K. C. E. P. M. Ry. Co. v. Perkins , 88 Tex. 66 ( 1895 )

C. Lawrence Perkins sued Morris R. Locke Co., the Kansas City, El Paso Mexican Railroad Company, and Charles Davis, receiver of that company, to recover of Locke Co. a debt claimed to be due for steel rails furnished by plaintiff to said Locke Co. for the construction of the railroad of the said railroad company, under a contract between it and the said Locke Co., and also to enforce an equitable lien for said debt upon the funds in the hands of the receiver Davis, the proceeds of the sale of the railroad, which lien plaintiff claimed by virtue of an assignment of said contract to him by Locke Co. The case was tried in the District Court before the judge, who gave judgment for plaintiff against Morris R. Locke Co. for the debt, but refused to subject the fund to its payment, from which judgment Perkins appealed. The Court of Civil Appeals reversed the judgment of the District Court and entered judgment against Locke Co. for the debt, and also a judgment subjecting the fund in the receiver's hands to the payment of the debt. The railroad company and Davis sued out this writ of error.

The facts as found by the Court of Civil Appeals, so far as necessary to determine the points presented here, are in substance as follows:

On the 10th day of October, 1888, the board of directors of said railroad company in proper form adopted a resolution authorizing the president and secretary to enter into the contract with Morris R. Locke Co., and authorizing the issue of the bonds of the corporation to the amount of $400,000, and the execution of a mortgage to secure the same, which resolution prescribed the form of the mortgage and the bonds, the mortgage to be made to and the bonds payable to the Atlantic Trust Company of New York, or bearer. The mortgage contained the provision, that "none of the bonds should be valid until certified by the trust company, and that none of said bonds should be so certified until five miles of said road had been so far completed as to be in a suitable condition for the running of trains thereon." The form of bond contained a stipulation, that the amount of the bonds issued should be limited to $20,000 per mile of its road "actually completed and in a suitable condition for the running of trains thereon." The mortgage provided, that whenever five miles had been constructed the railroad company might submit to the trust company the certificate of its chief engineer, showing how many miles had been completed, and other facts, and "that the same is in suitable condition for running trains thereon;" when the bonds were to be delivered to the treasurer of the company.

On the 13th day of October, the date of the contract with the railroad company, Morris R. Locke Co. made an assignment in writing of all their rights and interests in the said contract to the New York Railway Supply Company, Limited, which assigned the contract to Perkins, by whom it was assigned to another supply company, and by that reassigned to Perkins.

On the 13th day of October, 1888, Morris R. Locke Co. entered into a written contract with the Kansas City, El Paso Mexican Railroad Company, of Texas, which is in substance, so far as necessary to the decision of the questions raised here, as follows: Locke Co. bound themselves to construct, build, and equip, with certain cars and one engine, the said railroad from the city of El Paso, Texas, to the boundary line between Texas and New Mexico, a distance of twenty miles, the said road to be constructed in such manner as would conform in every respect to the specifications which were attached to and made a part of the contract. The first ten miles were to be fully completed and equipped as specified on or before the 1st day of December, 1888, and the balance to be completed, equipped, and in operation on or before the 1st day of January, 1890.

For all work done and performed and material furnished under the contract, the railroad company agreed and bound itself to pay the "sum of $20, 000 for each and every mile of its road, fully completed and equipped as herein before provided, the payment to be made as follows: When any five miles of said road are completed, ready for the rolling stock, upon the certificate of the chief engineer to that effect," the railroad company was to deliver to the said Locke Co. the bonds of said corporation, issued in accordance with and in conformity to a resolution of the board of directors, adopted on the 10th day of October, 1888, secured by a mortgage upon all the property of the said railroad company, to the amount of $20,000 per mile for each mile of road so completed, and $20,000 per mile of the paid up capital stock of said corporation, and to continue to make like payments for every five miles of road so completed until the whole should be finished. Upon full completion, the remainder of the stock to be issued to the amount of 4000 shares full paid stock. Also, when the first ten miles should be completed, the said Locke Co. were to receive one-half of the subsidy subscribed by the citizens of El Paso, and the other half upon completion of another contract with another company, or rather with the same company incorporated under the laws of New Mexico.

