United States v. Toronto, Hamilton Buffalo Navigation Co

• Decision Date: 12 December 1949
• Docket Number: No. 39,39
• Citation: 94 L.Ed. 195,70 S.Ct. 217,338 U.S. 396
• Parties: UNITED STATES v. TORONTO, HAMILTON & BUFFALO NAVIGATION CO
• Court: U.S. Supreme Court

338 U.S. 396

70 S.Ct. 217

94 L.Ed. 195

UNITED STATES

v TORONTO, HAMILTON & BUFFALO NAVIGATION CO.

No. 39.

Argued Nov. 9, 1949.

Decided Dec. 12, 1949.

Reversed and remanded.

Mr. Paul A. Sweeney, Washington, D.C., for petitioner.

Mr. Gerald E. Dwyer, New York City, for respondent.

Mr. Justice CLARK delivered the opinion of the Court.

We are faced again with elusive questions of property valuation in determining whether the United States awarded 'just compensation' under the Fifth Amendment when it took the respondent's car ferry, the Maitland No. 1, under the authority of § 902 of the Merchant Marine Act of 1936, as amended, 53 Stat. 1254, 1255, 46 U.S.C. § 1242, 46 U.S.C.A. § 1242. The Government requisitioned the vessel in 1942, and determined its fair value as $72,500. In 1943, respondent exercised its option to accept 75 per cent of the award, and in 1945 brought action in the Court of Claims to recover $711,753 as the additional amount necessary for just compensation. The Court, two judge dissenting, held that the fair value of the Maitland was $161,833.72, more than twice the Government's original determination. 81 F.Supp. 237, 112 Ct.Cl. 240. We brought the case here on certiorari, 336 U.S. 965, 69 S.Ct. 938, because it presents problems of difficulty and importance in the practical application of the general standard of just compensation.

The facts were found by the Court of Claims. They must be stated in some detail.

1. The Maitland No. 1 was a conventional, steel-hull, two-stacker, twin-screw ferry for railroad cars, built in 1916. Until 1932 she plied across Lake Erie between Ashtabula, Ohio, and Port Maitland, Canada. She was respondent's only ship on that route, and her principal cargo was coal for a steel company in Hamilton, Ontario. On the Canadian side, respondent's connecting rail line moved the coal to destination in Hamilton. But a more convenient route on Lake Ontario caused a sharp decline in respondent's traffic beginning in 1928. And when the 'new Welland Canal' between Lake Erie and Lake Ontario was opened in 1932, and larger ships carried the load directly to Hamilton, respondent abandoned the line. From 1932 to 1935 the Maitland was laid up at her dock in Ohio.

On November 29, 1935, respondent chartered the ship at an unspecified rate to a company ferrying freight across Lake Michigan, and thereafter, for the convenience of the parties, title was transferred to the Lake Michigan concern. The transfer recited a total consideration of $166,000 and included a 'recapture' clause. On December 15, 1937, this right was exercised and upon payment of $92,894.80 the Maitland was returned to Ashtabula where she lay until requisitioned in August, 1942.

2. Cost, book and scrap value, upkeep and earnings of Maitland.—The Maitland was built in 1916 at a cost of $362,800. Respondent, a wholly owned subsidiary of the New York Central and Canadian Pacific Railways, acquired her from respondent's own president in that year, paying $394,560. From 1917 to 1930, respondent spent $38,115.46 for 'additions and betterments to the vessel.' Repairs from 1922 to 1932 amounted to $20,329.11 per annum. Lay-up expenses from 1938 to 1942—there is no evidence for earlier years—averaged $2,700 per year, including repairs. It would have cost the Government some $35,000 to place the ship in operating condition in 1942.

Her insured valuation in 1942 was $100,000; her scrap value $13,500. We do not know the reproduction cost at that time. Book value, figured at original cost less depreciation at one per cent for each of the first three years and four per cent per annum for the remaining period was $75,509.51. The earnings varied during the years she was operated by respondent. The average annual net operating income through December 31, 1920, was $17,216.28; both 1921 and 1922 operations found a deficit, while for the next five years net profit was at its highest level, averaging $129,893.92 per annum. 1928 and 1929 were progressively bad years and the next two and one-half years showed losses, averaging $15,417.82 per year. In June 1932 the traffic was so poor that the vessel was docked and her operation never resumed. The Court of Claims found that the average annual net profit for the entire period of operation, ending in 1932, was $42,816.36, amounting to a return of 10.41 per cent per annum on the original investment.

