ARMSTRONG v. UNITED STATES

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Argument of Burton R. Thorman

Chief Justice Earl Warren: Number 270, Cecil W. Armstrong et al., Petitioners, versus United States.

Mr. Thorman, you may proceed.

Mr. Burton R. Thorman: Mr. Chief Justice and may it please the Court.

The action in the Court of Claims was brought by the 27 petitioners, all of whom were suppliers and materialmen to a government contractor, the Rice Shipbuilding Corporation, to recover just compensation.

In the court below, it was alleged that their property rights, that is the right to enforce their liens against the contractor's property, were taken from them when, after the Government terminated the contract for default, it required the contractor to transfer title to partially completed boats and materials therefore to the Government.

Now, the Court of Claims found for the Government, on the grounds that at the time the petitioners claim to have acquired liens, the Government actually had what it termed “inchoate title” to the materials which made the boats a public work to which liens could not attach.

The petitioners then sought review in this Court.

Now, the facts relating to the contract of the Rice Shipbuilding Corporation --

Justice John M. Harlan: What does inchoate title mean?

I don't understand.

Mr. Burton R. Thorman: We have the same [Laughs] difficulty, Mr. Justice Harlan, and perhaps, as I go into the facts, this will clarify itself what the Court meant.

The facts relating --

Justice Charles E. Whittaker: -- excuse me, Mr. Thorman.

You've mentioned liens of these materialmen.

Have the liens been perfected or were they just rights to liens in your view?

Mr. Burton R. Thorman: No, the liens were as perfected as they could be and I might respectfully submit, Mr. Justice Whittaker, that the statute, and this was a main statute with which we're concerned, is set forth at page 2 of our brief.

It's Section 13 Chapter 178 Revised Statutes of Maine and it provides that liens -- whoever furnishes labor and materials for building a vessel has a lien which may be enforced by -- may be enforced by attachment within four days after the vessel is launched, and they also have a lien on the materials furnished before they become part of the vessel.

The full text is --

Justice Charles E. Whittaker: That -- that was just my question and my point.

I believe thus -- this lien, as I understood that statute, could not be perfected until the vessel was launched and then it must be within four days after it's launched or if the vessel is not completed when launched, then within four days after the contract is completed.

Is that what the complex statute said?

Mr. Burton R. Thorman: No.

And it goes on in the second full sentence.

It says that he also has a lien on the materials furnished before they become part of the vessel which may be enforced by attachment.

As -- I think the statute makes it clear that there is a lien which arises by virtue of the work and materials which is being done on these vessels, and it's to protect him up until the time that the vessel is launched and for four days thereafter, and his remedy is to attach the vessel or to attach the material in the event that the vessel is never completed.

To go into the facts of the contract in March of 1954, Rice -- Rice Shipbuilding Corporation which, with the permission of the Court, I'll refer to as Rice --

Justice William J. Brennan: May I ask, Mr. Thorman, did the Court of Claims deal with the Maine law at all in this case?

Mr. Burton R. Thorman: No, Your Honor.

The case came up to the -- came before the Court on cross motions for summary judgment because the facts were pretty much established.

And the Court, for the purpose of their -- of their decision, assumed that there would have been liens, I think this is a fair characterization of the Court's opinion, but they said that the liens could not attach because of what they call the Government's inchoate title which ran from the -- apparently from the beginning of the making of the contract.

Justice William J. Brennan: Or if they did attach, they were junior, did the Government say?

Mr. Burton R. Thorman: No, they -- they didn't get into that question because they stopped at this threshold question of there not being any liens.

Now, as I said, the contract started in 1954.

By August 2nd, 1955, Rice was unable to complete the contract and so, the contract was terminated then for default.

At the same time that the Government sent a termination letter, they requested Rice to transfer title to the uncompleted votes and to the materials which Rice had in hand to the Government.

And on August 4th, 1955, Rice executed an instrument of transfer of title transferring to the Government all right title and interest to the manufacturing materials designated by the Government.

This followed, by two days, the actual letter of termination.

Now, I think I may have neglected to mention that the boats under Rice's contract were to be built in the State of Maine, East Boothbay to be exact.

There were 11 personnel boats involved.

Following the termination and the execution of this transfer of title, Rice -- the Government took title and possession to the materials and took them out of the State of Maine to various navy yards where they completed the boats.

Now, Rice was, shortly after that, adjudicated a bankrupt and the Government filed claim in the bankruptcy court for its alleged cross of completion.

Now, in acquiring title, the Government acted in accordance with Section 11 (d) of the contract.

Section 11 is the default clause and the Section (d) is set forth at page 42 of the record.

This clause provided that, in the event of a default termination, the Government had an option to acquire title to any completed supplies and any uncompleted supplies which they designated as manufacturing materials.

It also provided further on that the Government would pay to the contractor either the contract price for completed supplies or the -- an agreed price for uncompleted supplies.

Now, the contract with Rice also had a progress payments clause, under which Rice had received the aggregate of about $141,000.

This was based upon a percentage of completion less a 3% reserve.

The progress payment clause provided that Rice was to-- that the Government rather, was to have a lien on all work in progress and that this was to be a paramount lien.

Now, as of April 11th, 1955, when Rice submitted its last progress payment voucher or invoice, Rice had incurred actual incurred cost of $198,000.

Subsequent to that, apparently, there was not sufficient amount of work done to warrant Rice putting in any further bills and ultimately, on August 2, 1955 when the Government terminated the contract, they did note that Rice had done no work or claim that Rice had done no work since March 25th, 1955.

Now, the lien which the Government acquired by virtue of this progress payment clause was not exercised by the Government, since the Government elected to take title under its option given to it under the default clause.

Now, the petitioners had furnished supplies, materials, and equipment to Rice --

Justice Charles E. Whittaker: Well didn't -- may I ask --

Mr. Burton R. Thorman: For use on the boats.

Yes sir.

Justice Charles E. Whittaker: Did that have the effect of foreclosing the Government's lien and merging it being titled?s

Mr. Burton R. Thorman: I think that the -- the effect -- the Government -- the Government didn't say anything about its lien when they went after the title.They simply said to Rice, “you transfer title to us.”

Now, I think the legal effect was to merge the Government's lien in its title since, obviously, I think it's clear by law that one cannot have a subordinate interest in the same piece of property in which he has a dominant interest.

Chief Justice Earl Warren: Mr. Thorman, if we -- if we accept the opinion of the Court of Claims, would there be any time at which these petitioners could have acquired a lien?

Mr. Burton R. Thorman: Well, Mr. Chief Justice, the difficulty we have had with the concept to the Court of Claims is that, apparently, the Court felt that with the making of the contract, the Government then acquired its inchoate title.

Chief Justice Earl Warren: Yes.

Mr. Burton R. Thorman: And I think that, if they are correct in this concept, then we come to a second question of what does an inchoate lien mean.

Does it bar the acquisition of a lien?

Chief Justice Earl Warren: An inchoate title, you mean.

Mr. Burton R. Thorman: I mean inchoate title.

Chief Justice Earl Warren: Yes.

Mr. Burton R. Thorman: Does it bar the -- does it bar the acquisition of liens on the property?

One of the reasons we asked the Court to review this case was the fact that it opened up such a Pandora's box of problems.

The default clause in which the Government relied on in taking title here is a standard clause in most government contract, certainly throughout the military department.

And if the court below is right, if this inchoate title which they did not define means that it's a synonym for title, then there are a host of problems, as anybody who deals with the Government.

There's a host of problems in line of the Detroit against Murray Corporation type of situation as to whether or not the States and localities may tax this property in the possession of this people.

We think that it was unfortunate that the court below used this shorthand title without shorthand expression of inchoate title without defining it further but we think that if the Court is disposed to follow it, perhaps it could define it, and I don't think it can possibly mean that it would bar all liens, including taxes and taxes from attaching to it.

Justice Charles E. Whittaker: As I understand it, if I may ask you.

Mr. Burton R. Thorman: Excuse me.

Justice Charles E. Whittaker: There was no determination or effort (Inaudible) whether this property had a value in excess of the Government's lien at the time the Government acquired title.

Mr. Burton R. Thorman: That is correct, Mr. Justice Whittaker.

So far as we know, so far as the record shows, and so far as the information is available to me as counsel, there is no evidence that the Government did anything but to demand that title be transferred to it.

Justice Charles E. Whittaker: Is it your claim that there was equity for the second lien holders, mainly, your client, which was converted by the Government in the acquisition of title and the removal of the goods so you couldn't perfect your lien?

Mr. Burton R. Thorman: Well, I think that that is -- that is one of the points which we raise, although that is not a primary point.

