author: LEDDY, O. OURETON, O. J.

text:
    MANETT, SEASTRUNK & BUCKNER v. TERMINAL BUILDING CORPORATION.
    No. 5717.
    Supreme Court of Texas.
    May 16, 1931.

      Read, Lowrance & Bates, of Dallas, for plaintiff in error.
    Lee, Lomax & Wren,.of Eort Worth, and Coke & Coke, of Dallas, for defendant in error.
   LEDDY, O.

Plaintiffs in error entered into a contract with the defendant in error to do all of the electrical work required under the plans and specifications for what is known as the Terminal building, in the city of Dallas, for the agreed sum of $78,654.50. It was stipulated that defendant in error was given the privilege under the contract of ordering extra work, or of making any changes in the original plans and specifications; with the provision that, if the value of such work or alteration was not agreed upon, it should be determined in one or more of the following ways:

“(a) By estimate and acceptance in a lump sum;
“(b) By unit prices named in the contract or subsequently agreed upon;
“(c) By cost and percentage or by cost and a fixed fee;
“(d) If none of the above methods is agreed upon, the contractor, provided he receives an order as above, shall proceed- with the work, no appeal to arbitration being allowed from such order to proceed.

“In cases (c) and (d), the contractor shall-keep and present in such form as the architect may direct, a correct amount of the net cost of labor and materials together with vouchers. In any case, the architect shall certify to the amount due the contractor. Pending final determination of value, payments on account of changes shall be made on the architect’s certificate.”

Plaintiffs in error began work under this contract in the fall of 1923 and continued working thereon .until October, 1925. The 28th estimate furnished by them to the architect was presented on July 9, 1925. Under this estimate they claimed defendant in error was due them, after due allowance for all credits, the sum of $27,986.64. After filing this estimate, they continued working on the buildings until October 16, 1925, claiming that during this interval they did additional work of the approximate value of $28,-000. On October 16, 1925, plaintiffs in error, after giving notice of their intention to do so, in accordance with the terms of the contract, abandoned work thereon -because of failure of defendant in error to pay their estimate No. 28.

They instituted this suit to recover on a quantum meruit the value of the labor performed and material furnished in the installation of the electrical work on said Terminal building, which they claimed amounted to the sum of $189,829.28, on which they admitted a credit for payments in the sum of $95,415.16, and judgment was sought for the remaining portion in the -amount of $94,-414.12.

Defendant in error contended upon the trial that it was not in default in refusing to pay plaintiffs in error’s estimate No. 28, or to have the architect issue a certificate on. such estimate for the reason that plaintiffs in error ¡had failed and refused to submit, "either to it or to the architect, the invoices showing the net cost price of labor and materials used for the extra work, and that by reason thereof there was no way for it or the architect to determine correctly the amount due plaintiffs in error under their estimate.

When the evidence was closed, both parties presented requests for peremptory instructions.' Plaintiffs in error requested the submission of a number of special issues in dine with the cause of action set up in their pleadings, such requests being conditioned upon the refusal of their summary instruction. The trial judge indicated to the parties that he was of the opinion that plaintiffs in error were not entitled to recover under a quantum meruit, but that he thought on equitable grounds they should be permitted to recover the sum of $28,960.89, which it seems defendant in error admitted was due by them as the unpaid balance for the work done under the contract after allowing the amount it had been required to pay to complete the contract.

When the above suggestion was made -by the court, defendant in error immediately filed a trial amendment, which, after reciting the views of the court as above expressed, alleged that, “without prejudice otherwise to its insistence that a verdict should now be directed for it, this defendant admits that under the contract referred to in plaintiffs’ petition, if such contract had not been breached by plaintiffs, they would be entitled to recover the sum of $28,960.89. And this defendant concedes that the jury may be instructed to return a verdict for like amount with interest thereon only from this date, ¡however, may -be entered in favor of plaintiffs and against this defendant.”

Upon the filing of the above pleadings, the count overruled the motions for peremptory instructions requested by both parties, as well as all special issues requested by plaintiffs in error, granted the request contained in defendant in error’s trial amendment, and instructed the- jury to render a verdict in favor of plaintiffs in error for the sum stipulated. Judgment upon the verdict rendered in accordance with said instruction was duly entered.

The Court of Civil Appeals, upon original hearing, affirmed the judgment of the trial court. Later it granted plaintiffs in error’s motion for rehearing and reformed the judgment so as to eliminate the amount awarded plaintiffs in error, and rendered judgment that they take nothing on their claim against defendant in error. 23 S.W. (2d) 786.

The action of the Court of Civil Appeals reversing the judgment for the amount admitted to he due under defendant in error’s trial amendment was undoubtedly proper. Plaintiffs in error were entitled to a trial upon the cause of action set up in their pleadings. They could not be compelled, over their protest, to have their rights adjudicated upon a theory pleaded by defendant in error in its trial amendment. The only legal effect that could be given defendant in error’s trial amendment was that of an offer in the nature of a compromise. If it had 'been acceptable to plaintiffs in error the court’s action in directing verdict for that sum would have been entirely proper. Defendant in error, however, had no legal right to force upon plaintiffs in error, over their protest, the acceptance of the compromise proposal.

This brings us to a consideration of the correctness of the action of the Court of Civil Appeals in rendering judgment against plaintiffs in error. In order to 'decide this question, we must determine whether plaintiffs in error under their pleadings and evidence presented any issues which they were entitled to have submitted for the determination of the jury.

Plaintiffs in error alleged in their petition that there was collusion between the architect and the Terminal Company to defraud them by. arbitrarily reducing the cost of the buildings, and that plaintiffs in error were influenced thereby in their decision to stop work under their contract.

It was further alleged by them that defendant in error waived all of its rights under the contract and was estopped to rely upon any provision thereof because in designating L. R, Whitson as architect it breached said contract, in view of the provision contained therein with reference to the architect that, “as the architect is in the first instance the interpreter of the conditions of the contract and the judge of its performance, he shall side neither with the owner nor with the contractor, but shall use his powers under the contract to enforce its faithful performance by both because it is well known that the said Whitson had a financial interest in the Terminal Company and was financially interested in reducing the cost of such construction at the expense of the contractor ; that stock to the amount of $70,000 in the defendant Terminal Building Corporation of Dallas had been issued to him, and he had been elected a director of defendant and that he could not be a disinterested interpreter of the conditions of the contract or judge its performance, which facts were unknown to plaintiffs and if they had been known to them, plaintiffs would not have accepted Said contract with L. R. Whitson as architect.”

