Under authority of § 902 of the Merchant Marine Act of 1936, as
amended, the United States requisitioned respondent's fresh water
car ferry on Lake Erie. The vessel was built in 1916, was in
service on Lake Erie from that year until 1932, and, except for a
2-year charter period, was idle from 1932 until requisitioned in
1942. In determining the amount of just compensation required by
the Fifth Amendment to be paid respondent, the Court of Claims,
absent evidence of "market value," relied upon the earnings of the
vessel from 1916 to 1932 and upon the "demand" for such a vessel
for use between Florida and Cuba.
Held:
1. On the record in this case, the Court of Claims erred in
relying on the vessel's 1916-1932 earnings. Pp.
338 U. S.
402-403.
(a) Where, as here, it is impossible to determine "market value"
as a basis for just compensation, other measures of value may be
relevant. Pp.
338 U. S.
402-403.
(b) Past earnings are significant in assessing value only when
they tend to reflect future returns. P.
338 U. S.
403.
(c) On the record, the vessel's 1916-1932 earnings were without
relevance on the issue of its capacity to earn after 1942, on the
Great Lakes or elsewhere. P.
338 U. S.
403.
2. On the record in this case, the Court of Claims erred in
according weight to Florida values. Pp.
338 U. S.
404-407.
(a) To justify consideration of Florida values, the burden was
on the respondent to show that it was likely that a prospective
Florida buyer would have investigated the Great Lakes market and
considered a vessel like respondent's moored to its Ohio dock, or
that the ordinary Great Lakes owner would have taken the trouble
and expense to send a vessel to Florida for a possible sale, or
that either of these possibilities would have had an effect on
price had respondent's vessel been sold on the Great Lakes. P.
338 U. S.
406.
(b) The question in such case is what the ordinary businessman
in the trade would have done, not what the owner would have done.
P.
338 U. S.
406.
Page 338 U. S. 397
(c) Respondent's burden of proof was not met by a bare record of
five sales, three of which were to the United States, and but one
on the Great Lakes for Florida use -- and that after the war's end.
P.
338 U. S.
406.
(d) A finding by the Court of Claims that there were
probabilities of sale in Florida in 1942 sufficient to warrant
consideration of demand there in fixing the value of respondent's
vessel, on substantial evidence not now before this Court, is not
foreclosed, but the Court of Claims is not bound to accept any
geographic price range at full value. Pp.
338 U. S.
406-407.
112 Ct.Cl. 240, 81 F. Supp. 237, reversed.
In an action against the United States to recover just
compensation for a vessel requisitioned under § 902 of the Merchant
Marine Act of 1936, as amended, the Court of Claims awarded
judgment in favor of the claimant, respondent here. 112 Ct.Cl. 240,
81 F. Supp. 237. This Court granted certiorari. 336 U.S. 965.
Reversed and remanded, p.
338 U. S.
407.
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. The Government requisitioned
the vessel in 1942, and determined its fair value as $72,500. In
1943, respondent exercised its option to accept 75 percent
Page 338 U. S. 398
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. 112 Ct.Cl. 240, 81 F. Supp.
237. We brought the case here on certiorari, 336 U.S. 965, 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.
Page 338 U. S. 399
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 percent
for each of the first three years and four percent 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 percent 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 Chicago
Page 338 U. S. 400
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
Page 338 U. S. 401
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, [
Footnote 1] and $332,500 each for the two others.
[
Footnote 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, 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
Page 338 U. S. 402
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, 317 U. S. 369,
317 U. S. 374
(1943). 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.
[
Footnote 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 vessels
Page 338 U. S. 403
require a finding that any one of the varying prices would have
been repeated had the
Maitland been offered for sale. And
so we are in basic agreement with the court below that other
measures of value may be relevant.
But there are few of these substitute standards which are in
fact of assistance in assessing the value of the
Maitland.
Original cost is well termed the "false standard of the past"
[
Footnote 4] where, as here,
present market value in no way reflects that cost. So with
reproduction cost, when no one would think of reproducing the
property. [
Footnote 5] And past
earnings are significant only when they tend to reflect future
returns. [
Footnote 6] We see no
relevance in the
Maitland's earnings between 1916 and 1932
on the issue of capacity to earn after 1942, on the Great Lakes or
elsewhere. On this record, they are entirely too remote to bear on
the vessel's value when taken. It follows that the Court of Claims'
reliance upon earnings was error.
