B-107004, SEPTEMBER 10, 1952, 32 COMP. GEN. 130

B-107004: Sep 10, 1952

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AS A MEANS OF REHABILITATING AND MODERNIZING THE AMERICAN MERCHANT MARINE" WAS INTENDED AS AN INDUCEMENT FOR FUTURE TRANSACTIONS AND COULD NOT HAVE BEEN INTENDED TO APPLY TO VESSELS ALREADY EXCHANGED PRIOR TO SAID ACT. CONTRACTS PROVIDING FOR INCREASED ALLOWANCES TO PURCHASERS OF VESSELS EXCHANGED PRIOR TO THE ACT ARE NOT BINDING ON THE UNITED STATES SO AS TO PRECLUDE CANCELLATION OR RECOVERY OF SAID INCREASED ALLOWANCES. 1952: FURTHER REFERENCE IS MADE TO THE MATTER OF ADJUSTMENT OF VESSEL TRADE-IN ALLOWANCES UNDER SECTION 9 OF THE MERCHANT SHIP SALES ACT. YOU WILL RECALL THAT THIS SUBJECT WAS DISCUSSED IN MY AUDIT REPORT OF THE FORMER UNITED STATES MARITIME COMMISSION FOR THE FISCAL YEARS ENDED JUNE 30.

B-107004, SEPTEMBER 10, 1952, 32 COMP. GEN. 130

VESSELS - SALES UNDER THE MERCHANT SHIP SALES ACT - TRADE-IN ALLOWANCE LIMITATIONS THAT PORTION OF THE MERCHANT SHIP SALES ACT OF 1946, WHICH AUTHORIZES THE MARITIME COMMISSION, IN FIXING THE FAIR AND REASONABLE VALUE OF A VESSEL TURNED IN FOR CREDIT ON THE PURCHASE OF A WAR-BUILT VESSEL, TO INCLUDE AN ADDITIONAL AMOUNT WHERE NECESSARY BY REASON OF "THE PUBLIC INTEREST IN PROMOTING EXCHANGE OF VESSELS, AS A MEANS OF REHABILITATING AND MODERNIZING THE AMERICAN MERCHANT MARINE" WAS INTENDED AS AN INDUCEMENT FOR FUTURE TRANSACTIONS AND COULD NOT HAVE BEEN INTENDED TO APPLY TO VESSELS ALREADY EXCHANGED PRIOR TO SAID ACT, AND THEREFORE, CONTRACTS PROVIDING FOR INCREASED ALLOWANCES TO PURCHASERS OF VESSELS EXCHANGED PRIOR TO THE ACT ARE NOT BINDING ON THE UNITED STATES SO AS TO PRECLUDE CANCELLATION OR RECOVERY OF SAID INCREASED ALLOWANCES.

COMPTROLLER GENERAL WARREN TO THE CHAIRMAN, FEDERAL MARITIME BOARD, SEPTEMBER 10, 1952:

FURTHER REFERENCE IS MADE TO THE MATTER OF ADJUSTMENT OF VESSEL TRADE-IN ALLOWANCES UNDER SECTION 9 OF THE MERCHANT SHIP SALES ACT, OF 1946, 60 STAT. 46. YOU WILL RECALL THAT THIS SUBJECT WAS DISCUSSED IN MY AUDIT REPORT OF THE FORMER UNITED STATES MARITIME COMMISSION FOR THE FISCAL YEARS ENDED JUNE 30, 1948 AND 1949, AND PARTICULAR REFERENCE WAS MADE TO IT IN MY LETTER OF FEBRUARY 6, 1950, TRANSMITTING THAT REPORT TO THE CONGRESS. IN THAT LETTER IT WAS STATED:

