Sanitary and Improvement Dist. No. 32 of Sarpy County v. Continental Western Corp.
| Decision Date | 09 December 1983 |
| Docket Number | No. 82-666,82-666 |
| Citation | 343 N.W.2d 314,215 Neb. 843 |
| Parties | , 38 UCC Rep.Serv. 516 SANITARY AND IMPROVEMENT DISTRICT NO. 32 OF SARPY COUNTY, Nebraska, Appellant, v. CONTINENTAL WESTERN CORPORATION et al., Appellees. |
| Court | Nebraska Supreme Court |
Syllabus by the Court
1. Actions: Parties: Sanitary and Improvement Districts. An action to determine the rights and liabilities of parties to a sanitary and improvement district warrant is an action at law.
2. Declaratory Judgments: Appeal and Error. Where a jury is waived in a declaratory judgment action in which there are questions of fact, the findings of the trial court on such issues have the effect of a jury verdict and will not be set aside unless clearly wrong.
3. Governmental Subdivisions: Sanitary and Improvement Districts. A sanitary and improvement district is a governmental unit such as is contemplated by Neb.U.C.C. § 3-105(1)(g) (Reissue 1980).
4. Negotiable Instruments. Whether one has taken a negotiable instrument in good faith is determined subjectively, that is to say, whether there was honesty of intent rather than the absence of circumstances which would put an ordinarily prudent holder on inquiry.
5. Sanitary and Improvement Districts. A transaction between a sanitary and improvement district and an entity with which it shares common directors, officers, or attorneys need not be, on that ground alone, illegal and a nullity.
6. Negotiable Instruments: Consideration. Failure of consideration is no defense to a negotiable instrument in the hands of a holder in due course.
7. Negotiable Instruments: Fraud. Although fraud in the factum is a defense as against a holder in due course of a negotiable instrument, fraud in the inducement is not.
8. Contracts: Negotiable Instruments: Fraud. The fraud practiced by misrepresenting the intention to perform a contract is fraud in the inducement and is not available as a defense against a holder in due course of a negotiable instrument.
9. Contracts: Negotiable Instruments: Consideration. The consideration necessary to support a contract or negotiable instrument must be within the contemplation of the parties.
10. Limitations of Actions. The bar of a statute of limitations is an affirmative defense and must be pled.
Robert C. Doyle of Walsh, Walentine, Miles, Fullenkamp & O'Toole, Omaha, for appellant.
Thomas J. Culhane of Erickson, Sederstrom, Leigh, Eisenstatt, Johnson, Kinnamon, Koukol & Fortune, P.C., Omaha, for appellee American Savings.
Clayton Byam, Omaha, and Richard Croker of Croker, Huck & McReynolds, Omaha, for appellee Judy Co.
James D. Sherrets of Kutak Rock & Huie, Omaha, for appellees Frankson and Robertson.
Warren S. Zweiback of Zweiback, Kasher, Flaherty & DeWitt, P.C., Omaha, for appellee Alexander & Alexander.
In this suit for declaratory judgment plaintiff-appellant, Sanitary and Improvement District No. 32 of Sarpy County, Nebraska, seeks to have certain warrants it has issued declared invalid. The defendants who answered below, the appellees herein, are the present holders of some of those warrants. They counterclaim, seeking an order that the district levy taxes and retire their warrants. The trial court, which tried the action without a jury, dismissed the district's petition and granted the relief sought by the answering warrant holders. This appeal followed. We affirm in part and in part reverse and remand for further proceedings.
The district was formed in 1965. By 1974 all the land within the district was owned by Continental Western Corporation and Southroads Corporation, with the exception of undivided interests in a small tract deeded to each of the members of the board of trustees of the district in order to enable them to so serve. These two corporations were effectively under the control of Antilles Corporation, which, in turn, was controlled by J.R. Swenson.
In 1973 Continental Western commenced the construction of a golf course in the Coronado Estates subdivision of the district. On May 1, 1974, the board of trustees of the district adopted a resolution of necessity empowering its chairman and clerk to enter into a contract to purchase the golf course from Continental Western. Pursuant thereto, a purchase agreement was entered into which called for the district to purchase the golf course and issue to Continental Western $350,000 in warrants as a downpayment on the purchase price. The balance of the $2,408,000 purchase price was to be paid to Continental Western as the work on the partially constructed golf course progressed. On May 2, 1974, the board of trustees approved a resolution to issue bonds in order to pay the balance of the purchase price of the golf course. The bond issue was to be handled by Hawkins Brothers, Inc., of Kansas City.
