Kersh Lake Drainage Dist. v. State Bank & Trust Co.

• Decision Date: 05 October 1936
• Docket Number: No. 10572.,10572.
• Citation: 85 F.2d 643
• Parties: KERSH LAKE DRAINAGE DIST. OF JEFFERSON, LINCOLN, AND DESHA COUNTIES, ARK., v. STATE BANK & TRUST CO. OF WELLSTON, MO.
• Court: U.S. Court of Appeals — Eighth Circuit

85 F.2d 643 (1936)

KERSH LAKE DRAINAGE DIST. OF JEFFERSON, LINCOLN, AND DESHA COUNTIES, ARK., v. STATE BANK & TRUST CO. OF WELLSTON, MO.

No. 10572.

Circuit Court of Appeals, Eighth Circuit.

August 27, 1936.

Rehearing Denied October 5, 1936.

E. W. Brockman, of Pine Bluff, Ark., for appellant.

G. B. Rose, of Little Rock, Ark. (J. F. Loughborough, A. W. Dobyns, A. F. House, and J. W. Barron, all of Little Rock, Ark., on the brief), for appellee.

Before STONE, WOODROUGH, and THOMAS, Circuit Judges.

WOODROUGH, Circuit Judge.

This appeal is taken by Kersh Lake Drainage District to reverse a judgment rendered against it on certain negotiable certificates of indebtedness issued by the commissioners of the district in its name on various dates after March 1, 1913, to July 1, 1919, and maturing on the first day of August of each year from 1929 to 1933, inclusive, and on the first day of August, 1935. The certificates were in the amount of $500 each, and each recited on its face that the drainage district was indebted in that amount to Hahn & Carter as contractors for work done in the construction of the drainage system of the district; that the certificate was issued to the contractors doing the work for work actually performed in accordance with authority conferred on the district by an act of the General Assembly of the State of Arkansas approved May 27, 1909 (Acts 1909, p. 829); that the district had been duly organized under the act, and all things prerequisite to the issuance of the certificate had been performed as required by law; that the lands of the district had been duly assessed to pay for the work; that the certificate, together with others theretofore and then issued, with all interest computed thereon, did not exceed the amount of the betterments assessed against said lands; and that a tax had been duly levied upon said lands in pursuance of law of a sum sufficient to pay the certificate and all other certificates theretofore and then issued. The holders had acquired the certificates for value in due course before maturity, and the district had paid all certificates that matured up to the year 1929 and all interest that had accrued semiannually until August, 1932.

The district defended on the grounds that the commissioners of the district were without authority to issue certificates of indebtedness binding on the district; (2) that the certificates were issued in violation of the judgment fixing the amount to be issued and were, therefore, void; (3) that the certificates were issued fraudulently without full consideration to the district; and (4) that the cost of the improvement exceeded the value of the benefits assessed.

1. It appeared that the drainage district was duly organized as recited in the certificates, and that its original contract for the construction of its drainage system contemplated that the work would be paid for through a bond issue. On March 4, 1913, the commissioners of the district applied to the circuit court of Jefferson county, Ark. (that being the court having jurisdiction in the premises), to assess a tax upon the property in the district to cover the estimated cost of the construction of the drainage system, being the bond issue of $135,000 with interest and 10 per cent. for unforeseen contingencies, in the total amount of $272,782.12, and the circuit court duly entered its judgment accordingly. Thereafter, and before the bond issue was consummated, the authority of the district to issue bonds without a petition of landowners was revoked by the Legislature, and the district entered into an agreement with the contractors to pay them for the work by issuing to them its negotiable certificates of indebtedness as the work progressed and in accordance with estimates to be made by the engineer. The authority to issue such certificates for such work was conferred upon the commissioners by section 3623, C. & M. Digest, "In order to hasten the work, the board may * * * issue to the contractors who do the work its negotiable evidences of debt, bearing interest at not exceeding six per cent."

As the work progressed and on December 30, 1915, the commissioners of the district appeared again in the circuit court of Jefferson county and reported that the cost of the required improvements would amount to $155,000 (instead of $135,000). They petitioned for a levy of the tax upon the property of the district accordingly and the court entered its judgment as prayed. Later, on June 27, 1919, another petition was filed in the same court by the commissioners of the district reporting that the cost would amount to $181,500 (instead of $155,000), specifying the items that made up the total amount, and the court entered its order that "there be levied and collected between the first Monday of January and the tenth day of April of each of the years 1920 to 1934, inclusive, and until the entire indebtedness aforesaid is paid in full, 6½% of the benefits which have been assessed against the real property in the district by reason of the improvements * * *."

The negotiable, interest-bearing certificates were issued to the contractors amounting in the aggregate to the full sum of $181,500, all of which were negotiated by the contractors and sold to the public in due course.

It is not questioned that prior to the passage of Act No. 150 (page 611), March 8, 1913, the drainage district was empowered by section 3623, above quoted, to issue negotiable certificates to contractors to pay for drainage construction, but appellant contends that the repeal of the district's authority (without petition of land owners) to issue "negotiable bonds" by implication repealed authority to issue "negotiable certificates." It is pointed out that there is close similarity between bonds and certificates, as has been recognized by the courts in cases cited. Board of Commissioners of City and County of Denver v. Home Savings Bank, 236 U.S. 101, 35 S.Ct. 265, 59 L.Ed. 485; Gaster v. Dermott School Dist., 184 Ark. 536, 42 S.W.(2d) 990; Arkansas State Highway Comm. v. Kerby, 175 Ark. 652, 300 S.W. 377; Road Improvement Dist. No. 4 v. Southern Trust Co., 152 Ark. 422, 239 S.W. 8; Arkansas-Foundry Co. v. Stanley, 150 Ark. 127, 233 S.W. 922. But in this instance the Legislature had before it a statute (section 3623) which empowered the district "in order to hasten the work" to "borrow money" and "issue negotiable bonds therefor" and which also, with equal particularity empowered the district to "issue to the contractors who do the work its negotiable evidences of debt." The new act, No. 150, provided that "hereafter it shall be unlawful for the...