City of Gainesville v. Brown-Crummer Inv. Co.

• Decision Date: 06 July 1927
• Docket Number: No. 4861.,4861.
• Citation: 20 F.2d 497
• Parties: CITY OF GAINESVILLE v. BROWN-CRUMMER INV. CO. et al.
• Court: U.S. Court of Appeals — Fifth Circuit

20 F.2d 497 (1927)

CITY OF GAINESVILLE v. BROWN-CRUMMER INV. CO. et al.

No. 4861.

Circuit Court of Appeals, Fifth Circuit.

July 6, 1927.

W. O. Davis, of Gainesville, Tex. (Cecil Murphy, of Gainesville, Tex., on the brief), for plaintiff in error.

Alex F. Weisberg, of Dallas, Tex. (Elcock & Martin, of Wichita, Kan., and Thompson, Knight, Baker & Harris, of Dallas, Tex., on the brief), for defendant in error Brown-Crummer Inv. Co.

F. C. Dillard, of Sherman, Tex. (Head, Dillard, Smith, Maxey & Head, of Sherman, Tex., on the brief), for defendant in error Head.

John T. Suggs, of Denison, Tex., for defendant in error Southern Surety Co.

Before WALKER, BRYAN, and FOSTER, Circuit Judges.

FOSTER, Circuit Judge.

The pleadings in this case are too voluminous to be briefly stated. The record is not as clear as it might be, but the case shown without serious dispute may be summarized as follows:

In November, 1919, the city of Gainesville, Tex., hereafter referred to as the city, entered into a contract with the Southern Construction Company, hereafter called the contractor, a partnership composed of Harry D. Levy and Lester Levy, for certain paving and other street improvements. The contract contemplated the city's paying for a portion of the general paving and entirely for the intersections; the city's share being estimated at $50,000. After some preliminary and supplemental agreements this final result was arrived at: The contractor agreed to accept warrants, at 5 per cent. discount, in amounts of $1,000, maturing March 1, 1921, to March 1, 1940, with interest at 6 per cent., payable semiannually and evidenced by coupons attached.

The Brown-Crummer Investment Company, hereafter called the buyer, agreed to purchase these warrants when issued, and further agreed to print them and to furnish legal advice to the city and supervision of the necessary ordinances, for a further discount of 5 per cent. The warrants up to $47,000 were printed and delivered to H. W. Head, who was in some way interested in the contract, in escrow, and he agreed to indemnify the city on the contract up to $50,000, and furnished the Southern Surety Company, hereafter called the surety company, as guarantor for his undertaking.

From time to time, as the work progressed, the city council adopted ordinances purporting to approve estimates of the engineers covering the work completed, retaining 10 per cent., and authorizing the issuance of warrants to cover same. Head drew drafts on the buyer with the warrants and certified copies of the ordinances attached, and these drafts were paid. Six of the warrants have been paid by the city, and the city also from time to time remitted the additional 5 per cent. discount to the buyer. The warrants were in form as follows:

"Number _____. $1,000.00. "United States of America, State of Texas County of Cooke. "City of Gainesville Street Improvement Warrant. Series A 1.

"This is to certify that the city of Gainesville, county of Cooke, and state of Texas, for value received, is justly indebted and promises to pay to the Southern Construction Company, contractor, their assigns, or bearer, on the first day of March, 1921, at the offices of the Brown-Crummer Investment Company, Wichita, Kansas, one thousand dollars, in lawful money of the United States of America, with interest thereon from date hereof until paid at the rate of six per cent. (6%) per annum, payable on the first day of March, 192_, and semiannually thereafter, on September 1st and March 1st of each year, and the city treasurer is authorized, ordered, and directed to pay to the said Southern Construction Company, their assigns, or bearer, said principal sum, together with interest thereon, evidenced by coupons attached hereto, principal and interest payable at the place above named, upon presentation and surrender of warrant or proper coupon.

"This warrant is one of a series of fifty (50) warrants, numbered consecutively from one (1) to fifty (50), inclusive, in the denomination of one thousand dollars ($1,000.00) each, aggregating the sum of fifty thousand dollars ($50,000.00), issued for the purpose of evidencing the indebtedness of the city of Gainesville, Texas, to the Southern Construction Company, their assigns, or bearer, for the construction of certain street improvements in accordance with the terms and stipulations of contract of date November 20, 1919, and the proposal and plans attached thereto and made part thereof, under and by virtue of the Constitution and laws of the state of Texas, and pursuant to an ordinance passed by the city council of said city of Gainesville, Texas, on the 16th day of December, 1919, recorded in Book 6, at page 583 et seq., of the minutes of said city council.

"The date of this warrant, in conformity with the ordinance above mentioned, is November 20, 1919. And it is hereby certified and recited that all acts, conditions, and things required to be done precedent to and in the issuance of this warrant have been properly done, happened, and performed in regular and due time, form, and manner as required by law, and that the total indebtedness of said city, including this warrant, does not exceed any constitutional or statutory limitation.

"In witness whereof, the city of Gainesville has caused this corporate seal of said city to be hereto affixed, and this warrant to be signed by its mayor and countersigned by its city secretary, and registered by the city treasurer, as of the date last above written. E. H. Blackburn, Mayor, City of Gainesville, Texas. Countersigned: S. A. Bryan, City Secretary, City of Gainesville, Texas.

"Registered this the 27th day of April, 1920. R. R. Hulett, City Treasurer, City of Gainesville."

Before the paving was completed, the work on two streets was stopped by an injunction secured by a taxpayer. Thereafter the contractor offered to do paving on other streets, but nothing came of this offer. The warrants, however, had all been issued, and had been paid for by the buyer. In October, 1921, suit was brought by the city in the district court of Cook county, Texas, against the contractor, H. W. Head, and the surety company, to recover the difference between the warrants issued and the work done, alleged to be about $15,000. The city at that time apparently had no thought of contesting the validity of the warrants and did not include the buyer in the suit. A default judgment was rendered in favor of the city against the contractor for $4,090, and against the other two defendants for $15,000. On appeal this was affirmed as to the contractor and reversed as to Head and the surety company by the Court of Civil Appeals for the Sixth Supreme Judicial District. 254 S. W. 323. The reversal was on the ground that the petition showed no cause of action against Head and the surety company. The validity of the warrants was not considered.

On the remanding of the case to the district court, the city filed an amended petition, making the buyer a party defendant. The buyer removed the case against itself to the United States District Court for the Eastern District of Texas as a separable controversy, and a motion to remand was denied. Thereafter the city recast its pleadings and again made the surety company party defendant,...