3. Sales of other vessels of like class on Great Lakes.—After 1930, ships of the Maitland type were obsolete and not in demand as railroad car ferries on the Great Lakes. Construction of the 'outer belt' railroad around the Chi- cago yards and abolition of a rate differential made all-rail transportation, or movement on larger and more modern ferries, more practical for shippers.

But the Court found that in 1942 'there were a number of secondary uses for the vessel for which a demand did exist at that time' for use on the Great Lakes. Conversion to automobile ferry was relatively simple and economical; and the Court found that three sales of similar vessels had occurred from 1936 to 1940 for that use. The prices ranged from $25,000 to $65,000, but conversion and repair costs were greater because of the age and maintenance record of the vessels.

Two other vessels that were built from the same plans as the Maitland were sold for use on the Great Lakes in 1940 and 1942, for conversion as bulk carriers of pulpwood. Sale prices were $24,000 and $37,724.04, respectively. Neither of these vessels, however, was in the state of repair of the Maitland. One had been built in 1903, the other in 1910.

4. Sales of vessels of like class for car ferrying on Atlantic Coast.—While there was a finding that in '1942, there was a demand for a vessel such as the Maitland No. 1 for use as a car ferry between Florida and Cuba,' there was no finding that this 'demand' had reflected itself in the Great Lakes market. The Maitland was not equipped to operate in salt water and it would have cost 'not less than' $115,000 so to equip and move her to Florida, not including necessary strengthening for ocean service. There is no finding that respondent would have been able to sell the vessel had it been transported to Florida, nor that successful operation there was possible.

The Florida 'demand' seems to have been predicated upon five sales of four vessels between 1941 and 1945. Only one ship, the Grand Haven, was sold while on the Great Lakes, and that was not until after hostilities ended in the last war. She was smaller but faster than the Maitland, and brought a $50,000 price. She was floated down the Mississippi to the Gulf at 'considered expense.' We know neither this amount nor the amount needed for repairs.

The other four sales were of vessels very similar to the Maitland, built between 1914 and 1920; but, unlike the Grand Haven and the Maitland, these ferries were operating on the Atlantic coast and were originally constructed for ocean travel. The sale prices were $100,000 and $170,000 for one vessel, the Henry M. Flagler,¹ and $332,500 each for the two others.² The latter two required about $20,000 each for repairs. All three vessels were 'purchased' by the United States after requisition.

The Court of Claims (81 F.Supp. 244), finding that 'the property condemned' was 'unique, * * * peculiarly situated' and without relative comparison on the Great Lakes, concluded that the Maitland was worth more than 'the residual value of an obsolete car ferry', thus requiring resort to 'a consideration of the earnings * * *, in conjunction with the contemporaneous transactions in vessels of close similarity in determining a fair value.' It called 'the average mean residual value of an obsolete car ferry' $50,000; 'attributing this value to the Maitland', the capitalized value of an annual income comparable to that of the Maitland for the sixteen years ending in 1932 was the figure of $389,767.15, 'according to actuarial tables in evidence.' The court then deducted the percentage difference between the life expectancy of the vessel in fresh and salt water (20%), the cost of conversion to salt water and sailing it to Florida, and the necessary repairs. Under this formula, $161,833.72 was the fair value 'for its highest available and most profitable use for which it was adaptable at the time of its taking.'

Perhaps no warning has been more repeated than that the determination of value cannot be reduced to inexorable rules. Suffice to say that the balance between the public's need and the claimant's loss has been struck, in most cases, by awarding the claimant the monetary 'market value' of the property taken. See United States v. Miller, 1943, 317 U.S. 369, 374, 63 S.Ct. 276, 280, 87 L.Ed. 336, 147 A.L.R. 55. Usually that is a practical standard; usually that approaches the 'just' compensation demanded by the Fifth Amendment.

At times, however, peculiar circumstances may make it impossible to determine a 'market value.' There may have been, for example, so few sales of similar property that we cannot predict with any assurance that the prices paid would have been repeated in the sale we postulate of the property taken. We then say that there is 'no market' for the property in question. But that does not put out of hand the bearing which the scattered sales may have on what an ordinary purchaser would have paid for the claimant's property.³ We simply must be wary that we give these sparse sales less weight than we accord 'market' price, and take into consideration those special circumstances in other sales which would not have affected our hypothetical buyer. And it is here that other means of measuring value may have relevance—but only, of course, as bearing on what a prospective purchaser would have paid.

We agree with the Court of Claims that in this case there was no Great Lakes 'market' in the sense discussed above. We hardly think that five sales of dissimilar ves- sels require a finding that any one of the...