I think that the difference between 198,000 which-- $198,000 which Rice had put into this contract and $141,000 which they had received from the Government did leave an equity in Rice for $57,000.

Justice Charles E. Whittaker: Oh, I didn't follow at all.

The fact that certain moneys had been spent wouldn't establish value, would it?

Mr. Burton R. Thorman: Agreed, but I still think that the fact that there was this large expenditure indicated that the property might have brought.

If foreclosure had -- had followed, the property might have brought a sum in excess of what the Government had invested in it, so that there would have been some sum.

Our -- our primary point, though, is that the Government did none of these things.

They just took the -- took the property, took the title for the property, foreclosing us from, perhaps the word “foreclosing” is still advised here but, preventing us from taking any steps to enforce our liens.

In other words, we had a security interest in our liens in this property.

When the Government took the property, took title to the property, we were estopped from ever doing anything more about it.

The Government could have protected its own interest in this by foreclose -- starting foreclosure proceedings under its paramount lien.

In which case, if there were some left over for us, fine.

If there were not, then that would have forever wiped it out.

But, we would have had our remedy.

Justice Charles E. Whittaker: If there wasn't equity, a value in this case, in excess of the Government's lien and you claim you're entitled to it.

Mr. Burton R. Thorman: No.

We -- we're claiming that -- we're claiming just compensation for the taking of our liens.

Justice Charles E. Whittaker: For the taking of --

Mr. Burton R. Thorman: Of our liens.

Justice Charles E. Whittaker: Well, do you have to show they had some value?

Mr. Burton R. Thorman: Well, the liens had a value at all.

Justice Charles E. Whittaker: How -- how do you determine that value, except to show that there was an equity in the goods in excess of the Government's lien.

Mr. Burton R. Thorman: No.

Our -- the -- the value of our liens is determined by the amount of money which we put into the property.

We put in some $23,000.

Justice Charles E. Whittaker: That would be the amount of your lien.

Mr. Burton R. Thorman: The amount of our lien.

Justice Charles E. Whittaker: But it didn't -- be the value of your lien, too, would it?

Suppose the lien couldn't have any value if there was no equity and they would have if there was an equity.

Mr. Burton R. Thorman: Well, I think for the purposes of just compensation though, as I read the cases, we're concerned with the value to the person who lost the property rather than any gain which the Government may have acquired in this.

That is why I said before that this is a secondary point when I speak of this equity.

It's a matter of interest that there was this equity involved in the property.

At first, the point I'd like to discuss the state of the title to the materials and uncompleted boats prior to the transfer of title to the Government, since the decision below did go off on this point of the inchoate title.

First, by the contract terms, the title to the property was in Rice during the performance of the contract.

First, on the face page of the contract, we find that title to the -- which appears at page 27 of the record, that the point of acceptance is at point of delivery and that delivery points are spelled out as various navy yards, Philadelphia and Norfolk.

Further, the contract contained a discharge of liens clause which provided, and incidentally, that is at page 37 of the record, which provided that the contractor would immediately discharge or cause to be discharged any lien or right in rem of any kind other than favor of the Government against the property and that, failing in that duty, the Government reserved the right to discharge these liens at his expense, at the contractor's expense.

Thirdly, we have this paramount lien clause and these two clauses, these discharges of liens clause and the paramount lien clause, when read together, clearly contemplate that the Government did not anticipate that it would have title.

Justice Tom C. Clark: Where is the paramount -- where is the paramount?

Mr. Burton R. Thorman: The paramount of the lien clause, Mr. Justice Clark, is set forth at page 36 and the opening is at top of page 36, the first -- very first clause.

It's a portion of a clause which starts on page 35, which is denominatedly progress, payments, and liens clause.

Justice Tom C. Clark: That's it.

Thank you.

Mr. Burton R. Thorman: Then, we have this default clause which states that, on condition of default of the contract, the Government acquired an option to require the contractor to transfer it -- transfer to the Government the title with the further provision in this option that the Government would have to pay for the materials it had taken.

Now, I think the Court of Claims missed the point that the default clause was a condition which only arose or that it was an option which only arose on condition that the contract -- contractor was in default and that the Government then exercised its option to terminate, and only at that point did the option arise.

Now, based upon these considerations, I submit, the contract clearly contemplated that Rice would have title at all times to the materials until delivery and acceptance of the boats or until the Government exercised its option after the default.

Aside from the terms of the contract, the fact that the Government required the execution of an instrument of transfer of title, we -- we think, is significant of the Government's intention, that is, of the intention of the parties.

And I might note to the Court that the instrument of transfer of title appears at page 50 of the record.

Well, it starts on page 49.

So that, clearly, the Government, in asking that the transfer of title be executed, recognized that it would not then have title.

The court below also stated that, because of this inchoate title, it considered the work in the nature of the public work.

The cases we've read and have cited in our brief indicate that the public work concept, as the term “public work,” applies only to government property and the cases are very clear on this concept, on this principle.

The work is private if the title remains in the contractor and it's public if the title is in the Government.

Now, while Rice had its -- had the title to the materials and the uncompleted boats, the p-petitioners supplied their material -- supplied materials and work to Rice.

And at that time, they acquired their liens on the property.

That is on the materials and uncompleted boats.

And it is interesting to note that the petitioners must have acquired their liens prior to the time that the Government acquired its paramount lien although we don't argue with the point that it is paramount because obviously, the work had to be done and the material supplied before there can be a state of completion which would warrant the Government issuing any progress payment.

Now, we say that Rice could transfer nothing more than it had and in the words of the instrument, it transferred all its right, title, and interest into the said manufacturing materials.

Now, I think that one word I've -- one or two words about the fact that the liens were still encumbrances on the property while the -- when the Government acquired it.

The main statute is one of a class of statutes which, I suppose, could be broadly characterized as mechanics lien statutes.

They're made in recognition of the entitlement to payment of the people who, by supplying work and materials, created such value.

In a sense, the statues are designed to prevent unjust enrichment at the expense of the suppliers and workers.

Now, when the Government terminated the contract for default, since the title was in Rice, they had two options.

First, they could enforce their own lien -- enforce its own lien and secondly, to exercise the option under the -- under the default clause to acquire title.

As I said before, when they terminated the contract, the contracting officer took the position in its termination letter that Rice had done no work after March 25, 1955, so that there was a chance, any good chance, that there are unpaid suppliers.

The Government knew that Rice had not done any work from March until August because Rice had ran out of money.

The Government then had its option to decide which was the most favorable course of action to it.

In any event, the Government did go ahead and exercised its option to acquire title rather than doing anything more about its liens.

Justice Charles E. Whittaker: May I ask you at that point.

Seeing that you are right that the contract contemplated liens by materialmen, mature materialmen, and you applied validly under state law.

You know not the fact that you're getting that question.

Then, the Government takes over, just arbitrarily, by a demand and gets a conveyance.

This destroyed your lien.

Would you not have to show then, however, to recover in this suit that they had some value?

The lien --

Mr. Burton R. Thorman: The --

Justice Charles E. Whittaker: -- rights.

Mr. Burton R. Thorman: That the lien rights had some --

Justice Charles E. Whittaker: Yes.

Mr. Burton R. Thorman: -- value?

Justice Charles E. Whittaker: Yes.

In other words, that being taken over by the Government had a value in excess of the Government's valid first lien to which you were junior.

Mr. Burton R. Thorman: I don't believe that we have to show that there was a cumulative amount in excess of that, although, I think the record does show that that was the fact that there was, on the face of it, an expenditure of money in excess of what the Government had paid, substantially in excess of what they had paid.

Justice Charles E. Whittaker: Well, there's been no finding as to that question by any court.

Mr. Burton R. Thorman: That's correct.

Justice Potter Stewart: The fact is you weren't allowed to get that far, were you?

These were what motions for summary judgment for both sides?

Mr. Burton R. Thorman: These were cross motions for summary judgment which assumed that the record was correct.

The -- it assumed that the -- that we did have liens, I think, for the purpose of the motion.

Justice Potter Stewart: And that they were of some value.

Mr. Burton R. Thorman: That they were of some value, value of $23,000 which is set forth, well, in the record at page 14, 15, 16 and 17.

We set forth the individual amounts which had been -- that is the amount of the materials and services which had been advanced by these petitioners to the contractors and how much they had still not been paid.

Justice Potter Stewart: But if this case should be reversed, that would be a matter of -- on which proof would have to be introduced, I suppose.

Mr. Burton R. Thorman: We would -- we -- we -- I recall now.

We did reserve the right that if we -- we move for summary judgment on behalf of the petitioners with -- as to everything except the amount.

