Western Lawrence County Road Improvement District v. Friedman-D'oench Bond Company

• Court: Arkansas Supreme Court
• Writing for the Court: SMITH, J.
• Citation: Western Lawrence County Road Improvement District v. Friedman-D'oench Bond Company, 258 S.W. 378, 162 Ark. 362 (Ark. 1923)
• Decision Date: 17 December 1923
• Docket Number: 180,57
• Parties: WESTERN LAWRENCE COUNTY ROAD IMPROVEMENT DISTRICT v. FRIEDMAN-D'OENCH BOND COMPANY

258 S.W. 378

162 Ark. 362

WESTERN LAWRENCE COUNTY ROAD IMPROVEMENT DISTRICT v. FRIEDMAN-D'OENCH BOND COMPANY

No. 180, 57

Supreme Court of Arkansas

December 17, 1923

Appeal from Lawrence Circuit Court, Western District; Dene H Coleman, Judge; reversed.

Judgment reversed and complaint dismissed.

Poindexter & Irby and Ponder & Gibson, for appellant.

1. The warrant sued on was not negotiable. 3 R. C. L. 849; 19 Wall. (U. S.) 468; 103 U.S. 74; 5 Am. St. Rep. 476; 11 Am. St. Rep 227; 39 Am. Rep. 63; 104 Am. St. Rep. 225; 87 Am. Dec. 423; 97 Am. St. Rep. 383; 17 Am. St. Rep. 470; 26 Am. St. Rep 604; 25 Ark. 266; 41 Ark. 245; act No. 293, Acts 1917, §§ 9 and 12.

2. Not being negotiable, the warrant was, in the hands of appellee bond company, subject to all defenses which might have been made against Turner; and, even if it should be considered as negotiable, the bond company, being interested as purchaser along with Turner, would be liable for damages for the breach of their contract of purchase of the bond issue of the district.

3. The court erred in homing that the contract entered into with Turner was void, and in instructing a verdict for the plaintiff. 106 Ark. 39; 119 Ark. 197; 149 Ark. 476; 145 Ark. 279; 115 Ark. 437; 151 Ark. 47.

Rose, Hemingway, Cantrell & Loughborough, for appellee.

1. The instrument sued on is negotiable. Acts 1917, vol. 2, p. 1503, § 12; 152 Ark. 422; 15 N.Y. 337, 69 Am. Dec. 606; C. & M. Digest, § 7896; Brannan's Negotiable Instruments Law, 357, § 130; 8 Corpus Juris, 42, §§ 23-4. Since it is undisputed that the district has received full face value of the warrant, it is immaterial whether it is negotiable or not. 158 Ark. 58.

2. The contract was void because entered into before the plans for the improvement and the assessment of benefits were made. 108 Ark. 460; 111 Ark. 421; 119 Ark. 188; 149 Ark. 477; 150 Ark. 94; 151 Ark. 47, 55; 153 Ark. 582; 158 Ark. 284.

3. There can be no recovery because the bonds actually sold were different from those contracted for. 234 U.S. 36; 245 U.S. 337, 344; 197 N.Y.S. 80; 217 S.W. 635.

4. Appellant cannot make the appellee pay for the consequences of its own folly in building the roads at a time when labor and materials were most expensive, and when bonds were selling at the minimum price. 134 Ark. 345-8; 137 Ark. 397-402; 123 Ark. 1-8; 102 Ark. 246, 251; 118 Ark. 13-16; 146 Ark. 585-592. The courts will take judicial notice of matters of public history. 150 Ark. 514-516; 144 Ark. 522, 526; 137 Ark. 600, 612.

SMITH, J. MCCULLOCH, C. J., dissenting. Mr. Justice HART concurs in these views.

OPINION

SMITH, J.

Appellee is a corporation, and will be hereinafter referred to as the company. It was the plaintiff below, and for its cause of action alleged that the defendant road improvement district, hereinafter referred to as the district, in consideration of $ 12,500 in money advanced to the district, executed to S. P. Turner the negotiable warrant of the district in the following form:

"Western Lawrence County Road Improvement District.

"Pay to the order of S. P. Turner, Hardy, Ark., the sum of twelve thousand five hundred no/100 dollars ($ 12,500) with 6 per cent. interest from date until paid.

"On account of advance on bond purchase of said district.

"Dated this 10th day of September, 1919.

(Signed) "Clay Sloan, Chairman.

"D. W. Kaiser, Secretary."

That plaintiff was the owner of said warrant; that same was overdue, and demand for payment had been refused, wherefore judgment was prayed.

