United States v. Isthmian Steamship Co

• Decision Date: 27 April 1959
• Docket Number: No. 285,285
• Citation: 79 S.Ct. 857,359 U.S. 314,3 L.Ed.2d 845
• Parties: UNITED STATES of America, Petitioner, v. ISTHMIAN STEAMSHIP CO
• Court: U.S. Supreme Court

359 U.S. 314

79 S.Ct. 857

3 L.Ed.2d 845

UNITED STATES of America, Petitioner,

v ISTHMIAN STEAMSHIP CO.

No. 285.

Argued Feb. 25, 1959.

Decided April 27, 1959.

Mr. Ralph S. Spritzer, Washington, D.C., for petitioner.

Mr. Clement C. Rinehart, New York City, for respondent.

Mr. Chief Justice WARREN delivered the opinion of the Court.

The principal question presented in this case is whether in an action under the Suits in Admiralty Act, 41 Stat. 525, as amended, 46 U.S.C. § 741 et seq., 46 U.S.C.A. § 741 et seq., the United States may defend by pleading against the libelant a claim arising out of an unrelated transaction.

In 1953, the S.S. Steelworker, a ship belonging to the respondent, Isthmian Steamship Company ('Isthmian'), carried certain cargo for the United States. Isthmian submitted a bill of $116,511.44 for this service. The United States paid $1,307.68 but withheld the remaining $115,203.76. This sum was said to have been applied to an alleged indebtedness of Isthmian to the United States which was claimed to have arisen in 1946, when the United States, acting through the War Shipping Administration, chartered out to Isthmian eight vessels on a bare boat basis. Some disagreement arose over the amount of charter hire due and the United States asserted that Isthmian owed $115,203.76 for additional charter hire for the period from May 1, 1946, to July 31, 1948. The S.S. Steelworker was not one of the boats involved in the 1946 transaction.

Isthmian filed a libel in the United States District Court for the Southern District of New York alleging that the United States owed Isthmian $116,511.44 for cargo transported on the S.S. Steelworker; that Isthmian had presented a bill for that amount; and that the United States had failed and refused to pay $115,203.76 which was due and payable.¹ Isthmian made no reference whatsoever to the parties' dispute over additional charter hire for the 1946—1948 period.

The United States filed an answer admitting that Isthmian had submitted a claim for $116,511.44; denying that the United States had not paid $115,203.76; and further alleging that this sum had been 'paid' by application against an indebtedness of Isthmian to the United States for additional charter hire. Shortly before this answer was filed, the United States filed a cross-libel against Isthmian seeking recovery of the additional charter hire of $115,203.76. After filing the answer, the United States moved to consolidate its cross-libel with the original libel on the ground that the additional charter-hire claim was dispositive of both libels.

Isthmian excepted to the answer of the United States on the ground that the defensive matter pleaded therein did not arise 'out of the same contract, cause of action or transaction for which the libel was filed.' Isthmian moved that the excepted matter be stricken and asked 'judgment on the pleadings.'

The District Court held that the answer setting forth the withholdin an d application of the $115,203.76 did not set forth a defense of payment but rather was a claim of setoff arising from a separate transaction.² The District Court then held that setoffs arising from distinct transactions could not be asserted in admiralty and sustained Isthmian's exceptions. Since there was no longer any common issue, consolidation of the libel and cross-libel was denied and Isthmian was awarded a decree pro confesso. D.C., 134 F.Supp. 854. The Government's cross-libel is still pending.

The District Court's final decree awarded interest at 4% per annum on $115,203.76 from the date of the filing of the libel to the day of decree. The District Court further ordered that interest at 4% should run from the date of the decree until it was paid. This second 4% was to be computed on a sum which included the basic recovery, the costs awarded and the interest which had run from the date of the libel to the date of the decree.

On appeal, the Court of Appeals for the Second Circuit affirmed. 255 F.2d 816. The Court of Appeals relied on the authority of a case decided at the same time as the instant case, Grace Line, Inc. v. United States, 2 Cir., 255 F.2d 810, wherein it was held that withholding and applying did not constitute 'payment,' but, rather, setoff. Since the withholding and applying in the instant case did not arise out of the same transaction on which the libel was based, the Court of Appeals held it was not cognizable in admiralty. The award of interest was also upheld. We granted certiorari principally to consider the question posed at the outset of this opinion. 358 U.S. 813, 79 S.Ct. 63, 3 L.Ed.2d 56.

The Government presses a threshold argument which, if accepted, would obviate the need to reach the question posed at the outset of this opinion. While admitting the correctness of Isthmian's bill, the Government claims that the bill has been 'paid' and argues that the true nature of the dispute between the parties concerns charter hire despite the fact that Isthmian's libel does not mention the charter-hire dispute. We agree with the courts below that the Government's defense is not properly one of payment.