Plaintiffs in error further alleged: “The defendant waived all provisions in said contract conferring arbitrary powers on the architect and making him the interpreter of all its conditions and the judge of its performance by designating L. R. Whitson as the architect, well knowing at that time that he was a stockholder and director of defendant company and was interested financially in reducing the cost of said buildings at the expense of the contractor, which facts were unknown to the plaintiffs.”

It was shown upon the trial that Whitson, who was designated as the architect by the Terminal Company, was one of four promoters who organized the Terminal Building Corporation-, and that stock in said company had been issued to him in the sum of $70,000 at the time said company entered into the contract with the plaintiffs in error to install the electrical work in said buildings. In addition to this fact, it was also shown that Whitson and hi’s associate promoters in tho year 1923 executed an instrument in writing wherein they guaranteed the Terminal Company that the cost of the buildings would not exceed the estimate made, by Whitson, with the distinct understanding that if such estimate was exceeded they would pay said company the sum of $50,000.

. [2] It appears that there was a very large amount of extra work and quite a number of changes in the plans and specifications required to ibe performed by plaintiffs in error, for which the contract provided no fixed amount of payment. During the performance of the contract the price of extra work performed under the contract, as well as the amount- of regular work (estimates for which payments were to be made to plaintiffs in error), was determined by agreement between them and the architect. Under the plain provisions of the contract plaintiffs in error were entitled, in fixing the prices for extra work and in determining the amount of the estimate for work required under the plans and specifications, to deal with a disinterested and unbiased architect. Th-at Whitson was not such an architect is self-evident: He had a twofold interest in reducing the cost of the construction of the buildings. First, Ms stock in the enterprise would be affected by the cost of the buildings; and, second, he had, on account of the previous guaranty made by him, a direct financial interest in keeping the cost of the 'buildings within his estimate.

But defendant in error insists that plaintiffs in error are not in position to make the complaint that Whitson was not a disinterested architect because they knew at the time the contract was signed, or learned a short time subsequent thereto, that Whitson was a stockholder and director of the Terminal Company, and, with full knowledge of such fact, entered into the performance of the obligations of the contract. Plaintiffs in error denied that they possessed such knowledge, but there was some evidence tending to show that each of them knew that Whitson was a stockholder and director in the Terminal Company before they engaged in the performance of their contract. There is, however, no evidence in the record tending to show that plaintiffs in error had any knowledge whatever of the fact that Whitson had executed a written contract wherein he guaranteed that the cost of the buildings would not exceed the amount estimated by him and agreed in the event it did he and his associates would pay the Terminal Company $50,000, with the pledge of his fees as architect to secure the payment of such sum.

It may be conceded that plaintiffs in error would not be in position to complain that Whitson was not a disinterested architect as contemplated by the provisions of the contract, if they had knowledge of all the facts as to his interest in reducing the cost of the buildings at the time they engaged in the performance of their contract. It .does not follow, however, that because they knew he was a stockholder and director in the Terminal Company they waived their right to complain of, his disqualification to act as architect, if, in addition to being a stockholder and director, he had obligated himself to 'pay the Terminal Company a substantial sum in the event the buildings exceeded the estimated cost and they had no knowledge of such fact. Plaintiffs in error should not be held to have waived their right to complain of Whit-son serving as the architect under the contract, in fixing the amount due them for extra work, and the amounts of the estimates to be paid during the progress of the work, unless they were fully apprised of all the facts with reference to his financial interest in reducing the cost of the buildings. Plaintiffs in error may have been perfectly willing to have waived his connection with the Terminal Company as a stockholder and director, and yet not have been willing to engage in the performance of their contract had they known he was bound under a written guaranty to pay a substantial sum of money if the buildings exceeded the estimated cost. Because of this guaranty he had a very strong motive to keep down the cost of the buildings in order to bring them within the estimate and thus relieve himself of having to pay the Terminal Company a substantial sum of money. His interest in this respect was much greater than that of a mere stockholder and director.

It must be held that defendant in error in designating a biased and interested architect breached its contract which required it to name a disinterested and impartial one. Plaintiffs in error did not waive such breach, merely because they knew the architect was a stockholder and director in the Terminal Company. They will not be deemed to have waived their right to object to a biased architect any further than their knowledge as to the basis for such bias extended.

Defendant in error claims that, if its designation of Whitson as architect was subject to objection as not being in compliance with the terms of the contract on account of his direct financial interest under the written guaranty given to it, such objection was removed when he was fully released by the assumption of his liability by the company which financed the construction of the buildings. We conclude, however, that the fact that the architect was released of liability under the guaranty in the early part of 1925 is no answer to plaintiffs in error’s contention. All of the estimates made by Whitson during the year 1924, both in the fixing of the cost of the extra work • and in estimating the amount plaintiffs in error were entitled to be paid for wol’k required by the plans and specifications, were made at a time when the architect was bound by the terms of his guaranty to indemnify the Terminal Company if the cost of the buildings actually exceeded the estimated cost. Because of the direct pecuniary interest, of the architect the presumption arises that every estimate made by him while under such liability was a partial and biased one. Long v. Pierce County, 22 Wash. 330, 61 P. 142, 151.

The rule is announced by Corpus Juris, volume 9, page 703, that a provision vesting power in an architect to determine disputed questions arising under the contract is invalid, where,, unknown to the builder, the architect gives a bond to keep the cost below a certain sum, and thereby becomes interested in reducing the cost of the building.

The same principle is announced in Long v. Pierce County, above cited. There a building contract provided that the decision of the architect upon disputed questions should be just, impartial, and conclusive. It appeared that prior to the beginning of the work the architects executed a bond to the county conditioned that they would keep the cost of the building below a certain sum. The court beld that the contractor was not bound by tlie architects’ decision under such circumstances, and in passing on the question said: “It is an ancient maxim, applicable to arbitrators as well as judges of courts, that no man ought to be a judge in his own cause. The cause of the county became, by reason of this bond, the cause of the architects, and the liability assumed by them made it to their interest to decide every question affecting the cost of the building against the claim of the contractor. Bias and prejudice will always be implied where such conditions exist, it was not necessary for the contractor to show that the architects’ decisions were unjust or partial, in order to relieve himself of their conclusive effect, if it be a fact that he had no knowledge of the bond at the time he entered into the agreement making them so.”

