City of Southport v. Williams

• Decision Date: 02 June 1923
• Citation: 290 F. 488
• Parties: CITY OF SOUTHPORT v. WILLIAMS et al.
• Court: U.S. Court of Appeals — Fourth Circuit

290 F. 488

CITY OF SOUTHPORT v. WILLIAMS et al.

United States District Court, E.D. North Carolina.

June 2, 1923

R. W Davis, of Southport, N.C., and E. K. Bryan, of Wilmington N.C., for plaintiff.

H. E Rodgers, of Wilmington, N.C., and Irvin B. Tucker, U.S Atty., of Whiteville, N.C., for defendant Williams.

Ruark & Campbell, of Wilmington, N.C., for defendant Little.

Rountree & Carr, of Wilmington, N.C., for defendants Underwood and Brooks.

Herbert McClammy, of Wilmington, N.C., for defendant Cooper.

CONNOR District Judge.

The bill, answers, and evidence disclose the following case:

The city of Southport, N.C., is a municipal corporation, having the powers conferred upon cities and towns, and authority, by compliance with the provisions of its charter and the statutes of North Carolina, to issue bonds for the purpose of constructing waterworks, sewerage, and other necessary public utilities. Pursuant to the provisions of the Municipal Finance Act (Consol. Statutes, Sec. 2950; Pub. Acts Extra Session, 1921, chapter 106, Sec. 1), an issue of municipal bonds, to the amount of $40,000, for the purpose of providing funds to construct a system of waterworks and sewerage, was made by the board of commissioners of Southport. Following an advertisement, inviting bids for the bonds, a meeting of the board of aldermen was held on December 21st, at which, a majority of the members of the board being present, Thomas E. Cooper, president of the Liberty Bank of Wilmington, submitted a bid for said bonds, by letter, as follows:

'Wilmington, December 20, 1922.

'Mr. T. B. Carr, Mayor, City of Southport, Southport, N.C.-- Dear Sir: This confirms our verbal agreement with reference to the purchase of $40,000 5 1/2 per cent city of Southport bonds. We are to take the bonds and pay you par, with accrued interest, with the understanding that the funds will be left with us, without interest, up to March 1, 1923, and at that time you will be at liberty to check whatever amounts are needed to pay city of Southport bills, subject to the balance not being reduced to an amount less than $15,000. The $15,000 in question is to be left with us, not subject to check, for a period of 12 months, without interest. We believe the above covers the agreement, and, if this is correct, we will thank you to kindly acknowledge receipt and confirm the above agreement.

'Very truly yours,

Thomas E. Cooper, President.'

Alderman Thompson not being present, the mayor stated that Thompson had phoned him that the Murchison National Bank had the offer of a New York bond buyer to submit, and that Caldwell & Co., of Birmingham, had indicated that they wished to submit an offer by wire. For the purpose of having full information and obtaining as much as possible for the bonds, the board took a recess until Friday, December 22d, at which time the bids made by Cooper and Prudden & Co. on December 21st, being the only bids made, were rejected. Caldwell & Co. submitted a bill for the bonds at par, with accrued interest, and a premium of $50. Thomas E. Cooper was notified, over the phone, of this bid, whereupon he phoned to the mayor, 'in substitution of offer heretofore rejected,' an offer for 'said bonds for the Liberty Bank at par, 5 1/2 per cent. accrued interest, with a premium of $60. ' This offer was accepted by the board. Mayor Thomas B. Carr and the clerk were ordered 'to execute and deliver said bonds on payment of purchase price, to wit, $40,000, accrued interest at 5 1/2 per cent, and $60 premium. ' The following order was thereupon made and entered on the minutes of the board:

'It having been made to appear that the improvement for which the said bonds were issued is being carried on in a satisfactory manner, and that payment for said improvements will not be required until same is completed, and it being made to appear that $25,000 will be required not earlier than March 1, 1923, and that the remaining $15,000 will not be necessary to be used earlier than 10 months thereafter, C. L. Bell made (a) motion that the said $40,000 be deposited in the Liberty Savings Bank, Wilmington, N.C., to be checked out as follows, to wit: $25,000 not earlier than March 1, 1923, and that the remaining $15,000 be checked out on said bank after the expiration of 10 months thereafter, and that the Liberty Savings Bank be required to execute a good, solvent bond of $40,000, same to be approved by the city attorney, Mayor T. B. Carr, J. W. Thompson, and C. L. Bell.'

