Boyd Callan, Inc. v. United States

• Decision Date: 27 April 1964
• Docket Number: No. 20174.,20174.
• Citation: 328 F.2d 505
• Parties: BOYD CALLAN, INC., B. D. McMillan, Inc. and Trinity Universal Insurance Company, Appellants, v. UNITED STATES for the Use of STEVES INDUSTRIES, INC., d/b/a Ingram Equipment Company, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

328 F.2d 505 (1964)

BOYD CALLAN, INC., B. D. McMillan, Inc. and Trinity Universal Insurance Company, Appellants, v. UNITED STATES for the Use of STEVES INDUSTRIES, INC., d/b/a Ingram Equipment Company, Appellee.

No. 20174.

United States Court of Appeals Fifth Circuit.

February 27, 1964.

Rehearing Denied April 27, 1964.

Richard U. Simon and Simon & Simon, Forth Worth, Tex., for appellants.

W. W. Fowlkes, San Antonio, Tex., for appellee.

Before TUTTLE, Chief Judge, and RIVES and MOORE,^* Circuit Judges.

RIVES, Circuit Judge.

Boyd Callan, Inc., hereafter Callan, entered into a contract with the United States for improving the channel of the San Antonio River near San Antonio, Texas, and, in accordance with the requirements of the Miller Act,¹ executed a payment bond with Trinity Universal Insurance Company, hereafter Trinity, as surety "for the protection of all persons supplying labor and material in the prosecution of the work provided for in said contract."² B. D. McMillan, Inc., hereafter McMillan, was a subcontractor on the project. Use plaintiff, Steves Industries, Inc., d/b/a Ingram Equipment Company, hereafter Ingram, recovered judgment against Callan and Trinity for $4,946.25; against Callan, McMillan and Trinity for $19,960.97 for materials supplied on open account; and against Callan, McMillan and Trinity for $15,954.36 for unpaid rental for equipment used in the prosecution of the work. The questions presented on appeal are: (1) whether the district court erred in referring all of the issues except attorneys' fees to a special master; (2) whether the rentals were covered by the bond, or were payments on the purchase of the equipment; (3) whether certain expensive and durable items supplied on open account were covered by the bond; (4) whether attorneys' fees were recoverable on the bond; (5) whether interest was properly computed.

1. Special Master.

The district court, on its own motion, and contrary to the expressed wishes of all of the parties, appointed a Special Master "to hear the parties and their evidence and make and file a report, including findings of fact and conclusions of law * * *, containing his findings on all of the issues except attorneys fees, with a view to aiding the jury." Over the objections of the defendants, the master's findings of fact were admitted in evidence and read to the jury.

At the time of referring the issues to the master the district court found "that the trial of this case will involve a consideration of complicated issues and that a jury will have difficulty in passing upon the issues involved."

At that time, pretrial hearings had resulted in stipulations that the items covered by about 235 invoices were within the coverage of the bond. As to the items covered by the remaining 75 invoices, the defendants were contesting coverage. The defendants' attorney assured the court that "the only jury question would be a very minor one" and "I wish you wouldn't appoint a master. I really think we can try the case in three days." Nevertheless, at that time, it may not have been an abuse of discretion for the court to anticipate that the issues would be too complicated for the jury to handle without assistance. See Rule 53, Fed.R.Civ.P. When the master filed his report, he made no effort to analyze or audit the invoiced items, but, treating them all together, made findings that they were all covered by the bond. By that time it was clear that the issues were not too complicated for the jury to decide.

The jury's answers to special questions virtually tracked the master's findings. We cannot be sure that its verdict would have been the same if not influenced by the findings of the master. The main question, common to most of the items, was whether they were consumed on the job or might reasonably be expected to be consumed on the job. We cannot say that the master, a competent lawyer, was any better qualified to judge that issue than was a jury. Likewise, the issues of whether the contract, captioned "Lease Contract," was actually a sales contract and whether the so-called rentals were payments on the purchase price of the equipment presented questions of law and fact for the court and jury, which should not have been referred to a master.

Some authorities treat a reference to a master as no invasion, or, at most, a minor invasion of a jury's province, e. g.: "Since the report of the master is merely evidence, which the jury is free to disregard, a reference in such a case carries no danger that the master will displace the court in making the decision, and the complicated nature of the issues may justify the expense and delay of a reference." 2B Barron and Holtzoff Federal Practice and Procedure § 1162, p. 580.

