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(271 F.)

The fifth assignment is that the court erred in admitting in evidence for the purpose of showing the value of the canal property the opinion of General Goethals on the ground that it was predicated upon the testimony of another witness in the case. General Goethals was called by the Canal Company and qualified as an expert on the construction and operation of canals. He was asked to state his opinion as to the value of the canal, giving due consideration to the different elements of value which had been submitted, and especially to the potential earning capacity of the canal as outlined by Professor Johnson. The testimony was admitted and the government excepted, on the ground that the opinion was predicated upon the acceptance of Professor Johnson's figures as to the potential earning capacity of the canal. On cross-examination the witness testified that he accepted Professor Johnson's estimates of the probable tonnage and the probable revenue, but, when inquired of as to whether or not he incorporated them in his opinion or used them as a basis for it, he said in substance that he considered the prospective earning capacity of the canal, but that he did not know of the prospective earning capacity, as stated by Professor Johnson, at the time he made up opinion; that he did not know of his figures until he had made up his mind. Under these circumstances we do not think that this assignment, limited as it is, presents any question for our consideration.

[4] The sixth assignment relates to reproduction cost and is comprised under three heads-(a), (b), and (c). In subdivision (a) the government complains that the court erred in admitting, for the purpose of showing the value of the canal property, evidence relative to the amount which it would cost to reproduce the property under the conditions and the enhanced prices of April 1, 1919; in subdivision (b) it complains that there was error in the admission of evidence for the same purpose, for the reason that there was "no sufficient evidence in the case that the reproduction of the canal property at present prices and under present conditions was a reasonable commercial proposition"; and in subdivision (c) that the court erred in refusing to instruct the jury (1) that the "Canal Company is not entitled to such a sum as would enable it to reproduce the canal at present prices or at any prices"; and (2) that it is only entitled "to that sum which will enable it to procure something else of equal pecuniary present value"; and (3) that "the jury should not consider as elements of value the estimates of McGovern and Goethals of the reproduction cost of the canal at present prices."

Patrick McGovern, a contractor who duly qualified as an expert on the cost of construction, testified that in his estimation it would cost to reproduce the canal in 1919, $27,980,729, and General Goethals, who likewise qualified as an expert, testified that in his opinion the cost of reproducing the canal in 1919 would be $25,832,245, if the work was done by the government by "force account," or $30,716,081.75 if done by a private contractor, and if by a private corporation obliged to finance the project by floating stocks and bonds about $40,000,000. Before this evidence was introduced, counsel for the government re

quested the court not to admit the evidence unless it was supported by affirmative proof on the part of the Canal Company that the reproduction of the canal at present prices was a reasonable, commercial proposition; that in the absence of such evidence the court should take judicial cognizance of the enormous increase in the cost of work of this sort between the time when the canal was built and the cost April 1, 1919. In answer to this the court said:

"So the question before me is whether I can say as a matter of fact-ana it is nothing but a question of fact-that in this case the circumstances are so peculiar that reproduction cost is of no significance. I am not prepared to do it."

An exception was saved to the ruling of the court permitting the introduction of the evidence.

It is in substance conceded that reproduction cost is competent evidence of market value, provided the prices existing at the time of reproduction are normal, making due allowance for the period of time necessary to reconstruct the property.

The evidence which the Canal Company offered shows that reproduction prices as of April 1, 1919, were, due to war conditions, about 100 per cent. above the actual cost of the canal; and the question is whether, under such circumstances, the court below should have declined to admit the evidence of reproduction cost, unless he was satisfied from evidence produced that a reasonable man would undertake to reproduce the canal at present prices as a commercial proposition, or whether the evidence should have been submitted to the jury, with instructions that they should not consider it on the question of market value, unless they were satisfied by a balance of probabilities that a reasonable man would undertake to reproduce the property at present prices, or whether the evidence should have been submitted to the jury, with the single instruction that they might consider it, and allow it such weight as they thought it was entitled to, disparaged, as it might be, by proof introduced by the government See Colburn v. Groton, 66 N. H. 151, 28 Atl. 95, 22 L. R. A. 763; Jaques v. Chandler, 73 N. H. 376, 382, 62 Atl. 713.

