Whitaker & Co. v. Grable

Decision Date20 February 1940
Docket NumberNo. 11583.,11583.
Citation109 F.2d 710
CourtU.S. Court of Appeals — Eighth Circuit

Parker Parker, of Dardanelle, Ark., for appellant.

Neill Bohlinger, of Dardanelle, Ark. (Harry Neelly, of Searcy, Ark., on the brief), for appellee.

Before WOODROUGH and THOMAS, Circuit Judges, and NORDBYE, District Judge.

WOODROUGH, Circuit Judge.

This suit was brought against Sewer Improvement District No. 1 of Dardanelle, Arkansas, by the holder of certain bonds issued by the District and secured by pledge of "all the uncollected assessments of the District." The bonds being in default, the plaintiff, pursuant to the terms of the pledge, obtained appointment of a receiver to enforce the pledge and by final decree the bondholder's lien was established and the receiver was ordered to apply the proceeds to the satisfaction of the bond indebtedness. Mr. Conn Grable, who holds certain certificates of indebtedness which were issued by the sewer district and were subsequently reduced to judgment against the District in the state court, intervened in the bondholder's suit and obtained a decree therein which accorded him a lien against the pledge then in the receiver's hands "on a parity with" the lien of the bondholders and which required the receiver to make distribution pro rata on the bonds and the certificates. The receipts are asserted to be inadequate for both, and the bondholder appeals, contesting the right of the holder of the certificates and judgment to any lien in parity with its lien against the security pledged by the District for the payment of the bonds.

Many points are raised against the procedure by which the decree in favor of the intervener was arrived at, but we direct our inquiry to the questioned sufficiency of the facts alleged by the intervener to justify the decree in his favor. It is undisputed that the bonds were lawfully issued to pay for the installation of the sewer system for the use of the inhabitants of the District and that the pledge executed in writing by the District to secure the payment of the bonds was in all respects in accord with the relevant statutes of Arkansas, Kirby's Digest, §§ 5664-5742, and that by its terms "All uncollected assessments levied by the ordinance of the town Council of the said town of Dardanelle (describing it) * * * together with all assessments that * * * may hereafter be levied upon the real property in said District * * * except the assessments for the first year" were by the District "pledged, assigned, transferred and set over" to a designated trustee to effectuate the pledge, and it was agreed that in proceedings to foreclose the pledge a receiver should be appointed to collect all of said assessments. The bonds bear date September 1, 1917, and on their face contain the promise of the District to pay the amounts named, refer to the law under which they are issued, recite that all conditions have been complied with and that the assessments are pledged for their payment, principal and interest.

On the other hand, the pleadings in intervention show that the certificates of indebtedness held by the intervener contain no analogous recitals. There are three certificates. The first was issued June 28, 1918, and recites that the District is indebted to the party named therein for services rendered and promises to pay him or order the sum of $400 on or before July 1, 1919, with interest at six per cent. On the face of the second, dated November 15, 1918, the District promises to pay the persons named or bearer, the sum of $661, with interest, on or before May 15, 1919, and recites that the obligation "is payable out of taxes heretofore levied by the District which are sufficient to meet said obligation at maturity". The third bears the same date and is payable on or before November 15, 1919. It is in form like the second, the amount payable on or before November 15, 1919, being $1,000. Comparison of dates discloses that the certificates were issued long after the plaintiff's bonds and pledge, and they contain no agreement by the District to pledge security for their payment.

When the intervener brought his suit on the certificates against the District in the state court, he alleged in his complaint as to the first certificate that it had been issued by the District "in order to carry out the purposes for which the defendant district was organized" without further indication of the consideration or origin. As to the other two, he alleged that the District had issued them "in order to pay a part of the cost of installing the sewer system constructed by the defendant district". On February 11, 1935, he obtained a judgment by default in the ordinary form of a money judgment in law actions, the writs of execution to be issued "upon application."

We are not persuaded that the mere issuance and delivery by the District of the three certificates of indebtedness gave to their holder any lien upon the property in the District or upon the assessment of benefits theretofore made against the property and pledged for the payment of the District's bonds.

In the argument to support the intervener's decree, it is pointed out that under Arkansas decisions "certificates of indebtedness," "notes", "warrants" and other evidences of debt issued by municipal subdivisions have under various circumstances been held to come under the same category as "bonds", and the holders have been accorded rights as creditors equal to the rights of creditors holding bonds. All of the decisions referred to have been carefully reviewed, but regardless of what the documents held by the intervener might be called, we fail to find in the cases any basis for his claim that the issuance and delivery thereof by the District gave rise to any lien in favor of the holder against any of the property in the District. They did not purport to do so, and we find no statute imputing such an effect. The cited statute, Kirby Digest, § 5720, provides: "The Sewer Improvement District1 board may borrow money not to exceed ninety per centum of the estimated cost of the work, at a rate * * * not exceeding ten per centum per annum, and may pledge all uncollected assessments for the repayment thereof." Act, March 22, 1881.

Although this statute empowers the Board to pledge assessments to secure money borrowed,2 it does not compel the Board to do so. It does not itself create any pledge or lien in favor of whoever advances...

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