United States v. Shelby Iron Co of New Jersey

• Decision Date: 11 April 1927
• Docket Number: No. 123,123
• Parties: UNITED STATES v. SHELBY IRON CO. OF NEW JERSEY et al
• Court: U.S. Supreme Court

273 U.S. 571

47 S.Ct. 515

71 L.Ed. 781

UNITED STATES

v SHELBY IRON CO. OF NEW JERSEY et al.

No. 123.

Argued Jan. 13, 1926.

Decided April 11, 1927.

The Attorney General and Mr. Gardner P. Lloyd, of New York City, for the United States.

Mr. E. H. Cabaniss, of Birmingham, Ala., for appellees.

Mr. Chief Justice TAFT delivered the opinion of the Court.

This is a controversy over priority of equities in 15 acres of land in Alabama, with a wood distillation plant thereon, between the United States and the Shelby Iron Company of New Jersey. The case involves the construction of a contract between the United States and the Shelby Chemical Company, on the one hand, and of a contract between the latter and the Shelby Iron Company of New Jersey, on the other. The first was for the construction and operation of the plant on the land to be conveyed by the Chemical Company to the government with money to be furnished by the latter for the production of acetate of lime and methyl alcohol for use in the war. The second was entered into between the Chemical Company and the Shelby Iron Company of New Jersey in anticipation of the first. The Iron Company agreed to convey to the Chemical Company the needed land, which was near the works of the Iron Company, and to furnish hardwood, water, workmen's houses, and power necessary in the operation of the plant. The benefit which the Iron Company was to derive from the arrangement was the cheapness of cost in the charcoal to be made by the Chemical Company as a by-product of the process of distillation, and to be sold at a fixed price to the Iron Company for use in its blast furnaces situated in a large tract of timber land, of which the Iron Company was the owner, and of which the 15 acres here in question was a part.

The Chemical Company executed a warranty deed of the 15 acres to the government in intended compliance with its contract, but the Iron Company had failed to convey the land to the Chemical Company as agreed by it. A deed was actually executed to the Chemical Company by an Alabama company of the same name, instead of the New Jersey company that owned the land. The Alabama company, a former owner of the land, was then an inactive company, the stock of which was owned by the New Jersey company, and the directors in the two companies were the same. So the government legal title failed for misdescription of the grantor.

This suit was a bill in equity to quiet title to the United States against the two companies, the Alabama company and the New Jersey company. The New Jersey company, relying on the misdescription, answered and denied the title of the United States. Thereupon the government amended its bill and asked that the deed be reformed. Then the New Jersey company, which we shall hereafter call the Iron Company, answered by a recital of facts which, it claimed, showed that it has an equity in the 15 acres of land stronger in right than that of the United States. This constitutes the issue in this case, for the mistake and misdescription are admitted, and the right of the United States for reformation of the deed is conceded, but for this claim.

The contract between the Iron Company and the Chemical Company was made April 8, 1918, and provided that the Iron Company should by warranty deed, free of all liens and incumbrances, for a nominal consideration, provide sufficient ground on which to build the plant of the Chemical Company. By subsequent clause, it says:

'Inasmuch as the United States government will be financially interested in the construction of the Chemical Company's plant, it is expressly agreed that such real estate may be deeded to and vested in the United States government during the period of a contract made between the Chemical Company and the United States government; said contract to extend for the duration of the war; and further'

-it is understood that the Chemical Company is about to construct its plant under a contract with the United States government, by the terms of which the Chemical Company is to take the ownership of the land, buildings, equipment, and improvements, if an enabling statute to that effect shall be passed by the Congress of the United States. Therefore it is distinctly agreed that the foregoing provision as to reconveyance of the lands is subject to the obtaining of the title to said lands by the Chemical Company from the United States government.

By the eighth paragraph, it was provided that the contract should last until April 1, 1933, with the right of the Iron Company to extend it further for five years upon notice to the Chemical Company; and that at the end of the contract, or its renewal, the Chemical Company should reconvey to the Iron Company all of the lands conveyed to it by the Iron Company without cost to it, free and clear of any incumbrances or liens whatsoever, or if there were any mortgages on the same not yet due, the Chemical Company should pay over to the Iron Company the amount thereof or the amount of any bonds outstand- ing thereunder, with any accrued interest thereon, and should, if the Iron Company so elected, sell to it all the improvements, equipment and other personal property placed on the lands of the Chemical Company.

Thereafter, on April 28, 1918, the government contract with the Chemical Company was made. It was estimated that the plant would cost over $400,000, which the United States agreed to advance, and reimburse itself by deductions from payment to be made from the sale by the Chemical Company to the government of the acetate of lime and the methyl alcohol.

Among the preliminary recitals in the contract is this:

'Whereas, the contractor has a contract with the Shelby Iron Company, of Shelby county, Alabama, according to the terms of which the Shelby Chemical Company shall receive all the lumber it may require from timber land owned and leased by the Shelby Iron Company in return for all charcoal derived therefrom.'

This recital becomes important on the question of notice hereafter to be considered.

The government contract in its first article provided that the Chemical Company, the contractor, was to convey to the United States a tract of land at Shelby, Ala., of adequate size and suitable location, for the erection of the plant thereafter described. The conveyance was to be made subject to and upon the completion of an opinion by the Attorney General that by the conveyance the government would derive an absolute title to the premises in fee simple, free and clear of all incumbrances, and that the United States should have the right to expend money for the erection of improvements thereon.

By article II the contractor agreed to erect and construct for the government on the land a properly equipped wood chemical plant with a certain capacity, to be completed in five months, to be paid for by the govern- ment at cost, the particulars of construction to be embodied in a separate contract.

The third article provided for the retention of 40 per cent. of the price of all sales to the government for the products of the manufacture to yield 6 per cent. interest on the government investment in the plant and to constitute a depreciation and amortization fund for the benefit of the government.

By the fourth article the contractor agreed to sell and deliver to the government the entire output of the acetate of lime and the methyl alcohol, and the government agreed to buy it, during a period of 18 months, and then for the duration of the war, at certain agreed prices and on certain conditions.

By the sixth article it was provided that, when the depreciation and amortization fund and the purchase fund provided should together equal the cost to the government, with interest at 6 per cent., of the government's investment, or at any earlier date at the option of the contractor, the government should sell to the contractor, and the contractor should purchase, the plant,...