To the same effect is the leading English case of Kemp v. Rose, 1 Giffard, 258, 65 Reprint, 910, wherein, in deciding a case involving a similar situation, the court observed: “The existence of any circumstance calculated to bias the finding of an architect unknown to either of the parties who have submitted to ⅜⅛ decision is a sufficient ground for the interference of the court. Therefore, where a builder by his contract bound himself to abide by the decision and certificate of an architect as to the amounts to be paid for the work, not knowing that the architect had given an assurance to the employer that the cost of the building should not exceed a certain specified amount, although he refused to guarantee that amount, the court did not consider the decision of the architect made under such a bias as binding, but gave direction so as to ascertain under the authority of the court how much remained justly due to the plaintiff.”

In the last cited case the trial court was directed to determine the amount due plaintiff under a quantum meruit. The only interest of the architect was that he had given his assurance to the owner of the building that the cost of same would be kept below a specified: sum without any financial guarantee upon his part. In this ease the architect was under a binding contract which penalized him if he failed to keep the cost of the buildings within his estimate. That the contractors in this case should be compelled to adjust disputed questions as to proper allowances for labor performed and material furnished with such a biased architect is manifestly unfair and unjust.

We are unable to agree with defendant in error’s insistence that plaintiffs in error’s pleading is not sufficient to raise the issue as to the financial interest of the architect by reason of his having executed a guaranty to keep the cost of the buildings within his estimate. It was distinctly alleged that defendant in error had waived the provision with reference to the powers given the architect under the contract and had breached said contract by designating said Whitson as architect because “it well knew that the said Whitson had a financial interest in the Terminal Company and was financially interested in reducing the cost of said construction at the expense of the contractor.” No special exception on account of its generality was leveled at this allegation. While subject to such exception, it was clearly sufficient, when considered in connection with the allegations as to fraud and collusion between the architect and defendant in error, as against a general demurrer. The pleadings were sufficient to furnish a proper predicate for plaintiffs in error’s proof as to the financial interest of the architect.

We conclude that the provisions of the contract providing for the fixing by the architect of the price of extra work and of determining the amount due for work under the contract as it progressed were invalidated by reason of the financial interest of the architect to reduce the cost of the buildings. With these provisions of the contract eliminated, there was no method of determining what amounts were properly due plaintiffs in error as the work progressed, nor what sums should be allowed and paid them for extra work. Under these circumstances plaintiffs in error had the right to abandon performance of the contract as they did and seek the aid of a court for the purpose of determining the reasonable value of the labor performed and material furnished by them in the construction of said buildings.

Plaintiffs in error are entitled upon another trial to have submitted for the determination of the jury the amount due them by defendant in error as under a quantum meruit for •all labor performed and material furnished in the construction of said buildings, after due allowance has been made for all sums heretofore paid them.

Our holding is made upon the record before us and should not be construed as confining the submission of the case on another trial to the' above issue, as amended pleadings or additional proof may require the submission to the jury of other controverted issues.

The judgments of the trial court and the Court of Civil Appeals are reversed, and the cause remanded for another trial.

OURETON, O. J.

The foregoing opinion is adopted as the opinion of the Supreme Court, and judgment will be entered in accordance therewith.


source: Caselaw Access Project

author: RYAN, O. CURETON, C. 3.

license: Public Domain

text:
    EARLY et al. v. CORNELIUS.
    No. 5718.
    Supreme Court of Texas.
    May 16, 1931.
    Thomas & Shapard and B. H. Shapard, all of Anson, and Clem Calhoun, of Amarillo, for plaintiffs in error.
    Smith & Smith, of Anson, for defendant in error.
   RYAN, O.

This suit was filed on November 30, 1928, by J. W. Cornelius against Mary Early and husband, Charlie Early, Opal Cornelius (a minor), and J. P. Cornelius, individually and as guardian of said Opal Cornelius, for the recovery of approximately 240 acres, in two tracts of land in Jones county.

It is alleged in the petition that J. W. Cornelius and his wife (since deceased) conveyed said lands to their son J. P. Cornelius as a gift, to be his separate, property. At that time J. P. Cornelius was a married man. After-wards the wife of J. P. Cornelius died, leaving surviving the two children, Mary, now the wife of Charlie Early, and Opal, a minor, above named as defendants. After the death of his first wife, J. P. Cornelius married again, and he, joined by the second wife, re-conveyed the said lands to J. W. Cornelius, the plaintiff.

It was further alleged that on December 20, 1917, J. P. Cornelius attempted to qualify in cause No. 602, Jones county, Te:^., as guardian of the estate of Mary and Opal, his minor children, and to file an inventory 'in said guardianship proceedings setting out that said two minor children own a one-half interest in and to said lands; that said guardianship proceedings were void and the statements contained in said inventory were false and in truth and in fact they never owned any interest therein.

It was further alleged that the defendants assert “some kind of claim, interest and estate in and to said lands,” which casts a cloud thereon. The prayer was for judgment divesting the defendants of any interest or estate in said lands, removal of the alleged cloud on his title, and vesting title and possession of same in plaintiff.

Citation was' served on all the defendants, returnable to the then next regular term of court to be held at Anson, in Joneg county, on January 7, 1929.

J. P. Cornelius filed no answer and entered no appearance. On January 7, 1929, Mary Early and husband filed their original answer, containing general and special exceptions, general denial, plea of not guilty, and the following special answer, viz.: .“And further and specially answering herein come now these defendants and say that the deed set out in the third paragraph of plaintiff’s petition alleged to have been executed by J. P. Cornelius and wife, S. E. Cornelius, to plaintiff is void and of no effect. That said deed was executed after the death of defendant Mary Early’s mother and the property attempted to be conveyed by her guardian, J. P. Cornelius, to the plaintiff herein was the community property of her said guardian J. P. Cornelius, and her deceased mother, and that same on the death of her mother descended to this defendant, Mary Early, in the proportions of one-fourth of all of the property described in plaintiff’s petition, and that same was attempted to be conveyed back to the plaintiff in this ease by defendant, J. P. Cornelius, without authority of law and without the consent of these defendants, and that said deeds alleged by plaintiff, one to be of record in Volume 119, page 460, Deed Records of Jones County, Texas, and one in Volume 129, page 449, Deed Records of Jones County, Texas, and one in Volume 129, page 450, of the Deed Records of Jones County, are void as to these defendants and these defendants say that each and all of said deeds east a cloud upon the title of the defendants to their interest in the land described in plaintiff’s petition, and these defendants pray that judgment he entered cancelling each and all of said deeds in so far as they attempt to convey the property of these defendants or in any way affect their rights therein and that a judgment of this Court be found and entered to that effect and for all such other and further relief as the defendants may show themselves entitled to, special or general, in law and equity.”

