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UNITED STATES v. SHELBY IRON COMPANY

decided: April 11, 1927.

UNITED STATES
v.
SHELBY IRON COMPANY



APPEAL FROM THE CIRCUIT COURT OF APPEALS FOR THE FIFTH CIRCUIT.

Taft, Holmes, Van Devanter, McReynolds, Brandeis, Sutherland, Butler, Sanford, Stone

Author: Taft

[ 273 U.S. Page 572]

 MR. CHIEF JUSTICE TAFT delivered the opinion of the Court.

This is a controversy over priority of equities in fifteen 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 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

[ 273 U.S. Page 573]

     convey to the Chemical Company the needed land, which was near the works of the Iron Company, and to furnish hard wood, 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 of 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 fifteen acres here in question was a part.

The Chemical Company executed a warranty deed of the fifteen 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's legal title failed for misdescription of the grantor.

This suit was a bill in equity to quiet title in 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 had an equity in the fifteen 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

[ 273 U.S. Page 574]

     right of the United States to 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 encumbrances, for a nominal consideration, provide sufficient ground on which to build the plant of the Chemical Company. In a 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 said 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 become the owner 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 encumbrances 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 outstanding

[ 273 U.S. Page 575]

     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 by the Chemical Company.

Thereafter, on April 23, 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 payments to be made from the sale by the Chemical ...


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