While it is customary to admit evidence of reproduction cost as bearing upon the question of value, the rule seems to be subject to certain limitations. In the Minnesota Rate Cases, 230 U. S. 352, 452, 33 Sup. Ct. 729, 761 (57 L. Ed. 1511, 48 L. R. A. [N. S.] 1151, Ann. Cas. 1916A, 18), Mr. Justice Hughes, speaking on this subject, said: "The cost of reproduction method is of service in ascertaining the present value of the plant, when it is reasonably applied and when the cost of reproducing the property may be ascertained with a proper degree of certainty. But it should not justify the acceptance of results which depend upon mere conjecture."

In that case the court thought, in view of the length of time which had elapsed since the railroad was built and the material development of property and changes in the community since that time, that to attempt to estimate what would be the actual cost of acquiring the right of way over which the railroad was located, on the assumption

(271 F.)

that the railroad was not there, was to indulge in mere speculation, and that such a method of ascertaining present value under the conditions shown should not be made use of. The question then is, if we assume that the cost of reproducing the canal may be ascertained with a proper degree of certainty, can the rule permitting the introduction of such evidence be reasonably applied in times of abnormal prices, in the absence of proof that a reasonably prudent man would purchase the property or undertake its construction at reproduction prices?

It seems to us that this is a necessary limitation upon the application or use of the rule when construction prices are abnormal, and that the court below either should have passed upon the preliminary question of fact himself, or submitted it to the jury, with instructions that they should not consider the evidence of reconstruction cost upon the question of value, unless they were satisfied that a reasonably prudent man would purchase or undertake the construction of the property at such a figure. When the cost of reproduction is taken into consideration as evidence of value, if the original property has depreciated, proper deduction therefor should be made in the evidence submitted to the jury.

As the evidence of Mr. McGovern and General Goethals was admitted generally and without limitation and without any deduction for depreciation, the court erred in so doing.

We do not find it necessary to consider in detail the requests for instructions embraced in this assignment of error, as they are, in all essential respects, covered by what has been said.

The seventh assignment of error is under three heads-(a), (b), and (c). In subdivision (a) the government complains that the court erred in admitting, for the purpose of showing the value of the canal property, the testimony of Admiral Francis T. Bowles and that of General Clarence R. Edwards relative to the utility and adaptability of the canal property for military and naval purposes.

In subdivision (b) it complains that the court erred in refusing to give the following instruction:

"That the value of the property in question is represented by the amount of money which the company could probably secure for it at a fair cash sale at the present time to some person or corporation other than the government."

And in subdivision (c) it complains that the court erred in admitting, for the purpose of showing the value of the canal property, the testimony of General Edwards that in his opinion the canal is a substantial and essential part of a modern scheme of defense of the United States in time of war.

Admiral Bowles was called by the Canal Company and qualified as an expert. He was asked, among other things, with regard to the use of the canal in connection with the military defense of the country in case of war. Counsel for the government objected that the company was not entitled to have the canal appraised at its value to the government for military or naval purposes. The court ruled that the avail

ability of the canal for national defense was competent, and that the evidence might be admitted, and the government excepted.

Admiral Bowles then testified as to the availability of the canal for use for military and naval purposes. The court subsequently, in explaining his ruling, stated that he did not think he allowed the evidence as to the availability of the property for military and naval use "as to the dollars and cents value of that particular use."

General Edwards was called and qualified as an expert. Having testified that he had given consideration and study to the defense of the New England coast and submitted a report thereon to the War Department, he was asked whether the canal played any part in the plan of defense which he had outlined as commander of this department, and answered "Yes." He was then asked what was the importance the canal would play in his plan of defense. The court ruled that the question might be answered, the government saved an exception, and the witness answered: "I think, it is substantial and essential."

Counsel for the Canal Company, in the course of his argument to the jury, after referring to the testimony showing that the cost of reproducing the canal was from $25,000,000 to $30,000,000, said:

"So that we have here testimony upon which you would find that the least figure at which it could be reproduced by the government itself—and that is the important figure here for the reason I will point out in a moment-is in excess of $25,000,000.

"Now, let us examine whether it would be likely to be built or not. You know something about what it costs for our national defense. I haven't the figures, but they are talking, I think you very likely saw recently, about $60,000,000 for a new kind of dreadnaught, one dreadnaught. $25,000,000 would be less probably, than the cost of a cruiser for our national defense. Now, would they be likely to build it, even at a cost like this? New York has spent $168,000,000 for its system of canals, to build up its commerce. They are talking about $40,000,000 or $50,000,000 for a canal to build up commerce down across the state of New Jersey. Would they overlook us here in Massachusetts entirely with this small sum and this important arm of their canals if it had not been built?

