American Bonding & Trust Co. v. Baltimore & O.S.W.R. Co.

• Decision Date: 29 July 1903
• Docket Number: 1,125.
• Citation: 124 F. 866
• Parties: AMERICAN BONDING & TRUST CO. v. BALTIMORE & O.S.W.R. CO.
• Court: U.S. Court of Appeals — Sixth Circuit

124 F. 866

AMERICAN BONDING & TRUST CO. v. BALTIMORE & O.S.W.R. CO.

No. 1,125.

United States Court of Appeals, Sixth Circuit.

July 29, 1903

[Copyrighted Material Omitted]

W. L Granger and J. W. O'Hara, for plaintiff in error.

Judson Harmon, for defendant in error.

In Error to the Circuit Court of the United States for the Southern District of Ohio.

Before LURTON and SEVERENS, Circuit Judges, and COCHRAN, District Judge.

COCHRAN District Judge.

This writ of error is to a judgment of the lower court in an action brought therein by the defendant in error against the plaintiff in error to recover on a guaranty bond executed by the latter April 18, 1899. At that date a suit was pending in said court, brought by the Farmers' Loan & Trust Company against the Baltimore & Ohio Southwestern Railway Company, to foreclose certain mortgages on the latter's railroad extending from Belpre, Ohio, through that state and the states of Indiana and Illinois, to East St. Louis, Ill., and its branches, one of which extended to Louisville, Ky., and suits ancillary thereto were pending in the Circuit Courts of the United States for the districts of Indiana and Kentucky and the Southern District of Illinois. In those suits Judson Harmon and Joseph Robinson had been appointed receivers of said railroad and its branches, and they had taken possession thereof, and were then engaged in operating them. Prior to the institution of said suits said railway company had made beneficial contracts for the purchase of a large number of cars, locomotives, steel rails, continuous rail points, and bridges, some of which cars and bridges had been delivered, in pursuance to plans which contemplated also the laying of a second track from Cochran to Milan, in the state of Indiana, and a change of grade at Skillet Fork Creek, near Iuka, in the state of Illinois. After their appointment, and prior to the date of the execution of said guaranty bond, said receivers, with the consent of the holders of about 90 per cent. of the bonds secured by said mortgage, had been authorized by said courts to carry out said contracts, to make said improvements, to borrow sufficient money for those purposes, and to issue certificates therefor, which should be a first lien on the property in their possession and its earnings. In pursuance of this authority, on said date, to wit, April 18, 1899, they entered into a contract with the Globe Construction Company, whereby said company promised to do the grading, masonry, and track-laying for said second track, and to change said grade, and prepare it for metal viaducts, bridges, and ballasting, the work to be done under the immediate supervision of an employee of the receivers, called 'engineer in charge of construction,' in many particulars according to his directions, and in a few according to the directions of a superior employe, called 'engineer of maintenance of way,' to be estimated monthly by the former, whose estimates were subject to revision and alteration by the latter, but were otherwise final and conclusive, to be begun in 10 days thereafter, and to be completed December 1, 1899; and whereby, further, said receivers promised to pay said company certain prices for said work according to a certain classification, 90 per cent. whereof, according to said monthly estimates, was to be paid monthly, and the remainder at the completion of the work. At the same time, and in consideration thereof, said Globe Construction Company and the American Bonding & Trust Company, plaintiff in error, and defendant in the lower court, executed to them a joint and several bond in the sum of $45,000, whereby they guarantied the faithful performance by said construction company of its part of said contract, which bond is the bond to recover on which the action in the lower court was brought. Subsequent thereto, on May 27, 1899, a decree of foreclosure and sale was entered in said suits, whereby the property covered by said mortgages and in the possession of said receivers was ordered to be sold to pay the indebtedness secured thereby, subject to the payment by the purchaser of any indebtedness incurred by the receivers properly chargeable against said property, and such other claims as the court had theretofore or might thereafter decree to be prior and superior to said mortgages, or either of them, on said property, or any part thereof, to enforce payment of which jurisdiction over the property was reserved, and the purchaser to assume and carry out any contracts made by the receivers. A special master commissioner was appointed to make the sale. In pursuance of this decree sale was made of said property July 10, 1899, to Edward R. Bacon, George Hoadly, Jr., and J. Chauncey Hoffman, which sale was reported July 11, 1899, and confirmed July 20, 1899. The decree of confirmation provided that the purchasers should have the right to assign their interest as an entirety or in parcels, and upon payment of the purchase price the commissioner of sale should execute deeds of conveyance to the purchasers or the persons or corporations to whom they should assign their interest, and the receivers should deliver to them possession of the property and business in their possession and control, the purchasers or their assigns to take title and possession of the property subject to all liens and charges which might thereafter be found and adjudged against it, and to the jurisdiction and power of the court at any time to retake and resell said property in case future orders for the payment of money by said purchasers or their assigns in discharge of said liens and charges should not be complied with. Said individual purchasers did not purchase said property in their own right, but in pursuance of a plan of reorganization formed by the bondholders of said railway company, and as a committee acting for them, which plan contemplated the vesting of said property in a new corporation to operate it. The machinery by which this portion of the plan was carried out was this: Separate corporations were formed in the states of Ohio, Indiana, and Illinois. Said purchasers assigned their interest in so much of said property as lay in the state of Illinois to the Illinois corporation, and in so much thereof as lay in the states of Indiana and Kentucky to the Indiana corporation. The commissioner of sale made deeds of conveyance in accordance with said assignments, and for so much of said property as lay in the state of Ohio, to said purchasers. The Illinois corporation conveyed the property so conveyed to it to the Indiana corporation and the purchasers that so conveyed to them to the Ohio corporation; and the Indiana and Ohio corporations consolidated and became a single corporation under the name of the Baltimore & Ohio Southwestern Railroad Company, plaintiff below, which thereby acquired title to the entire Company, plaintiff below, which thereby acquired title to the entire property. All this was accomplished by July 31, 1899, and thereupon said receivers delivered possession of said property and all the business in their possession and control, including said contract and bond, to said railroad company, August 1, 1899, the receivers executed a formal written assignment of the contract and bond to the company. It is by virtue of these proceedings and this assignment that plaintiff asserted title to said bond and the right to sue on it.

