De La Rama SS Co. v. United States

• Decision Date: 19 August 1953
• Docket Number: No. 295,Docket 22298.,295
• Citation: 206 F.2d 651
• Parties: DE LA RAMA S. S. CO., Inc. v. UNITED STATES. THE DONA AURORA.
• Court: U.S. Court of Appeals — Second Circuit

206 F.2d 651 (1953)

DE LA RAMA S. S. CO., Inc. v. UNITED STATES.

THE DONA AURORA.

No. 295, Docket 22298.

United States Court of Appeals Second Circuit.

Argued on Remand April 10, 1953.

Decided August 19, 1953.

Myles J. Lane, U. S. Atty., New York City, Benjamin H. Berman, Attorney, Department of Justice, New York City, of counsel, for appellant.

Burlingham, Hupper & Kennedy, New York City, Norman M. Barron, Hervey C. Allen, Jr., and Roscoe H. Hupper, New York City, of counsel, for libellant-appellee.

Before SWAN, Chief Judge, and CHASE and CLARK, Circuit Judges.

Argued on Remand from Supreme Court of United States April 10, 1953.

CHASE, Circuit Judge.

The motor vessel, Dona Aurora, was delivered to the War Shipping Administration on April 1, 1942, by the appellee, its owner, in accordance with an understanding that a time charter would be executed and that was done on April 24, 1942. The charter was for about a year and the vessel was valued at $1,500,000 for which amount a War Risk Insurance binder was issued in March and delivered to the owner on May 9, 1942.

On May 20, 1942, the War Shipping Administration gave the owner notice of its requisition of the vessel "for use under time form charter," further advising that:

"Requisition charter in form set forth in Federal Register of May 16, 1942 together with rates and insurance valuations contained in General Order 8 and 9 published Federal Register May 16, 1942 will be tendered you as soon as possible. Please advise immediately whether you desire to have these rates and valuations made effective as of time of delivery under current charter, * * *."

As the result of steps subsequently taken by the parties, a war risk insurance binder was issued under which the War Shipping Administration insured the vessel from the time of her delivery to it to the termination of the charter to the amount of just compensation to be determined in accordance with Section 902 of the Merchant Marine Act of 1936, as amended.¹

Though the requisition charter was not executed until March 18, 1943, it was made effective as of the date of the delivery of the vessel, April 1, 1942. The vessel was sunk by the enemy on December 25, 1942, and became a total loss. Efforts to secure an adjustment of its insurance claim having been unsuccessful, the owner filed this libel on December 22, 1944, pursuant to Section 225 of the Merchant Marine Act of 1936 as amended. See Section 1128d of Title 46 U.S.C.A.²

Before hearing on the merits there was a reference to a commissioner to determine and report the amount of just compensation for the loss of the vessel. The appellant urges that this reference in advance of trial was error. But since a reference for the purpose of determining just compensation was a permissible exercise of discretion under the Admiralty Rules of the Supreme Court and since the subsequent trial of the issues has shown that the determination of just compensation was necessary, the appellant has not shown itself to have been harmed by the order of reference.

The commissioner returned values as of the date of the delivery, April 1, 1942, and as of the date of the sinking; but as the parties are now in agreement that the date of the sinking is the critical date we shall confine ourselves to that valuation. The commissioner found the fair value of the vessel on that date to be $2,082,000 and Judge I. R. Kaufman in the district court confirmed that. The decree was for that less $1,000,000 which had been paid, plus the stipulated value of the consumable stores lost, plus interest at four per centum from the date of the filing of the libel to the date of the decree. The United States appealed and both parties filed assignments of error. The appellant now insists that the vessel was valued on an improper basis which made the amount too high; and that there was a failure to exclude enhancement on account of the causes necessitating the taking or use, as required by Section 902(a) of the Merchant Marine Act of 1936 as amended, 46 U.S.C.A. § 1242(a). The appellee contends that a duplication of deduction for depreciation and the failure to include interest from the date of the loss as part of just compensation determined in accordance with Section 902 made the value as found too small.

