B-145988, SEPTEMBER 6, 1961, 41 COMP. GEN. 181

B-145988: Sep 6, 1961

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THAT SALES CONTRACTS COVERING VESSELS CONSTRUCTED WITH GOVERNMENT AID INCLUDE A PROVISION BY WHICH THE GOVERNMENT MAY ACQUIRE THE VESSEL IN TIMES OF WAR OR NATIONAL EMERGENCY BASED ON A PRESCRIBED VALUATION FORMULA IS A CONTRACTUAL REQUIREMENT IMPOSED BY STATUTE WHICH MAY NOT BE OMITTED FROM ANY SUCH CONTRACTS. LEGISLATIVE SANCTION SHOULD BE OBTAINED BEFORE ANY TRANSFER OF THE SECTION 802 OBLIGATION TO NONSUBSIDIZED VESSELS IS UNDERTAKEN. 1961: REFERENCE IS MADE TO LETTER DATED MAY 26. IT WAS FURTHER PROVIDED THAT THIS AGREEMENT OR UNDERTAKING RAN WITH THE TITLE TO EACH VESSEL AS REQUIRED BY SUCH SECTION. THAT BETHLEHEM HAS REQUESTED THAT YOUR BOARD RELEASE THESE TWO VESSELS FROM THE ABOVE- MENTIONED SECTION 802 OBLIGATION IN CONSIDERATION OF THE CORPORATION'S AGREEMENT THAT THE 802 OBLIGATION BE IMPOSED UPON TWO OTHER NEWER VESSELS WHICH WERE CONSTRUCTED WITHOUT CONSTRUCTION DIFFERENTIAL SUBSIDY AID.

B-145988, SEPTEMBER 6, 1961, 41 COMP. GEN. 181

MARITIME MATTERS - SUBSIDIES - CONTRACT MODIFICATION THE REQUIREMENT IN SECTION 802 OF THE MERCHANT MARINE ACT, 1936, 46 U.S.C. 1212, THAT SALES CONTRACTS COVERING VESSELS CONSTRUCTED WITH GOVERNMENT AID INCLUDE A PROVISION BY WHICH THE GOVERNMENT MAY ACQUIRE THE VESSEL IN TIMES OF WAR OR NATIONAL EMERGENCY BASED ON A PRESCRIBED VALUATION FORMULA IS A CONTRACTUAL REQUIREMENT IMPOSED BY STATUTE WHICH MAY NOT BE OMITTED FROM ANY SUCH CONTRACTS, NOR MAY AN OFFICER OF THE GOVERNMENT MODIFY THE CONTRACTS TO TRANSFER THE OBLIGATION TO NONSUBSIDIZED VESSELS, EVEN THOUGH IT WOULD BE TO THE ADVANTAGE OF THE GOVERNMENT TO ACQUIRE A NEWER VESSEL AT THE PRICE OF AN OLDER SUBSIDIZED VESSEL; THEREFORE, IN VIEW OF THE UNAMBIGUOUS LANGUAGE OF THE SECTION AND EVIDENCE OF A CONGRESSIONAL INTENT THAT THE OBLIGATION RUN WITH A VESSEL BUILT WITH GOVERNMENT AID, LEGISLATIVE SANCTION SHOULD BE OBTAINED BEFORE ANY TRANSFER OF THE SECTION 802 OBLIGATION TO NONSUBSIDIZED VESSELS IS UNDERTAKEN.

TO THE ACTING ADMINISTRATOR, MARITIME ADMINISTRATION, SEPTEMBER 6, 1961:

REFERENCE IS MADE TO LETTER DATED MAY 26, 1961, FROM YOU AS CHAIRMAN OF THE FEDERAL MARITIME BOARD, CONCERNING A PROPOSAL MADE BY THE BETHLEHEM STEEL CORPORATION WITH RESPECT TO TWO VESSELS SOLD TO THAT CORPORATION BY THE UNITED STATES MARITIME COMMISSION UNDER CONTRACT NO. MCC-40055, DATED JUNE 24, 1945.

YOU ADVISE THAT PURSUANT TO THE PROVISIONS OF SECTION 802 OF THE MERCHANT MARINE ACT, 1936, AS AMENDED, 46 U.S.C. 1212, ARTICLE 7 OF THE CONTRACT OF SALE PROVIDED THAT UPON FUTURE ACQUISITION OF EACH RESPECTIVE VESSEL BY THE GOVERNMENT THE OWNER WOULD BE PAID THE VALUE THEREOF, LIMITED AS PROVIDED IN THE SAID SECTION 802, AND IT WAS FURTHER PROVIDED THAT THIS AGREEMENT OR UNDERTAKING RAN WITH THE TITLE TO EACH VESSEL AS REQUIRED BY SUCH SECTION.

