City of Erlanger v. Berkemeyer, 11656.

• Decision Date: 15 September 1953
• Docket Number: No. 11656.,11656.
• Citation: 207 F.2d 832,38 ALR 2d 918
• Parties: CITY OF ERLANGER v. BERKEMEYER et al.
• Court: U.S. Court of Appeals — Sixth Circuit

38 ALR 2d 918, 207 F.2d 832 (1953)

CITY OF ERLANGER v. BERKEMEYER et al.

No. 11656.

United States Court of Appeals Sixth Circuit.

May 11, 1953.

Rehearing Denied September 15, 1953.

COPYRIGHT MATERIAL OMITTED

Ralph P. Rich, Covington, Ky., and Ervin L. Bramlage, Cincinnati, Ohio, on the brief, for appellant.

Peck, Shaffer & Williams, Per Frank H. Shaffer, Jr., John Colville Taylor and Walter E. Beckjord, Cincinnati, Ohio, on the brief, for appellee, Weil, Roth & Irving.

William J. Deupree and William J. Deupree, Jr., Covington, Ky., on the brief, for appellee, John D. Exterkamp.

Before ALLEN, MARTIN and MILLER, Circuit Judges.

MILLER, Circuit Judge.

This action was brought by the appellee, Raymond J. Berkemeyer, to enforce collection of past due principal and interest, of certain sewer revenue bonds alleged to have been issued by the appellant, City of Erlanger, payment of which had been refused. The appellee, John D. Exterkamp, intervened as the holder of certain bonds of the same issue. Appellant contended that the bonds had not been legally issued. The District Court upheld the validity of the bonds, from which ruling this appeal was taken.

The Town of Erlanger, then a municipal corporation of the sixth class, but now a city of the fourth class under the name of City of Erlanger, after duly providing by ordinance for the improvement of certain streets by the construction of sanitary sewers under the provisions of §§ 2741L-1 to 2741L-43, Carroll's Ky. Statutes, 1936 Ed., adopted ordinance No. 583 on March 5, 1936, which was thereafter amended on May 13, 1936, for the purpose of defraying the cost of construction and erection of the sewer system. The ordinance provided that there should be issued bonds of said town in the principal amount of $150,000 bearing date of March 15, 1936, with each of said bonds in the denomination of $1,000, bearing interest at the rate of not to exceed 6% per annum payable semi-annually on the 15th of March and September of each year, commencing September 1, 1936, with $5,000 of the principal of said bonds maturing on the 15th of March for each year from 1939 through 1968. It further provided that there should be set aside from all revenue and receipts from the sanitary sewer system a certain amount each year in monthly installments to be paid into a sinking fund to be used for the payment of principal and interest. Pursuant to the ordinance, $150,000 face value of bonds were printed and executed by the Mayor and the Town Clerk of the Town of Erlanger.

The construction of the sewer system was being done by Coolsaet Brothers Corporation, contractor, under written contract approved by the Town Board on November 22, 1935. The contractor encountered financial difficulty with a resulting delay in the construction work, and an attempt was made to have the Board of Trustees deliver certain of the bonds to the contractor in payment on the contract obligation. The appellees, owner of the bonds involved in this litigation, contend that a resolution authorizing the delivery of the entire issue to the contractor was adopted by the Board on June 4, 1936, and that the bonds were so delivered in payment for his construction work. The appellant denies that any such resolution was ever adopted by the Board and contends that the delivery of the bonds to anyone was never authorized by the Board, and that in the absence of such an authorized delivery the bonds were not legally issued and never became legal obligations of the Town. This issue will be disposed of first.

At the trial the complainants and intervenor proved possession and non-payment of the past due bonds and interest coupons and rested their cases. The appellant introduced the minutes of the Board at its meeting on June 4, 1936, which did not disclose the passage of the ordinance relied upon by the appellees. It also introduced other evidence tending to show that no such ordinance was ever adopted. The appellees introduced what purported to be a typewritten copy of the ordinance of June 4, 1936, which had been delivered by the City Attorney of the Town of Erlanger to a firm of lawyers in Cincinnati, Ohio, which was passing on the validity of the bond issue, which copy was certified by the City Attorney as a true and correct copy of the ordinance passed by the Board on June 4, 1936. The District Court received in evidence over objection of the appellant, this purported copy of the ordinance, and held that pursuant to said ordinance all of the bonds had been legally delivered by officials of the Town of Erlanger in good faith and for value to the President of the Coolsaet Corporation, and that the bonds were enforceable obligations in the hands of the present holders. The appellant contends that under the settled law of Kentucky such evidence was not competent, and that the appellees failed to prove the passage of an ordinance providing for the delivery of the bonds, which was necessary for their validity.