We have said that the absence of "market" price does not,
ipso facto, rid isolated contemporaneous sales of all
relevance. None of the evidence upon which the findings below were
based is before us, but it seems likely that
Page 338 U. S. 404
the differences between the
Maitland and ships sold on
the Great Lakes between 1936 and 1942 may be calculated with some
degree of accuracy. And the circumstances may indicate the
relevance of the
Maitland's insurance valuation.
See Rule 3, Advisory Board on Just Compensation, 1943
A.M.C. 1443, 1444.
But cf. Westmoreland Chemical & Color
Co. v. Public Service Comm'n, 293 Pa. 326, 331, 142 A. 867,
869 (1928); Report of Proceedings of the Advisory Board,
supra, pp. 152-153.
We have yet to consider the weight given to what the Court of
Claims called Florida "demand." The question is whether Florida
prices may be considered at all in determining value when the
Maitland was taken on the Great Lakes.
Two cases in this Court, both involving the requisition of coal,
have stated the rule that, where
"private property is taken for public use, and there is a market
price prevailing at the time
and place of the taking, that
price is just compensation."
United States v. New River Collieries, 262 U.
S. 341,
262 U. S. 344
(1923);
Davis v. Newton Coal Co., 1925,
267 U.
S. 292,
267 U. S. 301.
(Emphasis supplied.) We have held that, in this case, there was no
"market" on the Great Lakes, and so the quoted rule is, in terms,
inapplicable. But neither can a Florida market be established on
the evidence before us. And we have reminded the court below that
it may consider individual sales for use on the Great Lakes for
what bearing they may have upon the
Maitland's value.
We take it that, in the valuation of readily salable articles,
price at the market nearest the taking is, at least in the usual
case, a practical rule of thumb, and one is most likely to place
the claimant in the pecuniary position he occupied before the
taking. Such considerations seem to underlie a similar result in
the law of sales, and in the general law of damages. Thus, in
Grand Tower Co. v.
Phillips, 23 Wall. 471 (1874),
Page 338 U. S. 405
the plaintiff had planned to sell the defendant's coal at the
best available market on the Mississippi between Cairo and New
Orleans. Yet the defendant's breach of contract to sell to
plaintiff brought a "more direct" measurement of damages: the
nearest available market.
See Harris v. Panama R. Co., 58
N.Y. 660 (1874); 3 Williston, Sales, §§ 599, 599e (Rev. ed.1948),
and cases cited.
But we do not think a similar rule practical or fair in the
requisition of property which most owners would, if possible, sell
without geographic restriction. We doubt, for example, that owners
of ocean liners would, under ordinary circumstances, fail to
negotiate beyond the port in which the vessels lay -- whether or
not ocean liners are "goods" and subject to the law of sales.
[
Footnote 7] Were market
conditions normal, [
Footnote 8]
we could hardly call an award "just compensation" unless relevant
foreign sales, in available markets, were considered.
See
Supplementary Rules 1 and 3, Advisory Board on Just Compensation,
1945 A.M.C. 1382, 1383;
Glaspy v. Cabot, 135 Mass. 435
(1883).
The question is, of course, one of degree, and we do not mean to
foreclose the consideration of each case upon its facts.
Olson
v. United States, 292 U. S. 246,
292 U. S. 255
(1934), relied upon below, makes this clear. This Court there
stated that the
"highest and most profitable use for which the property is
adaptable and needed or likely to be needed in the reasonably near
future is to be considered not necessarily as the measure of value,
but to the full extent that the prospect of demand for such use
Page 338 U. S. 406
affects the market value while the property is privately
held."
Mr. Justice Holmes had earlier warned that the prospective use
may be considered "only so far as the public would have considered
it;" the price was not to be "what a tribunal at a later date may
think a purchaser would have been wise to give."
New York v.
Sage, 239 U. S. 57,
239 U. S. 61
(1915).