Before this, to wit, on May 28, 1899, the day after the entry of the decree of foreclosure and sale, the construction company began the Indiana work, and at the time when said railroad company acquired title and possession of the property and said assignment was made it had done about 10 per cent. of that work. It continued to work there after said transfer the same as if no change had taken place. The persons who had been in the employ of the receivers as engineer in charge of construction and engineer of maintenance of way, respectively, were employed by plaintiff in said positions, and so - continued during the times hereinafter mentioned. The work on said second track progressed, and monthly payments were made to and on account of the construction company until about January 18, 1900. At that date the Indiana work was still uncompleted, and the Illinois work had never been begun, though the time when said company had promised to complete the work at both places, to wit, December 1, 1899, had passed. The failure so to do was due largely to the fault of the construction company, but also to an increase in the amount of work to be done over that in contemplation when the contract was made, but within its terms. A little over 50 per cent. of the Indiana work so contemplated was then done. In this condition of things the construction company abandoned the work, and plaintiff, by reason thereof, was compelled to and did complete it at both places. The action brought by it against the defendant on the guaranty bond was to recover the damages sustained by it because of the failure of the construction company to comply with its contract, to wit, the increased cost of doing the work contracted for over the contract price. Plaintiff claimed that the increased cost thereof exceeded the amount of the bond, and it therefore sued for the whole amount. The case was tried by a jury. It returned a verdict in favor of plaintiff for the sum of $36,427.98, upon which the judgment complained of herein was entered. Other provisions of said contract and other facts in relation to what was done under it will be stated further on.

Plaintiff in error assigns as error quite a number of rulings of the lower court, and they may be conveniently classified as those which involved questions affecting plaintiff's right to recover at all and those which involved questions...