author: Hart, C. J.,

text:
    Natural Gas & Fuel Corporation v. Norphlet Gas & Water Company.
    Opinion delivered February 21, 1927.
    1. Gas — franchise to furnish gas. — A franchise granted by a town council to a corporation to furnish gas for heat, light and power, when accepted, becomes a binding contract to he governed by the same rules and principles that control other contracts.
    2. Municipal corporations' — validity of ordinance granting franchise. — Where the ayes and noes were not called and recorded, as required by Crawford & Moses’ Dig., § 7528, in passing an ordinance granting an exclusive, franchise to furnish gas to'the inhabitants óf a town, the ordinance was invalid.
    3. Municipal corporations — estoppel to deny validity of ordinance. — By permitting a gas company to expend large sums of money in laying gas mains in streets, and in other respects to act upon the assumption that an ordinance granting it an exclusive franchise to furnish gas to the inhabitants of a town was valid, the town is estopped to deny the validity of the ordinance, though it was not passed as required by Crawford & Moses’ Dig., § 7528.
    4. Municipal corporations — effect of estoppel. — Though a municipal corporation was estopped to deny the validity of an ordinance granting to a gas company an exclusive franchise to furnish gas to its inhabitants, a rival gas company which had acquired vested'rights to supply a portion of the inhabitants of the town was not concluded by the estoppel of the town.
    5. Gas — right to contest exclusive franchise. — Where a gas company established its mains and secured contracts to supply the inhabitants of an unincorporated village, it acquired rights entitling it, upon the subsequent incorporation of the village, to contest the validity of a town ordinance granting an exclusive franchise to supply gas to a rival gas company.
    Appeal from Union Chancery Court, First Division; J. Y. Stevens, Chancellor;
    affirmed.
    STATEMENT OE FACTS.
    Norphlet Gas & Water Company and the town of Norphlet brought this suit in equity against the Natural Gas & Fuel Corporation to enjoin it from furnishing natural gas to the inhabitants of the town of Norphlet and to require it to remove its pipe lines and gas mains from the streets and alleys of the town of Norphlet. The suit was defended on the ground that Natural Gas & Fuel Corporation had a contract with the inhabitants of the town of Norphlet to lay its gas' mains in the streets of the town and to furnish gas to its.inhabitants, and that the' purported franchise of the Norphlet Gas & Water Company was invalid.
    On the part of the plaintiffs, it was shown that, on June 1, 1925, the town of Norphlet granted to the Nor-phlet Gas & Water Company an exclusive franchise for the term of twenty-five years to lay its gas mains in the ■ streets and alleys of said town and to furnish the inhabitants thereof with natural gas for heat, light and power.
    On the part of the defendant it was shown that a charter was granted to it by the State of Arkansas on the 11th day of April, 1922. By the terms of its charter it was given power to establish, construct and operate pipe lines and other appurtenances for distributing and marketing gas and other mineral products. It was also given the power to distribute and deliver such gas through its own pipe lines and other appurtenances suitable for that purpose, and to purchase, lease or contract for all such machinery or property as might be incident and necessary to any of the objects granted. Pursuant to the provisions of its charter, it obtained an easement or right-of-way to lay its gas mains from the gas fields to the village of Norphlet before it was incorporated as a town. It obtained an easement from the owners of the "real property in the village to lay its mains along the public highways and streets of the village. In the beginning, it had about one hundred customers. When gas and oil were discovered in that territory, the village of Norphlet greatly increased in population, and the defendant extended its gas mains to furnish natural gas to the inhabitants thereof. At the time the town was incorporated it had 2.500 inhabitants, and the defendant had from 275 to 300 domestic consumers of natural gas. It had about 25 industrial consumers, and also furnished gas to blacksmiths and machinery shops in said town. At this time it had expended about $20,000 in laying its gas mains and in preparing- to furnish the inhabitants of the town of Norphlet with natural'gas. After the town of Norphlet granted to the Norphlet Gas & Water Company its franchise, that company expended something over $50,000 laying its gas mains and in preparing to serve the inhabitants of the town of Norphlet with natural gas.
    The chancellor found the issues in favor of the plaintiffs, and the defendant was enjoined from furnishing natural gas for any purpose to people living within the corporate limits of the town of Norphlet; and it was ordered to remove its pipe lines and equipment for furnishing natural gas from the streets and alleys of said town. The case is her'e on appeal.

      Pace & Bams, Jeff Davis and B. E. Wiley, for appellant.