On January 31, 1929, the court appointed a guardian ad litem “for the purpose of defending said suit for Opal Cornelius,” on the ground, that the interest of J. P. Cornelius, guardian of her estate, conflicts with her interest.

On February 5,1929, plaintiff, J. W. Cornelius, filed the following motion to dismiss: “Now comes the plaintiff, and dismisses this cause of action as against all of the defendants and prays the court that such order of dismissal be entered and at his cost,” which was by the court overruled, on the following day, in the following order: “On this the 6th day of February, 1929, came on to be heard the motion of plaintiff, J. W. Cornelius, to dismiss the above cause from the docket of this Court and defendants with pleas for affirmative relief appeared and objected to said motion, whereupon the Court overruled the motion to dismiss, and same is hereby in all things overruled.”

On February 6,1929 (whether before or after the motion to dismiss was denied is not shown), Mary Early and husband filed their amended answer, which was the same as their original answer, with the following additional averment: “And the defendants further show to the Court that the plaintiff owns an undivided one-half interest in the land described in plaintiff’s petition, that this defendant, Mary Early, owns an undivided one-fourth interest therein, and that defendant Opal Cornelius, owns an undivided one-fourth interest in all of said land and each and all of the above named parties, plaintiff and defendants, own their respective interest therein in fee simple and as joint owners therein, the same undivided interests. That the two tracts of land described in plaintiff’s petition are of the probable value of $12,000.00 and that same is susceptible of partition. That the plaintiff, J. W. Cornelius, has taken possession of said land whereas in truth and in fact the defendant, Mary Early, is entitled to possession of 60 acres thereof. That this Court has jurisdiction to partition same.” . The prayer in such amended answer being as follows: “Wherefore these defendants pray that judgment be entered cancelling each and all of the deeds described in plaintiff’s petition in so far as they attempt to convey the property from this defendant or in any way affect her rights therein and that a judgment of the Court be found and entered to that effect, and this defendant further prays that her undivided interest of 60 acres in said land be separated and segregated by partition proceeding and that she be placed in possession thereof and that for the purpose of the partition that the Court find the interest of each and all of the parties thereto and appoint three commissioners as provided by law for the purpose of partitioning the said land between the plaintiff and defendants herein in so far as their interests may be shown and that she have judgment placing her in possession of the part set apart to her and for all such other and further relief as this defendant may show herself entitled to, special and general, in law and in equity.”

On February 6, 1929, the minor defendant, Opal Cornelius, by her guardian ad litem, filed answer, containing the same averments and the'same prayer (as may be applicable to her) as the amended answer of Mary Early and husband.

The defendants Mary Early and Opal Cornelius withdrew their prayers for a partition of said land, and the trial court on April 25, 1929, rendered judgment, of which the following is an excerpt: “On this the 25th day of April, 1929, this cause was regularly called for trial, the plaintiff, J. W. Cornelius, failed and refused to prosecute his suit in this behalf and the defendants, Mary Early and Charlie Early, her husband, appeared in person and by their Attorneys and announce ready for trial and the defendant Opal Cornelius, appeared by her guardian-ad-litem, Clem Calhoun, and answered in this behalf and announced ready for trial and the defendant, J. P. Cornelius, Guardian of Opal Cornelius, though duly cited, failed to appear and answer in this behalf either as individual or as Guardian; and a jury being waived the matters of fact as well as of law were submitted to the Court, and the case was tried on the cross actions of defendants, Mary Early, Charlie Early, and Opal Cornelius.”

The court then found and adjudged that the property was community property of J. P. Cornelius and his deceased wife at the time of her death, and descended in the proportion of one-fourth each to her children, the defendants Mary Early and Opal Cornelius; that the conveyance of J. P. Cornelius and his second wife to J. W. Cornelius was void in so far as it purported to include the interests of Mary Early and Opal Cornelius, and cast a cloud upon their title. It was further ordered that defendants Mary Early and Opal Cornelius recover their costs, and that plaintiff, J. W. Cornelius, take nothing as against any of the defendants; also that Mary Early and Opal Cornelius and her guardian, J. P. Cornelius, be admitted into joint possession of all the above-described land (each as the owner of an undivided one-fourth interest) with plaintiff, J. W. Cornelius, as the owner of an undivided one-half interest in all of said land, and that defendant J. P. Cornelius, individually and as guardian, he discharged.

On the next day (April 26, 1929) plaintiff, J. W. Cornelius, filed motion for new trial, which was overruled, whereupon he prosecuted an appeal to the Court of Civil Appeals at Eastland, resulting in the reversal of the trial court’s judgment and remanding of the cause. 24 S.W.(2d) 757.

It is provided in article 2182, Rev. Stat. 1925, that: “At any time before the jury has retired, the plaintiff may take a nonsuit, but he shall not thereby prejudice the right of an adverse party to be heard on his claim for affirmative relief. When the case is tried by the judge, such non-suit may be taken at any time before the decision is announced.” In article 2016 it is provided: “Where the defendant has filed a counter claim seeking affirmative relief, the plaintiff shall not be permitted, by a discontinuance of his suit, to prejudice the right of the defendant, to be heard on such counter claim.”

It is argued that the dismissal could operate only as to plaintiff’s cause of action and not the cross-action which remained to be disposed of by the court, and when so disposed of the plaintiff was bound by any judgment rendered thereon.

It is argued, also, that plaintiff’s motion to dismiss was a general appearance, and, when overruled, he was in court for all purposes and charged with notice of all pleadings thereafter filed by the defendants, and therefore service of citation on such cross-action was not necessary, to sustain the judgment as rendered. There was no service, acceptance, or waiver of process by plaintiff upon the defendants’ cross-action.

The record herein shows no continuance of the case, agreed to by the plaintiff, and no action by him appealing to the court with reference to or resisting the cross-actions.

