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National Surety Co. v. Russell

June 28, 1933


Appeal from the District Court of the United States for the Northern District of Indiana, South Bend Division; Robert C. Baltzell, Judge.

Author: Evans

Before ALSCHULER and EVANS, Circuit Judges, and CARPENTER, District Judge.

EVANS, Circuit Judge.

The case bristles with vexatious questions. Some of them were eliminated by the verdict of the jury, which was reached upon instructions to which no exceptions were taken. In fact, the judge's charge to the jury is not printed in the record, from which fact we infer it was full and complete and as favorable to appellant as that party could legitimately expect. Certain issues of fact, concerning which there was direct dispute in the testimony or in the inferences deducible therefrom, must be resolved in favor of appellees, for appellant relies solely upon the alleged error of the court in refusing its motion for a directed verdict.

Five reasons are advanced by appellant as the basis for its contention that the court erred in not directing a verdict: (a) modification of the secured contracts in such a way as to release the surety; (b) the secured contracts were never entered into by appellees and the Traders Lumber Company, or, if such agreements were effective, they were modified by agreement of the parties before appellant executed its guaranty contract; (c) appellees were not damaged by the failure of the Traders Lumber Company to perform the sales contract, but only because the Traders Lumber Company breached its loan contract; (d) the sales contracts were never capable of performance; (e) the contract price named in the sales contracts was higher than the value of the lumber which might have been delivered under the contracts as construed by appellant.

The facts may be stated, in view of the verdict, to be as follows: One Ott, president of the Traders Lumber Company, obtained timber cutting rights upon two sizable tracts of land in North Corolina, upon which there was supposed to be a large quantity of standing timber, and through one Menasco, contacted with appellees to secure financial aid with which to cut, manufacture, and market lumber obtainable from such timber. Negotiations between Traders Lumber Company and appellees led to two separate contracts, one known as the sales contract and the other, a loan contract. By the terms of the first sales contract the Traders Lumber Company agreed "to sell and to deliver to appellees, f.o.b. cars at Wallace, North Carolina, 6,000,000 feet (board measure) of rough-sawed, commercial and of merchantable quality, No. 1 Green Long Leaf Yellow Pine lumber, squared and sized in lengths commonly used in the trade," for the price of $15 per thousand feet, payable on or before thirty days after the date of each bill of lading, at such place or places as might be designated in wriging by appellees. Menasco was named as the trustee and designated as the party of the third part. The substance of the agreement is set forth in the margin.*fn1

The loan contract was between the lumber company and appellees, material portions of which contract are set forth in the margin.*fn2

By the first loan agreement, appellees agreed to loan to the Traders Lumber Company, $35,000. One of the conditions of the loan was that Traders Lumber Company's obligations under the sales contract were to be guaranteed by a responsible surety company.

Two other agreements of like character were executed by the same parties, the sales contract calling for the sale of 1,000,000 feet of lumber and the loan contract calling for appellees' loaning $5,000 thereon. Mr. Ott, for the Traders Lumber Company, applied to appellant for bonds to secure its performance of the sales contracts. Its applications were accepted by appellant and for the usual premiums. Two surety contracts were executed which were delivered to appellees. No indemnity was taken by appellant from the Traders Lumber Company. No representations were made by appellees. The Traders Lumber Company failed to deliver any lumber under either contract. Its failure so to perform was explained by its president on the ground that it had been grossly deceived and defrauded by those from whom it had purchased the timber. The undisputed evidence established the fact that there was no substantial amount of timber upon the premises leased by the Traders Lumber Company and the latter company failed to acquire sufficient timber from owners of adjoining property to permit it to carry out its contract with appellees.

The record is replete with letters and telegrams between Traders Lumber Company and appellees, explaining and attempting to avoid the former's default and attempting to secure modifications of the agreements so as to permit the Traders Lumber Company to secure a delayed performance of its contract. This correspondence also shows that the Traders Lumber Company received orders for a large amount of the lumber from outside or third parties. Menasco, as trustee, gave no orders for the shipment of lumber to appellees as provided for in the contract, which failure on his part was explained by the fact that Traders Lumber Company had no lumber to deliver and frequently so advised Menasco.

A considerable amount of testimony was received bearing upon the value of such lumber, and, as usual, there was a considerable range in the estimates. The evidence was such that the court could not have directed a verdict on this question of damages unless it gave such construction to the contract of the parties as would permit of the delivery of an inferior grade and size of lumber which was worth less than the price mentioned in the contract.

We reject, without any discussion of the evidence upon which our conclusion is based, the grounds (c) and (e) advanced by appellant in support of its motion for a directed verdict. To sustain its contention, appellant is compelled to advance a construction of the contract which the court could not and did not adopt. We can not give to the language "rough-sawed, commercial and of merchantable quality, No. 1 Green Long Leaf Yellow Pine lumber, squared and sized in lengths commonly used in the trade," a construction which would permit the Traders Lumber Company to deliver only the inferior grade and size of lumber obtainable from the standing timber on the lands described in the sales contract. Surely the testimony on this phase of the case was such that a verdict in appellant's favor could not have been properly directed thereon. The parties to the agreement were in accord as to the meaning of the language by them used. Letters written by Ott for Traders Lumber Company shortly after the agreement was executed also placed a construction upon the contract which was in harmony with the testimony of at least one disinterested witness.

Upon a rejection of appellant's construction of this contract, the issue of damages was clearly one for the jury.

Likewise we are not favorably impressed with the argument (d), that the contract was incapable of performance when entered into (because there was not sufficient standing timber on the lands described in the contract to produce 7,000,000 feet of lumber), and therefore the surety was released from liability for the seller's performance. Even though there was not enough standing timber to produce all of the lumber called for in the contract, the seller was not entirely relieved from performance of the contract. He was obligated to cut such timber as was available and to deliver the lumber obtained therefrom. It appears that there was some standing timber on the land and yet there was no delivery of any ...

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