Trainor Co v. Aetna Casualty Surety Co

• Decision Date: 06 November 1933
• Docket Number: No. 13,13
• Citation: 290 U.S. 47,78 L.Ed. 162,54 S.Ct. 1
• Parties: TRAINOR CO. v. AETNA CASUALTY & SURETY CO
• Court: U.S. Supreme Court

290 U.S. 47

54 S.Ct. 1

78 L.Ed. 162

TRAINOR CO.

v AETNA CASUALTY & SURETY CO.

No. 13.

Argued Oct. 12, 1933.

Decided Nov. 6, 1933.

Messrs. David L. Ullman and Joseph J. Brown, both of Philadelphia, Pa., for petitioner.

[Argument of Counsel from pages 48-49 intentionally omitted] Mr. Joseph W. Henderson, of Philadelphia, Pa., for respondent.

[Argument of Counsel from pages 49-51 intentionally omitted] Mr. Justice SUTHERLAND delivered the opinion of the Court.

On October 13, 1927, petitioner conveyed to a building company a tract of real estate consisting of fifty-two lots, with the result that the building company became indebted to petitioner in the sum of $28,000, being part of the purchase price. The building company, in order to finance its operations, borrowed sums of money from two different corporations, to one of which it gave a first mortgage upon the real estate, and to the other a second mortgage. The building company then gave to petitioner its note for $28,000, and assigned as collateral security there- for its equity in the second mortgage. Petitioner accepted this security—in effect a third mortgage—upon the representation and warranty of the building company that a building and certain improvements would be erected, in accordance with plans and specifications, upon each of the fifty-two lots. The performance of this obligation was guaranteed by a bond in the sum of $220,000, executed by respondent, conditioned, among other things, to become void if within ten months from the date thereof, October 13, 1927, each of the fifty-two lots should be fully improved with a building, together with certain other improvements, in keeping with, and as shown by, the plans, specifications, etc.; otherwise to remain in full force and effect. The property is located in Pennsylvania, and the contract and the obligations of the bond were to be performed within that state.

Suit was brought in a Federal District Court for the Eastern District of Pennsylvania to recover damages for a breach of the bond. A jury was waived; and after a hearing, the trial judge found that on August 13, 1928, the date fixed for the completion of the buildings and improvements, twenty-four of the houses had been completed and twenty-eight had not been fully completed. The value of the lots with the twenty-eight uncompleted houses, as of the date last mentioned, was $6,700 each, an amount slightly in excess of the sum of petitioner's mortgage on each and of all prior liens. Completed, they would, on that date, have been worth $7,950 each. It is not disputed that at the time of the breach of the bond petitioner, under the terms of the mortgages, was powerless to protect itself by foreclosure; and the court found that thereafter the value of real estate generally and in the locality, had steadily declined. On January 25, 1930, the first mortgage was foreclosed and the property bought in for the sum of $50, thus wiping out the second mortgage and the equity of petitioner therein. Petitioner has received on account of the indebtedness of $28,000 the sum of $13,026.02 only, leaving $14,973.98 still owing on the principal.

Upon these facts the trial court held that while the owner of property, in case of a default after partial performance of a building contract, would be entitled to recover from the surety the diffirence between the value of the property with the uncompleted buildings and its value with the buildings completed, the rule is otherwise in the case of a mortgagee-obligee. Following this view, that court concluded that the measure of damages in the instant case 'is so much of the difference between the value of the property as of August 13, 1928, with the houses uncompleted, and the value it would have had on that date had the houses been completed as would have been necessary to pay the plaintiff's mortgage debt as well as all prior liens. Since the value of the property as of August 13, 1928, was more than the sum of the plaintiff's mortgage and prior liens, the plaintiff is not entitled to any substantial damages.' The court, therefore, awarded nominal damages only. (D.C.) 49 F. (2d) 769. This judgment the Circuit Court of Appeals affirmed. 62 F.(2d) 487, 488. With that conclusion we are unable to agree.

It is very clear that the settled rule in Pennsylvania is to the contrary. In Purdy v. Massey, 306 Pa. 288, 159 A. 545, where prior cases are deviewed, the court held that where there is an absolute undertaking to erect and complete a building, the surety in case of default is bound to take the place of the principal and erect the building, and the cost of doing that which should have been done is the measure of damages for which the surety is liable, not exceeding the...