FACTUALLY, YOU POINT OUT THAT THE BETHLEHEM STEEL CORPORATION HAS SOLD TWO OF THESE VESSELS TO TWO SEPARATE PURCHASERS, AND THAT BETHLEHEM HAS REQUESTED THAT YOUR BOARD RELEASE THESE TWO VESSELS FROM THE ABOVE- MENTIONED SECTION 802 OBLIGATION IN CONSIDERATION OF THE CORPORATION'S AGREEMENT THAT THE 802 OBLIGATION BE IMPOSED UPON TWO OTHER NEWER VESSELS WHICH WERE CONSTRUCTED WITHOUT CONSTRUCTION DIFFERENTIAL SUBSIDY AID, AND WHICH WERE BUILT TO THE SAME PLANS AND SPECIFICATIONS AS THE REFERRED-TO VESSELS CONSTRUCTED UNDER THE ABOVE MENTIONED CONTRACT NO. MCC-40055.

YOU STATE THE BETHLEHEM STEEL CORPORATION WILL AGREE THAT IN THE EVENT THE GOVERNMENT ACQUIRES THE TWO NON-SUBSIDIZED VESSELS, THE AMOUNTS TO BE PAID BY THE GOVERNMENT SHALL NOT EXCEED THE SECTION 802 VALUES APPLICABLE TO THE SUBSIDIZED VESSELS. YOU ALSO ADVISE THE BOARD IS OF THE VIEW THAT IT IS TO THE GOVERNMENT'S ADVANTAGE TO HAVE A RIGHT TO ACQUIRE THE TWO NEWER VESSELS AT THE RESPECTIVE 802 PRICES OF THE TWO OLDER VESSELS, AND REQUEST ADVICE WHETHER OUR OFFICE WOULD OBJECT TO THE BOARD'S ENTERING INTO SUCH AN AGREEMENT WITH THE CORPORATION.

AS POINTED OUT IN YOUR SUBMISSION, SECTION 802 OF THE MERCHANT MARINE ACT, 1936, AS AMENDED, READS AS FOLLOWS:

EVERY CONTRACT EXECUTED BY THE COMMISSION UNDER AUTHORITY OF TITLE V OF THIS ACT SHALL PROVIDE THAT---

IN THE EVENT THE UNITED STATES SHALL, THROUGH PURCHASE OR REQUISITION, ACQUIRE OWNERSHIP OF THE VESSEL OR VESSELS ON WHICH A CONSTRUCTION- DIFFERENTIAL SUBSIDY WAS PAID, THE OWNER SHALL BE PAID THEREFOR THE VALUE THEREOF, BUT IN NO EVENT SHALL SUCH PAYMENT EXCEED THE ACTUAL DEPRECIATED CONSTRUCTION COST THEREOF (TOGETHER WITH THE ACTUAL DEPRECIATED COST OF CAPITAL IMPROVEMENTS THEREON, BUT EXCLUDING THE COST OF NATIONAL-DEFENSE FEATURES) LESS THE DEPRECIATED AMOUNT OF CONSTRUCTION-DIFFERENTIAL SUBSIDY THERETOFORE PAID INCIDENT TO THE CONSTRUCTION OR RECONDITIONING OF SUCH VESSEL OR VESSELS, OR THE FAIR AND REASONABLE SCRAP VALUE OF SUCH VESSEL, AS DETERMINED BY THE COMMISSION, WHICHEVER IS THE GREATER. SUCH DETERMINATION SHALL BE FINAL. IN COMPUTING THE DEPRECIATED VALUE OF SUCH VESSEL, DEPRECIATION SHALL BE COMPUTED ON EACH VESSEL ON THE SCHEDULE ADOPTED BY THE BUREAU OF INTERNAL REVENUE FOR INCOME TAX PURPOSES.

THE FOREGOING PROVISION RESPECTING THE REQUISITION OR THE ACQUISITION OF OWNERSHIP BY THE UNITED STATES SHALL RUN WITH THE TITLE TO SUCH VESSEL OR VESSELS AND BE BINDING ON ALL OWNERS THEREOF. ( ITALICS SUPPLIED.)