Justice Potter Stewart: That would be a matter of --

Mr. Burton R. Thorman: That would be a matter of proof.

Justice Potter Stewart: -- subject to proof.

Mr. Burton R. Thorman: I think I would like to reserve the remainder of my time for rebuttal.

Chief Justice Earl Warren: You may, Mr. -- Mr. Slade.

Argument of Samuel D. Slade

Mr. Samuel D. Slade: Mr. Chief Justice, may it please the Court.

If I could draw it back just a moment, this is not a question of relative lien rights or any such thing.

This is a taking case.

These petitioners claim that the United States has taken some property of theirs under the Fifth Amendment for a public use.

Appropriation cases classically are eminent domain cases, of course, in which there is some deliberate intent in the Government to appropriate, to take property rights in a private person and transfer them to the United States.

This is obviously not such a case here.

Related to those are the cases where, without regard to intent, this Court has found that there's been such a direct invasion of some recognized property right as to give rise to an implied intent to appropriate property for a public use.

I submit that this case doesn't come anywhere near either of these categories.

If I may very briefly draw it back to defense, the contract was a standard form contract, a standard form supply contract which is handed out by years of experience and is designed to meet thousands of different procurement situations.

It was awarded in March of 1954.

It represented a firm requirement.

This is important.

It represented a firm requirement by the Navy for 11 personnel boats.

It's a fixed price contract for $175,000.

Justice Felix Frankfurter: Certainly -- you say firm.

Mr. Samuel D. Slade: A firm requirement.

Justice Felix Frankfurter: I just want to hear the word.

Mr. Samuel D. Slade: In March of 1955, work seized and after some necessary procedures were taken and letters were written, the Government elected to take title under the 11 (d) which appears, as my opponent has stated, in the record at page 42.

Now, at the time this title was taken, the Government had paid roughly $141,000 or 80% of the fixed price which, in turn, was based on an estimate that the work was 80% completed.

So, the Government paid for what had been done and it took it under the standard forms default 11 (d).

Now, this contract was the only contract that Rice had from the date of its incorporation to the day it closed its doors.

The supplies and materials in this case were supplied by these materialmen to Rice specifically for the purpose of this government contract.

It is so alleged in their complaint.

Then, they alleged very carefully on this lien point that when the Government took title under 11 (d) and the boats and materials were removed, where they were completed, I might add, at three navy yards, Philadelphia, Norfolk and New York, and an excess cost of the Government of about $146,000.

So, it looks like the estimate of the completion by Rice was a little optimistic.

Materialmen suppliers had given this material to Rice specifically for the purpose of this one contract and they say this.

That under the Maine law, Section 13 Chapter 178, they had a statutory-created privilege to a lien to be enforced by attachment and so forth.

Maine is a good old common law state.

The steps they would have had to have taken to make this an enforceable right against anyone is set forth in the sections which followed Chapter 13, after starting an action with sums that each were a rid of attachment.

All of this is ancillary to the claimed obligation against the debtor, in this case, Rice.

Chief Justice Earl Warren: Well, Mr. Slade, if the -- if the concept of the Court of Claims is correct that the Government had an inchoate title, whatever that might be, and that, therefore, these were public works that, therefore, the liens didn't attach, was there any -- any way in which these -- these people could have perfect their liens?

Mr. Samuel D. Slade: Well, I think it's a little unfair to Judge Jones to -- as it were to stick him with a phrase, and I can quote -- I mean, when he was trying, he was groping for a shorthand way of stating what to us is a perfectly ordinary situation.

Take the -- take the petitioner's theory here.

They are faced with about 100 years of precedent in which it's always been held that the Government is not answerable to the materialmen and suppliers who deal with its contractors.

The whole Miller Act factor on this passed put this in mind, recognizing that these people were on some risk in recognizing that the Government is not answerable.

Well, you have the requirement of the payment fund.

Again, and I'll show this in a moment.

This discharge of lien provision which is part of the standard form is again designed for two things.

One, if liens are recorded and known, the Government can, during the life of the contract, require the contractor to pay.

Here, it might have been out of advanced progress payments, protect itself by recoupment, and at the same time, this gives a measure of protection to those who are dealing with the contractor during the life of the contract.

But the Government is not answerable for claims against its contractors.

And I think Judge Jones was trying no more than to sum this situation, which is a classic situation, it's not an innovation by any means.

Chief Justice Earl Warren: Well, how about when --

Mr. Samuel D. Slade: The --

Chief Justice Earl Warren: -- he said it was public works and that it didn't attach what was his --

Mr. Samuel D. Slade: Well, the Government --

Chief Justice Earl Warren: What would he saying then?

Mr. Samuel D. Slade: -- made a number of contentions below.

He selected this -- this path.

He said what he's saying is practically speaking.

The situation is just as though title passed at the outset.

Let me put it this way.

Title may pass at the outset of a contract.

It may pass pro tanto under progress payments clause.

It may pass at the completion of the work, satisfactorily performed.

Or, it may pass under 11 (d), the default provision.

Now, the reason that 11 (d) is important is this.

We have here, as I say, a firm requirement for certain boats.

In this situation, in the Government supply contract, the department involved estimates that the work presumably being 80% completed, it's worthwhile to pay the cost of protecting that work, transporting it, having it completed elsewhere.

This is the quickest way to get something for which there is a need.

Had this been, say, an electronics contract, it's very doubtful that the option under the default clause of having work completed elsewhere would have been invoked because electronic contracts normally involve shop processes and content readily be moved from one shop to another.

Again, where the work is needed, the title passing requirement under 11 (d) is necessary to prevent the contractor from holding up the department.

If that provision were not there, he might say “Well, I won't give you this thing until you settle with me on value or a schedule or something like that.”

It might be a very time-consuming process.

So that, right from the moment of contract, title may pass under a government contract in various ways and at various times.

Chief Justice Earl Warren: Did they do it here?

Mr. Samuel D. Slade: It certainly did it here, pursuant to 11 (d).

Chief Justice Earl Warren: At the very beginning.

Mr. Samuel D. Slade: I would say that, at the very beginning, no.

Chief Justice Earl Warren: When?

Mr. Samuel D. Slade: At the very beginning, there were various points when title could have passed.

One is on completion of the work satisfactorily performed.

Chief Justice Earl Warren: I beg your pardon?

Mr. Samuel D. Slade: Under completion of the work at the end of the contract.

Chief Justice Earl Warren: That wasn't done.

Mr. Samuel D. Slade: No.

It -- what happened here was that, at that time, the work was 80% -- allegedly 80% completed and the contract came to an end.

We paid that much and took title at that time to have the work completed elsewhere.

Now, the language --

Chief Justice Earl Warren: Well now, let me ask you this.

Was there any time -- was there any time after these people performed these services that they -- they could have had an enforceable lien against this ship.

Mr. Samuel D. Slade: Well, under the Maine law with title in Rice, I don't know precisely the dates on which they -- their privilege arose.

Rice entered this contract in March 1954, presumably, being in Maine, they had to do a lot of work during the summer so maybe this work came in during July and August.

Now, under the Maine law, their right to the lien arose immediately.

They could have not been paying if they decided not to extend credit.

20 of the 27 petitioners here weren't in Maine at all, so I don't know what their --

Justice William O. Douglas: Is that the federal --

Mr. Samuel D. Slade: -- situation is.

Justice William O. Douglas: -- statute that was -- is referred to in the Hill case, the requiring bond for protection of these --

Mr. Samuel D. Slade: That was waived --

Justice William O. Douglas: Was that --

Mr. Samuel D. Slade: -- in this case.

Justice William O. Douglas: -- is that law -- statute still on the book?

Mr. Samuel D. Slade: Oh, yes the Miller Act.

Justice William O. Douglas: I mean, that -- that's the --

Mr. Samuel D. Slade: That's --

Justice William O. Douglas: The one that's mentioned there is the forerunner of the Miller Act?

Mr. Samuel D. Slade: Yes and the -- in 1941, there was a specific provision passed permitting waiver of payment bond in certain contracts.

Justice William O. Douglas: And that was waived here?

Mr. Samuel D. Slade: Yes.

Yes.

There is a suggestion at the end -- in the reply brief here that, somehow, the waiver of that bond substitutes United States as answerable to these claims, but the legislative history of that shows it's for a different purpose entirely.

It -- it was always recognized, as it always has been, that the Government is not answerable to people in this position.

Now, they argue here from two clauses.

This is a standard argument to take and attack a title passing clause by reference to the insurance provision, the paramount lien provision, the discharge lien provision, and others.