      O. E. Garner, for appellee.
   Hart, C. J.,

(after stating the facts). A franchise granted by a city council to a public service corporation to furnish gas for heat, light and powex*, when accepted, becomes a binding contract, to he governed by^the same rules and principles that control other contracts. Mena v. Tomlinson Bros., 118 Ark. 116, 175 S. W. 1187; Arkansas Light & Power Co. v. Cooley, 138 Ark. 390, 211 S. W. 664; Pocahontas v. Central Power & Light Co., 152 Ark. 276, 244 S. W. 712; and El Dorado v. Citizens’ Light & Power Co., 158 Ark. 550, 250 S. W. 882.

The record in the case at bar, however, fails to show that the ayes and nays were called and recorded as required by § 7528 of Crawford & Moses’ Digest upon the passage of the ordinance granting an exclusive franchise to the Norphlet Gas & Water Company to furnish natural gas to the inhabitants of the town of Norphlet for the period of twenty-five years. The section of the digest just referred to has been held mandatory, and a failure to comply with it makes the ordinance void. Cutler v. Russellville, 40 Ark. 105, and Arkansas Light & Power Co. v. Cooley, 138 Ark. 390, 211 S. W. 664.

But it is insisted by counsel for the plaintiffs that the town of Norphlet is estopped from questioning the validity of the ordinance because it has stood by and allowed the Norphlet Gas & Water Company to expend great sums of money in laying its gas mains in the streets and alleys of the town and in purchasing equipment for the purpose of carrying out its contract. The record shows that it has expended over $50,000 in making preparations for carrying out its contract, and that it is fully equipped to do so. In this connection it may be said there is a marked distinction between the doctrine of estoppel as applied to ultra vires and intra vires contracts of municipal corporations, which are recognized both by the text-writers and the adjudicated cases on the subject.

On this question Judge MeQuillin says:

“A municipality cannot be estopped to question the use of its streets without a franchise, or the validity of a franchise where it has no power to grant such a franchisq. * * * On the other hand, if a municipality has the power to grant a franchise and a public service company uses the streets with the knowledge of the municipality, the latter may be estopped to question the right to use the streets without a franchise, or the validity of the franchise granted, where it does not violate statutory or charter requirements. For instance, a municipality which has acquiesced for years in the use of its streets by a public service company, which has spent thousands of dollars in connection with such use, and which has received the benefits of such use of the streets and has regulated the use and levied licenses and granted permission as to certain uses, cannot contest the right of the company to use the streets. Likewise, acquiescence by a municipality in the use of streets by a railroad company, pursuant to a grant of such right by the Legislature, precludes the municipality from objecting thereto. ’ ’ 4 MeQuillin, Mun. Corp., § 1687.

Judge Dillon says:

“And if the municipality has the power to grant such right or franchise, and a' corporation, believing and assuming that it has the consent or grant of the municipality, has, with the knowledge of the proper municipal authorities, proceeded to exercise the right of franchise, land has constructed, maintained and operated its works and appliances in the city streets, the municipality will, in á proper case, be estopped by the acts and conduct of its officers and representatives, in knowingly permitting and acquiescing in the use and occupation of the streets, from asserting the invalidity of the grant of the franchise, so far, at least, as concerns its own failure to pass an ordinance or take steps necessary to effectuate the grant.” 3 Dillon, Mun. Corp., 5th ed., 1242.

In City Railway Co. v. Citizens’ Street Railroad Co., 166 U. S. 557, 17 S. Ct. Rep. 653, in discussing the subject, the court said: “All that is necessary to create an estoppel in pais is to show that, upon the faith of a certain action on the part of - the city, which it had power to take, the company incurred ia new liability; as, for example, by the negotiation of a new loan, and the issue óf a new bond and mortgage to secure the same.”

In City of Louisville v. Cumberland Tel. & Tel. Co., 224 U. S. 649, 32 S. Ct. Rep. 572, it was held (quoting from the syllabus) :

“Permitting the transferee of a franchise to act thereunder and expend large sums of money and exacting from it a bond to comply with the conditions of the franchise will operate to estop a municipality from denying that the franchise was transferable and the transferee had succeeded to all the rights of the transferring corporation.”

In Moore v. New York, 73 N. Y. 238, 29 Am. Rep. 134, the rule was tersely stated as follows:

“The unauthorized acts of city authorities — that is, those ultra vires, in the sense that- they are not within the general powers conferred, are not binding on the corporation, and corporations are not estopped by acts of corporate agents strictly ultra vires. A city may set up as a defense its own want of power under its charter to contract, but, in favor of bona fide holders of its negotiable securities, and, .by parity of reasoning, those innocently dealing with it, and in good 'faith parting with property and expending money for its benefit, it may 'be estopped to avail itself of irregularities in the exercise of the power conferred.”

