City of West University Place v. Pleasant

• Decision Date: 30 June 1937
• Docket Number: No. 8341.,8341.
• Citation: 90 F.2d 844
• Parties: CITY OF WEST UNIVERSITY PLACE v. PLEASANT.
• Court: U.S. Court of Appeals — Fifth Circuit

90 F.2d 844 (1937)

CITY OF WEST UNIVERSITY PLACE v. PLEASANT.

No. 8341.

Circuit Court of Appeals, Fifth Circuit.

May 19, 1937.

Rehearing Denied June 30, 1937.

Robert L. Sonfield and C. A. Leddy, both of Houston, Tex., for appellant.

W. H. Graham, of Houston, Tex., for appellee.

Before FOSTER, SIBLEY, and HUTCHESON, Circuit Judges.

SIBLEY, Circuit Judge.

The District Court, jury trial having been waived, gave judgment against City of West University Place, Tex., in favor of Ralph Pleasant as assignee of three warrants of the city for $1,000 each, together with interest, but denied a claim for attorney's fees. The evidence is not much conflicting, though vague in some points. The city, acting by its mayor and two commissioners, on October 9, 1929, passed a resolution to pave certain streets and entered into a written contract with Carl Pleasant, Inc., to do the work, to be paid for in the main by assessments on the abutting property, but to the extent of $40,000 by the city. To the original draft of the contract was made this addendum: "The contractor shall pay to J. H. Rafferty, the city's engineer, the sum of 5 per cent. of the total cost of improvements covered in this contract, the said sum to be paid out of the cash or time warrants paid by the City of West University Place to the contractor as follows: 2½ per cent. upon the acceptance of this contract, with the plans and specifications, the remaining 2½ per cent. as the several units are accepted and estimates allowed thereon, it being understood that the said sum of 5 per cent. is to be added to the cost of each unit and so set out in each approved estimate." On November 1, 1929, the said city officers in meeting approved the contract and provided for the issuing of time warrants to pay the city's part, laying a tax to meet them as required by the Constitution of Texas; and they also approved the engineer's estimate No. 1 in favor of the contractor, Carl Pleasant, Inc., for $10,698, expressed to be for "earned engineering fees upon completion and approval of plans and specifications, 2½ per cent." of the total improvements, $427,928, and they ordered warrants for $10,000 to be issued to the contractor on it. The warrants were issued and delivered to the contractor, who at once sold them for value to Ralph Pleasant, his brother, living in New Mexico. Carl Pleasant kept the proceeds. He died March 4, 1930. No work was ever done under the contract. The assessments were never made on abutting property. The engineer received nothing from the contractor, though he testifies the city paid him in a subsequent settlement. The city refused to honor the warrants held by Ralph Pleasant, asserting that it was without power to issue them; that the consideration for them had wholly failed; and that they were a part of a fraudulent scheme between the then city officials and Carl Pleasant to enrich themselves at the city's expense, the contract being for a grossly excessive sum and the engineer for whose services the particular warrants were given having done no more than $500 worth of work, besides having been settled with by the city. Ralph Pleasant contended in reply that he was the bona fide holder for value of the warrants, each of which contained a recital that the city owed the amount of its face and "that all acts, conditions and things required to be done precedent to and in the issuance of this warrant have been properly done, happened and performed in legal and due time, manner and form as required by law; and that the total indebtedness of said city including this warrant and the series of which it is one is within every debt and other constitutional and statutory limitation." The court held that Ralph Pleasant, having paid value in reliance on the recitals, must be protected.

The doctrine that a municipality or other governmental subdivision is estopped to deny recitals which its officers had authority to make and which were relied on by a purchaser of its paper, applies especially to negotiable bonds which are intended to circulate. A warrant, though payable at a future date and to the payee or assigns or bearer as these are, is not a negotiable instrument, but an order to the treasurer to pay a sum of money certified to be due on a stated account. The taker of such paper by assignment takes it subject to the infirmities of the transaction of which it is a part. There is no estoppel by its recital that the sum of money for which it is drawn is owing, if in fact it is not owing. In that case the city may and should countermand its order on its treasurer. The warrant is transferable and its recitals are prima facie correct, but are not conclusive. The law to this effect as to city warrants is fully stated in Mayor of Nashville v. Ray, 19 Wall. 468, 22 L. Ed. 164. In Wall v. Monroe County, 103 U. S. 74, 77, 26 L.Ed. 430, where an estoppel was expressly claimed, we read: "The warrants being in form negotiable, are transferable by delivery so far as to authorize the holder to demand payment of them and to maintain, in his own name, an action upon them. But they are not negotiable instruments in the sense of the law merchant. * * * The transferee takes them subject to all legal and equitable defences which existed to them in the hands of such payee. * * * All the courts agree that the instruments are mere prima facie and not conclusive evidence of the validity of the allowed claims against the county by which they were issued. The county is not estopped from questioning the legality of the claims." See, also, Claiborne County v. Brooks, 111 U.S. 400, 4 S.Ct. 489, 28 L.Ed. 470; District of Columbia v. Cornell, 130 U.S. 655, 9 S.Ct. 694, 32 L.Ed. 1041; Watson v. City of Huron (C.C.A.) 97 F. 449. The Texas decisions are to the same effect. Lasater v. Lopez (Tex.Civ.App.) 202 S.W. 1039; National Surety Co. v. State Trust & Savings Bank, 119 Tex. 353, 29 S.W.(2d) 1027; City of Edinburg v. Ellis (Tex.Com.App.) 59 S. W.(2d) 99; City of Dublin v. Thornton & Co. (Tex.Civ.App.) 60 S.W.(2d) 302. Cases from the Supreme Court of the United States cited as being to the contrary, County of Presidio v. Noel-Young Bond Co., 212 U.S. 58, 29 S.Ct. 237, 53 L. Ed. 402; Waite v. City of Santa Cruz, 184 U.S. 302, 22 S.Ct. 327, 46 L.Ed. 552; Gunnison County v. Rollins & Sons, 173 U.S. 255, 19 S.Ct. 390, 43 L.Ed. 689; Provident Life & Trust Co. v. County of Mercer, 170 U.S. 593, 18 S.Ct. 788, 42 L. Ed. 1156, and Chaffee County v. Potter, 142 U.S. 355, 12 S.Ct. 216, 35 L.Ed. 1040, each involved negotiable bonds which the law under special safeguards had permitted to be used as a basis of credit with the public. The present instruments, though rather elaborate and lengthy, call themselves warrants, and are so named in the ordinances authorizing them. They would be wholly invalid as bonds under the Texas...