On the record before us, the Court of Claims was in error in
according weight to Florida values. Whether the problem is one of
more profitable use or simply of a more advantageous price in a
distant port, the burden is on the claimant [
Footnote 9] to show that it is likely that a
prospective Florida buyer would have investigated the Great Lakes
market and considered a ship like the
Maitland while it
was moored to its Ohio dock, or that the ordinary Great Lakes owner
would have undergone the trouble and expense necessary to send his
ship to Florida for a possible sale, or, finally, that either of
these possibilities would have had an effect on price had the
Maitland been sold on the Great Lakes. And the question is
what the ordinary businessman in the trade would do, not what the
owner claims he would do; a contrary rule would invite perjury, and
would smack of the kind of special value which would not be
considered by the ordinary purchaser.
See Grand Tower Co. v.
Phillips, supra.
A bare record reciting five sales, three to the United States,
and but one on the Great Lakes for Florida use -- and that after
the war's end -- does not meet the claimant's burden. But we leave
the final question open for further consideration below. We do not
mean to foreclose a finding, on substantial evidence not now before
us, that there were probabilities of sale in Florida in 1942
sufficient to warrant consideration of demand there in fixing
the
Page 338 U. S. 407
value of the
Maitland. We may add that the Court is
clearly not bound to accept any geographic price range at full
value.
This record, however, justifies neither of the valuation
measures adopted below. The judgment is reversed, and the cause
remanded for further proceedings in the light of this opinion.
It is so ordered.
MR. JUSTICE DOUGLAS took no part in the consideration or
decision of this case.
[
Footnote 1]
The first sale was in May, 1941, to a private party who had
thereafter spent $63,820 for necessary repairs. The second sale was
on requisition, July 28, 1941, by the War Shipping
Administration.
[
Footnote 2]
These vessels, the
Joseph R. Parrott and the
Estrada Palma, were requisitioned by the War Shipping
Administration in June, 1942.
[
Footnote 3]
Considerations which might affect our rulings in this case if
the cause were tried to a jury need not concern us here.
[
Footnote 4]
E. Schmalenbach, Finanzierungen, pp. 4-6 (3d ed., Leipzig,
1922), quoted in 1 Bonbright, Valuation of Property 147, n. 9
(1937). "It is the property, and not the cost of it, that is
protected by the Fifth Amendment."
Brooks-Scanlon Corp. v.
United States, 265 U. S. 106,
265 U. S. 123
(1924).
But see Bonbright,
supra, ch. VIII.
[
Footnote 5]
See 1 Report of Proceedings of the Advisory Board on
Just Compensation 170 (United States Maritime Commission, War
Shipping Administration, mimeographed, 1943).
Cf. Standard Oil
Co. v. Southern Pacific Co., 268 U. S. 146
(1925);
The Hisko, 54 F.2d 540 (1931).
[
Footnote 6]
See Orgel, Valuation Under Eminent Domain, ch. XIV
(1936); 2 Nichols, Eminent Domain, § 446 (2d ed.1917);
The I.
C. White, 295 F. 593, 595, 596 (1924). As to the separation
which must be made, in any case, between the value of the property
and the value of the claimant's own business skill,
see Kimball
Laundry Co. v. United States, 338 U. S.
1 (1949).
[
Footnote 7]
See Rivara v. James Stewart & Co., 241 N.Y. 259,
264, 149 N.E. 851, 852 (1925), per Cardozo, J.;
Behnke v. Bede
Shipping Co. [1927] 1 K.B. 649.
Cf. Meering v. Duke,
6 L.J. (o.s.) 211 (K.B. 1828) (Stamp Act).
[
Footnote 8]
But see Report of Proceedings of the Advisory Board,
note 5 supra, pp.
64-71.
[
Footnote 9]
United States ex rel. and for Use of TVA v. Powelson,
319 U. S. 266,
319 U. S. 273
(1943).
MR. JUSTICE FRANKFURTER, concurring.
Even though I join the Court's opinion in its general direction,
the treacherous nature of the subject matter makes appropriate a
separate statement of views.
Resort to the conventional formulas for ascertaining just
compensation for the taking of property rarely bought and sold, and
having therefore no recognized market value, does not yield
fruitful results. The variables are too many to permit of anything
except an informed judgment. Everything therefore turns on the
process of judgment, to the end that judgment be not based on
standards too difficult of application or evidence too tenuous for
solid inference.
It is this Court's duty to lay down standards for application by
the lower courts. But, since we are concerned with ascertainment of
rather elusive values, those whose primary duty it is to make these
estimates ought not to be cramped by rules that are too rigid and
too artificial. If the questions presented to this Court in a
particular case really turn, as they do here, on the relevance of
data and the reasonableness of the inferences drawn from them in
arriving at just compensation, the training and experience of the
factfinders become important.
