Case ID: nc_143/html/0299-01.html
Source: Caselaw Access Project
Author: {"author": "CoNNOR, J.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

WEBB v. TRUSTEES.
    (Filed December 11, 1906).
    
      Contract to Purchase Bonds — Approval of Attorney — Condition Precedent — Preliminary Negotiations.
    
    1. Where the plaintiff proposed to purchase certain bonds issued by the defendant, “when legally issued to the satisfaction of our attorney,” which proposition was accepted by the defendant, the approval of the attorney selected to pass upon the validity of the bonds, honestly and fairly expressed, was a condition precedent to the completion of the purchase.
    2. The correspondence or negotiation leading up to a proposition to purchase bonds is not material, where the proposition made by plaintiff and accepted by defendant was the result .of such negotiation, and their relative rights and liabilities must be ascertained and declared upon the plain and unambiguous language found therein.
    ActioN by C. A. Webb, doing business as C. A. Webb & Co., against Board of Trustees of tbe Morganton Graded School District, heard by Judge 0. H. Allen and a jury, at the June Term, 1906, of the Superior Court of Buncombe.
    The Legislature of North Carolina by chapter 455, Laws 1903, incorporated the Morganton Graded School, naming trustees thereof, and by chapter 174,- Laws 1905, authorized the said trustees to submit to the voters of the said Morganton School District a proposition for the issue of school bonds to the amount not exceeding $20,000, running forty years from date of issue, bearing interest at a rate not exceeding six per cent. At an election held pursuant to the provisions of said act, said trustees were authorized to issue the said bonds in accordance with the.said proposition. Pursuant thereto the said trustees advertised for bids for said bonds to the amount of $15,000.
    On 27 July, 1905, the plaintiff, C. A. Webb, doing business, under the firm name and style of C. A. Webb & Co., submit-tecl to said board a proposition to buy said bonds, as follows: “Eor tbe fifteen thousand dollars of coupon bonds of Morgan-ton Graded School District, due and payable forty years from date, with option of prior payment at the expiration of twenty years from date, drawing interest at the rate of five per cent., payable semi-annually, both principal and interest payable at the First National Bank of Morganton, to be dated 1 September, 1905, we will pay yon par and interest, and a premium of $030 and furnish free blanks upon the delivery' of the same to xis at Asheville, when legally issued to the satisfaction of our attorneys. We herein enclose certified check for $500 as guarantee to faithfully carry out this proposition.”
    At the time of submitting said proposition plaintiff enclosed a certified check on the Battery Park Bank of Ashe-ville for $500, endorsed to the president of the board of trustees, as follows: “Pay to the order of John II. Pearson upon our failure to comply with our contract this day made for the purchase of fifteen thousand dollars Morganton Graded School bonds. (Dated) July 27, 1905.”
    At the time of said proposition the defendant trustees were in correspondence with a number of bankers and brokers, dealers in securities of that character. Without advising with counsel, said trustees had, before that time, offered to sell bonds maturing in twenty years instead of forty years; the plaintiff instead of expressing a preference for bonds running twenty years, was of the opinion that said trustees were not authorized to issue said bonds, but did have authority to issue the bonds due and payable forty years from date, with option of prior payment at the expiration of twenty years from date. Immediately upon filing said proposition the said trustees ceased to negotiate with the proposed purchasers of its school bonds, and caused publication to be made that the said bonds had been sold to the plaintiff; the plaintiff submit- • tecl to bis attorneys in the city of Boston a certified copy of the act ” authorizing the said issue of bonds and all other certified records which had, at that time, come into the hands of the plaintiff, which tended to show the legality of said bonds, with a request that said attorneys render a legal opinion in respect to the legality thereof. That on 8 August, 1905, the said attorneys, Storey, Thorndyke, Palmer & Thayer, gave to the plaintiff their opinion in writing, saying: “The statute provides for bonds ‘running forty years from date of issue’ and the notice of election provides for bonds ‘to run forty years from date of issue.’ In our opinion the bonds must run for forty years without option of prior payment. This result, apparently, does- not coincide with your contract, or the contention of the board. Awaiting the further papers which you are to send us, and also awaiting your instructions as to whether in the circumstances we shall proceed to complete the examination, we are, etc.” Immediately upon receipt of said opinion, plaintiff submitted same to defendant Board of Trustees, advising said defendant that because of the failure of said attorneys to approve and pass the validity of the character of bonds mentioned in said contract said plaintiff would not take up and pay for the bonds mentioned in said contract unless the defendant would submit the facts with reference to said maturities to the Superior and Supreme Courts of North Carolina for an early decision upon the question as to whether said bonds should run for a period of forty years or could be issued so as to provide for an optional payment at the expiration of twenty years. Said proposition was declined by said board. The said board sent said check to the Battery Park Bank at Asheville for collection and withholds the same, refusing to surrender to the plaintiff. Subsequently the defendants sold the said bonds to the amount of $15,000 for a premium of $2.50 on the $100.
    