* * * THE ACT PROVIDES FOR ADJUSTMENTS IN THE PRICES OF VESSELS SOLD BY THE COMMISSION PRIOR TO THE DATE OF THE ACT IN ORDER TO PLACE THOSE PURCHASERS IN THE SAME POSITION AS THOSE BUYING UNDER THE STATUTORY FORMULAE CONTAINED IN THE ACT. WHERE THE PRIOR PURCHASER HAD TURNED IN AN OLD VESSEL THE EXCHANGE ALLOWANCE WAS LIKEWISE SUBJECT TO ADJUSTMENT. THE ACT SET UP FIVE FACTORS FOR CONSIDERATION IN FIXING THE EXCHANGE ALLOWANCE FOR VESSELS TURNED IN SUBSEQUENT TO THE DATE OF THE ACT AND PROVIDED THAT THESE SAME FACTORS SHOULD APPLY TO TRADE-INS MADE PRIOR TO THE DATE OF THE ACT. THE FIRST FOUR FACTORS PRESCRIBED WERE: (1) THE UNENHANCED MARKET VALUE; (2) THE LIABILITY OF THE UNITED STATES TO RESTORE OR REPAIR; (3) THE UTILITY VALUE; AND (4) THE EFFECT OF THE ACT ITSELF UPON THE MARKET VALUE. THE FIFTH FACTOR WAS "THE PUBLIC INTEREST IN PROMOTING EXCHANGES OF VESSELS AS A MEANS OF REHABILITATING AND MODERNIZING THE AMERICAN MERCHANT MARINE.'

THE INTENDED PURPOSE OF THE FIFTH FACTOR IS CLEAR TO THE POINT OF BEING SIMPLE. BY THIS FACTOR THE CONGRESS EXTENDED TO THE COMMISSION AUTHORITY TO ADD TO A TRADE-IN ALLOWANCE IF THE ADDED AMOUNT WAS NECESSARY IN THE PUBLIC INTEREST TO RETIRE AN OLD, WORN-OUT SHIP FROM THE SEAS. WITH THIS PURPOSE SO CLEAR, I WAS AMAZED TO LEARN OF THE COMMISSION'S DETERMINATION TO MAKE AN ALLOWANCE UNDER THIS FACTOR MEASURED BY FOREIGN MARKET VALUES-- - NOT FOR EXCHANGES AFTER THE ACT, WHICH WOULD BE BAD ENOUGH--- BUT FOR VESSELS ALREADY EXCHANGED AND TURNED OVER TO THE COMMISSION PRIOR TO THE ACT. I REGARD SUCH INCREASED ALLOWANCES AS WHOLLY BEYOND THE SCOPE OF THE LAW AND CREDIT FOR SUCH AMOUNTS AS HAVE BEEN PAID WILL BE WITHHELD IN THE ACCOUNTS.

IT IS UNDERSTOOD THAT YOU HAVE APPROVED ADJUSTED TRADE-IN ALLOWANCES COMPUTED UNDER NEW PROCEDURES ADOPTED ON FEBRUARY 12, 1951, FOR 48 OF THE 65 VESSELS ORIGINALLY INVOLVED; THAT THESE ALLOWANCES PREVIOUSLY APPROVED BY THE FORMER MARITIME COMMISSION UNDER FACTOR (E); THAT THE FORMER MARITIME COMMISSION HAD ENTERED INTO AGREEMENTS AND EXCHANGED MUTUAL RELEASES WITH THE VESSEL OPERATORS WITH RESPECT TO ALLOWANCES ON THE REMAINING 17 VESSELS BEFORE THE PRESENT PROCEDURES WERE ADOPTED; AND THAT THE GENERAL COUNSEL OF THE MARITIME ADMINISTRATION HAS RULED THAT THE ASSERTION OF ANY CLAIMS ON ACCOUNT OF SUCH ALLOWANCES AGAINST THESE OPERATORS WOULD BE BARRED BY THE TERMS OF THE RELEASES.

THE PURPOSE OF THIS LETTER IS TO ADVISE YOU OF THE VIEWS OF THIS OFFICE WITH RESPECT TO THE LEGAL ISSUES INVOLVED AND OF THE ACTION WHICH THIS OFFICE PROPOSES TO TAKE WITH RESPECT TO THESE EXCESSIVE ALLOWANCES. THE FUNDAMENTAL QUESTION INVOLVED IS WHETHER THE CONTRACTS EXECUTED BY THE MARITIME COMMISSION WITH THE VESSEL OPERATORS ARE BINDING AND CONCLUSIVE. THE ISSUES ARE, THEREFORE, SIMILAR TO THOSE INVOLVED IN THE CASE OF THE SUPER LINER S.S. UNITED STATES. B-58323, MAY 27, 1952, 31 COMP. GEN. 695.