This was discussed at length by Mr. Justice Whittaker in his separate opinion in the Murray Corporation case.

Justice Charles E. Whittaker: Mr. Slade, may I ask you this.

Following up on questions of the Chief Justice, I haven't yet gotten at least an understanding of this decision.

Do you agree that these materialmen and mechanics, in light of that, have a valid lien under Section 13 Chapter 178 of the Maine law?

Mr. Samuel D. Slade: Against the United States?

Justice Charles E. Whittaker: Against the ship, against these hauls.

Mr. Samuel D. Slade: Yes, I think so.

Justice Charles E. Whittaker: Alright.

Mr. Samuel D. Slade: Yes.

Justice Charles E. Whittaker: Alright, now then --

Mr. Samuel D. Slade: Yes.

Justice Charles E. Whittaker: That lien was perfectible in the manner provided in that statute.

Mr. Samuel D. Slade: That's right.

Justice Charles E. Whittaker: Now, let's assume that it was outstanding on August 4, 1955 at the time you, the Government, exercising rights on your contract, required the contractor to convey the ships to you.

Mr. Samuel D. Slade: I don't think that's physically possible, sir.

You see, under the Maine law, the only way you enforce this is to get on and have the sheriff attach it, sue for an assumptive judgment.

Getting that judgment, the property has to be seized or sold to satisfy the judgment.

Justice Charles E. Whittaker: But that can only be done under the statute within certain periods of time.

Four days --

Mr. Samuel D. Slade: No, that's the limit.

Justice Charles E. Whittaker: Within four days after launching, for example.

Mr. Samuel D. Slade: No, up to four days.

Justice Charles E. Whittaker: Which may be enforced by title --

Mr. Samuel D. Slade: Two to four days.

Justice Charles E. Whittaker: Within four days after the launching.

Mr. Samuel D. Slade: Yes.

Those are words of limitation.

You can enforce it any time up to that point.

Justice Charles E. Whittaker: Alright, but you still have that much time within which to do it.

Mr. Samuel D. Slade: Yes.

Justice Charles E. Whittaker: Now, let's assume that they had this lien and the time hadn't expired (Inaudible) when you took over the property.

Did that then destroy their right to perfect their lien?

Mr. Samuel D. Slade: Well, their right to perfect their lien by attachment, yes.

Their liens thus became unenforceable.

Justice Charles E. Whittaker: So, they're worthless from that day on.

Mr. Samuel D. Slade: That's right.

Justice Charles E. Whittaker: Right?

Now then -- now, let's assume that the goods at that time, these forms have a value much in excess of the Government's prior lien, admittedly a problem.

Did you not convert their property then --

Mr. Samuel D. Slade: Well --

Justice Charles E. Whittaker: -- to the extent that (Inaudible)

Mr. Samuel D. Slade: Their conversion, assuming we converted it, this is not a taking.

Justice Charles E. Whittaker: Well, why isn't it?

A conversion is a taking.

Mr. Samuel D. Slade: No.

No.

In the first place, we did not take a profit.

The lien that we're talking about, and we can't go beyond -- I can't go beyond this, the lien that we're talking here is an enforcement right ancillary to a claim against rights.

This -- the -- the claim against rights is --

Justice Tom C. Clark: Could you say that again, Mr. Slade.

Mr. Samuel D. Slade: The lien here is an enforcement device ancillary to a major claim against Rice, which has never gone anywhere.

Rice is in bankruptcy.

These petitioners, among others, have filed their claim there.

Their lien, in support of that major claim, may have become utterly unenforceable when title passes to the United States but that is not an uncommon situation.

Justice Charles E. Whittaker: Whether uncommon or not.

Mr. Samuel D. Slade: And it's never been thought --

Justice Charles E. Whittaker: If you take it.

Mr. Samuel D. Slade: It's never been thought to give Rice to a taking under the Fifth Amendment.

It would be a very strange way of saying that a lien becomes unenforceable only to give Rice to a constitutional right to a sum of money in the same amount.

Justice Charles E. Whittaker: If you'd foreclosed your lien in some way that was applicable and had title in that manner which extinguished the second lien that would be one thing.

But, if you come in and without foreclosure of your prior lien, admitting there's an equity in excess of it would simply convert the property, haven't you then taken property of junior lien honors?

Mr. Samuel D. Slade: Well, I'm only admitted there's an equity for the purpose of your question.

Actually, there is none here.

But, in the case you give, if there is a security right of this type, it has value only to the extent that it will later relate to an obtained judgment against Rice.

We don't know.

This is a claim of $23,000.

In a proper litigation with Rice, Rice might say they never delivered the material.

Justice Charles E. Whittaker: Yes.

Mr. Samuel D. Slade: He might say it was never satisfactory.

We don't know the amount of --

Justice Charles E. Whittaker: But isn't there some ways where the second lien must have the right to litigate that question?

Mr. Samuel D. Slade: With us?

Justice Charles E. Whittaker: With respect to the liens, yes.

Mr. Samuel D. Slade: In the -- in the State of Maine, in a proper timely suit against Rice.

Justice Charles E. Whittaker: Or --

Mr. Samuel D. Slade: Or now in the bankruptcy proceeding.

Justice Charles E. Whittaker: Oh, that was again his money.

You've taken the purpose, the thing on which the lien would attach is perfected.

Clear out the jurisdiction at the time when they still had Rice to perfect it.

Mr. Samuel D. Slade: Well, I think anyone could have done that in the circumstances of this case --

Justice Charles E. Whittaker: Well, that --

Mr. Samuel D. Slade: -- Cunard Line, Joe Smith, anybody.

Justice Charles E. Whittaker: Well, wouldn't that be conversion?

Mr. Samuel D. Slade: Well, it's -- it's the question here is whether it's a constitutional taking.

I'm not aware that this Court or any court has ever held that a conversion, a tort, a frustration of a contract expectancy or some such thing constitutes a Fifth Amendment taking.

Justice Felix Frankfurter: Don't you have to analyze this a little bit beyond your own analysis?

What's the source of this lien?

Who -- what --

Mr. Samuel D. Slade: The State of Maine.

Justice Felix Frankfurter: The State of Maine.

Mr. Samuel D. Slade: Yes.

Justice Felix Frankfurter: Therefore, the real question is, isn't it, whether the State of Maine can create an interest and complete property having money value as against the United States dealings with its lienee?

Mr. Samuel D. Slade: Well, I think --

Justice Felix Frankfurter: Isn't that the -- isn't that really the --

Mr. Samuel D. Slade: I think not.

Justice Felix Frankfurter: If the State of Maine can create a protectable interest as against the United States, then whatever happens to that lien is no concern of the United States.

So, that's the issue really, isn't it?

Mr. Samuel D. Slade: Well, I think, actually, I think that the Ansonia case, if you take the situation before and after the statute with the protective lien, the paramount lien statute, points out what you said that, in Ansonia, two of the three ships were protected only by liens which were held by this Court to be liens under contract in recognition of and in deference to state-created and enforceable liens.

Chief Justice Earl Warren: Will it --

Justice Felix Frankfurter: And at the time that the -- I beg your pardon.

Chief Justice Earl Warren: No -- no please.

Justice Felix Frankfurter: At the time that the Government made this contract with Rice, there wasn't anything in existence that the Government supplanted that the present petitioner had, was there?

Mr. Samuel D. Slade: Nothing.

Justice Felix Frankfurter: It's -- the subsequent thereto, isn't that right?

Mr. Samuel D. Slade: Rights here were fixed under the standard form of contract --

Justice Felix Frankfurter: So, whatever private arrangements you may have had with Rice or whatever the State of Maine may have announced to all the world giving, therefore, notice to the United States, is immaterial as to the legal consequences of the transaction between the United States and Rice.

Mr. Samuel D. Slade: I think that's --

Justice Felix Frankfurter: The fact that there was a destruction of something that has money value in Maine doesn't mean Uncle Sam has gone with.

Mr. Samuel D. Slade: I think that's what Judge Jones is trying to say and I think that's what I'm trying to say that, under a standard form of contract which take various forms, you can have a progress payment clause which provides the passage of title pro tanto.

The Navy prefers this one, their own, where you have a paramount lien in protection of progress payments.

Justice Potter Stewart: Mr. Slade, this is all to clear in my own mind.

You -- you concede, don't you, that the Government did not get the title, actual title until an actor acted under Section 11 (d)?

Mr. Samuel D. Slade: That the Government did not take title.

Justice Potter Stewart: In fact under 11 (d).

Mr. Samuel D. Slade: That's right.

Justice Potter Stewart: That the -- this was the --

Mr. Samuel D. Slade: It might well --

Justice Potter Stewart: Property of rights.

