Farmers State Bank and Trust Co. of Hays, Kan. v. City of Yates Center

• Decision Date: 28 February 1981
• Docket Number: No. 52283,52283
• Citation: 229 Kan. 330,624 P.2d 971
• Parties: FARMERS STATE BANK AND TRUST COMPANY OF HAYS, KANSAS, Appellee, v. The CITY OF YATES CENTER, Kansas, Appellant; First National Bank and Trust Company, El Dorado, Kansas, Appellee; Union National Bank, Wichita, Kansas, Appellee. FIRST NATIONAL BANK AND TRUST COMPANY, Appellee, v. The CITY OF YATES CENTER, Kansas, a Body Politic, Appellant; Farmers State Bank and Trust Company of Hays, Kansas, Appellee; Union National Bank, Wichita, Kansas, Appellee.
• Court: Kansas Supreme Court

Page 971

624 P.2d 971

229 Kan. 330

FARMERS STATE BANK AND TRUST COMPANY OF HAYS, KANSAS, Appellee, v. The CITY OF YATES CENTER, Kansas, Appellant;

First National Bank and Trust Company, El Dorado, Kansas, Appellee;

Union National Bank, Wichita, Kansas, Appellee.

FIRST NATIONAL BANK AND TRUST COMPANY, Appellee, v. The CITY OF YATES CENTER, Kansas, a Body Politic, Appellant;

Farmers State Bank and Trust Company of Hays, Kansas, Appellee;

Union National Bank, Wichita, Kansas, Appellee.

No. 52283.

Supreme Court of Kansas.

Feb. 28, 1981.

Syllabus by the Court

1. Interpleader is a joinder device whereby all of those who claim some interest in a particular fund (the stake) may be joined in the action, and may there assert and litigate their claims against the fund.

2. Interpleader protects the stakeholder from multiple suits, and from determining at its peril the validity and priority of disputed claims; it also protects the claimants by bringing them together in one action so that a fair and equitable distribution of the fund may be made.

3. The primary test for determining the propriety of interpleading the adverse claimants and discharging the stakeholder is whether the stakeholder legitimately fears multiple vexation directed against a single fund.

4. K.S.A. 84-8-104 spells out two possible remedies of the holder of overissued municipal temporary notes. The City may issue to the holder identical notes which do not constitute an overissue, or the holder may recover from the City the purchase price of the notes plus interest from date of demand.

5. There is no duty on the part of the purchaser of temporary notes issued by a city and payable to bearer to look beyond the genuine signature of the registrar (now the State Treasurer) to determine if the person charged with registering the security did so properly and without negligence.

6. Where the record reflects that genuine issues of fact remain, summary judgment is not warranted even though both adverse parties moved for summary judgment.

7. Summary judgment is proper where the only question or questions presented are questions of law.

8. The party against whom a motion for summary judgment is directed is entitled to the benefit of all reasonable inferences and doubts that may be drawn from the facts under consideration.

9. A bona fide purchaser is a purchaser for value in good faith and without notice of any adverse claim who takes delivery of a security in bearer form. K.S.A. 84-8-302.

10. In an action to recover on five separate temporary notes issued by a city, three of which notes constituted an "overissue," the record is examined and it is held : Under the circumstances of this case, the City, having placed the notes in the stream of commerce, is liable to the bona fide purchasers and holders of the notes.

John R. Toland, City Atty., argued the cause and was on brief for appellant City of Yates Center, Kansas.

Dennis L. Bieker, of Dreiling, Bieker & Kelley, Hays, argued the cause and was on brief, for appellee Farmers State Bank and Trust Company of Hays, Kansas.

Franklin D. Gaines, Augusta, argued the cause and was on brief, for appellee First National Bank and Trust Company, El Dorado, Kansas.

Richard A. Loyd, of Jochems, Sargent & Blaes, P.A., Wichita, argued the cause and Phyllis F. Wendler, Wichita, was with him on brief, for appellee Union National Bank, Wichita, Kansas.

MILLER, Justice:

This is an appeal by the City of Yates Center from a judgment entered against it and in favor of the appellees, three Kansas banks, holders of temporary notes of the City which were "overissues." Farmers State Bank and Trust Company of Hays, Kansas, held two of the City's $50,000 notes, numbered 6 and 7, dated February 1, 1973; First National Bank and Trust Company of El Dorado, Kansas, held two of the City's $50,000 notes, also numbered 6 and 7 but dated September 1, 1973; and Union National Bank, Wichita, Kansas, held another of the City's $50,000 notes, this one being numbered 7 and dated September 1, 1973. The trial court entered summary judgment, whereby it allowed recovery by each bank of the amount it paid for the note or notes it held, plus interest at the rate fixed therein, from date of demand. The City raises numerous questions which we will state and discuss seriatim later in this opinion.