The specifications attached to and made a part of the contract contained the following clause: "The chief engineer of the Kansas City, El Paso Mexican Railway Company, of Texas, shall be the sole judge and arbiter in all cases of disagreement, difficulty, or dispute as to the quality and amount of work performed, and also in relation to all other matters that may arise in relation to or touching the proper performance of any or all conditions; and his decision given in writing shall be in the nature of an award, and the same shall be as conclusive upon all questions that may arise as the final judgment in a court of competent jurisdiction, and no appeal shall be taken or suit instituted or prosecuted in any court to set aside or contest the same, or to readjust or question the validity or correctness of any matter upon which he has passed."

On the 13th day of October, 1888, Morris R. Locke Co. addressed a note to the treasurer of the Kansas City, El Paso Mexican Railroad Company, of Texas, stating that the contract had been assigned to the New York Railway Supply Company, Limited, of New York City, and asking that the $200,000 in bonds, to be delivered on completion of the first ten miles, be delivered to that company. The orders were given as requested, and, with the assignment of the contract, were assigned and passed to Perkins.

On the same day that the contract was executed and assigned Morris R. Locke Co. made and executed a note for $34,000 payable to their own order and indorsed in blank, delivering it to the New York Supply Company with the assignment of the contract. This note passed to Perkins with the other papers. Perkins, through the Pennsylvania Steel Company, supplied the steel rails for the road to be used by Locke Co., which were used in the construction of the road. Locke Co. proceeded with the work and constructed the road for the first ten miles, and partially constructed the remainder of it to the line of the State by the 1st day of December, 1888.

On the 30th day of November, the chief engineer of the railroad company gave this certificate:

"To whom it may concern: "Nov. 30, 1888.

"I hereby certify, that on this date ten miles of the track of the Kansas City, El Paso Mexican Railroad, of Texas, are laid, that trains have been run over the same, and that it is in a condition suitable for traffic.

[Signed] "C.S. MASTON, Chief Engineer."

The mortgage was never executed nor the bonds issued. Locke Co. presented the certificate to the railroad company, which refused to execute the mortgage or to issue and deliver the bonds, and Locke then ceased to work on the road.

There were some negotiations between the railroad company and Perkins or his attorney relative to the adjustment of the matter and resuming work, the point of difference seeming to be the payment by Perkins of some debts contracted by Locke in the construction of the road. The District Court of El Paso County placed the railroad property in the hands of a receiver, Charles Davis, and by agreement the road was sold to Jay Gould for $50,000.

It was agreed, that the claim of Perkins and Locke should have the same lien upon the proceeds of sale as it was entitled to against the road itself.

The citizens of El Paso subscribed the sum of $48,000 as a subsidy to be paid to the railroad company, upon condition that it built its road and completed it for the first ten miles by the 1st day of December, 1888. The subsidy was not paid.

There was some evidence, independent of the certificate, tending to show that the first ten miles of the railroad were built in the time and according to the contract, but there was much more and certain evidence to the contrary. The trial court found, that neither the first ten miles nor any part of the road was constructed and completed within the time nor according to the terms of the contract, and that the certificate of the engineer was not such as the contract required, and was insufficient to prove the completion of the first ten miles of the road as required by the contract.

The Court of Civil Appeals made the following findings: "10. That the first ten miles of the Kansas City, El Paso Mexican Railroad, of Texas, were completed by Morris R. Locke Co. in accordance with and in compliance with their contract of the 13th of October, 1888, to build said road." After stating the making of and copying the certificate of the engineer, the court continues: "That said certificate was such as was required by the contract on the 13th day of October, 1888, between Morris R. Locke Co. and the Kansas City, El Paso Mexican Railroad Company, of Texas, and is sufficient to prove the completion of said railroad, as is provided for in said contract."

It is manifest that the Court of Civil Appeals based its tenth finding of fact upon the legal effect given by it to the engineer's certificate, and not upon the evidence, and that it did not intend to find from the evidence other than the certificate that the road had been completed in accordance with the contract. If the court was correct as to its ruling upon the effect to be given to the certificate of the engineer, its judgment must be affirmed; otherwise, it must be reversed.

The law does not require that any particular language should have been used by the engineer in his certificate, and if it was in substantial compliance with the requirements of the contract it would be sufficient, and would be conclusive, unless attacked for fraud or mistake in computation. Railway v. Henry Dilley, 65 Tex. 691. In order that the certificate may have this effect, it must be in substance what was required. The engineer could not bind the parties by doing that, which he was not authorized to do. The specifications made the chief engineer the sole arbiter of the amount and quality of the work performed, and of the proper performance of all conditions, and this, with the terms of the contract, construed together, fix the limits of his authority, beyond which his acts are not binding.

