School District 2 Fractional v. United States

• Decision Date: 13 January 1956
• Docket Number: No. 12423.,12423.
• Citation: 229 F.2d 681
• Parties: SCHOOL DISTRICT 2 FRACTIONAL, ATHENS TOWNSHIP, CALHOUN COUNTY, MICHIGAN, and L. B. S. Aircraft Corporation, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

229 F.2d 681 (1956)

SCHOOL DISTRICT 2 FRACTIONAL, ATHENS TOWNSHIP, CALHOUN COUNTY, MICHIGAN, and L. B. S. Aircraft Corporation, Appellants, v. UNITED STATES of America, Appellee.

No. 12423.

United States Court of Appeals Sixth Circuit.

January 13, 1956.

Robert V. Smith, Washington, D. C., and Victor E. Bucknell, Vicksburg, Mich., Robert V. Smith, Washington, D. C., Charles R. Moon, Detroit, Mich., on the brief), for appellants.

Richard M. Marcus, Washington, D. C. (Geo. S. Leonard, Melvin Richter and Fred W. Kaess, Detroit, Mich., on the brief), for appellee.

Before ALLEN, McALLISTER and MILLER, Circuit Judges.

McALLISTER, Circuit Judge.

This is an appeal by a Michigan township school district and an aircraft corporation from a judgment rendered against them in the amount of $10,000, in favor of the United States Government. D.C.E.D.Mich., 124 F.Supp. 570.

On June 26, 1947, appellant school district paid the War Assets Administration the sum of $200, and in return received a sales document and transfer of an airplane, which it thereafter used for nonflight instructional purposes. More than four years after it received the plane from the government, the school district sold it to appellant aircraft corporation for the sum of $7,120.

Subsequent to the sale of the plane by the school district to the aircraft corporation, the government brought suit, claiming that the right of the school district to sell the plane was limited by the terms of certain contract provisions agreed to by the school district at the time of its purchase from the government; that, by virtue of such contract provisions, the government had retained an interest in the plane; that its sale and transfer to the aircraft corporation were in violation of the contract provisions under which the plane was transferred to the school district; that the government, by the provisions of such contract, was entitled to damages in the amount of the value of the plane at the time of its sale by the school district to the aircraft corporation, which was agreed to be $10,000.

Appellants insist that the school district made an outright purchase of the plane from the government; that, according to the regulations of the War Assets Administration governing the sale in this case, the aircraft could be resold by the school district any time after three years subsequent to the date of its purchase from the government; that the government reserved no right in the aircraft sold to the school district; and that any restrictions in the instruments of sale prohibiting the resale in question of the aircraft were invalid as being in violation of the regulations governing the sale and resale of surplus property. Accordingly, appellants claim that they are neither in any way indebted to the government nor subject to any claim for damages.

The government, in establishing its case, relied upon the provisions of the Surplus Property Act, 50 U.S.C.A.Appendix, § 1611 et seq., and the provisions of the sales agreement between the school district and the government, including, principally, a document known as Form 65, signed by the school district in submitting its offer to the government.

The Surplus Property Act, insofar as here relevant, provided that the Board — originally the Surplus Property Board, but later, the War Assets Administration — should prescribe regulations to effectuate the provisions of the Act, and that, in formulating such regulations, it should be guided by the objectives of the statute; and that regulations issued pursuant to the above mentioned conditions might, except as otherwise provided in the Act, "contain provisions prescribing the extent to which, the times at which, the areas in which, * * * and the terms and conditions under which, surplus property may be disposed of * * *."

The disposition of surplus property to educational institutions such as appellant school district was governed by Section 13 of the Act, which provides that in formulating regulations for the disposition of surplus property "to States and their political subdivisions and instrumentalities, and to tax-supported and nonprofit institutions," the Board should give effect to the following policies to the extent feasible and in the public interest:

"(1) (A) Surplus property that is appropriate for school, classroom, or other educational use may be sold or leased to the States and their political subdivisions and instrumentalities, and tax-supported educational institutions, and to other non-profit educational institutions which have been held exempt from taxation under section 101(6) of the Internal Revenue Code.

