City of Kanopolis v. Mountain
| Decision Date | 05 March 1938 |
| Docket Number | 33574. |
| Citation | 147 Kan. 322,76 P.2d 803 |
| Parties | ClTY OF KANOPOLIS v. MOUNTAIN. [*] |
| Court | Kansas Supreme Court |
Syllabus by the Court.
Where municipal refunding bond intrusted by city to bond broker for registration was registered by broker and then delivered to defendant, who accepted it as security without notice of broker's want of title or authority to negotiate bond defendant was entitled to rely upon recitals in bond indicating proper execution and registration, as against contention that defendant was not entitled to privileges of an innocent holder because bond was not complete when intrusted to bond broker. Gen. St.1935, 52-215.
The Negotiable Instruments Act did not impair earlier decisions of the Supreme Court and of the United States Supreme Court relating to an innocent holder's right to rely upon recitals of a municipal bond. Gen.St.1935, 52-101 et seq.
That bond broker to whom municipal bonds were intrusted by city in order that he might have them registered, negotiated one of bonds to defendant as security without authority, after having it registered, did not impair defendant's status as a bona fide holder, where she did not obtain bond in bad faith or with knowledge that bond broker's title was defective.
1. In an action to recover or cancel a municipal refunding bond which the plaintiff city had intrusted to a bond broker who caused it to be registered by the state auditor, and converted it to his own use, and disposed of it to defendant who accepted it as partial security for a debt he owed her without notice of his want of title or want of authority to negotiate it, it is held that the adjudicated facts did not impair defendant's status as a bona fide holder; and held also that defendant was entitled to rely on the recitals of the bond touching the regularity of its execution and registration.
2. The Negotiable Instruments Act did not impair the earlier decisions of the United States Supreme Court nor of this court touching the binding force of the recitals of a municipal bond and of the right of an innocent holder to rely on them.
Appeal from District Court, Sedgwick County, Division No. 1; Ross McCormick, Judge.
Action by the City of Kanopolis, Kan., against Helen F. Mountain to recover or cancel a refunding bond of the city. Judgment for defendant, and plaintiff appeals.
Austin M. Cowan, C. A. McCorkle, W. A. Kahrs, Robert H. Nelson, and Henry L. Butler, all of Wichita, for appellant.
Earle W. Evans, Jos. G. Carey, W. F. Lilleston, George C Spradling, Henry V. Gott, George Stallwitz, and A. M. Buzzi, all of Wichita, for appellee.
The City of Kanopolis brought this action to recover or cancel a refunding bond of the city which it had entrusted to the custody of one R. E. Booth, Jr., a bond broker, who breached his trust and without right thereto delivered the bond to the defendant Helen F. Mountain as security for a debt he owed to her.
In 1933 the City of Kanopolis had an outstanding bond debt of some $25,000 which it determined to refund. There was no attorney resident in Kanopolis, and it had no regularly employed city attorney. To procure the services of an attorney, the city council adopted a resolution: "That the City Clerk be authorized to employ an attorney at as reasonable a figure as possible to take care of any and all legal matters pertaining to issuance of such bonds."
Pursuant thereto, V. E. Danner, of the law firm of Danner & Dulaney, of the nearby city of Ellsworth, was employed as attorney, and he set about the drafting of appropriate resolutions, ordinances, and publication notices pertinent to the refunding of the city's indebtedness. Shortly thereafter, one R. E. Booth, Jr., representing himself as a bond broker, came on the scene, and entered into a written agreement with the city to handle the bond issue, to negotiate with the holders of the outstanding bonds for their exchange for bonds of the refunding issue, and to provide for the printing, registration, and to pay all legal expenses pertaining thereto, and to provide a transcript of the proceedings and any other requisite details; the agreed compensation for these services to be 4 percent. of the total proposed refunding bond issue of $25,625. In making this agreement Booth had associated himself
with Danner and Dulaney; but whether this agreement was intended to supersede the contract of employment of Danner as city attorney is not clear. Neither is the question raised whether Danner's participation in the city's contract with Booth had the effect of terminating his special employment as city attorney for the city.
