Letcher County v. De Foe

• Decision Date: 04 December 1945
• Docket Number: No. 10031.,10031.
• Citation: 151 F.2d 987
• Parties: LETCHER COUNTY, KY., et al. v. DE FOE.
• Court: U.S. Court of Appeals — Sixth Circuit

151 F.2d 987 (1945)

LETCHER COUNTY, KY., et al. v. DE FOE.

No. 10031.

Circuit Court of Appeals, Sixth Circuit.

December 4, 1945.

E. A. Woodward, of Louisville, Ky. (Thomas S. Dawson, of Louisville, Ky., J. L. Hays, of Whitesburg, Ky., and Roy W. House and Woodward, Dawson, Hobson & Fulton, all of Louisville, Ky., on the brief), for appellants.

Henry E. McElwain, Jr., of Louisville, Ky. (Allen, McElwain, Dinning & Clarke, of Louisville, Ky., on the brief), for appellee.

Before SIMONS, ALLEN, and McALLISTER, Circuit Judges.

SIMONS, Circuit Judge.

The appeal concerns itself with the status of defaulted and detached interest coupons of bonds of the county deposited in pursuance of a refunding plan, the coupons having been reduced to judgment prior to the inception of the plan. The problem was presented to the District Court by the bondholder and judgment creditor, in a petition for a declaration of his right to have the judgments satisfied by the county in their full amount. He prevailed and the county and local finance officer appealed.

The appellee was the owner of certain road and bridge bonds of the county, some of which, upon becoming due, were unpaid. The interest coupons on such bonds, together with interest coupons on unmatured bonds, likewise owned by the appellee, were also past due and unpaid. On September 30, 1939, and again on June 9, 1941, the bondholder obtained judgments on such coupons in the District Court in the respective amounts of $6,241.17 and $21,955.50. Pursuant to an order in each case the interest coupons were stamped "reduced to judgment," and filed with the clerk of the court to be retained in his custody. Both judgments remained unsatisfied, except for certain partial payments which were made without specific application to either of the judgments and without prejudice to the rights of either the plaintiff or the county.

On August 13, 1940, the county, finding itself embarrassed by statutory limitations upon its taxing power, in meeting maturing bonded indebtedness and current interest thereon, entered into a refunding agreement with a bondholders committee. The agreement provided that subject to approval of the state local finance officer, the county would issue refunding bonds for the purpose of refunding an indebtedness "represented by judgments or otherwise," consisting of $684,000 of 5% road and bridge bonds issued in 1921, 1922, 1924 and 1925, with interest thereon to April 1, 1940. A portion of such outstanding bonds and coupons were then past due and in default, and some of the bonds and coupons had been reduced to judgment. The refunding bonds were to be dated April 1, 1940, to mature in 30 years, and to bear interest at the rate of 2½% for the first 10 years and 3% thereafter. The agreement provided that interest accrued and not represented by coupons should be paid at the rate of 2%; that coupons were to be deposited with the exchange agent who would deliver to the depositor a sum equivalent to 40% of the face amount of coupons deposited in full settlement of the depositor's interest in such coupons; that when the refunding bonds should be ready for delivery they would be deposited with the state local finance officer as the exchange agent. The plan was not to be declared operative by the committee until the holders of at least 75% of the principal amount of outstanding road and bridge bonds had agreed to its terms.

On October 16, 1941, the Fiscal Court of the county adopted and approved the necessary order to refund the bond indebtedness in accordance with the terms of the plan. It provided for the levy and collection of an annual tax for the payment of the refunding bonds, and recited that it was "for the purpose of refunding a like amount of the indebtedness described in the preamble hereof and any judgments heretofore or hereafter recovered thereon." The refunding plan was approved by the state local finance officer on June 20, 1942. On July 1 of that year, the bondholders committee addressed a letter to all the holders of road and bridge bonds, containing an analysis of the refunding plan, a recital that the state local finance officer had approved it, that interest accrued to April 1, 1940, on the indebtedness to be refunded, would be paid at the reduced rate of 2% at the time of the exchange of the bonds, and that the plan might be declared operative when accepted by the holders of 75% of the outstanding bonds. With this letter there was sent to each holder of bonds, a form "letter of transmittal" to be used by the bondholder in forwarding his bonds for exchange, which, when signed by the bondholder, was to constitute his acceptance of the refunding plan. The letter also cautioned that "the bonds must be accompanied by all unpaid and partially paid coupons."

The committee and the county officers found difficulty in obtaining the consent to the refunding plan of the holders of 75% of the outstanding bonds. The appellee, along with certain other bondholders, at first refused to accept the plan or to deposit their bonds for exchange. There followed a number of conferences between the committee and the appellee, as a result of which the appellee agreed to deposit with the exchange agent, a sufficient number of bonds to bring the amount of bonds deposited up to the required 75% of the total outstanding. On November 2, 1942, the appellee deposited bonds in the face amount of $82,000. The total deposits still being short of 75% of the outstanding bonds, the appellee subsequently deposited an additional $24,000 of bonds so that the plan might become operative.

When the appellee made his deposits he did not use the transmittal letter sent by the committee to the bondholders, but accompanied his deposit with a special deposit agreement, which recited that the bonds were deposited for exchange under the refunding plan proposed by the committee as set out in its contract with the county, summarized in the committee's letter to the bondholders, and as authorized by resolution of the Fiscal Court and approved by the order of the state local finance officer, the county debt commission and the Franklin Circuit Court, but was made subject to a number of conditions. None of the conditions referred to the payment of interest on defaulted coupons reduced to judgment, or to the judgments.

These special deposit agreements were accepted by the committee and the state local finance officer. The conditions therein contained were agreed to and the bonds accepted with the understanding that upon failure to comply with any of the conditions, the bonds would be returned upon demand. When the bonds were checked by the state local finance officer, it was found that coupons on $30,000 of bonds deposited covering interest accrued between 1938 and 1941, were not attached to the bonds. The finance officer thereupon wrote to the appellee's agent asking for an explanation. This letter, printed in the margin,¹ becomes important because of the concern therein expressed that the coupons might be in the hands of persons who would later make demand for payment at their full face amount, and the response of the agent, likewise printed in the margin,² is equally important because of the reference therein that the coupons were part of the DeFoe...