PEOPLE OF PORTO RICO v. TITLE GUARANTY & SURETY CO(1913)
[227 U.S. 382, 383] Messrs. William Jessup Hand, Wolcott H. Pitkin, Jr., and Frank Feuille for plaintiff in error.
Messrs. Everett Warren, John G. Johnson, and Severo Mallet-Prevost for defendant in error.
Mr. Justice Holmes delivered the opinion of the court:
This is a suit upon a joint and several bond executed by the defendant in error as surety for the Vandegrift Construction Company. In the circuit court a nonsuit was ordered, and the order was affirmed by the circuit court of appeals on the ground that the plaintiff, by its own act, had made performance of the condition impossible. 103 C. C. A. 607, 180 Fed. 641. The facts are these:
By an ordinance of March, 1903, Porto Rico granted to the Vandegrift Company the right to build and operate an electric railway and also a power plant in specified places in the island. Within one year from acceptance of the grant the grantee was to have its roadbed completely graded between the island of San Juan and the urban portion of the municipality of Caguas, and the foundations and approaches of a certain bridge completed. 15. Within two years it was to have the parts of the railway lying between the urban portion of San Juan and Caguas and certain other points finished and ready for service. 16. Within three years it was to have the whole line completed and in operation. 17. It was stated to be expressly understood and agreed that upon the grantee's failure to have the line in full operation within the time limited, i. e., three years, the grantee's right to operate any part of it or to sell electric light and power should cease unless the failure should be declared by the executive council to be due to one of certain excuses, such as the act of God. 16.
A power dam at Comerio Falls was to be completed in one year and the greater part of the electric apparatus [227 U.S. 382, 384] contracted for; the whole power plant and transmission lines necessary for operating the railway to be completed within three years. 18. The grantee was to pay the government 2 per cent of its gross receipts from the sale of light and power to private consumers ( 23), was not to charge above certain maxima fixed for passengers and freight ( 25), and was to carry certain persons, such as prisoners and police on duty, free of charge ( 27, 28). The rights, privileges, and concessions granted by the ordinance were expressed to be subject to amendment, alteration, or repeal by the executive council. 30. Then it was provided that the rights granted 'shall be accepted by the grantee in writing and by executing a bond in favor of the People of Porto Rico, in the sum of $100,000, satisfactory, etc., . . . and conditioned upon the full completion of the work herein authorized within three years after such acceptance, and in accordance with the conditions herein contained, and in accordance with the plans and specifications therefor approved as herein provided; and conditioned also upon the payment by the grantee to the People of Porto Rico of any loss or damage or costs accruing against the People of Porto Rico, by reason of the construction of the works herein authorized, at any time during the period of construction herein limited,' etc. 34.
Upon presentation of a certificate of completion from the commissioner of the interior, 'and upon the full compliance with the terms of this ordinance to the satisfaction of the executive council, and upon the full payment by the grantee of any loss, damage, and costs accruing against the People of Porto Rico, as in said bond provided, the said bond shall be canceled.' 35. Finally, the ordinance is to 'take effect immediately upon the acceptance by the grantee of the terms and conditions hereof, as above provided.' 38. [227 U.S. 382, 385] The bond in suit was executed, referring to and annexing the ordinance, and conditioned, among other things, that the principal, within three years from the date of the acceptance by it of the ordinance, should fully complete the work 'in accordance with the conditions therein contained;' and again, that it should '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 said period.'
The whole condition of the bond was as follows:
In February, 1905, a further ordinance was passed, approved by the governor in March and by the President on May 12, which recited a failure by the company to comply with the terms of 15 and 18, either in their original form or as amended; and therefore repealed and revoked the grant, and declared all 'sureties or obligations . . . given by the said grantee as a guaranty . . . forfeited to the People of Porto Rico to all and whatsoever extent the same shall be liable under the law.' In September, 1906, this suit was begun.
The main question is the scope of the condition of the bond. The plaintiff says that it was for the due performance of all the terms required by the ordinance, and, since the bond was a contract made in Porto Rico, as no doubt it was, at least, as between these parties, that upon any breach of condition the whole penalty became due by the local law. Civil Code 1120, 1121. The circuit court of appeals, on the other hand, assumed that the bond was only for the result at the end of three years.
After some hesitation we have come to the conclusion that the court was right. It is true that the bond is to be read in connection with the original ordinance, and that the latter contained terms that were not complied with. But the ordinance only required a bond for the full completion of the work within three years, and in accordance with the conditions therein contained and the plans. 34. In the ordinance the only condition properly so called, the only fact that warranted a revocation of the grant apart from the general power to repeal, was, by 16, a failure to have the whole railway in operation, as required by 17. There was no forfeiture for falling short of the requirements in 15 and 16 as to the progress to be made in one and two years. The bond in like manner has for its principal condition the completion of the work within [227 U.S. 382, 388] three years. It is true that the completion was to be in accordance with the terms contained in the ordinance, but this clause cannot mean that if the road and works were in satisfactory operation within three years the obligee could recur to the history of events and, if it found that some item was not finished within the time allowed for it, could set up that fact as a breach, and, by its interpretation of Porto Rican law, recover the whole penalty of the bond. The subordinate requirements were simply means to an end; and if the end was reached, their importance disappeared. The very contentions of the plaintiff as to the liability incurred upon any breach are arguments against supposing that such incidental failures to be on time had such a consequence attached.
There is a further provision for the principal performing, '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 said period.' This, perhaps, affords the plaintiff its strongest argument. But this is a residuary clause to cover matters that may have escaped consideration. The building of the road and works already have been dealt with, and this clause as to 'other' terms hardly can be supposed to have reference to them. If it does, however, it would seem to us that the limitation of time should be construed as looking to the end of the three years, and allowing that period, rather than distributively, and as meaning from time to time during three years. The same considerations that apply to the construction of the principal condition apply to this, and it appears to us that the provision for the cancelation of the bond upon certificate showing the completion of the work, 'and upon the full compliance with the terms of this ordinance to the satisfaction of the executive council,' is not enough to change what we understand to be the import of the instrument upon its face. Finally, the proviso that no extension of the time or times limited for [227 U.S. 382, 389] the completion of the work 'or any part thereof' shall discharge the surety at most merely recognizes that the principal, by accepting the ordinance, contracted to do the parts of the work as required, as well as the whole, and with natural caution saves the rights of the obligee against the surety in case of any extension of time, a matter that obligees have learned to fear.
If our construction of the bond is right, it does not need much argument to show that the plaintiff is not entitled to recover, seeing that within three years it took the franchise back. It was said at the bar, though not admitted, that the principal had given up work. But there had been no repudiation of the contract, and the plaintiff could not accelerate the forfeiture simply on the ground that it was likely to come about. If, within the time allowed for performance, the plaintiff made performance impossible, it is unimaginable that any civilized system of law would allow it to recover upon the bond for a failure to perform. 2 Bl. Com. 340, 341; United States v. Arredondo, 6 Pet. 691, 745, 746, 8 L. ed. 547, 567, 568.