* * * * *

"(C) In fixing the sale or lease value of property to be disposed of * * *, the Board shall take into consideration any benefit which has accrued or may accrue to the United States from the use of such property * * *."

Section 15 of the Act provided:

"(a) Notwithstanding the provisions of any other law but subject to the provisions of this Act, whenever any Government agency is authorized to dispose of property under this Act, then the agency may dispose of such property by sale, exchange, lease, or transfer, for cash, credit, or other property, with or without warranty, and upon such other terms and conditions, as the agency deems proper * * *.

"(b) Any owning agency or disposal agency may execute such documents for the transfer of title or other interest in property or take such other action as it deems necessary or proper to transfer or dispose of property or otherwise to carry out the provisions of this Act, and, in the case of surplus property, shall do so to the extent required by the regulations of the Board."

Pursuant to the Surplus Property Act, the War Assets Administration issued Regulation No. 4, 32 C.F.R., Supp.1946, Sections 8304.1 et seq., governing the disposal of aircraft, components and parts of aircraft, which, insofar as here applicable, provided:

"The disposal agency shall establish procedures pursuant to which educational * * * institutions or instrumentalities may make written application for surplus aeronautical property available for disposal to such institutions or instrumentalities. Such procedures shall include (1) a certification that the applicant is an educational * * * institution or instrumentality as defined in Section 8304.1, (2) a certification of the purposes for which the property is to be acquired, and in the case of aircraft an agreement that it will not be flown except for purposes of research or experiment in connection with the science of aeronautics, and (3) an agreement that the property will not be resold to others within three (3) years of the date of purchase without the consent in writing of the disposal agency unless it is mutilated or otherwise rendered unfit for use except as scrap." Section 8304.11(b).¹

From the foregoing regulations, it is seen that one of the procedures required to be established by the government agency disposing of surplus property is a condition that the institution, such as the school district in this case, must, in its written application to secure such property, agree "that the property will not be resold to others within three (3) years of the date of purchase without the consent in writing of the disposal agency," unless it is rendered unfit for use except as scrap. It is upon this provision that appellants rely, for they claim that, as the resale by the school district occurred more than three years after the date of purchase from the government, such resale was, therefore, permissible under the regulations.

The district court, in its opinion holding that the sale was in violation of the regulations and conditions of the instrument of sale between the school district and the government, stated that a reading of the above portion of the regulations, standing alone, by implication supported the argument of appellants, but that a fair construction of the contract between the school district and the government, together with Section 13 of the Surplus Property Act, showed that it was the intention of the parties that the plane be used for instructional purposes until it was no longer fit for such use, and that it might then only be sold as scrap. This requires an examination of the contract between the school district and the government by which the former secured the plane, as well as a consideration of the section of the statute which, the district court held, was controlling in the light of the contract provisions above mentioned.

The nature of the interest in the airplane acquired by the school district is of importance in view of the arguments advanced by the government. The transaction in which the school district secured the airplane from the government, as mentioned above, included an application entitled "War Assets Administration Form 65," and designated "Agreement," in which, "In consideration of the transfer of certain items of Aeronautical Property under provisions of Surplus Property Act of 1944, Public Law 457," the school district "hereby certifies and agrees" that the property to be acquired was for the sole use of instruction, and, among other stipulations, it was provided "That all acquired property when unfit for the above purpose will be sold only as scrap and then only after it shall have been rendered completely unfit and useless except for its basic material content." It was further provided that "this Agreement shall be effective for all future transfers of Aeronautical Property under the provisions of Surplus Property Administration Regulation No. 4, as amended from time to time."

It appears that this Form 65 application or agreement had been formulated and adopted by the War Assets Administration as part of its standard procedure, and was required to be executed by educational institutions which were desirous of obtaining surplus aeronautical property for purposes of instruction; and such form was executed in this case by the proper...