IT WAS PURSUANT TO THIS STATUTORY REQUIREMENT THAT ARTICLE 7 OF THE SALES CONTRACT COVERING THE VESSELS INVOLVED INCORPORATED ESSENTIALLY THE ABOVE LANGUAGE, AND EXPRESSLY PROVIDED THAT " THE FOREGOING PROVISIONS OF THIS ARTICLE 7 SHALL RUN WITH THE TITLE TO THE VESSEL AND BE BINDING ON ALL OWNERS THEREOF.'

THE MAIN QUESTIONS RAISED BY YOUR SUBMISSION ARE (1) WHETHER THE CONTRACTUAL AGREEMENT REQUIRED BY SECTION 802 OF THE MERCHANT MARINE ACT RELATIVE TO THE VALUATION OF A VESSEL ON WHICH A CONSTRUCTION DIFFERENTIAL SUBSIDY HAS BEEN GRANTED MAY BE WAIVED IN THE ABSENCE OF LEGISLATIVE AUTHORITY THEREFOR, (2) DID THE CONGRESS IN ENACTING SECTION 802 INTEND THAT THE SPECIFIC VESSEL OR VESSELS WHICH HAD BEEN CONSTRUCTED WITH GOVERNMENT AID BE EAR-MARKED FOR POSSIBLE REQUISITION BY THE GOVERNMENT IN TIMES OF EMERGENCY, AND (3) WHETHER SUBSTANTIALLY THE SAME RESULT MAY BE LEGALLY ACCOMPLISHED BY RELEASING THE ABOVE MENTIONED TWO VESSELS FROM THE SECTION 802 RESTRICTIONS AND IMPOSING THE SAME OBLIGATIONS UPON TWO OTHER EQUAL DRY BULK CARGO VESSELS WHICH WERE NOT CONSTRUCTED WITH GOVERNMENT AID. WE BELIEVE THE ANSWERS MUST BE IN THE NEGATIVE.

EXAMINATION OF THE LEGISLATIVE HISTORY OF SECTION 802 CLEARLY ESTABLISHES THAT IT IS A COROLLARY OF SECTION 902, 46 U.S.C. 1242, WHICH AUTHORIZES THE "REQUISITION OR PURCHASE OF ANY VESSEL OR OTHER WATERCRAFT OWNED BY CITIZENS OF THE UNITED STATES" "WHENEVER THE PRESIDENT SHALL PROCLAIM THAT THE SECURITY OF THE NATIONAL DEFENSE MAKES IT ADVISABLE OR DURING ANY NATIONAL EMERGENCY DECLARED BY PROCLAMATION OF THE PRESIDENT.'

THE FIRST BILLS PRESENTED IN RESPONSE TO THE PRESIDENT'S REQUEST FOR NEW MERCHANT MARINE LEGISLATION IN HIS MESSAGE TO THE CONGRESS OF MARCH 4, 1935, PROPOSED TO AMEND SECTION 702 OF THE MERCHANT MARINE ACT, 1928, 45 STAT. 689, 697. UNDER THOSE BILLS THE AUTHORITY TO TAKE OVER AND PURCHASE OR USE PRIVATELY OWNED VESSELS WAS LIMITED TO THOSE VESSELS WHICH HAD RECEIVED GOVERNMENT AID AND THEN ONLY WHEN THEY WERE "TAKEN OVER AND PURCHASED OR USED BY THE UNITED STATES FOR NATIONAL DEFENSE OR DURING ANY NATIONAL EMERGENCY DECLARED BY PROCLAMATION OF THE PRESIDENT.' SEE H.R. 7521 AND S. 2582, 74TH CONGRESS, ST SESSION, APRIL 15, 1935; H.R. 8555, JUNE 19, 1935, AND PAGE 26 OF THE ACCOMPANYING HOUSE REPORT NO. 1277, JUNE 20, 1935. THE SENATE COMMITTEE ON COMMERCE REPORTED OUT AN AMENDED VERSION OF H.R. 8555 ON JULY 29, 1935, AND IN ITS ACCOMPANYING SENATE REPORT NO. 1226, OF THE SAME DATE, EXPLAINED THE PERTINENT CHANGE IN THE HOUSE BILL AS FOLLOWS:

SECTION 1104 OF THE HOUSE BILL, WHICH DEALS WITH THE REQUISITION OF VESSELS, IS AMPLIFIED BY THE SENATE AMENDMENT TO CONTAIN THE PRINCIPLE OF ESTABLISHING BY CONTRACTUAL RELATIONS WITH THE OWNER OF THE VESSEL AT THE TIME THE GOVERNMENT AID IS GRANTED, THE TERMS AND CONDITIONS UNDER WHICH SUCH VESSEL MAY BE REQUISITIONED BY THE GOVERNMENT IN A NATIONAL EMERGENCY. ( ITALICS SUPPLIED.)