The district, for its answer, alleged that it was created by special act No. 293 of the Acts of the General Assembly of 1917, and was given authority to construct certain roads, and in payment thereof to issue negotiable bonds of the district, and that, pursuant to this power, the district, on August 18, 1919, contracted with S. P. Turner, as the agent of the company, for the sale of $ 450,000, more or less, of the bonds of the district for the price of $ 439,065, or in that proportion, for the bonds issued to complete the work, payment to be made to meet the requirements of the district in constructing the improvement. That the sale to Turner, as agent of the company, was made pursuant to the terms of a written proposal to purchase, which writing concluded with the following paragraph: "In the event you should sell me these bonds, and your board should need a small fund to meet current and incidental expenses for your preliminary work, I would be glad to let you have, say, any amount up to twenty-five hundred dollars ($ 2,500) on your warrant, payable six (6) months, with six per cent. (6 per cent.) interest."

That, after the acceptance of this proposal to purchase, the district notified the company that $ 12,500 would be required for current and incidental expenses and preliminary work, and the company agreed to furnish the money, and did furnish it in the manner hereinafter set out, and received in payment, or as security, therefor, the warrant sued on.

There was an allegation in the cross-complaint filed by the district that the company had defaulted in its contract for the purchase of the bonds, and that, to meet its obligations, the district had been compelled to resell the bonds sold to the company, at a price less than the contract price, and there was a prayer for judgment for the loss thus sustained.

At the conclusion of all the testimony the court directed the jury to return a verdict in favor of the company, upon the ground that the contract for the sale of the bonds was made before the assessment of benefits, and was therefore void, and that consequently the company was under no legal obligation to buy the bonds, and, as it was not denied that the district had received the $ 12,500, judgment was rendered therefor, and the district has appealed.

For the affirmance of the judgment the company insists that the court properly directed a verdict in its favor, upon the ground stated, and also for the reason that the writing sued on is the negotiable promissory note of the district, which the company acquired, for value, as an innocent purchaser.

Inasmuch as the verdict was directed in favor of the company by the court, we must, of course, give the testimony its highest probative value in favor of the district in considering the questions of fact involved.

We consider, first, the question whether the writing is in fact a negotiable instrument in the sense that the district may not interpose the defenses set up in its answer and cross-complaint.

It will be observed that it appears, from the face of the instrument itself, that it was issued by a governmental agency, and that it is unlike the instrument involved in the case of Road Imp. Dist. No. 4 v. Southern Trust Co., 152 Ark. 422, 239 S.W. 8, which was in the form of a promissory note. The writing here involved is not in form a promissory note, but is an order on the district for a sum of money, which, in the contemplation of the parties, could not be paid and was not intended to be paid until funds had been derived from the sale of the bonds themselves with which to make the payment. It is such an instrument as is ordinarily designated as a warrant. The undisputed testimony is that Mr. Duhme, the company's secretary and its admitted representative, was present when the issuance of this warrant was authorized by the board of commissioners of the district, and knew all the circumstances attending its issuance. Duhme knew, as the warrant itself recites, that it was issued "on account of advance on bond purchase of said district," and was issued pursuant to the paragraph set out above, which is copied from Turner's proposal to purchase the bonds, in which it was agreed to make a preliminary advance, Turner having agreed in Duhme's presence, to make an advance of $ 12,500, instead of $ 2,500, as at first proposed; and Duhme also knew that the warrant covered that advance. In other words, the company had full knowledge of the contract for the purchase of the bonds, and of the consideration for the warrant. This fact will more fully appear in a discussion of another feature of the case, and we conclude therefore that the verdict should not have been directed in favor of the company upon the theory that it was an innocent purchaser for value.

At the time the warrant was issued by the district and acquired by the company, there had been no assessment of the benefits, and the warrant was, on that account, a tentative obligation which might never acquire validity in the hands even of an innocent purchaser, for, as will hereafter be fully shown, the district had no power to make enforceable contracts, except for preliminary expenses, until the betterments to accrue from the proposed improvements had been assessed and the fact ascertained that the betterments would exceed the cost of the improvement.

The controlling questions of fact are these: (1) Did Turner contract for himself, or for the company, for the purchase of the bonds? (2) Was the tentative contract ratified after the assessments had been completed and the power thus conferred on the district to make a valid enforceable contract?

Mr Duhme testified, on behalf of the company, that the company was not a party to the contract for the purchase of the bonds, and that he was present, during the negotiations for the purchase of the bonds, in an advisory capacity only to Turner, who was acting solely for himself. Turner corroborates this statement. It appears, however, that Duhme was present during the negotiations, and actively participated in all the discussions relating thereto. The attorney for the district testified that, during these negotiations, Duhme stated what should be done in buying the bonds, so far as the...