The contract does not prescribe any form of words to be used, but provides, in effect, that the engineer shall certify the result of his examination of the work. That portion of the contract in which this subject is treated is in this language: "The railroad company shall pay for the work the sum of $20,000 for each and every mile of its road fully completed and equipped as herein before provided, the payment to be made in the following manner: When any five miles of said road are completed, ready for the rolling stock, upon certificate of the chief engineer to that effect, the said party of the second part shall pay over to the parties of the first part the bonds of the said railroad company, secured by a mortgage upon all the property and franchises of said company, to the amount or $20,000 per mile for each mile of said five miles socompleted," etc. The payment was to be made for the road fully completed, and that payment to be made for each mile of the five miles so completed. Construing the language relied upon by the defendant in error in connection with that with which it is associated, it clearly means that the payment is to be made when the five miles have been completed in compliance with the specifications. The words "ready for the rolling stock" did not qualify or limit the manner of completion, but expressed the fact that, being completed, it would be ready for the rolling stock. If this is not true, then the company might have been required to pay for uncompleted road, when it had specially contracted to pay for none but fully completed road. In addition to this language, we find that Locke Co. agreed and bound themselves to construct the road in such manner as to conform in every respect to the specifications, which were made part of the contract, and to fully complete ten miles on or before the 1st day of December, 1888. In addition to these facts, there is in the contract another provision which aids in determining the intention of the parties. The company was to accept and pay for each section of five miles as completed, paying the full price therefor. If it had accepted a section not completed according to the specifications, it would have been bound by that acceptance, and could not have enforced a claim for any failure of the contractors to comply with the terms of the agreement. This certainly could not have been the intention of the parties to this contract, which is so carefully drawn as to manifest an intention to protect the company from any such results.

The certificate of the chief engineer stated but two facts: (1) that ten miles of the track had been laid; and (2) that trains had been run over it. The statement that it was in suitable condition for traffic was but the expression of his opinion, and entitled to no consideration. It does not require argument to show that the terms of the certificate do not cover a substantial completion of the road in accordance with the specifications. The track might be laid, and trains might be run over it, and yet it would be wholly incomplete as prescribed by the specifications.

The argument made, that the word "completed" does not require that the road should be such as are built in the East, does not meet the question, which is, does the certificate show afinishing of the work, not in every minute particular, but substantially according to the specifications, which is all that the law requires? O'Neal v. King, 3 Jones L. (N.C.), 518; Johnson v. Female University, 35 Ill. 518.

We conclude, that the certificate did not comply in essential particulars with the requirements of the contract, and was not evidence of the completion of the road according to its requirements. To hold this certificate sufficient, would enable Locke Co. to avoid the performance of their obligation to perform the work "in such manner as will in every respect conform to the specifications," and at the same time deprive the railroad company of any remedy for the failure.

Defendant in error claims that the railroad company accepted the ten miles as constructed, but the trial court found the issue against him, and it is unnecessary to discuss what would have been the rights of Perkins if the work had been accepted.

Perkins had no rights as against the defendants the Kansas City, El Paso Mexican Railroad Company, of Texas, and Charles Davis, receiver, except such as he derived from Morris R. Locke Co., and the said Locke Co. not having performed their contract so as to entitle them to have the bonds of the company delivered to them, had no lien upon the road, and therefore none upon the proceeds of the sale made by the receiver. Plaintiff not having shown himself entitled to any relief against the railroad company or Davis, other errors, if any, committed in the trial against the plaintiff, become immaterial, and will not be examined.

Whether the contract was entire or divisible, and the clause claimed to work a forfeiture of the entire contract was rightly construed, would be an interesting question for examination; but since the defendant in error can recover nothing upon the contract, and has recovered for the value of the work done, these questions are unimportant in the determination of this case.

The Court of Civil Appeals erred in reversing the judgment of the District Court and in entering judgment foreclosing a lien in favor of defendant in error upon the fund in the hands of the receiver, for which error the judgment of the Court of Civil Appeals is reversed, and the judgment of the District Court is affirmed.

Judgment of District Court affirmed.

Delivered March 4, 1895.