Warrants numbered 1A through 47A, totaling $350,000, were issued to Continental Western on May 7, 1974, for the downpayment. Subsequently, The Judy Company purchased warrants 19A, 20A, and 32A through 40A from Frank Hawkins, who was Continental Western's original transferee. Alexander & Alexander, Inc., purchased warrants 14A, 15A, and 16A from Continental Western. American Savings Company purchased warrants 27A through 31A from Continental Western. Roy Robertson On June 17, 1974, the Nebraska District Court, Second Judicial District, Sarpy County, entered a decree approving the bond issue and related matters concerning the construction and purchase by the district of the golf course.
purchased warrants 6A and 7A from Continental Western. Donald W. Frankson purchased 4A and 5A [215 Neb. 846] from Continental Western. These parties gave value totaling $137,800 for the warrants, the face value of which was $185,000, were without notice of any irregularity in the issuance of the warrants, and answered and counterclaimed in the court below. They are referred to hereinafter as the "answering warrant holders."
In the summer of 1974 First Westroads Bank instituted foreclosure proceedings on some of the land in the district held by Continental Western. Because of this and other foreclosures on the holdings of Continental Western within the district, Hawkins Brothers was unable to sell the bonds, which had already been printed and delivered to the State Auditor's office for registration. The district did not ask Continental Western to return the warrants after it became apparent that the bond issue would fail.
All the land in the district is now owned by two banks, Metro North State Bank of Kansas City and First National Bank of Council Bluffs, the latter having acquired the Coronado Estates subdivision through foreclosure and by purchasing another bank's interest. It appears that Metro North was aware of the warrants at the time it foreclosed, or shortly thereafter, on Continental Western's holdings in the district.
On February 7, 1975, after Metro North had instituted a foreclosure on Continental Western's holdings in the district, it entered into an agreement with the district that the district would not incur any additional indebtedness without that bank's prior approval. At this time it appears that Metro North knew of the outstanding warrants. In July or August of 1979 First National took control of the board of trustees of the district. First National, through its president who is now a trustee of the district, claims not to have had any knowledge of the $350,000 in outstanding warrants until July of 1979.
In 1980 the district instituted this suit. It appears that some of the parties named as defendants failed to answer the district's petition. They are Continental Western, William Ramsey, and J. Sig Swenson. Frank Hawkins filed an answer denying any interest in the warrants in question, and has made no appearance in this court. The trial court dismissed the district's petition as to all the parties named as defendants. Only the answering warrant holders made an appearance and filed a brief in this court.
The issues presented by the district's assignments of error may be summarized as asking, (1) What is the nature of a sanitary and improvement district warrant? (2) What defenses to liability on such a warrant are available as against one who gave value and had no notice of any irregularity? and (3) What defenses are available as against a party to the transaction underlying the warrants? No arguments are presented by the district to this court as to the propriety of the trial court's direction that the board of trustees levy taxes and redeem the warrants.
A suit for declaratory judgment is sui generis and may involve questions of both law and equity. Hemenway v. MFA Life Ins. Co., 211 Neb. 193, 318 N.W.2d 70 (1982). Issues of fact in declaratory judgment suits may be tried and determined as in other civil actions. Neb.Rev.Stat. § 25-21,157 (Reissue 1979).
An action to determine the rights and liabilities of parties to a sanitary and improvement district warrant, as with a promissory note, is an action at law, Klitzing v. Didier, 215 Neb. 122, 337 N.W.2d 418 (1983), and, as such, the parties herein were entitled to a jury trial on the fact
issues presented. A jury having[215 Neb. 848] been waived, however, the findings of the trial court on the fact issues involved have the effect of a jury verdict and will not be set aside unless clearly wrong. Hemenway v. MFA Life Ins. Co., supra; Larutan Corp. v. Magnolia Homes Manuf. Co., 190 Neb. 425, 209 N.W.2d 177 (1973).
We first turn our attention to the nature of the warrants in question, which were issued in the following form:
NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE
It was not until 1976 that Neb.Rev.Stat. § 31-727(5)(d) (Reissue 1978) provided: "(5) For the purposes of sections 31-727 to 31-762, unless the context otherwise requires:
....
"(d) Warrant...
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