City of Gainesville v. Inv Co

• Decision Date: 14 May 1928
• Docket Number: No. 433,BROWN-CRUMMER,433
• Citation: 72 L.Ed. 781,277 U.S. 54,48 S.Ct. 454
• Parties: CITY OF GAINESVILLE v. INV. CO. et al
• Court: U.S. Supreme Court

277 U.S. 54

48 S.Ct. 454

72 L.Ed. 781

CITY OF GAINESVILLE

v BROWN-CRUMMER INV. CO. et al.

No. 433.

Argued April 13, 1928.

Decided May 14, 1928.

Mr. W. O. Davis, of Gainesville, Tex., for petitioner.

Messrs. H. O. Head, F. C. Dillard, and Rice Maxey, all of Sherman, Tex., for Head.

Mr. Alex F. Weisberg, of Dallas, Tex., for Brown-Crummer Inv. Co.

[Argument of Counsel from page 55 intentionally omitted] Mr. Chief Justice TAFT delivered the opinion of the Court.

This suit was begun by the city of Gainesville, Tex., in a state court of Texas, against the Southern Construction Company, a partnership consisting of Harry D. Levy and Lester Levy, and against H. W. Head and the Southern Surety Company, all of whom were citizens of Texas, except the surety company, which was an Iowa corporation. The action grew out of a contract between the city and the Southern Construction Company for street improvements. The city issued city time warrants payable to bearer to pay the contractor. The contract was partly executed and the improvements partly constructed. A second contract was then made by which some of the warrants were to be issued before the rest of the work was done and were to be placed in escrow to be delivered to the contracting company as the work should be completed and approved. The performance of the escrow conditions was guaranteed to the city by H. W. Head and the Southern Surety Company of Iowa became his surety on this guaranty.

There is in the record a signed stipulation of the parties descriptive of the details of the proceedings, which in part is as follows:

'Default judgment in said cause was rendered by said court in favor of the plaintiff against all defendants for $15,000 and against the Southern Construction Company for $4,090, which judgment upon appeal by said Head and said Southern Surety Company was reversed by the Court of Civil Appeals for the Sixth Supreme Judicial District as to said Head and said Southern Surety Company, but was affirmed as to said Southern Construction Company. See Head v. City of Gainesville, 254 S. W. 323. Upon the remand of said cause to the district court for Cooke county. H. O. Head, as executor made himself a party in lieu of H. W. Head, who had died in the meantime, and he and the Southern Surety Company filed an answer to the petition. Thereupon the plaintiff amended its petition making Brown-Crummer Investment Company, a Kansas corporation, a party defendant, and said Brown-Crummer Investment Company within the time allowed by law filed its petition to remove said cause to this court (i. e. the United States District Court for the Eastern District of Texas) upon the ground of a separable controversy. After a transcript of the proceedings were filed in this court, a motion to remand made by the plaintiff was overruled. All parties having repleaded in this court with the exception of the Southern Construction Company, which did not appear, it is agreed that the transcript of the proceedings in the District Court as well as all abandoned pleadings may be omitted by the clerk in making out the record for the Circuit Court of Appeals, as immaterial.'

The Brown-Crummer Company was made a party by the city on the ground that it had in its possession $15,000 of the city warrants which the city did not owe because the paving contract had not been completed. The city sought to have them delivered up to be canceled to prevent their sale to a bona fide purchaser. The company was a dealer in municipal securities at Wichita, Kan., and claimed to be owner as bona fide purchaser of the warrants, and, when made a party, sought judgment on them in this case against the city. It is upon the validity of those warrants that the chief issue in the case turns.

Upon the removal of this cause from the state to the federal court, the defendant Head sought to avoid liability, on his guaranty to return $15,000 of warrants of the city, and that of his surety, the Southern Surety Company, by the contention that the warrants in question were illegally issued, void under state law, and of no value. In all its petitions but the last the city had alleged that its warrants were valid. In its later pleading, however, it changed its attitude somewhat, and pleaded in the alternative that, if the court should hold the warrants void, they should, as against the Brown-Crummer Company, be so declared, and asked that they be canceled.

Both the issue between the city and the Brown-Crummer Company on the warrants, and that between the city and Head and the Iowa surety company for breach of their guaranty were tried to a jury in the District Court. The court directed a verdict on the warranted in favor of the Brown-Crummer Company, and gave judgment against the city for $13,125 with interest. On the claim of the city under the guaranty against Head and the surety company, the court directed a verdict for the defendants, and gave judgment of dismissal against the city.

The case was carried to the Circuit Court of Appeals of the Fifth Circuit. 20 F.(2d) 497. That court in its opinion dealt at some length with the questions whether the city warrants were valid under the state law and whether they were held by Brown-Crummer Company as a bona fide purchaser without notice of any infirmity in their origin. The Court of Appeals held the warrants legal, and adjudged that the city was estopped as against the company to plead irregularities in their issue. The court therefore found no reversible error in the directed verdict in...