In Sullivan v. Doyle, 108 Tex. 368, 194 S. W. 136, the rule as to defendants is stated to be, having entered his appearance in the main case, a defendant i! before the court for all purposes and judgment may be rendered against him on a codefendant’s cross-action without the necessity of citation. As to plaintiffs, the rule is stated in Harris v. Schlinke, 95 Tex. 88, 65 S. W. 172, to be that a plaintiff by the filing of his "suit does not so invoke the jurisdiction of the court to litigate the subject-matter of a cross-action as to dispense with the necessity of service, acceptance, or-waiver of process or of a further appearance after the filing of the cross-action.

Although the plaintiff is charged with notice of all pleadings filed in defense of his suit, he is entitled to notice of interventions and cross-actions affirmatively setting up causes of action against him, and judgments rendered against him upon such interventions and cross-actions, in the absence of notice,, waiver, or appearance, will be set aside. Boyce v. Concho Cattle Co. (Tex. Civ. App.) 70 S. W. 356; Field v: O’Connor (Tex. Civ. App.) 80 S. W. 872; Bryson v. Boyce, 41 Tex. Civ. App. 415, 92 S. W. 820; Smith v. Carr (Tex. Civ. App.) 173 S. W. 602; Commercial Credit Co. v. Wilson (Tex. Civ. App.) 219 S. W. 298; McGowan v. Lowry (Tex. Civ. App.) 230 S. W. 465 (writ refused);. Security State Bank v. Merritt (Tex. Civ. App.) 237 S. W. 990; Southern Equipment Co. v. Hallman (Tex. Civ. App) 10 S.W.(2d) 261.

Plaintiff’s motion to dismiss had no necessary relation to the cross-action and was not a general' appearance entitling defendants to judgment, without citation, on cross-actions subsequently filed (Field v. O’Connor [Tex. Civ. App.] 80 S. W. 872), and therefore the rule announced in Harris v. Schlinke, supra, controls here.

The motion for new trial should have been granted, and the judgment of the Court of Civil Appeals, reversing the trial court’s judgment and remanding the cause, is therefore affirmed.

CURETON, C. 3.

The foregoing opinion is adopted as the opinion of the Supreme Court, and judgment will be entered in accordance therewith.


author: GREENWOOD, J.

text:
    WOODWARD et al. v. HARLIN.

    No. 5580.
    Supreme Court of Texas.
    May 26, 1931.

      Carl Rountree and R. Dyrel Kirk, both of Lamesa, for plaintiffs in error.
    Garland & Yonge, of Lamesa, and Cecil Rotseli, of Fort Worth, for defendant in error.

      For opinion denying rehearing, see — S. W.(2d) —.

   GREENWOOD, J.

Upon the authority of Walcott v. Kershner (Tex. Com. App.) 291 S. W. 195, 196, the El Paso Court of Civil Appeals sustained a recovery of $468 and interest thereon for breach of a covenant in a deed by plaintiffs in error to defendant in error that a certain tract of land was free of encumbrances, when it was at the date of the deed subject to a vendor’s lien for said sum of $468. It was neither alleged nor proven that defendant in error had lost the land or had discharged any portion of the incumbrance save accrued interest amounting to $25.77. 20 S.W.(2d) 158.

The writ of error was granted upon the ground that the decision of the Court of Civil Appeals was in conflict with the decisions of the Supreme Court in Seibert v. Bergman, 91 Tex. 411, 44 S. W. 63, and Thomas v. Ellison, 102 Tex. 354, 116 S. W. 1141.

The decisions are in rare accord in denying the right of a covenantee to recover anything save nominal damages for breach of a covenant against an incumbrance on land where no injury has been actually sustained by the covenantee other than the continued existence of the incumbrance.

Thompson states: “While a covenant against incumbrances is broken by the existence of an incumbrance, as soon as made, it is merely a covenant to indemnify, and, until the covenantee has removed or extinguished the incumbrance, he can not recover the amount thereof.” 4 Thompson on Real Property, § 3499, pp. 611, 612.

Devlin in stating the same rule gives a reason oft assigned for it as follows: “This covenant is considered to be one of indemnity. If the covenantee has not removed the encumbrance it may be he will never be disturbed by it. He may discharge the encumbrance, but if he does not do so the universal rule is that while it remains undischarged and he has suffered no actual Injury, he is entitled to only nominal damage.” 2 Devlin on Deeds (3d Ed.) § 916, p. 1718.

Rawle says the rule is “perfectly settled on both sides of the Atlantic.” Rawle on Covenants of Title (5th Ed.) § 74, p. 89. And Washburn says that on this point there does not appear to be “substantially any difference between the several American courts.” 3 Washburn on Real Property (5th Ed.) §§ 39, 41, pp. 529-531.

The decisions of the Supreme Court of Texas have been to the effect that our statutory covenant against incumbrances (Rev. St. 1925, art. 1297), implied from the use of the word “grant” or “convey,” being the covenant relied on to sustain a recovery in this case, was a covenant looking to the future and promising compensation for damages at such time as the same might be actually sustained.

In Seibert v. Bergman, supra, in answering a certified question, the court through Justice Brown declared:' “The implied covenant against incumbrances which arose under the statute, upon the language used in the deed, was broken at the time the deed was made, in the ‘sense that the promise relates to an existing condition, and is falsified then, if it ever is. But, if the damage do not then result, it is misleading and mischievous to treat this mere technical breach as constituting plaintiff’s cause of action.’ Post v. Campau, 42 Mich. 90, 3 N. W. 272. The right of action for the actual damages sustained by the ap-pellees by the breach of the covenant did not arise until the land was sold under the judgment enforcing it, although the incumbrance existed when the deed was executed.”

After quoting portions of the opinion of Judge Cooley in Post v. Campau, supra, Judge Srown concludes: “From the foregoing well-sustained propositions it follows that the statute of limitations could not begin to run in this case until the land was sold in the enforcement of the incumbrance, because, up to that time, the covenantee had lost nothing, and could have maintained no action, except for nominal damages, which would have been no recompense for the injury afterwards suffered by the eviction.” 91 Tex. 413, 414, 44 S. W. 63, 64.

Thomas v. Ellison, 102 Tex. 356, 357, 116 S. W. 1141, determined that an attachment could not be sustained for breach of a covenant against incumbrances on land, where the land was subject to a deed of trust lien at the date of the covenant, because the covenantee had no cause of action for the amount secured by the deed of trust until he had discharged same.