A more realistic view is taken by the Supreme Court and followed by this Court. As last stated by the Supreme Court:

"Even this limited inroad upon the right to trial by jury `"should seldom be made, and if at all only when unusual circumstances exist."\' La Buy v. Howes Leather Co., 352 U.S. 249, 258, 77 S.Ct. 309, 1 L.Ed. 2d 290. See also In re Watkins, 5 Cir., 271 F.2d 771, 76 A.L.R.2d 1113."

Dairy Queen, Inc. v. Wood, 1962, 369 U.S. 469, 478, n. 18, 82 S.Ct. 894, 900, 8 L.Ed.2d 44.

We hold that the district court erred in admitting the master's findings as evidence of the matters found, and in permitting them to be read to the jury.

2. Rentals of Equipment.

By contracts styled "Lease Contract," dated August 18, 1958 and September 4, 1958, Ingram furnished to McMillan for use on the project three "Euclid Model" scrapers powered by diesel engines. At a time when the monthly payments under these two contracts were several months past due, Callan, the prime contractor, requested that Ingram grant McMillan a reduced monthly payment for a longer period of time and offered to guarantee the payments.³ On October 29, 1959, a new "Lease Contract" was executed which provided: "This lease is in renewal and extension but not in extinguishment of leases dated Aug. 18 and Sept. 4, 1958, on same equipment, and the holder of this lease is subrogated to all rights under said leases."

The district court submitted to the jury the question of whether the parties intended the agreement to constitute a lease or a purchase of capital equipment.⁴ The jury's verdict was that all of the contested items were covered by the bond, thus holding that the agreement constituted a lease. There was ample evidence to sustain that verdict. From September 1959 to March 1960, only one monthly payment of $2,800.00 was paid. There was testimony that the monthly amounts were fair for actual rental. On McMillan's books, the payments were not capitalized, but were treated as a cost of doing business. McMillan did not exercise the option to purchase, and no bill of sale was executed. The scrapers were returned to Ingram and a credit memorandum was issued for the unused portion of the rental.

There were countervailing considerations from which the jury could have concluded that the so-called "Lease Contract" was actually a sale. If all of the monthly payments had been made, they would have totaled the agreed purchase price upon exercise of the option to purchase. The contract was recorded as a chattel mortgage. We make no effort to exhaust the circumstances from which the jury, under proper instructions from the court, might draw either inference; but hold that whether what was in form a lease contract was in effect a sales contract presented ultimately a question of fact as to the real intention of the parties. Compare Benton v. Commissioner of Internal Revenue, 5 Cir. 1952, 197 F.2d 745, 752.

Along with the "Lease Contract" of October 29, 1959, Ingram forwarded to McMillan a letter containing computations as follows:

"Our Computations:

                  "Open account balance due
                   through October 17, 1959    $13,287.38
                  "Final note payment
                   November 1, 1959             10,326.10
                  "Balance to purchase three
                   Euclid Scrapers              44,917.87
                                               __________
                  "Total balance due
                   Ingram Equipment Company     68,531.35
                                               ==========
                

"This total indebtedness is to be paid as follows per our agreement:

"1. A 24 month guaranteed rental payout lease contract payable at $2,800.00 per month (total time balance $67,200.00), first rental payment is due December 15, 1959 and each payment thereafter will come due on the 15th day of each successive month.

"2. The balance of $8,531.35 to be paid in two installments; the first due on November 1, 1959, second on December 1, 1959.

"3. Insurance coverage will be invoiced separately at the rate of 6 ¢/per $100.00/per month, on 60,000.00 (36.00 month).

"Computation of option price original lease contracts:

                  "Total contract price        $92,000.00
                  "Interest from original
                   date of rental through
                   November 15, 1959             5,658.59
                  "Total Price                  97,658.59
                  "Rentals invoiced  69,300.00
                  "Credit issued     16,559.28  52,740.72
                                    ______________________
                  "Option Price                 44,917.87"
                                               ===========
                

The $8,531.35 indebtedness was evidenced by a separate note which was paid. These computations and the items which they represented were matters to be considered by the jury in determining the true nature of the contract, and, if found to be a lease contract, in determining whether the $2,800.00 per month stated to be rental was more than a fair rental, and if so, what part of said $2,800.00 should be treated as rental.

3. Durable Items.

Work on the project lasted some 600 days and involved moving about four million cubic yards of dirt over a five-mile length of the San Antonio River. Except for one piece of equipment that was purchased new after the work began, all of the earth-moving equipment that was brought on the job had had prior use. There was evidence that the machinery was well maintained, and that none of...