The vessel was one of three sister ships which were built at Trieste, Italy for the libellant, a Philippine corporation, and was delivered to her owner on October 4, 1939. Her total cost was $904,360 and in September, 1941, a gyroscopic compass was added to her original equipment at a cost of $18,363. She was a cargo vessel constructed under the supervision of Lloyd's surveyors and was given Lloyd's highest classification. She was registered in the Philippines and flew the American and Philippine flags in her regular service between Philippine and Far East ports and the United States, having made six or seven round trip voyages before she was delivered, in first class condition, to the War Shipping Administration.

Her overall length was 439.4 feet, breadth 57.7 feet and depth 37 feet. Her certified dead-weight capacity was 8920 tons, her bale cubic capacity was 445,000 cubic feet and her certified loaded speed was 14.2 knots with 5200 brake horsepower, diesel. She had five holds, five hatches, two decks (with a third deck in No. 1 compartment) two masts, four Kingposts, electric winches, transverse framing and was of riveted contruction.

In determining value there are, unfortunately, no inflexible rules ready at hand and easily applied. Cf. United States v. Toronto, Hamilton & Buffalo Navigation Co., 338 U.S. 396, 70 S.Ct. 217, 94 L. Ed. 195. But where what is to be valued is bought and sold in the ordinary course of business, the market price thus established by willing buyers and sellers it is to be taken as the measure. The Petar Ozanic v. U. S., 2 Cir., 165 F.2d 738, 740.

There had been sales of comparable vessels between May, 1942, and August, 1943, when the Maritime Commission had sold to American interests eighteen of its type C-1B ships, at an average price of $1,129,236, for operation on designated trade routes as authorized by Title 46, Sections 1151-1153, 1156 and 1212 U.S.C.A., but we do not think those sales established a market price which should be used here. They were restricted in accordance with the subsidy agreements under which the vessels were constructed and were made at about half what it cost to build them in consideration for substantial limitations upon the purchaser's right to use and dispose of them, including a limited right to compensation if they were requisitioned. That was a controlled market which was the result of the use of subsidies, and the sale price of a new ship at about half what it had recently cost the seller to build her seems far from being a fair equivalent of a market price established by ordinary business dealings at arm's length. As the judge remarked "If the Government had been giving ships away to a limited group of American shipping companies for use in the foreign trade subject to restrictions aforestated, which would not have been an unlikely procedure, surely it could not come in now and say that similar type requisitioned ships (not so given or limited in use) had no value based on an established `market.'"

The appellant seeks to support its contrary conclusion by National Bulk Carriers, Inc., v. United States, 3 Cir., 169 F. 2d 943. The construction and sales of those tankers by the Maritime Commission were, indeed, regulated and controlled and in that sense no free market and resulting market price were shown, but other considerations made the sales prices fairly reflect actual market value, among them the fact that all the vessels were sold for the final actual cost to the Commission as determined by it. On the whole the Commissioner in that case concluded that actual sales in considerable numbers had been made of the tankers by a willing seller to willing purchasers to establish a market for comparable vessels at a price to be taken into account in determining just compensation for the vessel lost, and the court agreed. But, even though a considerable number of sales at prices which reflect fair value, save only what might have been a fair profit for the builder, may establish what is an acceptable guide to indicate a fair, free market price, we think such a situation should be distinguished from that here where the builder sold for about half its cost of construction.

Moreover, it appears that in the fall of 1941 the Maritime Commission sold two C-1B vessels without subsidy restrictions at their full construction cost of $2,247,054.61 each and in January 1942 another on like terms at $2,217,216.88. Though not enough vessels were thus sold to establish a market they were much more nearly the kind of sales which were the basis for the decision in the case just mentioned.

Absent a market price to use as a yardstick, it was proper to turn to other relevant factors. United States v. Miller, 317 U.S. 369, 63 S.Ct. 276, 87 L.Ed. 336. The commissioner did that. He found that the net earnings of the vessel in 1940 were $136,576.72 and in 1941 $412,894.03, the only two full calendar years in which she was operated before this country entered the war. For three months after her use was requisitioned, the British Ministry of War Transport operated her under a subcharter at a daily hire more than twice what was paid the libellant. Her earning ability was thus shown to be good though the amount should have been, as it was, considered in the light of the abnormal conditions prevailing. The commissioner found that when she was delivered to the libellant she was valued for insurance at $1,500,000 and, as has already been noted, that was her valuation under the first War Shipping Administration charter, although the libellant subsequently tried to have it increased to $2,000,000 and succeeded only in getting permission to place additional...