HENCE, THIS PRINCIPLE OF REQUIRING CONTRACTUAL AGREEMENT BY THE OWNER IS PRESCRIBED IN SECTION 802 OF THE 1936 ACT. BY ITS TERMS, THE SECTION IS APPLICABLE TO EVERY CONTRACT EXECUTED UNDER THE AUTHORITY OF TITLE V OF THE ACT AND SETS OUT A FORMULA, BASED ON THE VESSEL'S DEPRECIATED COST, BY WHICH THE GOVERNMENT MAY ACQUIRE OWNERSHIP OF SUCH A VESSEL THROUGH "PURCHASE OR REQUISITION.' THE PURPOSE OF THIS SECTION WAS TO SECURE TO THE GOVERNMENT THE RIGHT TO BUY OR USE, DURING TIMES OF WAR OR NATIONAL EMERGENCY, VESSELS WHICH IT HELPED BUILD AT PRICES WHICH WOULD NOT BE EXCESSIVE; TO GOVERN COMPENSATION FOR THE "SUDDEN TAKING OVER OF VESSELS" AND TO PROVIDE THE "RIGHT OF REQUISITION AT LOW COST.' HEARINGS BEFORE HOUSE COMMITTEE ON MERCHANT MARINE AND FISHERIES, 74TH CONGRESS, ST SESSION ON H.R. 7521, MARCH, APRIL AND MAY, 1935, PAGE 987. ALSO, HEARINGS BEFORE THE SENATE COMMITTEE ON COMMERCE, 74TH CONGRESS, ST SESSION, ON S. 2582, APRIL 24 AND 26, 1935, PAGE 44, AND SENATE REPORT NO. 1721, 74TH CONGRESS, ST SESSION, PAGE 10.

WE HAVE BEEN FURNISHED A COPY OF LETTER DATED JANUARY 31, 1961, ADDRESSED TO YOUR ADMINISTRATION BY THE LAW FIRM OF COLES AND GOERTNER, WHEREIN IT IS CONTENDED THAT THE ABOVE-MENTIONED ARTICLE 7 IN THE CONSTRUCTION- DIFFERENTIAL SUBSIDY CONTRACTS MAY BE MODIFIED PROVIDED ADEQUATE CONSIDERATION IS GIVEN TO THE GOVERNMENT. IN SUPPORT OF THIS POSITION, THERE IS CITED THE CASE OF BRANCH BANKING AND TRUST CO. V. UNITED STATES, 120 CT.1CL. 72, 98 F.1SUPP., 757, 766, WHEREIN THE COURT STATED:

* * * AN OFFICER AUTHORIZED TO MAKE A CONTRACT FOR THE UNITED STATES HAS IMPLIED AUTHORITY THEREAFTER TO MODIFY PROVISIONS OF THAT CONTRACT, PARTICULARLY WHERE IT IS CLEARLY IN THE INTEREST OF THE UNITED STATES TO DO SO.

WITH THIS POSITION, GENERALLY, WE ARE NOT IN DISAGREEMENT. HOWEVER, IT IS TO BE OBSERVED THAT THE COURT OF CLAIMS IN THE SAME DECISION QUOTED FROM A PORTION OF THE DECISION IN THE CASE OF DAYTON AIRPLANE CO. V. UNITED STATES, 21 F.2D 674, WHEREIN IT WAS STATED THAT " HERE THE SCOPE OF THE CONTRACT WAS NOT LIMITED BY ANY STATUTE.'

THIS OFFICE FREQUENTLY HAS HAD OCCASION TO CONSIDER SIMILAR CASES INVOLVING CONTRACTUAL PROVISIONS REQUIRED BY STATUTE, AND IN 18 COMP. GEN. 337, AT PAGE 340, WE STATED:

* * * THE ACT REPOSES NO DISCRETION IN THE HEADS OF DEPARTMENTS OR INDEPENDENT AGENCIES, OR CONTRACTING OFFICERS OR REPRESENTATIVES OF THE GOVERNMENT TO OMIT FROM ANY CONTRACT TO WHICH THE ACT IS OTHERWISE APPLICABLE REQUIREMENTS FOR COMPLIANCE WITH ITS PROVISIONS. * * *

ALSO, IN 18 COMP. GEN. 585, AT PAGE 587, WE AGAIN STATED:

