People of Porto Rico v. Title Guarantee & Surety Co.

BUFFINGTON, Circuit Judge.

In the court below the People of Porto Rico brought suit against the Title Guarantee & Surety Company on an indemnity bond in $100,000, conditioned as noted below. At the close of plaintiff’s testimony that court granted a compulsory nonsuit, 'and on its refusal to take it off plaintiff sued out this writ. The subject-matter pf the controversy, the possibility of the contract being governed by foreign laws, and the variety of questions suggested have resulted in briefs of scholarly and unusually interesting character. But to our mind the crucial point of the case falls within such narrow limits and is ruled by such plain and well-established principles that, without entering into the tempting field of questions suggested, we confine ourselves to the precise one •nvolved.

By ordinance of March 2, 1903, the People of Porto Rico, duly acting by the executive council, granted to the Vandergrift Construction Company, a corporation, and the latter accepted, a franchise to construct a certain electric railway and electric works in the Island' of Porto Rico. The ordinance was conditioned on the full completion of the railway and works within three years thereafter, and provided, by section 30, that :

“The rights, privileges and concessions herein granted shall be subject to amendment, alteration or repeal by the executive council.”

After certain amendments not here material, as the surety company neither knew of nor assented thereto, the executive council, on Febru *645 ary 24, 1905, averring therein that “by the terms and conditions of said grant as the same was passed * * * and accepted by the said grantee, the said franchise, privilege or concession, and all of the rights, grants, or privileges thereunder or appertaining thereto, have been and now are, at the option of the executive council of Porto Rico, subject to revocation, forfeiture or repeal,” by ordinance enacted that the ordinance of March 2, 1903, and “all the rights and privileges appertaining or appurtenant thereto, are hereby revoked and forfeited to the People of Porto Rico * * * under the general provisions of section 30 of said ordinance.” Whether such repeal was valid or otherwise is a question not before us. That it was valid was and is the position of the People of Porto Rico. That the right of repeal is “not limited as to occasion in any manner” is the language of its counsel, and all parties have seemingly acquiesced in that view. The grantee of the franchise surrendered it, and the latter has reacquired the grant. There is no proof in the case that it has suffered any damage from the nonexercise of the franchise by. the Vandergrift Company, and it was stated at bar the railway was subsequently built by another grantee. As we have seen, the reacquiring of it by the island was more than a year before the three years expired which were given to build the works requisite to the use of the franchise. In this state of facts, the plaintiff sought by this suit to recover the penalty on this bond of the defendant, viz.:

“Know all men by these presents that we, the Vandergrift Construction Company, a corporation duly organized under the laws of the state of New Jersey, hereinafter called the principal, as principal, and the Union Surety & Guarantee Company, of Philadelphia, a corporation duly organized under the laws of the state of Pennsylvania, and the Title Guarantee & Trust Company, of Scranton, Pennsylvania, a corporation duly organized under the la,ws of the state of Pennsylvania, hereinafter called the sureties, as sureties, are held and firmly bound unto the People of Porto Rico, hereinafter called the obligee, in the sum of one hundred thousand dollars, good and lawful money of the United States, for the payment whereof said principal, hinds itself and its successors, and said sureties bind themselves and their successors jointly and severally firmly by these presents.

“Whereas, by virtue of a certain ordinance enacted by the executive council of Porto Rico, on the 2d day of March, 1908, and approved by the Governor of Porto Rico on the 3d day of March, 1903, granting to said principal the right to build and operate a line of railway between the municipality of San Juan, and the Playa of Ponce in the Island of Porto Rico, and to develop electric energy by water or other power for distribution and sale for railway, lighting and industrial purposes, a copy of which ordinance is hereto annexed, the said principal has undertaken and agreed to build and put in operation a line of railway between the municipality of San Juan and the Playa of Ponce, in the Island of Porto Rico, and to build and equip power plants to develop electric energy for the operation of said railway and for other purposes within the period of three years from the date of the acceptance of the said ordinance by the said principal:

“Now, therefore, the condition of this obligation is such that if the said principal shall within three years from the date of the acceptance by it of said ordinance fully complete the work therein authorized in accordance with the conditions therein contained and in accordance with the plans and specifications therefor approved as therein provided; and within the said period of three (3) years from the date of the acceptance by it of the said ordinance shall build, complete and have in operation the entire line of railway authorized therein for such terminal in the municipality of San Juan as máy be de *646 termined by the said executive council to its terminal on the Playa of Ponce on a route from Ponce to be determined by the said executive council in accordance with the conditions in said ordinance contained, and in accordance with the plans and specifications therefor ^approved, as in said ordinance provided, and within the said period of three (3) years from the date of the acceptance by it of the said ordinance, shall also complete and have in operation the entire power plant and transmission lines necessary for operating the said entire line of railway, in accordance with the conditions therein contained, and in accordance with the plans and specifications therefor approved as therein provided; and shall duly perform within the said period of three (3) years, all other terms and conditions in said ordinance required to be performed by the principal within the same period; and shall pay to the obligee any loss or damage accruing against the said obligee by reason of the construction of the works in said ordinance authorized at any time during the period of construction therein limited and before the completion of said work shall have been certified by the Commissioner of the Interior, as in section 35 of said ordinance provided — then this obligation shall be void, otherwise to remain in full force and effect.”

Such being the condition of its undertaking, can the obligee in the bond, who has without the knowledge or consent of the- surety repealed the franchise, still hold the surety in damages for the noncom-pletion of’ a railway which possession of the franchise alone enabled the principal to lawfully build? We think the statement of the question is its own answer. This bond was given for the performance of work which could only be done under the franchise. The continuance of the franchise by the plaintiff was therefore an implied prerequisite to its calling on the surety to perform. To hold otherwise would be to say that if the obligee' a year, a month, or a day after the franchise was granted, repealed it, it could still hold the surety to build the disfranchised road. It would in effect be demanding bricks without furnishing straw and be contrary to the common sense of right and wholly at variance with the uniform holdings of courts.

