Court Opinion

ID: 3681036
Source: CourtListenerOpinion
Date Created: 2016-07-06 06:26:36.06978+00
Date Added: 2024-06-11T14:09:08.706325
License: Public Domain

It is contended on this appeal (Dakota Trust Company case): (1) That the trial court erred in entering the judgment against the defendant city as a general liability of the city; (2) that the warrants are not negotiable instruments and that the plaintiffs can have no rights thereon different from the rights of the John O'Connor Company; that it manifestly *Page 369 
appears that the city has defenses to the warrants in the hands of the John O'Connor Company by reason of the manner in which the work was done; that the work had not in fact been done to the satisfaction of the city engineer and it had not in fact certified to its completion. These contentions will be considered in their inverse order.
When a contract is entered into for the doing of a public work in the nature of a special improvement to be paid for by assessments levied against property benefited, the carrying out of the contract on the one side and its supervision on the other, become administrative matters. Weston v. Syracuse, 158 N.Y. 274, 43 L.R.A. 678, 70 Am. St. Rep. 472, 53 N.E. 12, and when, during the course of performance, partial estimates are allowed from time to time upon the report of the engineer and warrants are issued, the city has effectually made a representation that the contractor, through partial performance, is entitled to that portion of the consideration incorporated in the estimate and the approval. It retains the withheld portion of the consideration and the contractor's bond as security for the uncompleted part of the contract. While, as the appellant contends, the warrants are not negotiable in the sense that a purchaser and transferee takes them free of defenses available to prior parties as between themselves, it does not follow that they may not be transferred in circumstances that will preclude the obligor from asserting as against the transferee, that by reason of facts occurring subsequently it had acquired a defense which it could urge if the warrants were still in the hands of the contractor. Long Beach School Dist. v. Lutge, 129 Cal. 409, 62 P. 36; Newport Wharf 
Lumber Co. v. Drew, 125 Cal. 585, 58 P. 187. So here, the city, having by resolution of its city council declared the contract to have been so far performed that the contractor was entitled to a stated portion of compensation, and it having given to it written evidence of its right to be satisfied pro tanto out of funds which it was the city's duty to raise, is precluded, as against any person relying upon the representation, to assert the contrary. Section 3710 of the Compiled Laws for 1913 expressly provides for partial payments to the contractor in the discretion of the city council, as the work progresses, up to 85 per cent of the amount earned. We can see no distinction in this respect between the issuance of a warrant *Page 370 
to a contractor and its subsequent transfer by him to third parties, before any defense has arisen thereto, in reliance upon the acts preceding their issuance and a direct sale of the warrants by the city authorities to third parties. Section 3711 of the Compiled Laws for 1913 provides that warrants may be used in making payments on contracts "or may be sold for cash" and the proceeds credited to the fund and used for paying for such improvements. In case of the sale of the warrants for cash and the disbursement of the proceeds, or a portion thereof, to the contractor from time to time, it would hardly be contended, we believe, that the city could defend an action upon the warrants by establishing the failure of the contractor to complete the contract in accordance with plans and specifications. Yet, if the warrants be considered as issued, as the appellant contends, forthe sewer system, there would be as much room to assert failure of consideration in the one case as in the other. The statute, by providing for the issuance of the warrants and for their sale, seems clearly to contemplate that a warrant once legally and regularly issued shall be the binding obligation of the city to the extent indicated therein, and it further contemplates that the interests of those affected by the improvement shall be safeguarded through a bond and the retention of sufficient funds or warrants to secure compliance with the contract. Manifestly, no warrant would be salable if liable to be defeated on account of the subsequent failure of the contractor. Yet the statute expressly authorizes a sale. We are of the opinion that the purchaser of warrants, who in good faith relies upon a record made by the city council showing that they were regularly issued under the contract, holds them free from defenses arising out of subsequent breaches of the contract. Long Beach School Dist. v. Lutge, and Newport Wharf  Lumber Co. v. Drew, supra. We do not, of course, hold that the warrants are in any sense negotiable. They are assignable choses in action and are subject, in the hands of the assignee, only to such defenses on the part of the city as existed at the time or before notice of the assignment. Comp. Laws 1913, § 7396.
The evidence does not establish bad faith on the part of the Dakota Trust Company, in acquiring the warrants in question, but it shows that it acted in reliance upon the record of the city council as to their issuance. For these reasons we are of the opinion that the *Page 371 
Dakota Trust Company, being the holder of warrants issued upon partial estimates, under § 3710 of the Compiled Laws for 1913, holds free from defenses that might have been urged against the John O'Connor Company on account of subsequent breaches of contract.
We regard the merits of this case as substantially disposed of in the foregoing portion of this opinion. However, the contention of the appellant that the judgment is erroneous because it adjudges recovery against the city, rather than against the special assessment district and limited to assessments to be made, has received our consideration. In the case of Pine Tree Lumber Co. v. Fargo, 12 N.D. 360, 96 N.W. 357, at page 375, it was said:
"The contractors, by accepting warrants payable out of these special funds, had a right to rely upon the city's performing with all expedition the acts necessary to create the fund out of which the warrants would be retired. The contract duty of the city, under the construction we have assumed, was not only to make proper assessments, but to put in operation the proper machinery to collect these assessments, and to see that the money was actually collected within a reasonable time after the issuance of the warrants; that such moneys, when collected, should be held in the special funds, and paid out only upon the warrants issued against these funds; and that the moneys would not be diverted to any other purpose. (Citing authorities.) If this duty had been fully performed by the city, this action never would have been commenced or made necessary."
As between the city and the holder of the warrants in question, there can be no doubt but that the city has been remiss in its obligations, either express or implied from its contract, to take the necessary steps to enable the holders of the warrants in question to realize upon them, and we are of the opinion that this breach on the part of the city is sufficient to bring it within the rule announced and applied in Pine Tree Lumber Co. v. Fargo, supra. It follows that the judgment in this case must be affirmed. It is so ordered.
CHRISTIANSON, Ch. J., and BURKE, JOHNSON, and NUESSLE, JJ., concur. *Page 372