Be that as it may, the proper proceedings leading up to the point where the refunding bonds were ready for registration by the state auditor had all been transacted in due form. The new bonds were dated and serially numbered; some of them, including No. 25, were in denominations of $1,000 each, and all were signed by the mayor and city clerk; and the city clerk certified on each bond that it had been duly registered in his office.
At this stage of the proceedings the city clerk delivered the bonds to R. E. Booth, Jr., who took them to Topeka, presented them and the pertinent transcript to the state auditor, and that officer registered them, and on each bond he placed his official certificate reciting:
After such certification by the state auditor, Booth delivered one of the bonds, No. 25, for $1,000, to Helen F. Mountain, as partial security for a debt of $1,500 he owed her, which indebtedness had arisen because of Booth's conversion to his own use of some securities she had previously intrusted to him.
In this action plaintiff's petition alleged certain pertinent facts, and further alleged that when the bonds were delivered to Booth it was with instructions to deliver them to Attorney Danner at Ellsworth, so that Danner could take them to Topeka, together with a transcript of the proceedings, for presentation to the state auditor, and so that upon proper scrutiny and approval thereof that officer would register the bonds and certify thereto as the statute provides. Plaintiff further alleged that defendant knew or should have known that Booth did not own the bond in controversy and that he had no right to its possession; that defendant paid no consideration for it; that the bond was negotiable; and that she was threatening to transfer it to persons who might claim to be innocent purchasers for value without notice. Plaintiff's prayer was for the return of the bond or for its cancellation, or, in the alternative, for its value, and for an order restraining defendant from transferring or disposing of it.
The answer of the defendant admitted her possession of the bond and that it was negotiable, and that she had delivered to Booth certain securities of the value of $1,500 for the purpose of selling or exchanging them for others; that Booth had converted those securities to his own use, and had thereby become indebted to her for their value; and that Booth had sent his agent, one Dobbin, to her for the purpose of settling that indebtedness; and that Dobbin delivered to her the bond in controversy as collateral security; and that she had accepted it as such.
Defendant further alleged that the bond was valid on its face, signed by the mayor and clerk of the plaintiff city, and bore the seal of the city, and bore the certificate and seal of the state auditor, and that she had no information that Booth did not have good title to the bond at the time Dobbin, his agent, delivered it to her.
Plaintiff's verified reply denied that Dobbin was the agent of Booth and denied that Booth was the agent of plaintiff.
The cause was tried before a jury. The evidence took a wide range, and developed a controversy touching the purpose for which the bonds were intrusted to Booth, and revealed some inconsistency between the city's evidence in this case and its verified pleadings filed in a prior inconclusive lawsuit in replevin for the possession of the bonds of this same refunding issue, but it may not now be necessary to critically examine those incidents.
The jury returned a general verdict for defendant, and answered special questions thus:
Judgment was entered accordingly, and plaintiff appeals, making various contentions, the first of which is that the bond which defendant now holds was not a complete and valid instrument when it was intrusted to Booth, and in consequence defendant is not entitled to the privileges of an innocent holder.
This contention is essentially a challenge of the long-established rule of "estoppel by recitals" which has given credit...
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Cole v. City of Kanopolis
... ... E. Booth & Company of ... Wichita as its duly authorized agent for the purpose of sale ... and taking up the outstanding bonds of the original issue ... Booth embezzled some of the bonds. Litigation followed, which ... continued until the decision of City of Kanopolis v ... Mountain, 147 Kan. 322, 76 P.2d 803. In the meantime ... defendant, by several letters written by the city clerk, ... represented to plaintiffs in effect that when the litigation ... was completed proper arrangements would be made to take care ... of these bonds, and contained other statements designed ... ...
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