In the United States v. Arredondo, 31 U. S. 744 , 8 L. Ed. 547 , there came in question, after the cession of Florida to the United States, the validity of a land grant made' while Florida was owned by Spain. Such grant was coupled with the condition of the grantees settling 200 Spanish families on the land. It was contended by the United States, as successor to the title of Spain, that the’grant was forfeited because “the grantee failed to perform the condition of the grant, which required them to commence the establishment of the 200 Spanish families on the land within three years from the date of the grant.” In answer to this the court said:

“The condition of settling 200 families on the land has not been complied with in fact. The question is: Has it been complied with in law, or has such matter been presented to the court as dispenses with the performance, and divests the grant of that condition? It is an acknowledged rule of law that if a grant be made on a condition subsequent, and its performance become impossible by the act of the grantor, the grant becomes single. We are not prepared to say that the condition of settling 200 Spanish families in an American territory has been; or is, possible. The condition was not unreasonable or unjust at the time it was imposed. Its performance would probably have been deemed a very fair and adequate consideration for the grant, had Florida remained a Spanish province. But- to exact its performance, after, its cession to the United States, would be demanding’the -‘summum jus’ indeed, and enforcing a forfeiture, on principles which, if not forbidden by the com *647 mon law, would be utterly inconsistent with its spirit. If the case required it, we might feel ourselves, at all events, justified, if not compelled, to declare that the performance of this condition had become impossible by the act of the grantors — the transfer of the territory, the change of territory, the change of government, manners, habits, customs, laws, religion, and all the social and political relations of society and of life.”

Indeed, the statement in 4 Ency. 687 that, “whenever by the act of the obligee performance of the condition is rendered impossible, the obligee will be excused from liability for nonperformance,” summarizes the law on the subject.

In Dwelley v. Dwelley, 143 Mass. 509 , 10 N. E. 468 , it was held that where an obligee sought to sell real property under a bond and mortgage, conditioned for maintenance of the obligee, as the contract contemplated such maintenance should be furnished on the land in question, the obligee, who had left the land, was not entitled to foreclose for nonmaintenance. To the same effect are McKillip v. McKillip, 8 Barb. (N. Y.) 552, and Howe v. Hose, 10 N. H. 89.

In Stewart v. Cuyler, 17 Barb. (N. Y.) 482, a bond was given which provided in case of a dispute as to the amounts to be periodically paid for support, for a reference to a county judge for determination. The obligee having requested the judge not to act, it was held he could not recover for breach of the bond.

And in Pindar v. Upton, 44 N. H. 358, it was said:

“It is a settled principle that whenever, by the terms or nature of a condition. it cannot be performed without the precedent or concurrent act of the obligee, and he neglects or refuses to perform such act, the condition is saved.”

So, also, in People v. Bartlett, 3 Hill (N. Y.) 570, it was said:

“Baron Oomyn lays down the rule that the performance of a condition shall be excused by an obstruction of the obligee or by an interruption of the performance by him” — citing Com. Dig. Tille Condition (L. 6).

Moreover, performance by the surety company became impossible not only by the hindrance of the obligee, but also by the act of law, which, as it is sometimes expressed, “repeals the covenant.” “When a party,” holds Bradford v. Jenkins, 41 Miss. 334 , “agrees to do a particular thing which is lawful at the time, and the Legislature comes in and malees it unlawful, here the law absolves from the obligation, or, as sometimes expressed, ‘repeals the covenant.’ ” This has the support of authority:

“If the condition be possible at the time of making it and afterwards becomes impossible by the act of God, the act of law, or the act of the obligee himself, then the penalty of the obligation is saved; for no prudence or foresight of the obligor could guard against such a contingency.” Blackstone’s Commentaries, 341; Irion v. Hume, 50 Miss. 426 , and Bain v. Lyle, 68 Pa. 60 , where it was held:

“If by act of law the performance of the condition becomes impossible, upon every principle the bond is saved. Co. Litt, 206a.”

Applying these principles to the case in hand, it is clear there can be no recovery on this bond. Both by the act of obligee and by act of law it became impossible, before the three years leeway of the bond, for either principal or surety to lawfully build this road. The *648 power to repeal was reserved and exercised. By that repeal the right of the construction company to, within the three years’ term of the bond, complete this road, was taken away. Possibly, for there is no proof to the contrary, the surety could have constructed the road within the three years, and the prevention thereof by the repeal of this ordinance presumably injuriously affected the rights of the surety. “A surety may be discharged by the doing of an act which is legally injurious to the surety, or which impairs his legal rights.” Dwelling-House Co. v. Johnston, 90 Mich. 170 , 51 N. W. 200 . Such being the law, and the island having seen fit to repeal this ordinance and thereby materially and adversely affect the legal rights of the surety without its consent, it follows the surety was released. The repeal of the franchise put an end to the undertaking of the construction company and rendered it impossible for it or its surety to thereafter lawfully construct the work for which this bond was conditioned. The general rule, supported by the best elementary writers, is that:

“When an act of the Legislature is repealed, it must be considered, except as to transactions past and closed, as if it never existed.” Ex parte McCardle, 7 Wall. 510 , 19 L. Ed. 264 .

These authorities conclusively settle this case if the bond in suit, which wns executed, acknowledged, and delivered by the surety company in Pennsylvania, is a Pennsylvania contract. If it be deemed a Porto Rican contract, we have been referred to no Spanish or other authorities which hold to the contrary.

The judgment is therefore affirmed.