The principle underlying the last-mentioned two decisions accords with that governing the operation in Texas of covenants of general warranty. Jones’ Heirs v. Paul’s Heirs, 59 Tex. 41; Graebner v. Limburger’s Ex’rs (Tex. Com. App.) 293 S. W. 1100, 1101.

We know of no reason why we should depart from a doctrine so thoroughly established in Texas and in English and American jurisprudence. Moreover, the rule is but the' Supreme Court’s construction of a statute. The Legislature adopted the court’s construction of the statute in its repeated re-enactment without change in verbiage.

The Court of Civil Appeals was correct in the view that language was used in the opinion of the Commission of Appeals, speaking through Judge Speer, in the somewhat recent case of Walcott v. Kershner, 291 S. W. 195-197 which would warrant the covenantee recovering of the covenantor the full amount of a subsisting incumbrance on land, with nothing more than pleading and proof of the covenant against the incumbrance and of the existence of the incumbrance. For, Judge Speer held: “If there was a breach it must arise (ipon execution and delivery of the deed, and the damage arising from the breach is definite and fixed by the amount of the undisputed lien.”

The court did not adopt the opinion of Judge Speer, but merely the judgment which' the commission recommended. Stephens County v. Oil & Gas Co., 113 Tex. 167, 254 S. W. 290, 29 A. L. R. 566, McKenzie v. Withers, 109 Tex. 256, 206 S. W. 503. And the judgment recommended was the only correct judgment which could have been entered on the facts disclosed by the opinion. For the facts entitled Mrs. Walcott to all the relief awarded her under principles of equity too thoroughly established to be open to question in Texas.

The rule in equity, requiring the reversal of the judgment of the Court of Civil Appeals and the affirmance of that of the district court, in Walcott v. Kershner, is this: While at law damages are not recoverable until the covenantee sustains actual damages from breach of a covenant against incumbrances, yet in equity the covenantee who bought without knowledge of a subsisting lien can maintain an action to have the amount of such lien, credited against his purchase-money notes in the hands of the covenantor, who has contracted that the title is unincumbered. The equitable rule is grounded on the unwillingness of the courts to require the blameless covenantee to risk being required to' fully perform his contract and at the same time leave him helpless to compel performance of the obligations of his covenantor should he then or thereafter be insolvent. As declared by the West Virginia Supreme Court of Appeals:

“It would be inequitable to require the ven-dee to pay the purchase money when he has a present right of action against his covenantor for breach of covenant, and take the risk of his insolvency if he should thereafter sue at law. The covenantor is in default and has no right to demand the purchase price until he makes good his covenant, either by removing the incumbrance or responding in damages.” Smith v. White, 71 W. Va. 639, 78 S. E. 378, 380, 48 L. R. A. (N. S.) 625.

Judge Speer’s opinion discloses that Mrs. Walcott sought and obtained a decree in equity, whereby her purchase-money notes in the hands of Kershner were credited with the amount of a paving lien on the lot conveyed to her by Kershner under contract and deed covenanting against incumbrances, she having no actual knowledge of the lien at the date of the conveyance. The opinion recites: “It is conceded that, at the time of the contract and conveyance, plaintiff had no knowledge of the mechanic’s lien or of the proposed paving.” The following Texas cases are decisive that on these facts Mrs. Walcott was entitled to the relief in equity she pbtained under the judgment entered by the Supreme Court: Tarpley v. Poage’s Adm’r, 2 Tex. 148; Twohig v. Brown, 85 Tex. 51, 19 S. W. 768; Baldridge v. Cook, 27 Tex. 570; Cook v. Jackson, 20 Tex. 210, 211; Cooper v. Singleton, 19 Tex. 260, 70 Am. Dec. 333; Rancho Bonito Land Co. v. North, 92 Tex. 75, 76, 45 S. W. 994; Doyle v. Hord, 67 Tex. 623, 4 S. W. 241.

While the principle announced in the line of Texas decisions beginning with Tarpley v. Poage’s Adm’r, supra, is not generally recognized, it is sustained by the adjudications of other eminent courts and is grounded on sound equitable considerations. Cummings v. Hamrick, 74 W. Va. 411, 412, 82 S. E. 44; Van Riper v. Williams, 2 N. J. Eq. 407, 408; Union National Bank v. Pinner, 25 N. J. Eq. 495; Funk v. Voneida, 11 Serg. & R. (Pa.) 114-119, 14 Am. Dec. 617.

This suit presents no grounds for equitable relief, and defendant in error failed to plead any cause of action within the jurisdiction of the county court. His petition was therefore subject to the exceptions urged against it.

It is therefore ordered that the judgments of the county court and of the Court of Civil Appeals be reversed, and that this cause be remanded to the county court.


text:
    SHROPSHIRE et ux. v. COMMERCE FARM CREDIT CO. et al.
    Motion No. 9180; 4324.
    Supreme Court of Texas.
    May 16, 1931.
    For former opinion, see 30 S.W.(2d) 282.
    Oxford & Oxford and M. J. Baird, all of Plain view, and Oxford & Johnson, of Stephen-' ville, for plaintiffs in error.
    Williams & Martin, of Plainview, Terrell, Davis, McMillan <& Hall, of San Antonio, Black & Graves and Chas. L. Black, all of Austin, and F. A. Williams, of Galveston, for defendants in error.
    T.urney, Burges, Culwell & Pollard, of El Paso, Phillips, Townsend & Phillip® and Nelson Phillips, all of Dallas, Andrews, Street-man, Hogue & Mobley, of Houston, R. G. Smith, of Dallas, Templeton, Brooks, Napier & Brown, of San Antonio, Samuels, Foster. Brown & McGee, of Fort Worth, W. A. Tar-ver, of Austin, Byron K. Elliott, of St. Bouis. Mo., Frank Wozencraft, of Dallas, Maco Stewart, of Galveston, Cockrell, McBride, O’Donnell & Hamilton, of Dallas, and E. H. Xeiser, of Austin, amici curte.
   GREENWOOD, J.

Near the end of the last term it was adjudged by the Supreme Court that a contract was usurious under the Constitution and statutes of Texas which provided for compensation in excess of 10 per cent, pep annum, collectible at the creditor’s option, for the detention of money. Shropshire v. Commerce Farm Credit Co. (Tex. Sup.) 30 S.W.(2d) 282; Deming Investment Co. v. Giddens (Tex Sup.) 30 S.W.(2d) 287.

