them. Ct.Cl., 169 F.Supp. 259. We granted certiorari. 361 U.S. 812, 80 S.Ct. 86, 4 L.Ed.2d 60.

I.

The Court of Claims reached its conclusion from the correct premise that laborers and materialmen can acquire no liens on a 'public work.' United States for Use of Hill v. American Surety Co., 200 U.S. 197, 203, 26 S.Ct. 168, 170, 50 L.Ed. 437; Equitable Surety Co. v. United States, to Use of W. McMillan & Son, 234 U.S. 448, 455, 34 S.Ct. 803, 805, 58 L.Ed. 1394; United States v. Munsey Trust Co., 332 U.S. 234, 241, 67 S.Ct. 1599, 1602, 91 L.Ed. 2022. It reasoned that because the contract between Rice and the United States contemplated that title to the vessels would eventually vest in the Government, the Government had 'inchoate title' to the materials supplied by petitioners, rendering such materials 'public works' immune from the outset to petitioners' liens. We cannot agree that a mere prospect that property will later be owned by the United States renders that property immune from otherwise valid liens.

The sovereign's immunity against materialmen's liens has never been extended beyond property actually owned by it. The Ansonia case itself, upon which the Court of Claims relied, makes this clear, here in dealing with one aspect of the issues there involved, the Court said:

'We are not now dealing with the right of a state to provide for such liens while property to the chattel in process of construction remains in the builder, who may be constructing the same with a view to transferring title therein to the United States upon its acceptance under a contract with the government. We are now treating of property which the United States owns. Such property, for the most obvious reasons of public policy, cannot be seized by authority of another sovereignty against the consent of the government.' 218 U.S. at page 471, 31 S.Ct. at page 54.

The terms of the contract between Rice and the United States show conclusively that Rice, not the United States, had title to the property when petitioners furnished their materials. The agreement provided for delivery, preliminary acceptance, and final acceptance of the boats, the contractor to remain responsible for all supplies until delivery. The contractor was required to insure the property for the Government's benefit only to the extent of progress payments made and materials furnished by the Government. The very clause here invoked by the Government provided that upon default and termination of the contract the Government might 'require the Contractor to transfer title and deliver' the work, supplies and materials on hand. (Emphasis added.) While the Government was obliged to make progress payments based on the percentage of the work completed, nothing in the contract provided that ownership of the portion of the work paid for should vest in the United States. On the contrary, it was stipulated that all progress payments should be secured by a paramount government lien on the property. And finally, the contractor was required to discharge immediately any lien or right in rem asserted against the property. In their totality, these provisions clearly recognize that title was to remain in Rice during performance of the work, and show that private liens could attach to the property while Rice owned it.

We think, therefore, that the Court of Claims was in error in holding as it did. This, however, does not end the case in petitioners' favor since the United States urges other grounds to support its judgment.

II.

It is contended that petitioners' asserted liens gave them no compensable property interests within the meaning of the Fifth Amendment. Under Maine law, materialmen become entitled to a lien when they furnish supplies; however, the lien must subsequently be enforced by attachment of the vessel or supplies. There is no allegation that any of the petitioners had taken steps to attach the uncompleted work. Nevertheless, they were entitled to resort to the specific property for the satisfaction of their claims. That such a right is compensable by virtue of the Fifth Amendment was decided in Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 55 S.Ct. 854, 79 L.Ed. 1593. In that case, a bank acquired a mortgage which under state law constituted a lien enforceable only by suit to foreclose. Subsequently, Congress amended the Bankruptcy Act so as to deprive mortgagees of substantial incidents of their rights to resort to mortgaged property. This Court held that the bank's property had been taken without just compensation in violation of the Fifth Amendment. No reason has been suggested why the nature of the liens held by petitioners should be regarded as any different, for this purpose, from the interest of the bank held compensable in the Radford case.

The Government, however, suggests that because it held a paramount lien on the property to secure its progress payments, petitioners' claimed liens were in fact worthless. Petitioners, on the other hand, argue that when the Government chose to acquire title to the property rather than to enforce its lien, the lien merged with the title, thus making petitioners' liens paramount, and that even if it did not, and th ir liens remained subordinate to that of the Government, the value of the hulls and materials would have been sufficient to satisfy the Government's claims and some or all of petitioners' claims as well.

We need not decide whether, as a matter of law, the Government's lien 'merged' in its title. At the very least, petitioners, prior to the transfer of title, had the right to whatever proceeds the property might bring over and above the Government's claim to the amount of its progress payments.² By the date of default, Rice had expended some $198,000, while the Government had advanced only about $141,000 in progress payments. We have no way of knowing what the property would have brought had it been sold, but it cannot be said with certainty that it would have brought no more than the amount of the Government's claim. Moreover, petitioners themselves might have been able to purchase the property and realize some amount on their claims after the Government's claims had been satisfied. While these factors may present a difficult problem of valuation, we cannot say on this record that petitioners' interests were valueless.³

The Government also seems to suggest that because the contract between Rice and the United States expressly gave the Government the option of requiring a conveyance of title upon default, petitioners' liens attached subject to that limitation. Petitioners, however, were not parties to the contract. Furthermore, their liens attached by operation of law and nothing in the record indicates that the scope of such liens is affected by contractual arrangements into which the owner of the property may have entered.

We conclude, therefore, that on this record petitioners must be considered to have had compensable property interests within the meaning of the Fifth Amendment prior to transfer of title to the Government.

III.

The final question is whether the Government's action constituted a 'taking' of petitioners' property interests within the meaning of the Fifth Amendment. Before the United States compelled...