The mayor and treasurer were authorized to execute and deliver the bonds to the Liberty Bank upon its compliance with its bid and the resolution adopted by the board. On December 28, 1923, the committee, and the mayor, clerk, treasurer, and city attorney met in the city hall in Southport. J. C. Rourk, cashier of the Liberty Savings Bank, was present, 'presumably to close up this deal. ' He was asked 'if he had the money to pay for the bonds. ' The city attorney told him that he must have the cash or its equivalent. He said he 'didn't have either, but would get in touch with Mr. Cooper, and get the money or its equivalent down on the boat next day.'

The committee adjourned to the next day, December 29th, at 1 o'clock. Rourk was present and said he was 'ready to close up the deal'; said he could give checks. He had blank checks on the Commercial Bank, and was prepared to give certificates of deposit for the checks, when indorsed to the Liberty Bank. He had three blank checks on the Commercial Bank, which he proceeded to fill out--one for $40,000, and one for $134 and some odd cents for accrued interest, and one for $60. The city treasurer, by direction of Rourk, indorsed the checks for deposit to the credit of the city of Southport in the Liberty Savings Bank of Wilmington, whereupon Rourk issued two certificates of deposit, one for $25,000, and one for $15,000, payable to the city of Southport, without interest. The bonds were thereupon delivered to Rourk. This was about 2:15 o'clock p.m. He left Southport on the boat at 2:30, taking the bonds and the checks which he had given, for deposit, and returned to Wilmington. It takes 'around two hours and a half' for the boat to reach Wilmington. The committee accepted the bond, signed by defendants Cooper, Rourk, Underwood, and Brooks. Before the bonds were delivered, the city attorney asked Rourk in regard to the condition of the Liberty Savings Bank. He said: 'It was all right; good; doing fine.'

Rourk requested that the opinion of an attorney be asked, by wire, as to the validity of the bonds. The city attorney said that was his business; he would attend to it. Rourk was asked, before the transaction was closed, if he could not wait until the next day, because Mr. Thompson, a member of the committee appointed to approve the bond, was out of town. He said he could not possibly do it, because--

'Mr. Cooper had to go to Raleigh that night, and there would be nobody left in the Liberty Bank, but a lady. He said they had sold, or engaged, these bonds to the members of the Christmas Club.'

On the night of December 22d, while the board of aldermen was in session, the city attorney called Thomas E. Cooper, president of the Liberty Bank, over the phone, telling him of Caldwell & Co.'s bid. Cooper said that he would 'raise the bid $10 to get the chance to buy the bonds. ' It appears that the boat on which Rourk came from Southport reached Wilmington about 5 o'clock p.m.

Thomas E. Cooper was, and had been for some time prior to December 21, 1922, president of both banks. H. C. Cooper was cashier of the Commercial National Bank. Thomas Folger, national bank examiner, reached Wilmington, N.C., on December 21, 1922, for the purpose of making an investigation of the financial condition of the Commercial National Bank. He was, with the aid of an assistant, engaged in such investigation until December 29, 1922. During the afternoon of that day he wired the Comptroller at Washington, advising that the bank be closed, and at about 6 o'clock of the same day received direction to close the bank, which he did at 8:30 on the morning of December 30, 1922.

It appears by the books of the bank that on December 29th the Liberty Savings Bank deposited in the Commercial National Bank a draft, dated December 28th, drawn by J. C. Rourk, cashier, on Caldwell & Co., Nashville, Tenn., payable to the Commercial National Bank, for $40,000, to which was attached the bonds received by Rourk at Southport, at 2:30 o'clock on that day. The deposit check contained, in addition to said draft, which is the first item listed, 14 other items, aggregating, with said draft, $41,268.21. On the same day Rourk, cashier, drew a check on the Commercial National Bank, payable to Caldwell & Co., for $800. The draft of $40,000, with the bonds attached, was forwarded by the Commercial National Bank, on December 29th, for collection, to the Bank of Tennessee at Nashville.

The deposit was, on December 29th, credited to the Liberty Savings Bank on the general ledger. The books show that, at the time the credit was entered, the account of the Liberty Savings bank on the general ledger was overdrawn $10,401.37. Immediately following the credit item, the account contains an entry charging the Liberty Bank 'special account $20,000,' resulting in a balance to credit of Liberty Bank of $9,042.66. On December 23, 1922, the overdraft of the Liberty Bank was $2,713.16, which increased until December 29th to $10,401.37.

The check for $40,000, given by Rourk, cashier, to the treasurer of Southport, and immediately indorsed to the Liberty Bank was never presented for payment. On December 30, 1922, the city attorney of Southport, learning that the Commercial Bank had been closed, wired the bonding...