The correctness of the court’s judgment has been vigorously assailed in motions for rehearing supported by elaborate arguments toy numerous amici curte as well as by counsel for the losing parties. Most careful reconsideration convinces the court that the motions for rehearing should in all respects be overruled.

The two cases cannot be distinguished in so far as material facts are concerned, and we shall therefore write again only in the Shropshire Case.

The principal grounds on which a rehearing is sought are:

First. The language of the writings evidencing the contract between the parties being fairly susceptible of a construction under which the contract can be upheld as valid, it is the duty of the court to give that construction to the contract, and a failure to do so departs from the sound rule of construction which was followed in Dugan v. Bewis, 79 Tex. 246, 14 S. W. 1024, 12 B. R. A. 93, 23 Am. St. Rep. 332.

Second. Even though the language of the writings forbade any other interpretation than that same undertook to give the creditor the option to compel the debtor to pay the principal of the loan together with an amount in excess of 10 per .cent, per annum for the term the debtor was entitled to the money, still the loan was not usurious; 'because the debtor had it within his power to avoid payment of more than the principal and legal interest by promptly meeting every promised payment.

Third. Though the contract be adjudged usurious, the creditor had not received or collected, and the debtor had not paid, any usurious interest nor a greater rate of interest than 10 per cent, per annum, and hence the creditor never became liable for a penalty of double the amount of such interest.

We will briefly state the reasons which compel us bo refuse to -sustain each of these grounds in the motion for rehearing, not deeming it necessary to greatly extend the opinion heretofore filed.

The court recognizes its duty in determining the validity of the contract here involved to apply the universally accepted rule declared in Galveston & H. Investment Co. v. Grymes, 94 Tex. 613, 614, 63 S. W. 860, 861, 64 S. W. 778, in the following words:

“To detei’m-ine the question of usury in a contract, it must be tried by the statutory limitation of 10 per cent, per annum for the use, forbearance, or detention of the money for one year. If the'interest contracted for exceeds that rate, it constitutes usury, no matter in what form the contract may be expressed. The court must give to the terms of the contract, if fairly susceptible of it, a construction that will make it legal, but has no right to depart from the terms in which it is expressed to make legal wdiat the parties have made unlawful. * * *
“If the transaction was such as to render the intention of the parties doubtful, the court would adopt that construction which would attribute to them a legal intention; but we cannot adopt any method for the solution of this question by which we must arrive at a different result from that shown by the contract, because it is impossible to conceive of the parties having an intention to use certain forms of contract that would produce a result different from that which they embodied in the contract actually made.”

If the contract between these parties contained no language other than that, if default was made in the payment of any installment of interest, the principal of the note, “with interest,” should be collectible at the creditor’s option, then such language would be fairly, susceptible of the meaning that unearned interest was to be abated. So in Dugan v. Lewis, 79 Tex. 249-254, 14 S. W. 1024, 12 L. R. A. 93, 23 Am. St. Rep. 332, the language of the deed of trust, coupled with the explicit words of the note, made the contract susceptible of the interpretation that unearned interest was not collectible. But here the parties have used clear and positive language to negative the abatement of any portion -of the unearned interest -secured by the second lien deed of trust. The second lien deed -of trust secured five interest notes for $252 each dated August 1, 1921, when the loan was made, maturing respectively August 1, 1922, August 1,1923, August 1,1924, August 1,1925, and August 1, 1926. The 'language of this deed of trust, which we are asked to adjudge fairly susceptible of authorizing abatement of -some of the second lien notes representing unearned interest, stipulates: “If the notes secured hereby and each of them are not paid promptly when due ⅜ * * then all of said notes hereby secured -shall become due and payable at the election of the holder; and the trustee, his successor or substitute, may sell said premises after notice as prescribed in first deed of trust, execute and deliver a -good and -sufficient deed itheref-or, and receive the proceeds of sale, which shall be applied as fqllows: First: To the expense of making such sale, including compensation to the trustee ; Second: To the payment of the amount secured hereby; Third: To the payment of any delinquent interest, taxes, attorney’s fees or other sum due under the terms of said first deed of trust, and the balance, if any, shall be paid to the grantors, his or their heirs or assigns.”

The English language could declare no plainer that what the holder -of the notes was to receive, at hi-s option, if any installment interest note secured by the second lien deed of trust was not paid at maturity, was at least: First, all of the unpaid notes secured by the second lien deed of trust and not merely a portion thereof less than all; and, second, the unpaid portion of the coupons for at least the earned interest at 6 per cent, per annum secured by the first lien deed of trust; and, third, the unpaid portion of the principal of $4,200.

- Shropshire and wife paid the first and second lien notes maturing August 1, 1922, and August 1, 1923. Giving effect to the plain and unambiguous language of the -second lien deed of trust, on their default to pay the second- lien interest installment due August 1, 1924, they were no -longer entitled to withhold the loan, if the Credit Company demanded payment, but wei’e immediately obligated to pay for the loan of $4,200 from August 1, 1921, to August 1, 1924, not only the principal sum of $4,200, with interest at 12 per cent, per annum from August 1, 1921, to.August 1, 1923, which the contract undertook to authorize the company to retain, but also an additional amount of $1,008, being the ag gregate of the three unpaid second lien notes for $252 each, plus at least the third first lien note of $252, such amount equalling 24 per cent, interest for the third year of the loan. Simply stated, the contract we have declared usurious is one which certainly undertakes to grant the creditor an option, contingent alone on the debtor’s default, to collect interest at the rate of 12 per cent, per annum for the first and second years of a loan, and at the rate of 24 per cent, per annum for the third year, which was the final year, at the creditor’s election.

The rule that the court will adopt the interpretation given by the parties to terms of a contract of doubtful meaning cannot be applied in this case; for, as stated by Mr. Williston: “If the meaning of the contract is plain, the acts of the parties cannot prove a construction contrary to the plain meaning.” 2 Williston on Contracts, § 623, p. 1207.

Our conclusion is that the words of this contract are so clear that the parties must have understood them as meaning that, .upon the debtor’s default to pay a second lien installment note, the debtor was to become liable, at the creditor’s option, for the payment of the principal of this loan, with compensation for detention thereof at a rate far in excess of 10 per cent, per annum. Abatement of unearned interest embodied in the second lien notes is not only not sanctioned, but is forbidden by the terms of the contract.