These and many other authorities to the same effect may be found in a case-note to 7 A. L. R. 1248 et seq.

This distinction has been recognized and applied by this court. In Newport v. Railway Company, 58 Ark. 270, 24 S. W. 427, the town of Newport was sued to recover an amount alleged to be due on a 'contract to construct a levee. The court held that, inasmuch as the contract sued on was not within the scope of the corporate powers of the town, it could not be ratified, and the town was not estopped by having accepted and received the benefit of the work done under it. On the other hand, in Town of Searcy v. Yarnell, 47 Ark. 269, 1 S. W. 319, it was held that a municipal corporation has the power to dispose of property held for general convenience, pleasure, or profit. It was further held that á contract of sale by a municipal corporation which is fair and lawful, and fully performed by both parties, cannot afterwards' be avoided by the corporation on the ground of ultra vires. The principle was again applied in the case of Town of Augusta v. Smith, 117 Ark. 93, 174 S. W. 543.

Again, it is insisted by counsel for the defendant that, even if the town'of Norphlet should be held to be estopped from questioning the validity of the ordinance to the Norphlet Gas & Water Company, this estoppel would not apply to the Natural Gas & Fuel Corporation. As will appear from our statement of facts, this corporation received a charter from the State of Arkansas authorizing it to construct and operate pipe lines and gas mains for the purpose of furnishing natural gas to consumers. Pursuant to the authority thus granted, the company extended its gas mains and pipe lines to the village of Norphlet, under grants of some kind from the property owners allowing it to do so. It also acquired the right to lay its pipes and gas mains in the village of Norphlet and made arrangements to furnish about one hundred people who lived there with natural gas. When oil and gas were discovered, the population of the village began to increase rapidly, and the defendant extended its gas mains in proportion so that it might furnish gas to the inhabitants. At the time the town of Norphlet was incorporated the defendant had its pipe lines and gas mains all over the town, as they now exist, and was furnishing gas to between 275 and 300 domestic consumers and to about twenty-five industrial consumers. The record shows that there was no particular length of time to these contracts. They simply seemed to be during the will of the contracting parties. It is insisted that, under these circumstances, the right of the defendant was merely a license, and constituted no property right in it whatever.

In New Orleans Gas Co. v. Louisiana Light Co., 115 U. S. 650, it was held that municipal corporations constitute a part of the civil governments of the State and their streets and highways, which is the province of government to render safe. In carrying out this duty the distribution of gas by means of pipe lines in the streets or highways of a city is a franchise to he granted for the accomplishment of a public purpose.

Again, in City of Louisville v. Cumberland Tel. & Tel. Co., 224 U. S. 649, it was held that the right to use the streets in a city for the purpose of a public utility “has been called by various names — an incorporeal hereditament, an interest in land, an easement, a right-of-way— but, howsoever designated, it is property.”

This principle has been recognized and applied by this court in Clear Creek Oil S Gas Co. v. Fort Smith Spelter Co., 148 Ark. 260. In that case it was held that a corporation, organized under our statute for the purpose of developing and marketing natural gas, had a right to maintain its lines of pipes for that purpose along the public highways and the streets of cities or towns,with the consent of the authorities thereof, and that such corporation might become a public utility corporation if it wished to do so, but that, in any event, by complying with the statute as to its organization, it would acquire the right to extend its pipe lines and furnish gas to private consumers.

The defendant extended its.pipe lines to the village of Norphlet and obtained the right-of-way to lay its pipe lines along the streets of the public highways of the village. It then made contracts with the inhabitants of the village to furnish them with gas. These acts gave it a property right, which it had a right to protect from invasion in the courts. The defendant had the right to supply gas to the inhabitants of the village through pipes and mains laid in the streets and public highways as then constructed, upon performing the condition of its contract for service with the inhabitants of said village. This gave it a property right, and not a mere license. In this view of the matter, no estoppel on the part of the town of Norphlet could affect its right. It did not in any manner acquiesce in the Norphlet Gas & Water Company’s constructing its lines in the town of Norphlet, and it did nothing whatever to estop itself from contesting the validity of the ordinance attempted to be granted to the water company. If the right it possessed at that time to furnish gas to the inhabitants of the town was a property right, it could not be taken away by estoppel on the part of the town. The town could not have taken away its rights, even by passing an ordinance prohibiting it from furnishing gas to the inhabitants of the town. The town could only have taken away its right by granting an exclusive right to another company to furnish gas to the inhabitants of the town. As we have already seen, this was not done, and no estoppel on the part of the city should operate to take away any vested property, right of the defendant. The same equitable principles which would estop the city from questioning the invalidity'of the ordinance granted to the Nor-.phlet Gas & Water Company would also estop it from questioning the validity of the contract rights of the defendant. The rights of the defendant could not he taken away by a species of estoppel on the part of the city in a matter in which the city could not legally act for it.