Mr. Samuel D. Slade: -- have been.

It might well have been under 11 (d) that had these ships only been 15% completed.

But, the cost of transportation, the cost of protecting it, the time to complete them elsewhere would have made taking title under 11 (d) not feasible.

In which case, you let it go under receivership and exercised our paramount lien.

That's one situation --

Justice Potter Stewart: And what you had was a lien to the extent of each progress payment.

Mr. Samuel D. Slade: Well, in this --

Justice Potter Stewart: Is that it?

Mr. Samuel D. Slade: You have a -- yes, a paramount lien rather than a passage of title under this provision, yes.

Chief Justice Earl Warren: Well, Mr. Slade, may I pursue just a little further, not to be argumentative with it but I haven't got it clear in my -- my mind yet.

Was there any time at which these petitioners could have enforced their liens against this whole?

And if there was, what could they have done and up to what date could they have done it?

Mr. Samuel D. Slade: Well, I'm -- the -- the -- I can only answer this question in terms of the United States.

In other words, what could they have done against this property while title was in the contractor, bearing in mind that the United States, from the very outset, is in this situation in a variety of interests?

Had the United States, for example, felt that Rice performed very poorly, had these people gone untimely perfected and made enforceable lien privilege under the Maine law, had the United States decided that the work did not progress far enough to take it and move it elsewhere, they could have started a Maine court proceeding in which we would have intervened as paramount lienor and we would divide it up, if there was anything to divide up, what the property brought.

Chief Justice Earl Warren: And they could have done that at any time prior to the time the Government did take it over.

Mr. Samuel D. Slade: I think they could have done that up to the time we made a decision to take title.

Chief Justice Earl Warren: Title.

Yes.

Mr. Samuel D. Slade: And at the time they did that, this might -- I have to be a little harsh in my answer because, at the time they did that, it may have been that the work had gone 70%, it may have been so needed elsewhere that we would have then required passage of title.

I don't think so.

I think we would have gone in and -- and enforced our paramount lien in a state receivership proceeding.

That's what that provision is for.

But, in this case, with nothing known, no recordation, we came in and took what we had paid for and we're now told that, by doing that under the Fifth Amendment, we have appropriated for public use a -- an alleged $23,000-claim against Rice for property furnished, material furnished to Rice sometime in the past during the performance of this contract and that, certainly, is not a taking.

It's at best, the lost of a -- of a state-created step that these people could have taken to enforce a claim, an assumptive suit against Rice which they didn't file.

Now, they can't -- could have up until the fourth day time, filed their claim in the bankruptcy proceeding and invoked and had the status of lien-claimants because Section 107 (b) of 11 U.S.C. specifically provides that the state-created lien rights can be honored as such in a bankruptcy proceeding, providing the state time for enforcing them hasn't expired.

So, in that Boston bankruptcy proceeding, they might have a status of lien claimants, but that's a far cry from saying they have a right to sue the United States under the Fifth Amendment for appropriating these security devices for public use.

On the question of value, assume there was an excess of value over what we've paid.

There is, in Boston, a bankruptcy proceeding.

Justice Charles E. Whittaker: You do know what you paid over your lien, don't you?

Mr. Samuel D. Slade: Well, we paid $141,000 and I assume our lien would be for the same amount.

Assume that --

Justice Hugo L. Black: How was your lien created?

Mr. Samuel D. Slade: I beg your pardon?

Justice Hugo L. Black: How was that $141,000-lien created?

Mr. Samuel D. Slade: Well, there is a lien provision, a paramount lien provision created pursuant to a specific statute which is security for progress payments, such as those that were made in this case from time to time.

Justice Hugo L. Black: So, that -- that is for the exact amount that you had paid.

Mr. Samuel D. Slade: That's right.

And assume we brought these liens in for that amount.

Now, the only indication at all of excess value is a claim by the bankrupt that he spent $190,000 which is nothing, but assume that -- that had some validity.

There is a bankruptcy proceeding.

There's a trustee in bankruptcy somewhere.

And it seems to me he is the only one whose mouth this claim could be referred to lie.

Justice Charles E. Whittaker: What --

Mr. Samuel D. Slade: For the benefit of all.

Justice Charles E. Whittaker: But the subject incurred was not an asset that could possibly deprive on all that it required but it has been required to the (Inaudible) invades it and you took it out its jurisdiction.

Mr. Samuel D. Slade: Well then to use your word sir, the trustee would be confronted with the unusual problem of suing the United States for converting assets of the bankruptcy.

Chief Justice Earl Warren: We'll recess now, Mr. Slade.

Print this transcript Transcript: 

Argument of Samuel D. Slade

Chief Justice Earl Warren: -- continue.

Mr. Samuel D. Slade: Mr. Chief Justice, may it please the Court.

It has been suggested -- looking at the relationship between the title that was taken by the United States and the right reserved in other circumstances to have a paramount lien of security for progress payments, it's been suggested that the right to the paramount lien is somehow merged and lost, where the right to take title under Section 11 (d) has been exercised.

Now, I think it's basic equity law that while normally, equity will merge the junior and senior estates, it will not permit that merger where there's an intervening threat as there clearly is here.

In that case, the estates will remain separate in the joint holder of both for the protection of the joint holder of both.

So that even if somehow, less than good title was taken under Section 11, the United States would still in the circumstances of this case, be possessed of a perfectly good, outstanding paramount lien, paramount, that is to the right to liens asserted by these petitioners.

In other words, if we looked only to that aspect of the case, the paramount lien aspect, we would now have the Ansonia case, as the Court will recall involved three ships.

The Benyuard, as to which title was taken, that one is not really involved here.

The Mohawk and the Galveston, as to which the Government asserted liens in a state court proceeding in Virginia as against other lienholders.

This Court held and properly, that the liens in that case asserted by the Government were purely the creatures of contract.

An opinion had actually been rendered by the Attorney General prior to the time that case arose, that he was afraid that the liens in navies were using -- were in recognition of in deference to state-created and enforceable liens.

And this Court held that in that state receivership proceeding, that the Government's liens to secure payments on those two vessels were junior to the Virginia-created and enforceable liens.

However, directly after that decision, Congress passed the Act of 1911 which is set forth in our brief at page 2.

So that thereafter, the lien enforced to secure progress payments where that was used instead of pro tanto passage of title, would be paramount to any state-created and enforceable liens.

Justice Charles E. Whittaker: And Section 11 (d) (Inaudible) to that statute.

Mr. Samuel D. Slade: 11 (d)?

Justice Charles E. Whittaker: Yes.

(Inaudible)6 is it not?

Mr. Samuel D. Slade: That's the title passing.

Justice Charles E. Whittaker: Yes.

Mr. Samuel D. Slade: Well, I'm -- I'm talking now of the -- of the paramount lien provision on page 36 of the record.

Chief Justice Earl Warren: Well --

Justice Hugo L. Black: Mr. Slade -- excuse me --

Chief Justice Earl Warren: Oh, pardon me, you go ahead.

Justice Hugo L. Black: I -- I'm still not absolutely clear on what your contention is.

I'm sure it's my fault.

But I'd like to give you an illustration to see if I can make it clear, my question here.

Suppose the Government had paid $100,000 to Rice, the value of what had been constructed up to that time was worth $150,000 and this -- these Maine people would supply the labor and material had a $50,000-claim.

Is it your contention that when you -- when you have that title transferred, their lien is lost so far as the ship is concerned?

I'm not talking about the bank here.

I'm talking about the ship.

Mr. Samuel D. Slade: Oh, I -- I would have to say yes.

That's a hard case and it's not this case, but I would say yes.

Justice Hugo L. Black: But we don't know yet how much -- how near this case is to it because there's been no evidence, has there?

Mr. Samuel D. Slade: Well, there's no evidence at all, except that we and the contractor signed an accord that we had paid 80% -- an estimated 80% completion of the contract.

Among other things, we've paid for the materials, I presume, that were involved in this case.It went into what we took.

Justice Hugo L. Black: Now, if that were to happen, let me ask you this.

Let's suppose that that case did occur.

The Government had the ship transferred to itself --

Mr. Samuel D. Slade: Yes.

Justice Hugo L. Black: -- I assume that you would say that these lienholders could not sue the Government.

Mr. Samuel D. Slade: That's right.

Justice Hugo L. Black: So that, so far as they are concerned, at that time, their lien would be destroyed, wouldn't it?

Mr. Samuel D. Slade: No, it would become unenforceable.

Justice Hugo L. Black: Unenforced, whether it will become valueless.

Mr. Samuel D. Slade: No value.

