W.L. Slayton & Co. v. Panola County, Tex.

• Decision Date: 03 March 1922
• Citation: 283 F. 330
• Parties: W. L. SLAYTON & CO. v. PANOLA COUNTY, TEX.
• Court: U.S. District Court — Eastern District of Texas

283 F. 330

W. L. SLAYTON & CO. v. PANOLA COUNTY, TEX.

United States District Court, E.D. Texas, Texarkana Division.

March 3, 1922

Johnson Edwards & Hughes, of Tyler, Tex., for plaintiff.

S. W Blount, of Nacogdoches, Tex., Beeman Strong, of Houston Tex., and Marsh & McIlwaine, of Tyler, Tex., for defendant.

ESTES District Judge.

On May 8, 1916, at a regular term of the commissioners' court of Panola county, Tex., the following entry was made on the minutes of the court:

'It is ordered that the clerk issue scrip against the permanent improvement fund, in amount of $160,000 bearing interest at 6 per cent., as follows, to wit:

Date. To Whom. Purpose. Int. Amt.

3/1/'13. Jones Bros. Co. Courthouse. 6%. $80,000.

4/3/'16. Pauley Jail Co. Jail Repr. 6%. 50,000.

4/3/'16. Greensburgh Const. Co. Courthouse. 6%. 30,000."

On the same date a resolution or order was entered, which provided in its caption for the issuance of warrants in the sum of $160,000 'in payment of certain outstanding warrants of said county, held by J. L. Arlitt, of Austin, Texas. ' It contained recitals to the effect that the county at the time was indebted to Arlitt in the sum named, as evidenced by 'warrants heretofore issued in payment of sundry claims, all of which warrants are now owned by the said J. L. Arlitt and are or will be in his possession'; that the county treasurer was without sufficient funds to pay them; that Arlitt had agreed to an extension of time and to accept in exchange new warrants; that the tax of 25 cents on the $100 valuation of property, designated a permanent improvement tax, as authorized by article 8 of section 9 of the Constitution, was at the time unappropriated-- and then sets forth an order that new warrants be issued, of certain denominations, named in the order and maturing at stated periods, to take the place of said outstanding indebtedness. The form of the warrants, as well as of the interest coupons, and the form of assignment of same, was also contained in the order, and provision was made for the levy of a permanent improvement tax of 25 cents on the $100 valuation, designed to create a fund for the payment of the warrants at maturity and the interest as it accrued. This tax, when collected, was to be placed in a special fund, known as the 'Special Time Warrant Fund Class C.'

On the same date, also, a third order was entered:

'That Panola refunding warrants in total amount of $160,000 be issued to J. L. Arlitt, Austin, Texas, to be dated May 15, 1916, bearing 6 per cent. interest, and that same be shipped to J. L. Arlitt, through the First National Bank, Carthage, Tex., c/o American National Bank, Austin, Tex., with draft attached, for $144,000.'

Thereafter the warrants were duly issued and sent through the local bank to the Austin bank, where Arlitt resided, as provided in the last-named order. Accompanying the original draft were instructions to the Austin bank to permit the bonds to be detached and sent with another draft drawn by Arlitt on the plaintiff, from the return of which latter draft the original draft was to be paid. Through such procedure the warrants were immediately sold to W. L. Slayton, the plaintiff herein, for approximately $159,000 in cash, of which amount $144,000 was received by the county. The remainder was distributed between Arlitt and others as fees or commissions for negotiating and consummating the sale. The funds thus procured by the county were used at a subsequent date for the construction and repair of the county roads, and no portion of same was applied to purposes for which the permanent improvement fund of the county could lawfully have been employed.

At the time the order of the commissioners' court directing the issue of these warrants was entered there were no outstanding obligations against the improvement fund, and the scrip directed to be issued to the jail company and others, and which was the basis of the proposed new obligations, was without consideration and of no value. The transaction from its beginning was, in fact, a device on the part of the commissioners to procure funds for the improvement of roads at a time when the tax limit permitted by law for the procurement of funds for such purposes had been reached. But the plaintiff knew nothing of such conditions, and in good faith, and upon the orders before referred to and certificates made by the county officials purporting to reflect the records, bought the warrants, and, as stated above, of the sum paid by him-- $159,000-- at least $144,000 reached the hands of the treasurer of the county, and was expended for the improvement of the county roads.