Justices Wood, Smith and Kirby agree with the view herein expressed as to the estoppel on the part of the town of Norphlet, but they dissent from the view which holds that the town of Norphlet cannot act as the representative of the defendant and thereby estop it. They believe that the city acts as agent and trustee for its inhabitants in the premises; and that the estoppel on its part also operated to estop its inhabitants and the defendant. In other words, they are of the opinion that, the town being estopped to deny the validity of the franchise, the estoppel’ is as effective against the city and all others as though the franchise were valid and legally granted. On the other hand, Justices Humphreys, Mehapey and McHaney think the doctrine of estoppel has no application in the case. .They believe that the doctrine of estoppel allows the city to do indirectly what it is forbidden to do directly, and in practical effect to evade a plain mandatory provision of the statute.

The result of their divergent views is that tte view expressed by myself must control in the disposition of the case. According to my views, the municipality is estopped on its own account, and could not grant an exclusive franchise to any other company to furnish gas to* the inhabitants of the town of Norphlet during the life of the franchise, nor could it escape any of the liabilities imposed upon it in the way of making payments for city gas if such is provided in the contract. It does not seem to me, however, that an estoppel on the part of the city could operate to deprive the defendant of any of its property rights. The city could represent it only in a governmental capacity, but could not deprive it of any of its property rights under any species of estoppel as in the present case. The only way, It seems to me, that the town of Norphlet could take away the right of the defendant to furnish the inhabitants of the town of Norphlet with natural gas would be to pass a valid franchise to some other company giving it the exclusive right to furnish the inhabitants with natural gas. This would take away the right of the defendant, because it has no exclusive right and has no franchise right for any particular length of time.

In this connection it may he said that the defendant would have no right to extend its mains further, and can only furnish gas to the inhabitants of the city who are so situated that they may be served from the gas pipes and mains as now constructed.

It follows that the decree must he reversed, and the case will he remanded to the chancery court with directions to enter a decree in accordance with this opinion, and for further proceedings according to the principles of equity and not inconsistent with this opinion.

Smith, J., (dissenting). It was held in the case of Newport v. Railway Co., 58 Ark. 270, 24 S. W. 427, that a town could not, by ratification, make a contract binding which was ultra vires. But the granting of a franchise is not ultra vires. On the contrary, express authority to grant certain franchises is conferred. By § 749'2, C. & M. Digest, it is provided that “for the purpose of providing water, gas, electric light, heat, cold storage, or street railroad, the mayor and council may contract with any person or company to construct and operate such utilities, and may grant to such person or company, for a time which may be agreed upon, the exclusive privilege of using the streets and alleys of such city for such purposes, f * .

While a contract for a franchise can be made only by the passage of a resolution or ordinance, adopted by a majority of the council, upon the passage of which the yeas and nays were called and recorded, and a franchise not so granted is voidable in its executory stage, it does not follow that, because the contract is voidable in its executory stage, it can never have vitality or binding effect.

There are many cases which distinguish between a coni 'act which is ultra vires in the general and primary sens- that it is wholly outside of the power of the corpora n to make under any circumstances, and which is' therein re void in toto, and one which is ultra vires in the, restricted sense that the power to contract was irregularly exercised and which may or may not he validated.

In the chapter on Municipal Corporations in 19 R. C. L., § 428, page 1155, it is said: “And when a municipal corporation, having power to grant a particular franchise, undertakes to grant it, and the grantee, believing that it has a valid franchise, proceeds to erect its structures in the street and to exercise such franchise, with the knowledge and without the objection of the municipality, the latter will be estopped from asserting the invalidity of the franchise on account of defects* in the execution of the power. Conversely, a public service company, which takes and retains all the advantages and benefits of an ordinance under which it is permitted to operate its works in the streets, cannot escape the. performance of duties to the public imposed upon it by the ordinance, on the ground that the ordinance and the duties imposed by it are ultra vires both the municipality and the company.” The annotated case of Hagerstown v. Hagerstown R. Co., 123 Md. 183, Ann. Cas. 1916B, 1267, together with the cases cited in the annotater’s note, sustain the text quoted.