      Plaintiff introduced tbe deposition of Henry Ware, Esq., a member of tbe firm of Storey, Thorndyke, Palmer & Tbayer, wbo testified tbat be bad been engaged for' over nine years in examining records and papers relating to municipalities in North Carolina. Tbat be examined tbe records, etc., relating to tbe issue by the defendant trustees, at tbe request of tbe plaintiff, and was of opinion tbat tbe bonds issued either in accordance with tbe contract of purchase, tbat is, payable forty years from tbat date, with the option of prior payment at the expiration of twenty-years, would not be, or have been, legally authorized, for tbe reason tbat tbe statute authorizing, tbe bonds required them to run forty years from date, and did not authorize said trustees to make them payable at an earlier date, either absolutely or at its option. Tbat be communicated said opinion to tbe plaintiff on 8 August, 1905. He says: “I gave tbe said opinion in absolute good faith, honestly believing tbat I was correct in tbe same, and I still so believe.”
    Tbe defendant moved for judgment upon tbe pleadings, and this being denied, there was an exception. Thereupon bis Honor submitted tbe following issue to tbe jury: “Did tbe attorneys advise against tbe legality of tbe bonds as alleged in the fifth article of tbe complaint? Answer: Yes.”
    There were certain exceptions to the testimony and tbe rulings of bis Honor specifically set forth in tbe assignments of error and appearing in tbe opinion. Judgment being rendered for tbe plaintiff, tbe defendants duly excepted, and appealed.
    
      Avery & Ervin, G. A. Webb, and W. 0. Neiuland for tbe plaintiff.
    
      Avery & Avery for tbe defendant.
   CoNNOR, J.,

after stating tbe case: Tbe terms of tbe proposition made by plaintiff to purchase tbe bonds issued by defendant, “when legally issued to tbe satisfaction of our attorneys,” are plain and unambiguous. Similar provisions are frequently found in contracts for purchasing bonds, loaning money, buying stocks, building houses, purchasing land, etc. They are regarded as both wise and reasonable, and are uniformly sustained by the courts. In regard to the purchase of municipal bonds, the value of which for sale on the market is so largely dependent upon the approval of counsel skilled and learned in the laws controlling their issue, it is a most prudent provision. In the light of the frequent litigation growing out of the issue of such bonds, -often disastrous to holders, to purchase them without some such protective provision would be imprudent and unsafe. However this may be, parties have the legal right to make such contracts, and it is the duty of the courts to give the language a fair and reasonable interpretation. When so interpreted, we can have no doubt that.the approval of the attorneys, as to the legality of the issue, honestly and fairly expressed, was a condition precedent to the completion of the purchase. We may not interpolate into it any other language or give it any other construction. It is uniformly held by the courts that, in the absence of any allegation and proof of bad faith or arbitrary conduct on the part of the person selected to pass upon the validity of the bond or performance of the contract on the part of the person seeking its enforcement, his approval is a condition precedent and is essential to the right to demand performance. It is usually held that when it appears from the pleadings that such provision is a part of the contract, the failure to aver compliance is demurrable.

