Appeal from the District Court of the United States for the Western District of Pennsylvania; Robert M. Gibson, Judge.
Before BIGGS, GOODRICH, and McLAUGHLIN, Circuit Judges.
McLAUGHLIN, Circuit Judge.
In this case the County of Allegheny, Pennsylvania, sued Maryland Casualty Company, as surety for the Poole Engineering and Machine Company, on claims arising out of the alleged breach by the Poole Company of its contract for the delivery of eleven hundred voting machines to the County. The action was originally commenced in the State Court and removed to the United States District Court because of diversity of citizenship which is the basis of the federal jurisdiction. Testimony for the County indicated damages in excess of $850,000. There was a jury verdict in the District Court of $200,000 (the extent of the bond plus interest) in favor of the plaintiff. Thereafter the trial judge set the verdict aside with judgment entered for the defendant. Defendant was allowed a new trial conditionally on other grounds. This appeal is by the plaintiff from the judgment in favor of the defendant.
The bond in suit and the sales contract on which it is based, were entered into on March 26, 1931. The machines were all delivered to and accepted by the plaintiff and the purchase price was paid in full. The amended complaint alleged that the contract implied a warranty of fitness of the machines for public use at the polls by the electorate of Allegheny County. Breaches of express warranties of the contract were also asserted. Breach was also alleged of the so-called five year promise in the contract whereby defendant agreed at its own expense to make such " * * * alterations, repairs, replacements, etc., in accordance with the specifications." By Paragraph 12 of the Specifications, the contractor, for a period of five years, without cost to the County, engaged to make good "by repair or replacement, any imperfections or defects in the material, mechanism or workmanship in any and all machines purchased, provided said machine shall be properly cared for, etc.* * * " The complaint further stated that the defects in the material, mechanism, workmanship, design and construction of the machines, "were inherent and latent in said machines when they were delivered and accepted and were of such character as not to be then apparent to or discoverable by plaintiff but could and did only become known to plaintiff by and through use of the machines in service and by and through an extended process of experimental tests of and changes in the materials, construction and mechanism of the various operating parts and assemblies of said machines which their said use suggested, indicated and disclosed to be necessary."
The answer denied breach of the contract. It set up res adjudicata as an affirmative defense, alleging that the matters complained of had all been concluded in a certain taxpayer's suit of Bassett et al. v. The Commissioners, Controller and Treasurer of the County of Allegheny and the Poole Company. In its reply to that defense the County plaintiff denied: that it was a party defendant, either nominal or real, in the Bassett action; that any relief was sought against it in said action; that the Bassett case was tried on its merits; that any of the County's rights because "of the alleged latent character of the alleged defects in the machines had matured when said suit in equity was instituted, pleaded, tried and determined and none of said rights of plaintiff were involved in any way in said suit in equity." Specifically and generally the plaintiff denied that the Bassett litigation was in any way determinative of its claim in the instant action.
At the trial below, the record in the Bassett case was admitted in evidence over plaintiff's objection and went to the jury. Testimony on behalf of the plaintiff tended to show that there were various defects in the machines and that those defects were latent and not known to plaintiff until after the conclusion of the Bassett litigation.
Following the verdict in favor of the plaintiff, the defendant made an alternative motion for a new trial. The trial judge, after argument, held: "Being of opinion that the defendant, in privity with the Poole Company, was entitled to rely upon the judgment in favor of Poole in Bassett v. Armstrong, supra, the Court will enter judgment in its favor notwithstanding the verdict." The Court then made an order setting the verdict aside with judgment to be entered in favor of the defendant. Later the Court set that order aside and made two new orders, one, allowing a new trial to the defendant " * * * alternative to its motion for judgment granted as of even date hereof * * * " and the second, setting aside plaintiff's verdict and directing that judgment be entered for the defendant. Plaintiff appealed to this Court from the latter order. The record as it then stood did not disclose a final judgment. For this reason we dismissed the appeal saying [132 F.2d 894, 897]:
"We realize that the district court may well have intended that its new trial order should not be effective so long as the judgment for the defendant n.o.v. remained in effect and that it inadvertently omitted the condition from the order. If this is so it would seem that the court might still vacate or condition its grant of a new trial and thereupon reinstate the judgment for the defendant which then would become a final judgment appealable under Sec. 128 of the Judicial Code, 28 U.S.C.A. § 225."
Thereafter the Trial Court made a new order in line with our suggestion.*fn1 It is from the judgment entered in favor of the defendant on that order, that this appeal was taken. The important question is whether defendant as surety for performance by the contractor Poole Company, was entitled to rely upon the judgment in favor of Poole in the Bassett case. It is not disputed that the Pennsylvania law as to res adjudicata controls.
In the Bassett suit, a taxpayer's bill in equity was filed in the Pennsylvania Court of Common Pleas for Allegheny County. The defendants were: "Joseph G. Armstrong, E. V. Babcock, and Charles C. McGovern, County Commissioners of the County of Allegheny; Robert G. Woodside, Controller of the County of Allegheny, John Francies, Treasurer of the County of Allegheny and Poole Engineering and Machine Company, a corporation." The bill sought to enjoin payment to Poole of the unpaid balance of the purchase price of voting machines sold by the Poole Company to Allegheny County. It was tried before a Common Pleas Judge sitting as Chancellor who, after hearing the complainant's evidence, dismissed the bill.In his opinion Judge Patterson as Chancellor, said:
"Plaintiff having rested, defendant, the Poole Engineering and Machine Company, has moved to dismiss the bill. We are of opinion that the case alleged in the bill has not been sustained by the evidence and that a decree of dismissal must be entered."
An order was entered dismissing the bill on motion of the defendants December 29, 1941. Prior to the matter coming on before the Court en banc on plaintiffs' exceptions, Poole, the contractor, instituted mandamus proceedings against the County for payment of the balance due under the contract. As a result of these, payment was made before the exceptions were heard. The Court thereafter, in disposing of the case, said in its opinion, also by Judge Patterson,
"Meanwhile, upon petition of the Poole Engineering & Machine Company, a writ of peremptory mandamus was granted, directing the County Commissioners to pay to the petitioner in that case the balance claimed to be due on the voting machines. Pursuant to the ...