We are of the opinion that the evidence was improperly received by the District Court. It appears to be the well settled rule in Kentucky that a city council can speak only by its records and that when the record is produced, parol evidence is inadmissible to supply omissions or to contradict its provisions. Dunn v. City of Cadiz, 140 Ky. 217, 130 S.W. 1089; Spalding v. City of Lebanon, 156 Ky. 37, 160 S.W. 751, 49 L.R.A.,N.S., 387; City of Highland Park v. Reker, 173 Ky. 206, 190 S.W. 706; Baker v. Kelly, 226 Ky. 1, 4, 10 S.W.2d 467. See City of Evarts v. Fuller, 261 Ky. 47, 49, 86 S.W.2d 1058; Fidelity & Deposit Company of Maryland v. Commonwealth, for Use of City of Jackson, 252 Ky. 476, 479, 67 S.W.2d 719; Dance v. Board of Education, 296 Ky. 67, 69, 176 S.W.2d 90. The facts in Baker v. Kelly, supra, are somewhat similar to those in the present case, in that in that case there was offered in evidence an attested copy of the proceedings of the City Council which the City Clerk had delivered to an attorney who was testing the validity of the bonds. The evidence was held incompetent, the Court pointing out that the attestation of the copy by the City Clerk was not the proper certification required by the statute to make such records admissible in evidence. Likewise in the present case, the certification by the City Attorney is not authorized by statute and does not make the copy admissible in evidence as a properly certified copy under § 422.020 (3) or § 86.100(2) Ky. Revised Statutes.

The District Judge was of the view that the record of the resolution calling for the delivery of the bonds to the contractor had in some manner disappeared from the records and the books of the Town of Erlanger, and that secondary evidence was admissible to supply the lost record. Appellees rely upon the rule to that effect, which appears to be well recognized in Kentucky. Eversole v. Baker, 217 Ky. 15, 20, 288 S.W. 758; Commonwealth ex rel. Love v. Reynolds, 284 Ky. 809, 814-816, 146 S.W.2d 41; Kissel-Skiles Co. v. Neff, 232 Ky. 825, 834, 24 S.W.2d 588; Belcher's Adm'r v. Belcher, 55 S.W. 693, 21 Ky.Law Rep. 1460. The rule in such cases is applicable to a situation where the record itself has been lost or destroyed and such lost record is reproduced in its entirety under the well accepted best evidence rule. In the present case, the record of the proceedings of the Board was not lost or destroyed, but on the contrary was available, and appellees' efforts were an attempt to contradict or vary the written record rather than an attempt to reproduce it.

Irrespective of any failure to prove an authorized delivery of the bonds to Coolsaet Brothers, appellees contend that the bonds were negotiable in character and in the hands of a holder in due course are enforceable against the City. Appellant contends that the bonds were not negotiable in character, and that even if negotiable in character the defense of illegality in their issuance can be maintained against the appellees.

Under the Negotiable Instrument Act, an instrument to be negotiable must contain an unconditional promise or order to pay a sum certain in money. An order or promise to pay out of a particular fund is not unconditional. §§ 3720b-1, 3720b-3, Carroll's Ky.Statutes, 1936 Ed., which were the statutory provisions in effect in 1936. The bonds, which were payable only from revenue derived from the sewer system did not qualify as negotiable instruments under these sections of the statute. See Pulaski County v. Ben Hur Life Association, 286 Ky. 119, 125-126, 149 S.W.2d 738. However, irrespective of such a conditional promise to pay, the Legislature can provide that such instruments be negotiable in character. Hunter v. City of Louisville, 208 Ky. 326, 270 S.W. 841; Pulaski County v. Ben Hur Life Association, supra, 286 Ky. at pages 130-131, 149 S.W.2d at pages 743, 744. Section 2741L-5, Carroll's Ky.Statutes, 1936 Ed., which authorizes a city of the sixth class to establish a sewer system and to issue bonds for the purpose of defraying the cost, provides "Any and all such bonds shall have and are hereby declared to have in the hands of bona fide holders all of the qualities of negotiable instruments under the law merchant, and shall not be subject to taxation. * * *" The bonds referred on their face to this Act of the Legislature. Appellant contends that the proper construction of this statutory provision is not that the bonds are negotiable instruments, but that they have the qualities of negotiable instruments "in the hands of bona fide holders", and that with respect to the bonds and coupons involved in this litigation, the present holders, who acquired them after maturity or without consideration, are not bona fide holders, even though they may have acquired them from one who was a bona fide holder. Bank of Willard v. Pennsylvania & Kentucky Fire Brick Co., 175 Ky. 192, 194 S.W. 110, L.R.A.1918E, 165. Such a construction fails to give effect to another section of the...