Canal Company v. Gordon,
73 U.S. 561 (1867)

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U.S. Supreme Court

Canal Company v. Gordon, 73 U.S. 6 Wall. 561 561 (1867)

Canal Company v. Gordon

73 U.S. (6 Wall.) 561


1. The jurisdiction of a court of equity invoked to enforce a statutory lien rests upon the statute, and can extend no further.

2. Exceptions to the report of a master in chancery cannot be taken for the first time in this Court.

3. In a contract to make and complete a structure, with agreements for monthly payments, a failure to make a payment at the time specified is a breach which justifies the abandonment of the work, and entitles the contractor to recover a reasonable compensation for the work actually performed. And this, notwithstanding a clause in the contract providing for the rate of interest which the deferred payment shall bear in case of failure.

4. Where a release is fraudulently obtained from one of two joint contractors, the releasing contractor is not an indispensable party to a bill filed by his co-contractor against the other party to the contract.

5. Such a release so fraudulently obtained, does not operate to invalidate the lien previously secured.

6. A statute of California gives to mechanics a lien upon the flumes or aqueducts "which they may have constructed or repaired," provided suit be brought " within one year after the work is done." A canal company, having a, part of a canal already made which they could use at certain times of the year, but to use which at all times and with complete effect, it was necessary to extend to a river giving a full supply of water, employed two contractors to make this extension or new canal. The work was to be paid for in monthly installments. A failure to make the monthly payment occurred June 7, 1853. On the same day, the contractors gave notice that the "contract was annulled and at an end,"

Page 73 U. S. 562

and they "no longer parties to it," but to prevent injury to the company, stated that they would continue to work for another week, leaving the subject of payment to the company's honor, when, unless a satisfactory arrangement was made, they would discontinue work. On the 13th, no notice being taken of this letter, they again addressed the company, saying that, receiving no reply, they withdrew their former offer and all the note, except that part which declared the contract ended. On this case,


i. That the lien was filed within the year.

ii. That it affected only the extension or new canal.

A statute of California gives to all persons performing labor or furnishing materials for the construction or repairs of any building a lien, jointly, upon the building which they may have constructed or repaired, or for which they may have furnished materials, to the extent of the labor done, or materials furnished, or both. And a subsequent statute extends the previous one so as to include in its provisions ditches, flumes, or aqueducts, constructed to create hydraulic power, or for mining purposes. It is provided, however,

"that no lien shall continue for a longer period than one year after the work is done or materials furnished, unless suit be brought in a proper court to enforce the same within that time."

With this statute in force, the South Fork Canal Company was desirous of having -- for those purposes of mining to which in California water conduits contribute aid -- a canal or flume from a grand reservoir near Placerville to the south fork of the American River, a distance of about twenty-five miles. Beginning at the Placerville end, and making the canal in the direction purposed, they had, after they had made it about half way, a canal, which they used with a certain advantage. But by itself, this part -- a part between Placerville and Long Canon -- had no supply of water for more than two or three months in the year, and these were winter months. Then certain mountain streams fed it. Extended to the American River, the supply of water it was

Page 73 U. S. 563

expected would be both increased and be constant. The Company accordingly, in March, 1853, entered into a contract with two persons, named Gorden & Kinyon, for an extension of the work from the point where the already mentioned part ended, to the river to which they thought that it was desirable to bring it. This new part was divided into sections designated as sections 17 to 25.

By the terms of the contract it was stipulated that the work should be completed by July 1, 1853. It was to be paid for monthly, however, in a way specified, as the work progressed, it being provided at the same time, that if any money due should not be paid when due, such amounts should bear interest at current rates till paid.

Under the contract Gordon & Kinyon worked till the 7th day of June, 1853, at which time, on estimate taken according to the terms of the contract, they were entitled for work done in May, to about $20,000. The money not being paid, they on that day -- the date is important -- gave the company notice by which, after stating that punctuality on the company's part in making its promised payments was indispensable to their (Gordon & Kinyon's) being able to pay the numerous men whom they had at work, and that they thus acted in order to avoid embarrassment and discredit to themselves, they declared the contract "annulled and at an end," and they themselves "no longer parties to it." Expressing, however, in strong terms their obligations to the officers of the company for their personal kindness, expressing also the great interest which they themselves felt in the "noble enterprise" which they had been directing, and "pride in the contract from the very difficulty of its execution and its importance relatively to the whole work," they added in a form "strictly confidential," and, as they said, for the purpose of allowing the company to make other arrangements without interrupting the work, that they would, for six days longer from the date of the note (June 7th), continue the work undertaken by them, at their own risk, and should "not ask pay beyond this date unless the company choose from their own sense of honor to pay." They added, that at the

Page 73 U. S. 564

end of the six days they would discontinue work unless a new and secure financial arrangement should be made, one either satisfactory to themselves or such as two of their own directors named would pronounce to be proper.

Receiving no reply to this letter, they wrote the company on the evening of the 13th of June that no action having been taken on the letter, nor answer given to it, and the six days having elapsed at 4 P.M. of the then 13th of June, they withdrew the whole of the former note -- as they said that it was competent for them to do (the offers having been voluntary) -- except that part of it which declared the contract broken, annulled, and ended.

On the next day Gordon informed the company in writing that Kinyon was only interested in the contract to the extent of one-third of the profits, and on the 21st of June, he and Kinyon filed a notice of their claim of a lien on "the works known as the South Fork Canal" for the amount which they claimed. A day or two after the delivery to the company of the note of the 7th, the amount due on the May estimate was tendered to Kinyon, who declined to accept it.

On the 23d of June, Gordon & Kinyon brought suit against the company, for the purpose of enforcing their lien.

A few days afterwards -- that is to say, on the 28th -- the directors, in their office at Placerville, Gordon being in the City of San Francisco, took from Kinyon a release, executed in the name of Gordon & Kinyon, of all claims against the company. The consideration paid Kinyon for this release was $2,000 in money, and $3,000 in the company's stock, estimated at par. The certificates for this stock were made out in the name of Kinyon's wife. The whole of this transaction was concealed from Gordon by Kinyon, who immediately after it proceeded to San Francisco, whence by the next steamer he fled the country.

On the 12th of June of the following year (1854), Gordon -- having discontinued the suit already brought -- filed a bill in the court, setting forth the contract, and the facts of the case, as above given, alleging that the contract had been broken by the company's failure to pay, that the work had

Page 73 U. S. 565

been done to the amount of $84,000, that the release was fraudulent, and praying that the release might be disregarded, and the South Canal sold to satisfy his lien. An interlocutory decree being made in his favor, and the matter referred to a master, who reported $76,589 due (less $6,200 credits) on the contract for work done on the canal, and $16,250 for work preliminary to it, such as roads, saw mills, timber slides, and such like things, which assisted in and were indispensable to accomplish the main work. No exceptions being filed, the report was confirmed, and a decree made for the amount reported, less the credits and less the $16,250 for preliminary work, this being held by the court not a lien under the statute. And the lien was decreed to extend to the whole canal, and the whole was directed to be sold to satisfy it.

As respected the relation of the two parts of the canal, testimony in the case, it may be mentioned, stated that both parts were "parts of the same work, and each necessary to the other," that to disconnect the two would lessen their value greatly, the work being worth "very little -- valueless" -- without the extension to the American River.

It was from this decree that the present appeal, one by the company alone, came.

Page 73 U. S. 567

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