Speaking of Dugan v. Lewis, supra, the argument of Judge Nelson Phillips in behalf of the motion for rehearing states: “In a word, the view of the Court necessarily was that such a stipulation did not plainly evidence a purpose to exact, on the acceleration of the maturity, the whole amount of the interest regardless of whether it had been earned or not; and hence, a construction of that harshness — not'being the inevitable construction of the actual stipulation — was not to be indulged. Had the stipulation' made it clear that upon an acceleration of the maturity, the whole interest was to be collectible without reference to whether it had been earned, a different question would have been before the court.” In our opinion, this latter question is the one we have determined in this case; for we have a clear stipulation that, upon acceleration of the maturity, all of the interest secured by the second lien deed of trust, despite the fact that much of it is unearned, shall be due and payable. The stipulation plainly attempts to give the creditor a present right of action for all this interest, enforceable by trustee’s sale or under judicial foreclosure. Swanson v. Spencer, 177 Mo. App. 124, 163 S. W. 285, 286.

The Constitution expressly authorized the enactment of our statutes defining interest and providing penalties for usury. Section 11, art. 16, Constitution of 1876 and amendment adopted August 11, 1891. The precise question on which the Court of Civil Appeals and the Supreme Court differed in Parks v. Lubbock was whether a stipulation in a written contract requiring payment of an amount in excess of what would be provided by the highest conventional rate of interest, for the continued detention of money after maturity, was, under our statutes, a stipulation for a penalty or was, a provision for unlawful interest. The Court of Civil Appeals adopted the view, still strenuously .urged on this rehearing, that the stipulation must be regarded as merely imposing a penalty to enforce prompt payment, because the debtor’s obligation to pay any unlawful amount was contingent on his own default. 50 S. W. 466, 467. The Supreme Court adopted, and has since consistently adhered to, the contrary view, regarding the language of the statute as necessitating the conclusion that whatever the debtor was obligated to pay, after maturity of his obligation, in addition to principal, for nothing save borrowed money, and on no other contingency than his default in discharging his debt when due, was to be paid for the detention of the debt, and was usury, if in excess of the amount to be yielded by the highest conventional rate. Parks v. Lubbock, 92 Tex. 637, 638, 51 S. W. 322, 323; Galveston & H. Investment Co. v. Grymes, 94 Tex. 613-615, 63 S. W. 860, 64 S. W. 778; Shear Co. v. Hall (Tex. Com. App.) 235 S. W. 195-198. It follows that under our interpretation of the Shropshire contract as imposing on the debtors a liability, enforceable at the creditor’s option, for compensation in excess of the permissible maximum for the detention of the borrowed money, such contract was usurious.

The contract derives no validity from the fact that payment of the promised compensation, which exceeded the highest allowable conventional interest, was contingent on the creditor’s election to demand such excessive compensation. The fact that the contract stipulates for more interest than the law allows on a contingency involving no risk of principal and lawful interest condemns the contract. Once you treat the acceleration clause as obligating the debtors to pay more .than permissible conventional interest, instead of stipulating for a penalty, the invalidity of the contract is inevitable. This results from the rule declared by the New York Court of Appeals in words as follows: “If the contract provide for the payment of the loan with interest, at all events, it is enough to render it usurious, if in addition to the legal interest, it provide for the payment of excessive interest, upon a contingency. A stipulation even for a chance of advantage beyond legal interest, is illegal.” Leavitt v. DeLauny, 4 N. Y. 369.

Among English and American decisions supporting this conclusion may be cited': Barnard v. Young, 17 Vesey, 45; White v. Wright, 3 Barn. & Cress. 276; Smith v. Nicholas, 8 Leigh (35 Va.) 357, 361; Cleveland v. Loder & Draper, 7 Paige (N. Y.) 559; Browne v. Vredenburgh, 43 N. Y. 197.

The final contention of the motion for rehearing is that, though the contract exacts usury, yet no greater interest than 10 per cent, per annum has been paid by the debtors or received by the creditor. The contention rests on the premise that the term of the loan was ten years. The premise falls under the operation of the stipulation in the contract that the debtor’s failure to pay any of certain interest installments should entitle the creditor to collect the principal sum loaned with usury. The necessary result of the successful maintenance of this suit to adjudge the contract usurious was nonpayment of any future interest. By the stipulations of the contract, the term of the loan, at the creditor’s option, does not extend beyond the date of default in discharging any installment of interest. Eor the reduced term, which must now be looked to in determining the question of how much interest was promised or paid, the debtors promised and actually paid interest at a rate greater than 10 per cent, per annum. Under the stipulations of the contract, the creditor was, entitled to retain money paid as interest for* two years at the rate of 12 per cent, per an-num. Under those stipulations, the creditor was further entitled to the principal sum loaned and additional interest at 'a rate in excess of 12 per cent, per annum. Under such circumstances, the creditor has surely collected, and the debtor has actually paid, greater interest than 10 per cent, per annum, and the creditor became liable for the statutory penalty, for which judgment was entered in this court.

The Galveston Gourt of Civil Appeals decided that double any interest collected under a contract tainted with usury was collectible under article 3106 of the Revised Statutes of 1895, and the Supreme Court denied a writ of error. American Building & Savings Association v. Daugherty, 27 Tex. Civ. App. 430, 66 S. W. 131, 135. The conclusion in this case that a greater rate of interest than 10 per cent, per annum was actually paid 'by the debtors and received by the creditor renders it unnecessary for us to determine whether changes subsequently made in the wording of the statute require a different decision from that of the court at Galveston.

In obedience to the behest of the Constitution to provide appropriate penalties to prevent contracts for a greater rate of interest than 10 per cent, per annum, the Legislature has declared that all written contracts whatsoever whieh may in any way, directly or indirectly, provide for a greater rate of interest than 10 per cent, per annum, shall be usurious and void, and that the person paying such greater rate of interest may “recover double the amount of such interest from the person, firm or corporation receiving the-same.” Article 16, § 11, Constitution; articles 5069 to 5073, R. S. Under these constitutional and statutory provisions, the illegality is the same whether the contract for usury takes the form of a stipulation for lawful interest, becoming a stipulation for usurious interest through reduction of the original term of the loan and increase in that which may be exacted of the debtor, at the creditor’s option, on no other contingency than the debtor’s default; or whether the contract is in the form of a stipulation for interest in excess of 10 per cent, per annum for a specific term. Both contracts provide for usury.

Since the judgment entered herein enforces the Constitution and statutes, the motion for rehearing must be, and is, overruled.

PIERSON, J., not sitting.