Page 338 U. S. 408
If a jury is to make the valuation, the area within which
speculation may, in the nature of things, roam at large should be
as narrowly confined as possible.
See Kimball Laundry Co. v.
United States, 338 U. S. 1,
338 U. S. 20. But
when the valuer is a court, and particularly the tribunal that
consists of judges to whom may fairly be attributed the expertness
that comes from frequent dealing with the more elusive problems of
value, it seems desirable for this Court to allow such tribunal
considerable freedom from hard and fast rules in determining what
data are relevant and what significance may be drawn from them.
Barring obviously wrong criteria, or findings baseless in proof,
experience counsels empiricism in dealing with these problems. And
empiricism suggests sailing as close to the record of a particular
case as possible. Only thus shall we avoid abstract pronouncements
bound to distort or to be distorted by the case-by-case
adjudicatory process especially appropriate in problems of this
nature. Either lip-service will be paid such formulas while
decisions are rooted in considerations outside them, or formulas
not fitting practical circumstances will achieve impractical
results.
In the light of this general approach, the case before the Court
comes down to this:
1. The starting point of the computation by the Court of Claims
of the amount to be awarded for the Government's taking of the
Maitland was capitalization of its earnings between 1916
and 1932. While we do not have the evidence that was before the
court below, its findings disclose no reasonable relation between
such earnings and the value of the vessel in 1942, the year of the
taking, whether for use on the Great Lakes or in Florida waters. To
permit such data to serve as a springboard for judgment is to leave
too much temptation for unbridled speculation, even by experienced
judges.
Page 338 U. S. 409
2. In these days of quick mobility both for persons and
property, it would be an unjustifiably artificial rule to confine
the worth of mobile property, as was the
Maitland, to
place value. Of course, if there was an active market for property
to be condemned at about the time and place of the taking, evidence
of demand for special uses, or at other places, would not be
helpful in seeking the general value of the property as against
some unusual salability of the property -- unusual either by reason
of location or as a matter of use. Such evidence of atypical demand
should be excluded not because it has no logical relevance, but
because such practical significance as it has is already reflected
in current market prices. But here, it was found that there was, in
fact, no market on the Great Lakes for vessels like the
Maitland, and, since what the United States got had to be
translated into dollars and cents, there is no reason in sense, and
therefore none in law, for excluding from consideration that there
was a demand for vessels such as the
Maitland for use as a
car ferry between Florida and Cuba.
3. But such evidence must be critically used. It is one thing to
exclude such evidence of demand at a distant place to which the
property was transferable, and quite another to assume that a
finding that, in 1942, there was such a demand is proof positive
that the
Maitland would have found a market in Florida,
and to base valuation on such assumption. Particularly is this true
when the court below found that it would have cost at least
$115,000 to transport the
Maitland to Florida waters and
to outfit it for salt water use. The amount of this expenditure is
more than the arithmetic measure of the difference in value between
a vessel located in Florida and one on the Great Lakes. The risk to
a profitable venture that the $115,000 expenditure implies casts
doubt on the likelihood of the
Maitland's use in the
Florida trade. For the
Page 338 U. S. 410
greater the risk the smaller the impact of the opportunities of
the distant market. The short of the matter is that, for its
difficult task of valuing, the Court of Claims should not be
confined either to acceptance or rejection of the Florida demand
in toto. Like most problems in the law, it is a matter of
degree.
4. This Court should not go beyond indicating the broad lines
for adjudication by the Court of Claims, leaving to that court
discretion appropriate to its experience in applying the indicated
standards to the facts before it. The analysis we have outlined
must be fitted to facts not now before us.
* I am not
prepared, therefore, to specify as a matter of law what number of
logically relevant sales do or do not meet the claimant's burden.
After the Court of Claims has made additional findings in the light
of this Court's decision, it will be time enough to consider
whether the data before it are too tenuous to permit solid
inferences from them, as set forth in appropriate findings,
regarding the weight which the Court of Claims may accord to the
Florida demand.
* The evidence in this case could, of course, have been included
in the record brought here under the Act of May 22, 1939, 53 Stat.
752, amending § 3(b) of the Act of February 13, 1925, 43 Stat. 936,
939.
See also Rule 41 of this Court.