In July following the date of these proceedings a suit was filed by interested taxpayers in the district court of Panola county, designed to prevent, by injunction, the members of the commissioners' court from diverting to the road and bridge fund of the county the funds obtained from the issuance of these warrants, and the employment of same for the purpose of road building and improvement. A temporary injunction was issued, and on August 1st following an agreement was made between the parties, by the terms of which the suit was to be withdrawn and dismissed, upon condition that the commissioners' court enter upon their minutes an order distributing the sum realized from these warrants, to wit, $144,000, among the various commissioners' precincts of the county, in proportions described in the agreement. On August 3 the said suit was, in accordance with said agreement, dismissed.

At a later time-- December 14, 1917-- after the money had been expended as provided in the judgment just mentioned, the personnel of the court having in the meantime changed, a resolution was passed by the commissioners' court, repudiating on behalf of the county the warrants that had been issued, and giving authority to employ counsel to begin the necessary proceedings to determine the validity of the warrants, or to defend the county in suits that might be brought against it in connection therewith. On December 21, 1917, suit was accordingly brought in the district court of Panola county, by the county, against J. L. Arlitt, the Pauley Jail Company, and other payees in the scrip before mentioned, the tax assessor, and the tax collector of the county, and W. L. Slayton & Co., petitioning for a review of the before-mentioned orders and for judgment that the warrants referred to in the order of May 8, 1916, be declared void and the tax collector be enjoined from collecting the tax authorized in same. That suit was subsequently, by proper process, removed to this court, and on January 9, 1918, a suit was brought by Slayton & Co. in this court, also against the county, for the recovery of interest that had matured on the said warrants, and a judgment that the same constituted valid obligations against the county.

The two suits involved practically the same question, and have been consolidated. In the petition of the plaintiff in the first suit, and in the answer of the defendant in the second suit, the various orders and proceedings of the commissioners' court are set forth, and the point is made that the warrants do not represent binding obligations upon the county; that they are void because, first, they were issued as a sequel to a conspiracy or design to procure money in an illegal fashion for expenditure on the public roads, and, second, because under the Constitution the commissioners' court had no authority to issue public building warrants for the construction of roads and bridges, and that the provision made for the payment of same, under all the circumstances, was without consideration or effect. In reply to this, the plaintiff alleges that, if such are the facts, he had no knowledge of them, that in good faith, and after orders within the proper jurisdiction of the commissioners had been entered, the warrants were purchased by him, and that under all the circumstances the defendant is estopped from denying the validity of them.

There is no controversy or conflict in the testimony respecting what really transpired. The allegations of both the county and the plaintiff are supported by the proof. There was no outstanding indebtedness to authorize the issuance of the scrip to the three parties in whose favor it was issued; there was no claim on the part of either of said concerns presented against the county; there was no intention on the part of the commissioners for such scrip when issued to be delivered. The idea was to get a sort of basis for the levy of a permanent improvement tax that would support an issue of warrants, the proceeds of which, from the beginning, were intended to be used on the roads. The tax limit permitted by law for road improvement purposes had, previous to that time, been reached, and the people had refused to vote an issue of bonds for the construction of roads.

On the other hand, the good faith of the plaintiff is not challenged in any fashion. He acted solely upon the exhibits from the record, paid almost par value for the warrants, and was, in fact, misled by the recitals in the various orders and the representations made to him respecting same. He caused the validity of the bonds to be submitted to an attorney, and dealt with the county officials with the utmost sincerity. The latter received the proceeds of the warrants and expended same for the improvement of roads that reached every precinct of the county. The case therefore presents the anomalous situation of funds having been procured by the commissioners of a county as a result of an unlawful conspiracy, but by the employment of forms and methods that are provided by law for use in appropriate circumstances; such funds having been procured from a person acting with the commissioners...