A statement of the facts and the history of this litigation is necessary to an understanding of the points raised. The first in the series of events leading up to the issuance of temporary notes by the City of Yates Center occurred on October 7, 1971, when the City entered into a contract with the A. H. Speer Company of Wichita, by which Speer agreed to supervise the issuance of sewer improvement bonds to be issued by the City. Speer also agreed to engage a recognized bond attorney and to pay his fee, and to furnish blank bonds and bond register sheets ready for execution by the City. The City agreed to pay Speer 6% of the face amount of the bonds issued for his services. Thereafter, all of the matters relating to the issuance of temporary notes leading up to the issuance of the bonds were left in Speer's hands; the City Attorney was not consulted and no attorney was retained to represent the interest of the City. Unfortunately, Speer was not inclined to protect the interest of the City, and proved sadly lacking in trustworthiness.

Ordinance No. 694 authorizing the issuance of temporary notes was passed by the City Council on December 28, 1972. It created sewer districts within the City, authorized the construction of sewers therein, and authorized the issuance of temporary notes in an aggregate amount not exceeding $324,372.50, the estimated cost of the project. It provided that the temporary notes were to be issued as authorized from time to time by resolutions adopted by the governing body. On January 25, 1973, the governing body adopted a resolution, pursuant to ordinance No. 694, authorizing and directing the Mayor and the City Clerk to issue temporary improvement notes, sewer series, 1973, numbered from 1 to 7 inclusive, No. 1 being in the amount of $24,372.50 and the others to be in the amount of $50,000, all to be dated February 1, 1973, to bear interest at 5% per annum, to be payable to bearer, and to mature on or before February 1, 1977. Temporary notes Nos. 1 through 7 dated February 1, 1973, were executed by the Mayor and City Clerk and the City's official seal was affixed thereon. These notes were registered in the office of the State Auditor, and were placed in Speer's hands for sale as funds were needed. Temporary notes 1 through 5 were sold, the City received the proceeds, and no problem has arisen in connection with those securities. The First National Bank of El Dorado purchased temporary notes Nos. 2, 4 and 5 at par and accrued interest.

Speer contacted an officer of the First National in the summer of 1973 in an effort to sell notes 6 and 7. The officer indicated that interest rates had risen and the bank would not be interested in acquiring the additional notes unless the interest rate could be increased to 61/2%. Speer advised the City of this development and on September 6, 1973, the governing body of the City passed a resolution amending the resolution of January 25, 1973, and authorizing the issuance of temporary notes 1 to 5 as before, and further authorizing the issuance of temporary notes Nos. 6 and 7, dated September 1, 1973, payable to bearer, maturing on or before September 1, 1977, and bearing interest at 61/2% per annum. The resolution further provided that temporary notes Nos. 6 and 7 issued under the resolution adopted January 25, 1973, "are hereby canceled and shall be surrendered to the State Auditor's office for cancellation prior to the registration of Temporary Improvement Notes Nos. 6 and 7 authorized herein." Notes 6 and 7 dated September 1, 1973, and bearing interest as 61/2% per annum, were executed by the Mayor and City Clerk, the seal of the City was affixed, and the notes were placed in Speer's hands. These two notes were registered in the office of the State Auditor on September 6, 1973. Original notes numbered 6 and 7, dated February 1, 1973, were not canceled by the City officials and were not surrendered to the State Auditor's office as required in the resolution.

Speer then sold notes 6 and 7, dated September 1, 1973, and bearing interest at 61/2% per annum, to the First National Bank for par and accrued interest, $100,325.

Next, and for what reason or upon what pretext we do not know, an additional note No. 7, dated September 1, 1973, and bearing interest at 61/2% per annum, was executed by the Mayor and City Clerk, and the City's seal was affixed. That note was registered in the office of the State Auditor on November 13, 1973, and on the following day it was sold by Speer to the Union National Bank for par and accrued interest of $50,659.03. That amount was deposited in Speer's account by the Union National and Speer paid the City $47,668.06, being the face amount of the note and accrued interest less his 6% commission, on November 15, 1973. The City acknowledges that it received payment "for only one Note 6 and only one Note 7."

On August 21, 1974 (and for what purpose we do not know), the Mayor, the City Clerk, and A. H. Speer as "Fiscal Agent for the City of Yates Center, Kansas," executed an affidavit reciting the adoption of the resolution of September 6, 1973, amending the resolution of January 25, 1973, and further stating:

"that the Temporary Improvement Notes Nos. 6 and 7 issued under the Resolution adopted January 25, 1973, were at the time of the passage of the amending Resolution in fact cancelled by marking across the face of said Notes. That said cancelled Notes were in fact sent to Topeka along with the new Notes, which were to be registered, and that in fact said old Notes have never been issued and delivered and are in fact cancelled, nonexistent and of no force and...