City of Dublin v. H. B. Thornton & Co.

• Decision Date: 05 May 1933
• Docket Number: No. 1084.,1084.
• Citation: 60 S.W.2d 302
• Parties: CITY OF DUBLIN v. H. B. THORNTON & CO. et al.
• Court: Texas Court of Appeals

60 S.W.2d 302

CITY OF DUBLIN v. H. B. THORNTON & CO. et al.

No. 1084.

Court of Civil Appeals of Texas. Eastland.

May 5, 1933.

Appeal from District Court, Erath County; Sam M. Russell, Judge.

Suit by the City of Dublin against H. B. Thornton & Company and others and the First National Bank of Smithville. From a judgment in favor of defendant bank, plaintiff appeals.

Reversed and rendered.

Oxford & McMillan, of Stephenville, for appellant.

P. C. Maynard, of Bastrop, and Turner, Seaberry & Springer, of Eastland, for appellees.

FUNDERBURK, Justice.

The city or town of Dublin, a municipal corporation, chartered under the general laws, brought this suit against H. B. Thornton & Co., a firm composed of H. B. Thornton and A. O. Harper, and against the First National Bank of Smithville, to cancel a certain contract, and three warrants issued thereunder; said warrants having been subsequently transferred to the First National Bank of Smithville. On October 24, 1929, said city or town of Dublin, acting by and through its city council, entered into a written contract with said H. B. Thornton & Co., by the terms of which the latter undertook to compile all necessary information concerning property in said town assessed, unrendered or unknown, upon which delinquent taxes were due up to and including the year 1929, and to compile statement showing the amount of taxes, penalties, and interest due upon each such lot or tract of land, and to notify all interested parties as required by law, and wherever necessary to enforce the collection of any such tax, to prepare and file all tax petitions, and to aid the city attorney in prosecuting tax suits to final judgment and sale. By the contract H. B. Thornton & Co. were further obligated to compile and install a complete plat book system showing each tract, lot, block, or parcel of land in said town, with the description of same, so numbered as to show the contents of same, together with the record owner; to build a wall map of said town showing every tract, lot, block, or parcel of land, with lot and block number printed on the same, as well as the name of the record owner, and also showing streets, railroads, and other boundaries, as well as churches, parks, cemeteries, etc. The contract required said H. B. Thornton & Co. to employ all skilled help in said work and to furnish all necessary labor and stationery at their own expense, the final record to be turned over to the town of Dublin, and to become the permanent assessor's abstract record of said town.

In consideration of said services, the town of Dublin obligated itself to pay H. B. Thornton & Co. 25 per cent. of all delinquent taxes, penalty, and interest due said town of Dublin after $1,500 and court costs had been paid. Another provision of the contract was as follows: "As a consideration for making and installing said tax system in the town of Dublin the said town agrees and binds itself to pay to H. B. Thornton & Company $1,500.00, said payment to be made in warrants which shall be non-interest bearing, and state upon their face that they are payable only out of delinquent taxes, penalty and interest, when collected, and there is hereby set aside and appropriated $1,500.00 of the first collection of the said delinquent taxes, penalty and interest, after court costs have been paid, to pay same." The contract provided for the execution of a bond by H. B. Thornton & Co. in the sum of $5,000 to secure the faithful performance of the contract. Another provision of the contract was that the work called for should be begun within five days and prosecuted with all expediency. Still another provision of the contract was: "Upon approval of the bond called for by (?) the city council shall issue to H. B. Thornton & Company the $1,500.00 in warrants for the tax system to aid in the cost of supplies and labor." (Italics ours.)

The contract was modified in an unimportant particular by a subsequent agreement, but of the same date. A few days after the date it bears, the contract was finally executed, and the three warrants mentioned in the contract as compensation for preparing the plat book system, and bearing the date of the contract, were issued and delivered to said H. B. Thornton & Co. Each of said warrants referred to the order of the city council, which constituted the contract above described, and among other things recited: "This warrant is payable only out of a special fund called the `Delinquent Tax Fund,' which fund has been created by setting aside 25% of all delinquent taxes, penalty and interest collected for said town, and the first $1500.00 of delinquent taxes, penalty and interest, and the City Treasurer of the Town of Dublin is hereby authorized, ordered and directed to pay this warrant as and when there is sufficient money in the delinquent tax fund to pay same."

