State ex rel. Peevy v. Cate

• Decision Date: 09 September 1963
• Docket Number: No. 5-3030,5-3030
• Citation: 371 S.W.2d 541,236 Ark. 836
• Parties: STATE of Arkansas ex rel. Claud PEEVY, Appellant, v. Clyde R. CATE et al., Appellees.
• Court: Arkansas Supreme Court

Page 541

371 S.W.2d 541

236 Ark. 836

STATE of Arkansas ex rel. Claud PEEVY, Appellant, v. Clyde R. CATE et al., Appellees.

No. 5-3030.

Supreme Court of Arkansas.

Sept. 9, 1963.

Rehearing Denied Oct. 14, 1963.

Sexton & Morgan, Ft. Smith, for appellant.

Gean, Gean & Gean, Ft. Smith, Charles R. Starbird, Alma, Lonnie Batchelor, Van Buren, for appellees.

McFADDIN, Justice.

This case arose as a taxpayer's suit brought by appellant, Peevy, under Act No. 193 of 1945 (Ark.Stat.Ann. § 17-304 et seq. [Repl.1956]); and challenging the sale of county property to appellee, Cate. Drawn into the suit was the applicability of Act No. 481 of 1949 (Ark.Stat.Ann. § 17-1501 et seq. [Repl.1956]) regarding county hospital property. From a decree affording the taxpayer only partial relief, both sides have appealed: so the entire controversy is before us for trial de novo on the record.

For many years Crawford County had owned twenty acres, commonly called 'the county farm property,' ¹ but later called 'the county infirmary.' In the 1932 depression, the Work Progress Administration erected a stone building on the property, and Crawford County used the building and property for the intended statutory purpose of a county poor farm. By 1960 the building had become diapidated, and Old Age Assistance grants had relieved many people from being inmates of the county poor farm; so there remained only one occupant of the property. The use to be made of the county poor farm or county infirmary became a problem to Crawford County. It would have cost the County over $80,000.00 to equip the property for use as a suitable rest home. At the regular January 1961 meeting of the Quorum Court of Crawford County, a motion was adopted 'that the County Judge be given authority to appoint a board to dispose of the County Infirmary as the board sees fit.'

The County Judge proceeded under Act No. 481 of 1949 (Ark.Stat.Ann. § 17-1501 et seq. [1947]) to accomplish the motion of the Quorum Court; and on February 15, 1961, there were appointed under the said Act eight persons as the Board of Governors of said 'County Infirmary and grounds.' This Board met on the same day and gave serious consideration to the problem of the County Infirmary; ² and finally adopted a motion that the County Infirmary be placed on a long term lease to Clyde R. Cate (one of the appellees herein) for operation as a rest home. On March 14, 1961, a lease was executed by the said Board of Governors and by the County Judge and County Court, whereby Clyde R. Cate became the lessee of said County Infirmary. We briefly abstract the pertinent provisions of the lease, since its validity is one of the issues in this litigation: (a) the entire tract of twenty acres, with building, was leased to Clyde R. Cate for 25 years, with option to the lessee to renew for a like period; (b) the rental the County was to receive was $1.00 per year; (c) lessee agreed to expend enough money in improving and equipping the property to have and maintain a rest home that would meet State and national regulations; (d) lessee agreed to keep at all times, free of expense to Crawford County, one patient as sent by the County Judge. The lease also provided that the lessee had an option to purchase all of the leased property at any time during the life of the lease by paying Crawford County the sum of $7500.00; and, in addition, if any of the twenty acres should be taken by eminent domain proceedings during the life of the lease, then the lessee would receive all such amounts paid in the eminent domain proceedings. ³

Mr. Cate entered into possession of the leased property and immediately commenced spending substantial sums in making the necessary and required improvements. At the time of the trial below it was testified without substantial contradiction, that Mr. Cate had expended between $28,000.00 and $30,000.00, had an A-1 rated rest home with a capability of accommodating 23 patients, and plans to enlarge the rest home to accommodate 60 patients.

With the lease of the rest home thus accomplished in March 1961, the matter might well have ended; but then commenced the course of events which directly caused this litigation. These events were evidently triggered by the realization of Mr. Cate that his option to purchase the property (as contained in his lease) might be null and void. On July 15, 1961, the County Court entered an order that the entire 20 acres (legally described), known as the 'County Infirmary Property,' would be sold to the highest bidder 'subject to the terms of the said lease' held by Cates. This sale was a proceeding under Act No. 193 of 1945 (Ark.Stat.Ann. § 17-304 et seq. [Repl.1956]); and every stop prescribed by said Act was carefully followed. ⁴ The sale was advertised, and only one bid was submitted; and that was the bid of Clyde R. Cate for $7500.00. That bid was accepted, and the deed made and approved, as required by the law, and delivered to Mr. Cate on August 4, 1961: so everything seemed to be concluded.