AS YOU SUGGEST, THERE MAY BE INSTANCES WHERE THE APPLICATION OF THE SUBJECT STATUTE WILL RESULT IN SOME EXCESS COST OR LOSS TO THE GOVERNMENT BUT, NO DOUBT, SUCH A POSSIBILITY WAS CONSIDERED AND DISCOUNTED BY THE CONGRESS WHEN THE STATUTE WAS ENACTED AND WOULD NOT APPEAR TO BE A MATTER FOR ADMINISTRATIVE CONCERN, SO LONG AS THERE IS PROPER ADHERENCE TO THE LAW AS IT IS WRITTEN. * * *

IN 20 COMP. GEN. 890, ON PAGE 894, WE OBSERVED THAT " IT HAS BEEN HELD THAT WHERE A STATUTE PRESCRIBES HOW CONTRACTS SHALL BE MADE, IT IN LEGAL EFFECT PROHIBITS ALL CONTRACTS MADE OTHERWISE AND THAT NO RECOVERY CAN BE HAD ON A CONTRACT PROHIBITED BY LAW.' AND IN 24 COMP. GEN. 376, AT PAGE 378, WE AGAIN POINTED OUT THAT " SINCE, THEREFORE, THE CONTRACTING OFFICER HAD NO AUTHORITY TO EXECUTE THE CONTRACT WITHOUT THESE PROVISIONS THE AGREEMENT SO SIGNED IN VIOLATION OF THE STATUTE MUST BE HELD TO HAVE IMPOSED NO OBLIGATION ON THE UNITED STATES.'

IT ALSO HAS BEEN SUGGESTED THAT WHEN THE CONGRESS ENACTED THE REQUIREMENT THAT THE PROVISIONS OF SECTION 802 "SHALL RUN WITH THE TITLE TO SUCH VESSEL OR VESSELS AND BE BINDING ON ALL OWNERS THEREOF," IT WAS MERELY INTENDING THAT THE GOVERNMENT WOULD BE ENTITLED TO "A VESSEL" AT REDUCED COST AND COMPARABLE IN ALL RESPECTS WITH THE VESSEL CONSTRUCTED WITH GOVERNMENT AID. BUT THE UNAVOIDABLE ANSWER TO THAT POSSIBILITY, IN OUR OPINION, IS THAT THE PLAIN LANGUAGE OF THE STATUTE DOES NOT PERMIT IT. ADMITTEDLY, HAD SUCH A SITUATION AS HERE PRESENTED BEEN CONTEMPLATED AT THE TIME THE ACT WAS UNDER CONSIDERATION, A TRANSFER OF THE SO-CALLED SECTION 802 RESTRICTION FROM A SUBSIDIZED TO AN UNSUBSIDIZED VESSEL MIGHT HAVE BEEN FAVORABLY CONSIDERED; BUT SUCH A CONCLUSION NOW WOULD AMOUNT TO NO MORE THAN PURE SPECULATION. THE STATUTE APPEARS TO BE WITHOUT AMBIGUITY, AND NOWHERE IS THERE SUGGESTED AN EXCEPTION TO THE REQUIREMENT STATED. IN THIS CONNECTION, SEE ROBERT J. HENDERSON V. UNITED STATES, 4 CT.1CL. 75, 83, WHEREIN THE COURT STATED "* * * IF AFFIRMATIVE WORDS ARE ABSOLUTE, EXPLICIT, AND PEREMPTORY AND SHOW THAT NO DISCRETION IS INTENDED TO BE GIVEN, IT WILL BE HELD TO BE IMPERATIVE. * * *"

IN LOOKING AT THE SCOPE OF THE LAW, AND AT THE WORDS IN WHICH IT IS COUCHED, WE CANNOT DOUBT THE INTENTION OF CONGRESS IN ITS ENACTMENT. THROUGHOUT THE ENTIRE LEGISLATIVE HISTORY OF SECTION 802 IT IS CLEAR THAT THE CONGRESS IN SPEAKING OF "VESSEL" OR "VESSELS" WAS REFERRING TO THOSE VESSELS WHICH HAD BEEN OR WOULD BE BUILT WITH THE AID OF CONSTRUCTION- DIFFERENTIAL SUBSIDY, AND NO OTHERS. IN VIEW THEREOF, AND IN THE LIGHT OF THE REASONS HEREINBEFORE STATED WE MUST CONCLUDE THAT ANY ATTEMPT TO TRANSFER THE SO-CALLED SECTION 802 RESTRICTION FROM THE SUBSIDIZED VESSELS TO A CORRESPONDING NUMBER OF NONSUBSIDIZED VESSELS SHOULD NOT BE UNDERTAKEN WITHOUT FIRST OBTAINING LEGISLATIVE SANCTION.