In Young v. Jeffreys, 20 N. C., 357, it appeared that certain persons had made subscriptions for the purpose of building a Methodist Church. The work was to be done according to specifications and accepted by the Commissioners appointed to pass upon it. The objection being made to the payment of the subscriptions that the work had not been. accepted, and that such acceptance was a condition precedent to the payment, Gaston, J., sustaining a motion for judgment by defendants, said: “There is nothing unreasonable, much less illegal, in such a condition. Whether a work of art has been done with proper materials and in a workmanlike style is .an inquiry on which honest differences of opinion may prevail even among persons skilled in the art, and on which men of ordinary pursuits are very unfit to pass. ít is, therefore, in agreements for works of this kind, a prudent and common stipulation for the prevention of controversies that the construction of the work shall be determined by some persons in whose judgment the parties have confidence. If, however, the judgment of the forum appointed by the parties is to be disregarded, or revised by a court and jury, the stipulation is unmeaning.” Wharton Const., 593. If the contract is to be performed to the satisfaction of another, the decision of such person, if honest, is final, no matter how unreasonable. Brown v. Foster, 113 Mass., 136. In Church v. Shanklin, 95 Cal., 626, the contract was made to depend upon the perfecting title to certain property “to the satisfaction of Ohurch & Cory, attorneys.” Patterson, J., said: “The record fails to show that Ohurch & Cory refused to express satisfaction with the plaintiff’s title through any fraudulent or improper motive. * * * It was doubtless the object of the parties to avoid disputes and expensive litigation; certainly some effect must be given to the stipulation contained in the agreement. To hold that the opinion of the Court as to’the validity of the title can be substituted for that of the arbitrators, would defeat the intention of the parties and, in effect, make a new contract for them. This the Court has no right to do. The parties saw fit to make Ohurch & Cory the umpires between them, and if the latter exercised their best judgment in good faith and with an honest intention of determining the question as to the validity of the title, their conclusion is final and binding.”

In Mich. Stone, etc., Co. v. Harris, 81 Fed. Rep., 928, tbe same question arose upon the construction of a contract for the purchase of municipal bonds, the language being: “We to furnish you with certified transcript of proceedings evidencing legality of issue to the satisfaction of your attorneys prior to the delivery of same.” Judge Lurton said: “The subject-matter of this contract was the negotiable bonds to be issued for street improvements to be made-under a contract between the city and the plaintiff in error. They had not been issued when this agreement was entered into. It was a most reasonable and prudent thing for proposing purchasers to stipulate for some security against the invalidity of such bonds before being required to receive and pay for them. * * * The plain meaning of this contract was: (1) That plaintiffs in error were to furnish certified copies of the proceedings under which these bonds were issued. (2) Defendants in error were to fairly and honestly submit this record, when furnished, to the judgment of the counsel selected by them. (3) The counsel thus selected must not capriciously and arbitrarily reject tire bonds, but on the record, honestly and fairly give his judgment as to their legality. * * * The buyers employed counsel, a gentleman particularly shilled in the matter of the validity of municipal bonds, and submitted this evidence to him and procured his opinion. * * * The question of the validity of the bonds was to be settled by the opinion of a third person, whose judgment was to be a legal opinion based upon the law and facts touching these bonds. Neither party would be concluded by an opinion rendered arbitrarily and without the honest intent of deciding fairly and rationally. The contract seems to come fairly within the principle applicable to contracts under which settlements between parties are made dependent upon the certificate of some third person. The rule in such cases is that, in the absence of fraud, or such gross misconduct as would necessarily imply bad faith, or tbe failure to exercise an honest judgment, tbe action, of sucb third person should conclude tbe parties.” Kihlberg v. U. S., 97 U. S., 398; Railroad v. March, 114 U. S., 549; Averett v. Lipscomb, 76 Va., 404.

There is no suggestion that tbe gentlemen selected by plaintiff’s attorneys to pass upon tbe validity of tbe bonds were not competent or that they did not honestly and in good faith investigate and give their opinion upon tbe question submitted to them pursuant to tbe contract. While we have not undertaken to investigate or express any opinion respecting tbe validity of tbe bonds proposed to be issued, containing tbe twenty-year option, we regard it as sufficiently serious to arrest attention and, in tbe absence of controlling authority, cause counsel to decline to express satisfaction of their validity. Certainly tbe question cannot be said so free from doubt as to suggest an arbitrary refusal to approve them. We do not think that tbe correspondence or negotiation leading up to tbe proposition material. Tbe proposition made by plaintiff and accepted by defendant was tbe result of sucb negotiation, and their relative rights 'and liabilities must be ascertained and declared upon tbe plain and unambiguous language found therein. We concur with bis Honor’s rulings upon tbe several exceptions. Tbe issue submitted to and found by tbe jury, in tbe light of tbe contract, settled tbe right of tbe plaintiff.to tbe relief demanded. Tbe exceptions to tbe answers of Mr. Ware cannot be sustained. Nor was tbe proposed testimony of Mr. Ervin material. Tbe judgment was correctly rendered "upon tbe pleadings, and the verdict must be affirmed.

No Error.