That a city may estop itself from denying its liability under a contract improperly made, but of which it has accepted the benefits, is decided in the cases of Forrest City v. Orgill, 87 Ark. 389, 112 S. W. 891; Texarkana v. Friedell, 82 Ark. 531, 102 S. W. 374; Oglesby v. Ft. Smith, 105 Ark. 506, 152 S. W. 145; Augusta v. Smith, 117 Ark. 93, 174 S. W. 543: Venable v. Plumerville, 130 Ark. 477, 198 S. W. 196. See also Dell Special School District v. Johnson, 129 Ark. 211, 195 S. W. 393; International Harvester Co. v. Searcy County, 136 Ark. 209, 206 S, W. 312.

Other authorities cited in the opinion of the Chief Justice sustain the view that a town may, by ratification, make valid a franchise granted by an ordinance improperly passed. There appears to be no question that, if such a contract can be ratified, the one here involved has been. It has been fully ¡acted upon after its acceptance.

It is also settled law-that, when a franchise-is granted and accepted, it becomes a contract to be construed like other contracts. Arkansas Light & Power Co. v. Cooley, 138 Ark. 390, 211 S. W. 664; Lackey v. Fayetteville Water Co., 80 Ark. 108, 96 S. W. 622; Little Rock Ry. & Elec. Co. v. Dowell, 101 Ark. 223, 142 S. W. 165; Hot Springs Electric Light Co. v. Hot Springs, 70 Ark. 300, 67 S. W. 761.

Appellee therefore has a valid franchise, purporting to give it the exclusive right to furnish gas to the inhabitants of the town of Norphlet. The question here to be decided would appear, therefore, to be whether it shall enjoy the benefits which such a grant ordinarily confers.

The majority hold that the franchise rights -of appel-lee are qualified by the prior vested rights of the appellant company. To that extent, at least, under the view of the majority, the exclusive franchise is not an exclusive franchise.

As the majority say, appellant did obtain a charter from the State, but that fact is unimportant here. Nothing in the charter gave it ¡any right to use the streets of the town of Norphlet. The charter merely gave it the right to construct and operate pipe lines in this State and to distribute gas when it thereafter acquired the right to do so. And what rights has it acquired so far as the town of Norphlet is concerned?

The only right alleged or claimed is such as was acquired by private contracts with persons residing in territory which later became a part of the town. Contracts were made by appellant with individuals to supply gas. There was no other grant of any kind,.and there is no pretense that the town of Norphlet granted any right to the use of the streets to appellant, for the town was nonexistent when appellant- laid its pipes. No attempt was made to grant appellant the right to use the public streets by any one. Indeed, this use is not the subject of private contract. Appellant had only private contracts, made with each consumer of its gas, and it acquired, therefore, at most, a mere license to use these streets, subject' to be terminated when the town came into existence and took control of its streets. If this is not true, the town can never control its streets until the private contracts between appellant and its customers have expired. If appellant is entitled, from contractual rights with individual consumers, to the use of the streets-of the town in its operations, in opposition to the exclusive franchise granted appellee by the city, the validity of which it is estopped to deny, there is no reason why it may not continue such use so long as its customers wish to buy gas from it, regardless of the franchise granted or any that may hereafter be granted.

Appellee has an exclusive franchise, the validity of which the town is estopped to deny, by .its terms limited to a period of twenty-five years, whereas appellant is given, under the majority opinion, the right to the use of the streets, in opposition to appellee’s right to the use thereof, which, may continue indefinitely.

Appellant has not been deprived of any vested rights, for it had none. It had merely private contracts, which did not and could not create an easement in the streets operating to deprive the town, which was later organized, of the control thereof.

The right of cities and towns to see that all the inhabitants have such necessities as light and gas and water is conferred by the statute quoted and this power may be exercised when it thought advantageous to do so by the grant of a franchise conferring the exclusive right on the grantee to supply these necessities, upon such conditions as may be agreed upon.

Appellant must be charged with knowledge-of the power thus conferred by statute, and its private contracts were made subject to the possible exercise of this power.