Then on August 14, 1962, appellant Clyde Peevy, as a citizen and taxpayer for the benefit of Crawford County, filed the present suit in the Chancery Court as a proceeding under Act No. 193 of 1945 (Ark.Stat.Ann. § 17-304 [Repl.1956]), alleging that the sale of the property to Clyde R. Cate was invalid, and praying for a return of the property to Crawford County free of all mortgages and conveyances executed by Cate. Various lien holders and grantees from Cate were made defendants. ^{5 5} The defense of all the defendants was the absolute validity of the sale of the property by the County to Cate, and the good faith of all parties. ⁶ The cause was heard ore tenus by the Chancery Court and resulted in a decree:

(a) Holding void the option given Cate in the lease to purchase the property for $7500.00;

(b) Holding that the effect of making the sale of the property subject to the Cate lease was to stifle bidding;

(c) Holding that at the time of the sale of the property it was worth $10,000.00 instead of $7500.00, and that the effect of the stifling of the bidding was to defeat the County of $2500.00; and

(d) Holding that the County was entitled to receive for the property an additional $2500.00.

The learned Chancellor delivered a splendid opinion which clearly shows the many intricate problems arising in this case, and the earnest and sincere desire on the part of the Chancellor to accomplish substantial justice and equity.

From that decree both sides have appealed. Peevy, as appellant, insists that the entire property (less the 4.85 acres acquired by the State Highway Commission) should be returned to Crawford County, free of all mortgages and conveyances; and he cites and strongly relies on Ark.Stat.Ann. § 17-309 (Repl.1956), which says that when county property is sold in violation of the Act, the sale shall be null and void, and a citizen and taxpayer may bring a suit in the Chancery Court within two years; 'and in the event such property is recovered for the county in such action the purchaser shall not be entitled to a refund of the consideration paid by him for such sale.' Peevy relies strongly on our case, State for the use of Miller County v. Eason, 219 Ark. 36, 240 S.W.2d 36. On the other hand, the appellees (Mr. and Mrs. Cate, Mr. and Mrs. Smith, and the Smith's mortgagee, First Federal Savings & Loan Association) maintain that the Act No. 193 of 1945 was literally followed; and that the Chancellor should not have rendered judgment against Cate for $2500.00.

I. The Lease Contract. The first question to be decided is whether the lease of the County Infirmary property to Cate was valid or void. We have concluded that the County properly proceeded under the provisions of Ark.Stat.Ann. § 17-1501 et seq. (Repl.1956); but we have concluded that the provision giving Cate an option to purchase the property was void, as was also the provision giving Cate the right to any money received in the eminent domain proceeding. The reason these two provisions are void is because such provisions constitute a disposition of the County property without compliance with Ark.Stat.Ann. § 17-304 et seq. (Repl.1956).

The next question is whether said void provisions rendered void the entire lease to Cate, or whether Cate could claim that the lease was valid with these two provisions stricken. We conclude that Cate could legally so claim; and our authority for such conclusion is the case of Storthz v. Sanger, 108 Ark. 154, 156 S.W. 1020, which was also a chancery case. In the Storthz case, the guardian of an insane person executed a lease of real estate, which instrument gave the lessee an option to purchase the property on stated terms. Even though the lease was approved by the Probate Court, we held such option to purchase to be void, saying: 'There appears nowhere in the statutes of this state any authority in the probate court to authorize the execution of such a contract * * *'--i. e., option to the lessee to buy. But we further held:

'The invalidity of that part of the contract did not, however, deprive the lessor of the other benefits arising under it, and the heirs of the lessor were not put to an election either to ratify the contract as a whole, including the option to purchase, or to let the lessee occupy the premises for the balance of the term free of rent. In other words, the lessees had rights under the contract notwithstanding the invalidity of one feature, and it was not within the power of the heirs of the lessor to repudiate the contract; therefore they were not put to an election, either to affirm or repudiate it as a whole.'

Under the authority of said case, we conclude that Clyde R. Cate could validly hold the lease here involved, with the void provisions stricken. The Chancery Court so held; and we affirm that portion of the decree.

II. Stifling Of Bidding. We come next to the question as to whether the sale of the property was in full compliance with ...