Road Improvement District No. 4 v. Southern Trust Company
| Decision Date | 13 March 1922 |
| Docket Number | 219 |
| Citation | 239 S.W. 8,152 Ark. 422 |
| Parties | ROAD IMPROVEMENT DISTRICT No. 4 v. SOUTHERN TRUST COMPANY |
| Court | Arkansas Supreme Court |
Appeal from Pulaski Chancery Court, John E. Martineau, Chancellor affirmed.
Decree affirmed.
Powell & Allen, for appellants, road district and National Bank of Arkansas.
Appellee is not a bona fide holder of the note. The note was not negotiable nor was it rendered so by the letters of Buster and Mosley. C. & M. Dig., § 7767. The time of payment was indefinite in that it depends on the sale of the bonds to S. R. Morgan & Co., which contingency never happened. C. & M. Dig., § 7770. The two contemporaneous writings, i. e., the resolution of the board and the note, must be construed as one and the same instrument. 8 C. J. 196; 3 R. C. L. 883; 5 Ann. Cas. 151 note; 28 Ark. 387. The resolution provided for the payment of the note by deducting the amount from the price of the bonds. 134 Ark. 374. The promise to pay out of a particular fund is a conditional promise which renders the note non- negotiable. C. & M. Dig., § 7769.
The issuance of the note as drawn was authorized by the board but the attempted change therein was only authorized by two of the three members of said board, without a regular, or specially called meeting, which could not be done. 64 Ark 489; 64 Ark. 159; 109 Ark. 125; 110 Ark. 262; 127 Ark. 310; 89 Ark. 173; 128 Ark. 324.
The damages sustained by the district by reason of Morgan's breach of contract should be offset against the judgment against the district.
No judgment should have been rendered against the National Bank of Arkansas. The funds of the district were not subject to garnishment if the district was solvent. 230 S.W. 17.
Caldwell, Triplett & Ross, for other appellants.
The attempt on the part of two of the commissioners to make the note negotiable, without notice to the third member, could not bind the district. 185 S.W. 455; 110 Ark. 262.
The signatures of Buster and Mosley did not bind the district. The district's name was not signed to the note attested by them as president and secretary, and their signatures can not be held to be anything more than their individual signatures in a personal and not an official capacity, and the designation "commissioners" etc., as purely descriptive of who they are. 7 Cyc. 549, 550; 36 Ark. 293; 47 Neb. 585, 66 N.W. 649; 3 W.Va. 285; 78 Me. 390, 6 A. 11; 36 Ill.App. 107; 141 Mass. 587; 54 Ind. 260; 3 Wend. 94, 20 Am. Dec. 664.
Appellee should have been required to marshal the assets of Morgan it holds, before seizing the funds of the district, as otherwise these appellants, who are also claimants against the district, will be defeated in the collection of their claims. 18 R. C. L. 456.
Carmichael & Brooks, for appellee.
Appellee is a bona fide holder of the note executed by the district. 102 Ark. 451; 94 Ark. 387. The act creating the district authorized the board to borrow money on its note or bond, and it was within the power of the board to issue such note. 79 Ark. 229. The word "note" means a negotiable note. 6 Conn. 108.
The claim of want of power in two commissioners to make the note negotiable without a meeting of the board to expressly authorize this action has nothing to support it. 91 Ark. 367; 86 Ark. 287; Id. 225; 74 Ark. 190; 91 Ark. 378; 89 Ark. 95. Having accepted the benefits, the action was ratified. 98 Ark. 38.
Notes and bonds are treated as interchangeable terms. Rapalje & Lawrence's Law Dict. Joyce on Defenses to Commercial Paper. §§ 394-5, 426, 441; 88 Am. St. Rep. 640.
At cause of action which may be offset against a note must exist at the giving of the note.
The district was insolvent and appellee was not required to marshal the assets. 143 Ark. 446; Henslee v. Mobley, 148 Ark. 141.
The work had been completed, and the public had no interest therein. 56 Ark. 457. Appellee was the first creditor to bring suit, and was entitled to priority over other creditors.
OPINION
Road Improvement District No. 4 of Cleveland County, Arkansas (hereafter called district) was created and organized under act No. 618 of the General Assembly of Arkansas, 2 Road Acts of 1919, p. 2286, approved April 2, 1919. The district was created and organized for the purpose of building a certain highway in Cleveland County, Arkansas. E. R. Buster, T. E. Mosley and J. A. Griffin were named in the act as the board of commissioners of the district. Under the terms of the act (section 4) the board elected E. R. Buster president and T. E. Mosley secretary and treasurer of the district. On the 5th of May, 1919, the district entered into a contract with S. R. Morgan & Co. (owned by S. R. Morgan and hereafter for convenience called Morgan), wherein the district agreed to sell and Morgan agreed to buy bonds of the district at the price of 102 cents on the dollar. The bonds were to bear six per cent. interest per annum, payable semi-annually, with an option to the purchaser to convert the bonds into five or five and a half per cent. bonds. The contract, among other things, provided that Morgan should pay 15 per cent. of the purchase money in cash upon the delivery of the bonds, and there were other provisions relating to the manner of the payment of the bonds.
Among other provisions of the contract was one to the effect that the bonds were subject to the approval of Rose, Hemingway, Cantrell & Loughborough, attorneys of Little Rock; that the district was to adopt such resolutions and execute such pledges and other instruments, the precedent for which was to be prepared by the attorneys. The contract contained other provisions which it is unnecessary to set forth. There was a verbal understanding between Morgan and the district at the time the contract was entered into that, if the district needed funds before the bonds could be approved by Morgan's attorneys, he was to advance such funds. While the bonds were being printed, the district through its board passed resolutions, prepared by the attorneys of Morgan, setting forth that it needed cash to do the work it was authorized to do under the act incorporating it, and which resolutions, among other things, provided as follows:
The resolutions were adopted at a meeting of the board of commissioners of the district at which all the commissioners were present in person, and in pursuance of that resolution the following note was executed:
(Signed) "Road Improvement District Number Four of Cleveland County, Arkansas.
"By E. R. Buster, President.
Attest:
(Signed) "T. E. Mosley, Secretary."
After the execution of the above note Morgan applied to the Southern Trust Company (hereafter call trust company) to borrow the sum of $ 14,000, offering the above note as collateral security. The trust company noticed that the note on its face was not negotiable and called Morgan's attention to that fact. Morgan directed the attention of E. R. Buster, the president of the board, to the fact that the note was not negotiable in form, and on the 18th of December, 1919, Morgan received the following letter: "Gentlemen: Referring to our note given you, amounting to $ 14,000 for Road Improvement District No. 4 of Cleveland County, beg to advise that we omitted in said note, to insert the words "or order", and this will be your authority to insert the words "or order" in the note.
On the 17th of December, 1919, Mr. J. R. Vinson, the president of the trust company, wrote a letter to the commissioners of the district, saying in substance that the trust company was loaning to Morgan the sum of $ 14,000 secured by the note of the district; that the note as executed on its face was not negotiable, and that a new note negotiable in form was being forwarded for their signature. He concluded the letter by saying: "If for any reason it is not entirely agreeable with your commissioners to handle this note in the way indicated above, I would be glad for you to let us hear from you."
In reply, Vinson received the following letter:
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