There also appeared in each of said warrants the following: "And it is hereby certified and recited that all acts, conditions and things required to be done precedent to and in the issuance of this warrant has been properly done and happened, and been performed in regular and due time, form and manner, as provided by law, and that the total indebtedness of said town, including this warrant, does not exceed any constitutional or statutory limitation."

Each of said warrants was endorsed on the back as follows: "Assignment. For value received we hereby sell and transfer the within warrant, together with all our interest in and all our rights under the said warrant, without recourse. [Signed] H. B. Thornton & Company, H. B. Thornton."

The evidence shows without dispute that about the 7th of November, 1929, and within two or three days after the warrants were delivered, the First National Bank of Smithville for a valuable consideration, purchased said warrants. This purchase was made after it had wired the Dublin National Bank as follows: "Advise us by wire without responsibility on your part the financial condition, general standing, ability and integrity of the management of the City of Dublin tax warrants maturing October 24th, 1930"—and had been advised in reply thereto that "City of Dublin tax warrants regarded good," and after having submitted to it a certificate signed by the mayor, secretary, and treasurer of the town of Dublin, of date the 5th day of November, 1929, to the effect that they had officially signed said delinquent tax warrants, and that "there is no litigation either pending or threatened, restraining or enjoining the issuance of said warrants, and none of the proceedings authorizing their issuance have been repealed. We further certify that there is no litigation pending or threatened affecting the creation of said town of Dublin or the boundaries thereof."

Plaintiff sought the cancellation of said contract and said warrants on the ground that H. B. Thornton & Co. had wholly failed to perform any of their obligations under the contract, but that, on the contrary, they had immediately abandoned the said contract, and that they had fraudulently promised to do the things called for in said contract, without intention of performing the same, as an inducement to the said town of Dublin to issue and deliver said three warrants.

The undisputed evidence shows that the contract was finally consummated and the warrants delivered at night, and that the same night Thornton, who was representing H. B. Thornton & Co., took the warrants and left town, and had never returned or done anything which the contract obligated them to do.

The First National Bank of Smithville, acting by a receiver, in its answer resisted the cancellation of the warrants as against said bank on the ground of estoppel, based upon the recitals in the warrants and also by reason of the said certificate of the city officials.

Thornton and Harper failed to answer or appear, and the trial court gave judgment against them canceling the contract, save only as necessary to protect the rights of the First National Bank of Smithville, and as to the latter sustained its plea of estoppel, and refused to cancel said warrants and that part of the contract necessary to support said warrants.

From the judgment in favor of the bank, the plaintiff has appealed.

The warrants in suit are nonnegotiable instruments. They are of the same nature and differ from negotiable bonds as the instruments considered in Lasater v. Lopez, 110 Tex. 179, 217 S. W. 373, 376. As said in that case: "such instruments are not intended to have the qualities of commercial paper and do not possess them." As regards the importance of the distinction from the standpoint of public policy, the court further said: "It would be disastrous to counties and municipalities to accord to instruments of such nature that attribute of negotiable bills which protects an innocent holder for value from defenses of which he has no notice."

The most important question presented by this appeal is whether or not the recitals contained in nonnegotiable warrants will estop the city from urging fraud of the original payees and/or failure of consideration to establish its nonliability to pay same as against a bona fide purchaser for value without notice thereof. For the purposes of this discussion we shall assume that, if the warrants were negotiable bonds, the estoppel would apply. If it applies to these warrants the same as to bonds, then we think it cannot be gainsaid that these recitals, consisting as they do of generalized phrases, have the effect to abolish for all practical purposes any distinction between negotiable bonds and nonnegotiable warrants. To give the recitals such effect would be to deny in principle the only ground upon which the warrants involved in Lasater v. Lopez, supra, were sustained as against the attack upon their validity; namely, that they were not authorized by an election as bonds were required to be. The question, it must be admitted, is not so well settled by the decisions as would be...