Justice Hugo L. Black: It has become valueless like a -- like a land that the waters run over and --

Mr. Samuel D. Slade: With this -- with this property -- with other properties, no.

Real estate, for example, no, and that might be passed on to a subsequent purchaser and the lien would be fully enforceable again.

That's the Alabama case.

Justice Hugo L. Black: The lien would be fully enforceable.

Mr. Samuel D. Slade: Against a subsequent purchaser from the Government.

Justice Hugo L. Black: Yes, but you're not going to sell the ship.

Mr. Samuel D. Slade: I say, with this property, no.

We wouldn't be selling these boats --

Justice Hugo L. Black: So, what you're --

Mr. Samuel D. Slade: -- unless --

Justice Hugo L. Black: -- so, what you're saying is, and maybe you're right, I don't -- I'm -- at last, now, I am -- I understand a little better.

What you're saying is that no lien can be obtained under any state law which deprives the Government, which has a contract with a private corporation to build a ship, that no state lien can --

Mr. Samuel D. Slade: That's --

Justice Hugo L. Black: -- be put on there --

Mr. Samuel D. Slade: Yes.

Justice Hugo L. Black: -- and can be saved from the Government if it wants to take over.

Mr. Samuel D. Slade: Yes.

And --

Justice Hugo L. Black: Whether -- whether it takes it over -- whether its lien is worth as much as the other lien or not.

Mr. Samuel D. Slade: And that's -- and we -- we link that to another connection -- contention which distinguishes the Thibodo case which petitioners find comforting.

Here, there's an outstanding right against Rice.

Of course, Rice is here a bankrupt, that's true.

Justice Hugo L. Black: Well, he is bankrupted.

Mr. Samuel D. Slade: But the next Rice may --

Justice Hugo L. Black: (Voice Overlap) --

Mr. Samuel D. Slade: The next Rice may -- the next Rice may not be a bankrupt.

Justice Hugo L. Black: But in this case, we have --

Mr. Samuel D. Slade: Yes.

Justice Hugo L. Black: -- to assume that it's no good.

Mr. Samuel D. Slade: But it does -- it does give you a picture of the nature of the lien that we're talking about.

What kind of property, if any, this is.

In the Thibodo case, and this will point out the difference as we see it.

You have one of these western improvement district schemes.

Bonds are sold.

Under California law, those bonds become a present, recorded, perfect right.

As it were, the bond holders become partial owners of the property.

Their bonds are to be paid interest and principal out of assessments.

The only right is to call in the City Treasurer to foreclose or to do that, themselves.

Now, the United States comes along, and in an eminent domain proceeding, takes that property.

It only gives notice by publication.

It does not serve these people whose rights are recorded.

And it contends that the real issue in the Thibodo case was one of notice.

The Court of Appeals holds that, where that situation exists, there's no other right in these bond holders, except a right to be treated as partial owners of this land.

Justice Hugo L. Black: But here you have -- I don't quite get it yet.

Why do you claim that the Government -- why is it right or correct as authorized by any statute?

Mr. Samuel D. Slade: We --

Justice Hugo L. Black: The Government that's -- destroy a lien which is a valid lien, I understand you to say.

Mr. Samuel D. Slade: No, I -- I never -- I said they had only a right to get a lien.

It's not an enforceable lien in this case.

Justice Hugo L. Black: So, it's not enforceable, you say, because it's on property that the Government has hired somebody to construct but which it has not yet taken over.

Mr. Samuel D. Slade: No.

I said it was not enforceable because at no time prior to the passage of title had they ever take the steps under Maine law to have an attachment issued.

Or --

Justice Hugo L. Black: But then, you are saying that they've lost their lien under Maine law?

Mr. Samuel D. Slade: But it's narrowly, yes.

Justice Hugo L. Black: I can understand that.

Mr. Samuel D. Slade: Why?

Because under Maine law, the statute says you will have a lien which shall be enforced by an attachment made up to such and such a point of time.

That attachment must be returned 14 days before the return term which it sued in a sum suit against Rice as to be heard.

Justice Charles E. Whittaker: That wasn't done.

Mr. Samuel D. Slade: That was not done.

Everybody interested was to have notice.

Then there'd be a case in a sum to the judgment, one way or the other, and then --

Justice Charles E. Whittaker: (Inaudible)

Mr. Samuel D. Slade: No.

Justice Charles E. Whittaker: So, then what is involved in (Inaudible) under the law of Maine?

Mr. Samuel D. Slade: Anyone could have taken that property at that time, (Inaudible) and Joe Smith, it doesn't make any difference.

Once those boats go beyond the reach of Maine process, people in the position of these petitioners can't take the further steps under the Maine law.

This is not anything peculiar to the United States and it doesn't give rise to a suit under the Fifth Amendment.

Justice Charles E. Whittaker: Doesn't that (Inaudible)

Mr. Samuel D. Slade: Yes, sir.

Yes, sir.

Justice Charles E. Whittaker: Now, is the -- this clause isn't (Inaudible)

Mr. Samuel D. Slade: Yes.

Justice Charles E. Whittaker: -- in which the titles (Inaudible) to adopt.

Do you hold that the (Inaudible) were, under the judicial law, inferior to the lien covered?

Mr. Samuel D. Slade: Most were.

Justice Charles E. Whittaker: Yes.

Mr. Samuel D. Slade: Yes.

Justice Charles E. Whittaker: Now, then after Congress asked (Inaudible) filed in the suit.

Mr. Samuel D. Slade: The Act of 1911.

Justice Charles E. Whittaker: Which gives the Government (Inaudible) but doesn't that still mean that the state liens are valid, but junior?

Mr. Samuel D. Slade: No.

Only -- only in the circumstance where the proceeding arises for the measurement of relative lien rights.

For example, had these boats hardly been completed at all, had it not been worthwhile to take and move them to the North, like in Philadelphia, the Government might very well, under this contract, have decided to let this thing go into a state court, have this proceeding and come in and assert its liens as against the other liens only to the extent of the payments then made.

It may not have wanted the vessels and, as I've pointed out, I think, in many kinds of contracts, they would not have wanted to use replacement contractors and complete the work.

In that case, they would come into the state proceeding and use the paramount lien, an entirely or alternate form of protection, entirely separate from the decision here to pass the title because, here, they needed the boats completed.

Justice Felix Frankfurter: Mr. Slade, may I ask you this question.

If Armstrong had followed, what I understand you to be, Maine law to perfect this lien am I using the correct language?

Mr. Samuel D. Slade: Yes, I'll -- protect -- preserve -- this case (Inaudible)

Justice Felix Frankfurter: You make it something that has to be respected under all points --

Mr. Samuel D. Slade: To enforce is what the statute --

Justice Felix Frankfurter: To enforce?

Mr. Samuel D. Slade: Yes.

Justice Felix Frankfurter: If -- if Armstrong had taken the -- the steps necessary under Maine law to enforce his lien, could he have taken those steps without bringing the United States in?

Mr. Samuel D. Slade: I looked over the --

Justice Felix Frankfurter: And if he had not brought them in, under Maine law, and if it weren't United States but anybody else, what would be the consequence?

Mr. Samuel D. Slade: Well, the sheriff, under the Maine law, is supposed to go down and put that in the way of attachments in actual paper.

This is not a notice in law.

He's supposed to let everybody know that's interested.

Actually, many of the cases have involved purchases of ships, supplies and other -- other supplies and so forth.

The sheriff is supposed to let everyone know.

He would have had to let the United States know.

Justice Felix Frankfurter: And do you -- what would -- what would the United States be doing about it?

Mr. Samuel D. Slade: In that circumstance, I think it would -- in that case, I suppose, they would have gone in and exercised the paramount lien.

Justice Felix Frankfurter: If they had not -- if they had not done anything but -- but acquiesced to what the sheriff -- the physical act of the sheriff, you would have a different situation, wouldn't you?

Mr. Samuel D. Slade: I can't conceive of what happened.

Justice Felix Frankfurter: What?

Mr. Samuel D. Slade: Perhaps -- I'm sorry.

Justice Felix Frankfurter: Things have happened that are unconceivable in this world.

Is that true?

Mr. Samuel D. Slade: Yes, I think so.

Justice Felix Frankfurter: So that -- so that when you replied to Justice Black a little while ago, he abandoned or what was the word?

He (Inaudible) he abandoned his lien.

Didn't you -- he had a lien and lost it.

Isn't that what you said?

Mr. Samuel D. Slade: Oh, I -- I think so, yes.

Justice Felix Frankfurter: But is that an accurate way of putting it?