AS POINTED OUT IN THAT DECISION THE SUPREME COURT HAS REPEATEDLY HELD THAT THE COURTS WILL DISTURB ADMINISTRATIVE ACTION BASED ON A MISCONSTRUCTION OF THE APPLICABLE STATUTE. IT IS THE POSITION OF THIS OFFICE THAT, PROPERLY CONSTRUED, AN ALLOWANCE UNDER SECTION 9 OF THE MERCHANT SHIP SALES ACT OF 1946 COULD NEVER INCLUDE AN AMOUNT ATTRIBUTABLE TO FACTOR E. FACTOR E, AS CONTAINED IN SECTION 8, AUTHORIZED THE COMMISSION, IN FIXING THE FAIR AND REASONABLE VALUE OF A VESSEL TO BE TURNED IN FOR AN ALLOWANCE OF CREDIT ON THE PURCHASE OF A WAR-BUILT VESSEL, TO INCLUDE SOME ADDITIONAL AMOUNT WHERE NECESSARY BY REASON OF "THE PUBLIC INTEREST IN PROMOTING EXCHANGES OF VESSELS AS A MEANS OF REHABILITATING AND MODERNIZING THE AMERICAN MERCHANT MARINE.' SECTION 9 APPLIED TO VESSELS ALREADY EXCHANGED BEFORE THE ACT WAS PASSED. THE PURPOSE AND INTENT OF FACTOR E COULD NEVER HAVE APPLICATION TO A VESSEL THAT HAD ALREADY BEEN EXCHANGED. IN SUCH CASES THE INDUCEMENT INTENDED BY THE CONGRESS TO BE PROVIDED BY FACTOR E COULD NEVER PROPERLY BE DETERMINED AS NECESSARY. CONSEQUENTLY, THE CONTRACTS HERE INVOLVED CALLED FOR ALLOWANCES FIXED ON A MISCONSTRUCTION OF THE LAW.

IT WOULD SEEM UNNECESSARY TO DWELL AT LENGTH UPON THE EFFECT OF THE RELEASE EXECUTED IN CONNECTION WITH THE CONTRACTS COVERING THESE 17 VESSELS. IF BY THE SIMPLE EXPEDIENT OF SUCH A RELEASE A GOVERNMENT OFFICIAL COULD FURNISH A CONTRACTOR WITH A GUARANTEE AGAINST RECOVERY OF AN ILLEGAL PAYMENT, THE RULE LAID DOWN BY THE SUPREME COURT WOULD BE RENDERED MEANINGLESS. THUS, REFERENCE IS AGAIN MADE TO WISCONSIN CENTRAL RAILROAD V. UNITED STATES, 164 U.S. 190, WHEREIN THE SUPREME COURT SAID---

* * * THE GOVERNMENT CANNOT BE BOUND BY THE ACTION OF ITS OFFICERS, WHO MUST BE HELD TO THE PERFORMANCE OF THEIR DUTIES WITHIN THE STRICT LIMITS OF THEIR LEGAL AUTHORITY, WHERE BY MISCONSTRUCTION OF THE LAW UNDER WHICH THEY HAVE ASSUMED TO ACT, UNAUTHORIZED PAYMENTS ARE MADE * * *. BRINGING THIS PRINCIPLE ONE STEP FURTHER THE FORMER MARITIME COMMISSION HAD NO MORE AUTHORITY TO EXECUTE A BINDING RELEASE IN THE PRESENT CASE THAN IT HAD TO MAKE A CONTRACT CALLING FOR AN ILLEGAL EXPENDITURE OR CREDIT.

ACCORDINGLY, I HAVE TO ADVISE THAT THIS OFFICE DOES NOT REGARD THE CONTRACTS COVERING THE SUBJECT 17 VESSELS AS BINDING SO AS TO PRECLUDE THE RECOVERY OF SUCH AMOUNTS AS MAY BE IN EXCESS OF THOSE PROVIDED FOR IN THE APPLICABLE STATUTE PROPERLY CONSTRUED. THE COOPERATION OF THE FEDERAL MARITIME BOARD AND MARITIME ADMINISTRATION IS RESPECTFULLY REQUESTED IN THE RECOVERY OF SUCH EXCESSIVE PAYMENTS OR THE CANCELLATION OF SUCH EXCESSIVE CREDITS.