"Well, now, let us see about it. How will we get at that? That question is how important is it to our national defense and the defense of the New England coast? If it was important and vital, do you suppose the government would neglect building it? Haven't we received some lessons in the last few years about national defense? Some of our generals have come home wide awake to them, and the slothfulness which has characterized our government in those matters is not to continue. National defense, the protection of national life, has a vitality now that it has not had in years before.

"Is this of any importance in national defense? Well, Captain Colbath, the witness for the government, says, it played an important part in winning the war he says that. Admiral Bowles-you heard his testimony with regard to it-calm, quiet, impressive, characteristic of a man who has carried the responsibilities that he has carried for his country; as a young man the leading naval constructor in this country, deservedly winning the high title of rear admiral; then taken from official duty, put at the head of the Fore River Works, which were destined to become the great national building place for warships for the national defense; for several years he headed that great enterprise, and then from his retirement, when war broke out, he was called to one of the most stupendous tasks of the many stupendous tasks which were assigned to citizens in Washington in national defense. He had the practical supervision of the rebuilding of the American merchant marine. For the

(271 F.)

Shipping Board he superintended, with supervisory powers, not only the great Hog Island yard, the most marvelous achievement in American history and in shipbuilding, but the shipyards throughout the country, which in the course of the war expended in the vicinity of $4,000,000,000.

"That is the man who told you, in those simple words, with regard to the vital part that this canal, even in its present condition, would play in the defense of the New England coast, joining together those great commercial centers of Boston and New York. And how is his testimony treated? With flippancy, as if it were a joke, as if somehow that testimony could be waived out of this case with a laugh and a sneer. He brought Colonel Shunk, I think, to contradict it, and, he becoming ill, he summoned General Burr, or at least he arranged in Washington that General Burr should be ordered on here to do it, with what results you know. General Goethals, of whom I shall speak a little later in another connection, confirmed everything from the military point of view that Admiral Bowles had said from the naval point of view. He said that it was a vital-I am not quoting exactly-an essential part of our coast defense. Narragansett Bay is likely to be the center of the navy for protection in action.

"But finding that at least in one particular the distinguished government counsel was going to produce a witness who would contradict somebody, we called, as we should have earlier, and it was a matter of delay, a gentleman recently back from the battlefields, with a proud and creditable record, bringing the lessons of that great contest, who has been placed in charge of the Northeastern Division, in charge of the defense of our New England coast. And what does he say? He says it is essential and necessary. Am I right? Essential and necessary-that is right-to our modern scheme of New England defense. And the distinguished counsel says that what is essential and necessary, by the highest military and naval authorities in this nation, would not be built because it costs twenty-five millions of dollars. 'We will build dreadnaughts that can be sunk in half an hour, we will build cruisers, and we will build forts that can be blown into eternity; but we won't have a canal-no, sir. I, Nathan Matthews, say it. No, sir.'

"He doesn't bring anybody to support it, not the slightest evidence; he doesn't bring a man to say that it is not useful; he doesn't bring one witness to say that it would not be built at $25,000,000-not one. And he has the resources of the United States Treasury behind him to summon witnesses wherever he will; and he prefers, instead of having some witness come here to say, 'At that figure it never would be built'-he prefers to assert it himself before you. Wasn't it enough to be counsel, without trying to be the witness, too, and furnish the evidence?

"It is for you to say, gentlemen. Is it likely that our government would be so neglectful of the interests committed to their charge that an essential and necessary part of a scheme of modern defense would not be built because it cost $25,000,000? Well, I think that if some administration said that it would not other administrations might be found that would say it would, and that might be a vital thing in turning out one administration and putting in another. Whether we are going to have national defense or not might easily become a question of importance. If it is, if it has that special value-ana now I am speaking of special value-if it has really a special value because it is a vital factor in New England defense even in its present shape, and if it was not there the government would have to build it, is there any reason why they should not pay what it would cost them to build it so far? They say, 'We want it wider, we want it deeper.' All right. Take it; widen it and deepen it. It is big enough for us, it is big enough for our investment, as Mr. Wilson said; we cannot widen it and deepen it; it would not be commercially practicable at present, however it might in the future. They say currents run through it. All right. Stop the currents, if it is needed for national defense. It won't bankrupt this nation, after what it has gone through. But so far as it would cost you to do the work that we have done, why should you come in and take advantage of it, and take it away from us, and then say: Well, it will cost us $25,000,000 or more to build it; but as long as you have built it I

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