The Government relies upon the Act of March 3, 1817, 3 Stat. 366, which now appears in similar form as Section 305 of the Budget and Accounting Act of 1921, 42 Stat. 24, 31 U.S.C. § 71, 31 U.S.C.A. § 71. This section provides that the General Accounting Office shall settle and adjust all claims and demands by or against the Government. This is said to mean that when the General Accounting Office administratively sets one claim off against another that is the same as payment. But recognizing the Government's long-standing power to set off is far different from finding that the Government's setoff is 'payment' which enables the Government to plead in admiralty foreign and unrelated transactions. See United States v. Munsey Trust Co. of Washington, D.C., 332 U.S. 234, 239, 67 S.Ct. 1599, 1601, 91 L.Ed. 2022; McKnight v. United States, 13 Ct.Cl. 292, 306, affirmed 98 U.S. 179. 25 L.Ed. 115; Climatic Rainwear Co. v. United States, 88 F.Supp. 415, 418, 115 Ct.Cl. 520. In other situations, the claim of withholding and applying has traditionally been treated as setoff. Virginia-Carolina Chemical Co. v. Kirven, 215 U.S. 252, 257—258, 30 S.Ct. 78, 79—80, 54 L.Ed. 179; Merchants Heat & Light Co. v. James B. Clow & Sons, 204 U.S. 286, 289—290, 27 S.Ct. 285, 286, 51 L.Ed. 488 (a recoupment case); Scammon v. Kimball, 92 U.S. 362, 367, 23 L.Ed. 483; United States v. Eckford, 6 Wall. 484, 18 L.Ed. 920. See also 3 Williston, Contracts (rev. ed. 1936), § 887E. In this context, 'payment' connotes tender by the debtor with the intention to satisfy the debt coupled with its acceptance as satisfaction by the creditor. See Luckenbach v. W. J. McCahan Sugar Co., 248 U.S. 139, 149, 39 S.Ct. 53, 55, 63 L.Ed. 170; Bronson v. Rodes, 7 Wall. 229, 250, 19 L.Ed. 141; Sheehy v. Mandeville, 6 Cranch 253, 264, 3 L.Ed. 215; United States to Use of Par-Lock Appliers of New Jersey, Inc. v. J.A.J. Const. Co., 3 Cir., 137 F.2d 584, 586.

To consider withholding and applying the equivalent of 'payment' would have strange consequences. In Grace Line, Inc., v. United States, supra, for example, the Government had a claim against the carrier which had become time-barred. The carrier performed some unrelated services for the United States and then brought suit to collect. The Government claimed that it had 'paid' by withholding the money and applying it to the time-barred claim. Thus, the Government attempted to use its unique concept of 'payment' to revive a totally unrelated time-barred claim.

We can understand the Government's desire to litigate all of its disputes with Isthmian in one lawsuit, but that is no warrant for abandoning the traditional meaning of the defense of payment.³

We therefore reach the question posed at the outset. Section 3 of the Suits in Admiralty Act, 46 U.S.C. § 743, 46 U.S.C.A. § 743, provides that suits against the United States under the Act shall 'poroceed and shall be heard and determined according to the principles of law and to the rules of practice obtaining in like cases between private parties.' With this express command before us, we must ascertain whether admiralty practice permits private parties to defend by setting up claims arising out of separate and unrelated transactions between the parties.

Traditionally, admiralty has narrowly circumscribed the filing of unrelated cross-libels and defenses. The first American case considering this problem appears to be Willard v. Dorr, 1823, 29 Fed.Cas. page 1277, No. 17,680, in which Justice Story sitting as Circuit Justice refused to permit the attempted setoff. Since that early holding various reasons have been offered for refusal to entertain unrelated defenses: protection of the seaman's wage claims;⁴ preservation of relatively simple proceedings not affecting third-party rights; ⁵ and the recognition that allowing cross-libels might deprive litigants of jury trials to which they would otherwise be entitled if the cross-libel were pressed in an independent proceeding.⁶ But for whatever reason, the doctrine gained general acceptance.⁷

This consistent pattern of the cases in admiralty on this point was reflected in the promulgation of Rule 54 of the Admiralty Rules by this Court at December Term, 1868, 7 Wall. v:

'Whenever a cross-libel is filed upon any counter claim, arising out of the same cause of action for which the original libel was filed, the respondents in the cross-libel shall give security in the usual amount and form, to respond in damages as claimed in said cross-libel, unless the court on cause shown, shall otherwise direct; and all proceedings upon the original libel shall be stayed until such security shall be given.'

That rule has remained in the Admiralty Rules⁸ ever since with only slight change and now appears as Rule 50 in the following form which still reflects the underlying settled state of...