If you have to enforce it that in order to make it viable and effective --

Mr. Samuel D. Slade: You never had it.

Justice Felix Frankfurter: You haven't lost it.

You hadn't even had it.

Mr. Samuel D. Slade: Well, I think that the status of a man under this Act, before he's done any of these things, is a little more than that of a general credit --

Justice Felix Frankfurter: All right, but as I merely wondered whether you're saying he lost it --

Mr. Samuel D. Slade: No, Your --

Justice Felix Frankfurter: -- the correct statement.

Mr. Samuel D. Slade: Thank you.

Chief Justice Earl Warren: Well, Mr. Slade, is -- is that answer of yours consistent with the -- the theory of the Court of Claims that -- that this a public works and that, therefore, no lien can attach?

Mr. Samuel D. Slade: I -- I think -- I think that Judge Jones, while he may have been a little inartistic, is trying to say a very practical and real thing.

Mr. Justice Frankfurter suggested before and I might, all the way, I have been trying to say it.

When you have a contract entered into like the standard form supply contract, known to all, to all -- suppliers are pretty canny men.

These contracts are used in thousands of situations.

I think Judge Jones is merely trying to say, given the -- the history crusted relationship between materialmen supplies with government contracts in the Government, they know that whatever happens between the Government and its contractor, under these standard provisions offering various options for various situations is a -- is a paramount thing.

And I think Jones is trying to say that, for example, had contract title passed on completion and had it been developed that Rice had never paid any of its supplies and materialmen.

He kept them at arm's length.

He got extensions of credit.

He gets a full $175,000 for the boats and the United States takes them.

Certainly, in those circumstances, the materialmen supplies couldn't say to the Government, “you have to pay twice.

You've paid for everything that's gone in these boats.

This is a contract price.

Now, you have to pay us again because Rice didn't pay us.”

And, that's about what this case is I believe.

We're being asked really to pay, first, $141,000 to Rice which is the agreed and estimated percentage of completion.

Actually, it's optimistic.

We had to pay a lot more than that to get the boats finished and now, we're being asked to pay these or any other people who dealt with Rice, subsequent to the time we executed the contract and whom Rice didn't pay.

Chief Justice Earl Warren: Do you think --

Mr. Samuel D. Slade: Who's ever paid or not?

Chief Justice Earl Warren: Do you think that the situation had been as Justice Black outlined a situation that the Court of Claims, under its theory in this case, would have decided differently?

Mr. Samuel D. Slade: You mean that if -- if the Government had actually converted $50,000 --

Chief Justice Earl Warren: No, I mean --

Mr. Samuel D. Slade: -- taken $150,000.

Chief Justice Earl Warren: -- if the Government had put $100,000 --

Mr. Samuel D. Slade: In.

Chief Justice Earl Warren: -- into it and that there had been $150,000 put in it by the work and materials, that -- that there would be a lien?

Mr. Samuel D. Slade: Well --

Chief Justice Earl Warren: I understood you to say that in -- in response to --

Mr. Samuel D. Slade: I think, actually, that situation is covered by the contract in this case.

We have, on page 4211, this provision which authorizes the Government to take title under 11 (d) isn't just an act of force.

You go in and you get these instruments, executed pursuant to these provision.

As agreed on schedules, the contractor has the right to object if he thinks the Government is paying for more than is taken.

If he does object, he has a right to take a -- an appeal on the ground this is a question of fact within the meaning of the disputes clause of the contract.

None of those things were done in this case.

Chief Justice Earl Warren: Well, these --

Mr. Samuel D. Slade: The contractor has -- well --

Chief Justice Earl Warren: These are not the contractor.

These are --

Mr. Samuel D. Slade: Well, the contractor --

Chief Justice Earl Warren: -- these are --

Mr. Samuel D. Slade: -- in short, agreed that there was no excess value being taken here.

It's -- it's an inconceivable case to me that that would happen.

It certainly hasn't happened here.

Justice Felix Frankfurter: Tell me, is --

Mr. Samuel D. Slade: I'm sorry?

Justice Felix Frankfurter: Mr. Slade, as a matter of practice, you -- you nicely characterize this as history crusted.Do materialmen, in the situation of the plaintiff or the petitioner here, ever give notice to the government department affected?

Mr. Samuel D. Slade: Oh, I -- I am sure they do.

Justice Felix Frankfurter: And what happens then?

Is there an acknowledgement or was it merely giving notice -- would, in this case, from your point of view, not made a -- made a difference?

Mr. Samuel D. Slade: No.

Justice Felix Frankfurter: Now, what is the -- what is the practice of the involved government agency if you say that they -- you're sure they do, what purpose of this or what's -- what (Voice Overlap) --

Mr. Samuel D. Slade: Well --

Justice Felix Frankfurter: -- did the Government take towards this?

Mr. Samuel D. Slade: On page 37 of this record, there is this discharge of lien provision.

And if it comes to the Government's attention during the course of the supply contract or the contractor's pocketing the money, progress payments, and not keeping up with the work, this could give rise to a variety of things.

It might, in itself, be a cause of termination in an unreliable contractor.

It might give rise to concern.

Justice Felix Frankfurter: There's a frequent provision that he must -- must discharge him and pay labor and materialmen (Voice Overlap) --

Mr. Samuel D. Slade: And if he doesn't --

Justice Felix Frankfurter: If he doesn't--

Mr. Samuel D. Slade: -- the Government may --

Justice Felix Frankfurter: -- it caused a breach.

That's a breach.

Mr. Samuel D. Slade: Or the Government may pay them and charge it to him and recoup out of progress payments or other payments that are due and owing.

That's the one of the prime purposes of the discharge --

Justice Felix Frankfurter: The Brass case --

Mr. Samuel D. Slade: -- of lien question.

Justice Felix Frankfurter: -- found to be clear in -- on the actual terms of the contract, didn't it?

Mr. Samuel D. Slade: The which?

Justice Felix Frankfurter: Brass.

Mr. Samuel D. Slade: The Ansonia Trade case?

Justice Felix Frankfurter: The Ansonia Brass case.

Mr. Samuel D. Slade: Yes, and the fact that, under the prior Attorney General opinion, that particular lien provision had been viewed as perhaps in deference to state recognized, state-created and enforceable lien.

That was changed by the Act of 1911.

Justice Hugo L. Black: May I ask you one other question that (Inaudible) answering?

I'm -- I'm still now a little disturbed again by what you said.

Does the Government have a lot of private contracts with people that build ships, airplanes, and various other government equipment?

Mr. Samuel D. Slade: Private contracts.

Justice Hugo L. Black: What did you say?

Mr. Samuel D. Slade: Oh, I -- I see.

You mean, as distinguished from navy yard, and so forth?

Justice Hugo L. Black: Yes.

Mr. Samuel D. Slade: Oh, yes.

Justice Hugo L. Black: Is that a very large part of the government business?

Mr. Samuel D. Slade: Well, you have to make a distinction as to sign.

Now, this is a small boat contract.

Justice Hugo L. Black: I understood this one was --

Mr. Samuel D. Slade: This is a supply contract.

Justice Hugo L. Black: -- but I'm talking about the general line of business.

Does the Government make or have a lot of contract on the cost plus or -- or let them out on such bids and things like the aircraft companies or contractors or persons who build things for the Government, construct things for the Government?

I'm not talking about building now.

Mr. Samuel D. Slade: I see you've --

Justice Hugo L. Black: Like ships.

Mr. Samuel D. Slade: Yes, I -- I think so.

Justice Hugo L. Black: And planes.

Mr. Samuel D. Slade: I think so.

Justice Hugo L. Black: And various things.

Mr. Samuel D. Slade: Yes.

Justice Hugo L. Black: If I understand your argument, and it may be right.

Does anyone, any laborer who works for them anywhere in the United States or any man who supplies material to the contractor can get no lien under state law or any other law that's enforceable?

Mr. Samuel D. Slade: Against the Government?

Justice Hugo L. Black: Well, against the thing that -- that is to be built in the future.

Mr. Samuel D. Slade: Yes.

Justice Hugo L. Black: There's no way to get it.

It just destroys them entirely.

Mr. Samuel D. Slade: Well, as I understand it.

I'm no expert on the practice but as I understand the logic of contracts, there are always one of two things done.

I think no payment bond is required because I think the shipyards, aircraft companies have to put up a fund to the Government's satisfaction to protect these people.

I think that in most routine cases, there is a payment bond.

That's the purpose of the Miller Act.

In the Miller Act, the (Voice Overlap) --

Justice Hugo L. Black: But it wasn't -- why was it not utilized here?

Mr. Samuel D. Slade: In 1941, the provisions of the Miller Act, the secretaries of -- of the defense departments were authorized to waive the provisions of the Miller Act in -- to enable the smaller people to get into government procurement.

Sureties, inability to get a surety bond, the fact that surety would intervene and pick up the money when it came, prevent refinancing.

These things were keeping the smaller people out of this kind of procurement that we have here.

And it was felt that waiving the bond might give them the ability to get into government procurement work and begin to build up.

And the Act was passed April 1941.

But as I suggest, and for legislative history makes it plain that there was no intention of Congress, no circumstances to substitute the answerability of the United States for the traditional Miller Act situation.

Justice Hugo L. Black: But there was a distinct purpose in the passage of that Act, wasn't there?

Mr. Samuel D. Slade: To which --

Justice Hugo L. Black: -- to enable people who worked for these companies, laborers and people who supplied the material to get protection from the Miller Act for a bond.

Mr. Samuel D. Slade: Well, no.

The Miller Act bond is for that purpose and whether its --

Justice Hugo L. Black: That's what it's for, isn't it?

Mr. Samuel D. Slade: And where you have the -- the waiver provision, the Miller Act bond is gone.

Justice Hugo L. Black: And if the Miller Act is -- if the department waives the Miller Act --

Mr. Samuel D. Slade: Yes.

Justice Hugo L. Black: Then, the fellow -- the man who does the work or supplies the material has no -- can get no enforceable lien --

Mr. Samuel D. Slade: No, he is -- his work--

Justice Hugo L. Black: For the work.

Mr. Samuel D. Slade: His work, his materials are then at his risk.

Justice Hugo L. Black: He has to take the risk?

Mr. Samuel D. Slade: That's right.

Chief Justice Earl Warren: And they thought that would be a help to the little man?

Mr. Samuel D. Slade: It certainly was.

It enabled them to get into procurement, to use incoming payments for refinancing.

It took the-- sometimes, the surety wouldn't let them get a new contract while they completed the one in which his bond was outstanding.

There are all sorts of things that were inhibiting the smaller man and their supplies in labors from getting into the mainstream of government procurement.

The sureties are a very conservative people and were inhibiting this expansion.

Chief Justice Earl Warren: Thank you.

Mr. Thorman.

Argument of Burton R. Thorman

Mr. Burton R. Thorman: In my previous argument, I think I may have overlooked mentioning that, at page 35 of the record, which is the progress, payments, and liens clause, it is provided that the Government will only pay 97% of the total contract price based upon the progress of completion as certified by a naval inspector.

The point I want to make is that the Government retained 3% of the money which the contractor had earned based upon a percentage of completion.

And, this bond, of course, would have been available for the payment of the liens of these people, although, admittedly, in this case, that 3% was not enough to pay the $23,000 which are here an issue.

Justice Hugo L. Black: I'm still -- I'm a little at a loss now in your claim.

What you contend.

I'd like to ask you this question.

Mr. Burton R. Thorman: Yes, Mr. Justice Black.

Justice Hugo L. Black: What -- if you -- if you could sue the Government for compensation, what in your judgment, is the measure of your damage?

Mr. Burton R. Thorman: The measure is --

Justice Hugo L. Black: Do you -- do you claim that you could -- that the Government would lose any part of its lien?

Are you claiming that you could collect $41,000 even though the Government had paid out, had already paid into that fund, enough to absorb the full value?

Mr. Burton R. Thorman: The -- if I may, the amount is $23,000.

Justice Hugo L. Black: Well, what -- I don't care about the exact amount.

Mr. Burton R. Thorman: No, --

Justice Hugo L. Black: Do claim you can destroy any part of the Government's lien by this lawsuit?

Mr. Burton R. Thorman: No, we're not -- we're not attacking the -- the Government's lien.

We say that the Government, by virtue of its sovereign capacity, has destroyed our liens.

Justice Hugo L. Black: I understand that.

Mr. Burton R. Thorman: And --

Justice Hugo L. Black: But suppose the Government has taken this over, as it had a right to do under its contract, we'll assume.

And it had paid $141,000 or whatever it is, and that's -- it had a lien for that exact amount.

Do you claim that because they have destroyed the lien of yours but you say is worth $23,000 that you can nevertheless collect $23,000 from them?

Mr. Burton R. Thorman: No, it is our position that the Government didn't exercise its lien.

They took the title and they were obligated at that point --

Justice Hugo L. Black: I'm not interested in the amount of damages you claim you can get in this lawsuit in connection with the Government's lien.

Mr. Burton R. Thorman: Well, we -- we think that it is our loss and not whatever the Government may have gained.

I mean, at least I think it's clear what has happened.

Justice Hugo L. Black: Not what it's gained but what it might lose.

Mr. Burton R. Thorman: Well, I think that --

Justice Hugo L. Black: Are you claiming that by this --

Mr. Burton R. Thorman: -- our area of the gain is --

Justice Hugo L. Black: -- are you claiming that by this form of lawsuit, although you had a junior lien to the Government, by reason of the fact that the Government had this -- transferred to itself, you can recover the full value of your junior lien?

Is that your contention?

Mr. Burton R. Thorman: That is -- that is correct under just compensation because we have a right --

Justice Hugo L. Black: How can it be just compensation if it wasn't just, if you were not entitled to it?

Mr. Burton R. Thorman: Well, we had a right to have the property subjected to the liens which were enforced against the property.

Admittedly, the Government has a lien and we have a lien.

Justice Hugo L. Black: You're not attacking its lien.

Are you attacking its superiority to yours?

Mr. Burton R. Thorman: No.

We -- we concede that --

Justice Hugo L. Black: But you do claim that by the reason of the Government taking it over, if you could yet to sue the Government for just compensation, that you can put yours first and get every dime of yours even though if the Government loses?

Mr. Burton R. Thorman: No, because the Government -- the Government did nothing to enforce its lien.

If the Government had taken its part -- taken its lien --

Justice Hugo L. Black: But it still hasn't done it.

The -- the justice of the claim is still there, isn't it?

It's between you two, assuming that you're right in your claim that you ought to get what you actually lost.

Mr. Burton R. Thorman: Well, we -- the contractor put $198,000 into the contract and this was submitted to the Government despite some obscurity on the issue.

This was -- this figure was submitted to the Government and appears at page 58 of the record.

It was part of the submission to the -- part of the submission to the Government in connection with the progress payment, the last progress payment that was requested from the Government.

Now, I think that the record makes it clear that they did -- they did pay that much amount of money.

That Rice spent $198,000.

This was 40 or -- $57,000 more than the Government had paid and the reason this came about --

Justice Hugo L. Black: Well, now, you --

Mr. Burton R. Thorman: -- was --

Justice Hugo L. Black: -- now, you -- I can understand that you're claiming that if the Government didn't have a lien for 100 or was getting more than it should get for its lien, that you're entitled to recover.

I can understand that.

But I understood you to tell me a while ago, maybe I was wrong, that even if the Government lien is superior to yours and they've taken it over and the Government's lien is for every cent of the value of that property that nevertheless, by the reason of the fact that they've taken it over, you can sue them for just compensation and get the full value of your subordinate lien.

Mr. Burton R. Thorman: I -- I think we could because the Government has -- has taken and chosen this method.

It must be remembered, the Government had two options.

They could foreclose on this lien.

They had -- they had the choice of -- of what they're going to do, or they could take their title, acquired title subject to this Section 11 (d) of the contract.

They chose 11 (d).

Now, why they chose it?

We don't know.

We can only speculate.

Justice Hugo L. Black: Well, are you claiming that since they chose the wrong method of procedure, you can take something that had no value at all in the beginning because they had a lien for more than its worth and you can take that nothing and make it recover from the Government the full value of your -- the full non-value of your lien?

Mr. Burton R. Thorman: Well, I think we had a right to go through a foreclosure proceeding which would then have subjected this whole subject of value to the light of day.

Now, I'm aware of the fact that the Government, I don't know whether counsel has mentioned in his argument, claims to have spent considerably more money to complete the contract.

But this all arose much later and we're based -- we're stuck with the Government's alleged cost because Rice was in bankruptcy and never contested this amount.

But I think that we had a right to have this subjected to the light of day to the foreclosure proceedings.

Justice Hugo L. Black: Why couldn't you get it subjected to the light of day if you are right in saying your lien has been destroyed and the property is -- the Government has taken it?

Wouldn't it be exposed to the light of day if the Court of Claims should try out that issue and see whether or not you did have any lien that was worth anything and was taken?

Mr. Burton R. Thorman: Yes, I -- I would agree.

Chief Justice Earl Warren: Thank you.