Appellant has no other or greater rights than it acquired by its private contracts to furnish gas, and these contracting consumers could confer no greater right than they themselves possessed. As residents of the town, they, like all others, were subject to the right of the town to grant a franchise. It is the town, acting through its council, which grants franchises, and not the citizens thereof, where a franchise may be granted- at all, and all persons are affected alike when this power is exercised.

This power has been exercised, and, in the exercise thereof, appellee acquired a franchise, and its rights thereunder should be protected.

I submit, with all deference, that nothing was decided in the case of Clear Creek Oil & Gas Co. v. Fort Smith Spelter Co., cited by the majority, which gives any support to the conclusion here reached. In that case appellant, the prevailing party, “obtained franchises from the cities of Van Burén and Fort Smith * * * to distribute and sell gas to the inhabitants of those cities.” It was there said that “The real point of the controversy between the parties is whether the contracts between appellant and appellees for the sale and purchase of gas were executed by appellant when it was not acting in any public capacity, as contended by appellees, or whether appellant was from the start a public service corporation and the contracts attempted to confer preferential rights on appellees as consumers.”

On account of the conflicting views of the members of the court, the opinion of the Chief Justice becomes the law of the case, and he says: “The only way, it seems to me, that the town of Norphlet could take away the right of the defendant (appellant) to furnish the inhabitants of the town of Norphlet with natural gas, would be to pass a valid franchise to some other company, giving it the exclusive right to furnish the inhabitants with natural gas. This would take away the right of the defendant, because it has no exclusive right and has no franchise right for any particular length of time. ’ ’ This is exactly what has been done. The franchise granted appellee has become valid by estoppel, and it is therefore as much a franchise as if it had been granted by a valid ordinance, and appellee (plaintiff) having-acquired an exclusive franchise, its rights thereunder should be enforced.

Neither appellee nor the city has undertaken to appropriate any property belonging to appellant. The restraining order, from which this appeal is prosecuted, granted appellant time to remove its property, and no complaint -is made that the time allowed was not sufficient for that purpose. The only right denied appellant is that of infringing upon a valid franchise, and the decree of the court below should therefore, in my opinion, be affirmed.

Mr. Justices Wood and Kirby concur in the views - here expressed. •


source: Caselaw Access Project

author: Kirby, J.

license: Public Domain

text:
    Foulkes v. Foulkes.
    Opinion delivered February 28, 1927.
    1. Wills — Right op devisee to renounce will. — An heir who is devisee under a will of his mother has no right to renounce the will and take under the law of intestacy, as the testatrix had * a right to dispose of the property among her children as she saw fit.
    2. Wills — right of devisee to renounce will. — Where a testatrix devised land to one of five children on which she placed a certain value, subject to the devisee paying to the estate all in excess of one-fifth part of the entire estate, the devisee could not renounce the devise, which he claimed to be overvalued, and still take under the residuary clause, as a devisee electing to take benefits under a will must also assume its burdens.
    .3. Appeal and error — appealable judgment. — A decree, adjudging the rights of. devisees under a will and ordering the sale of property and distribution of the proceeds is a final decree, from which an appeal lies, *

      Appeal from Pulaski Chancery Court; John E. Martineau, Chancellor;
    reversed.

      Sam T. & Tom Poe, for appellant. •

      B. P. Taylor and Lee Miles, for appellee.
   Kirby, J.

This suit was begun by appellee against the other heirs and the executor of the estate* for construction of his mother’s will, appellee claiming the right to renounce the devise to .him under § 3, allowing it to fall into the residuum of the estate, and to claim, under paragraph 7, an equal share of the estate with the other heirs, and from the decree adjudging he had the right to do so and ordering the sale of the property, and the distribution thereof in equal shares to the other heirs, the debts of the estate having all been paid, this appeal is prosecuted.

Paragraphs 1 and 2 of the will made bequests to three of appellee’s sisters of a piano and household furniture, and personal effects.

Paragraphs 3 and 6 read as follows:

“Three. I give and devise to my son, W. J. P. Foulkes, subject to the charge hereinafter expressed, lots one (1) and (2), block five (5), Plunkett’s Second Division to the city of Little Rock, Arkansas, with all appurtenances thereunto belonging, the said lots to be held .to be of the value of seventy-five hundred ($7,500) dollars, of which the said ~W. J. P. Foulkes, within one year pfter my death, shall pay all in excess of a one-fifth part of my entire estate (excluding, however, the bequests hereinabove made), which excess shall constitute a lien against the said described lots in favor of my estate.”

“Six. After the above bequests are made, with said advancements included, I give, devise and bequeath all of the residue of my property of every kind and character, real, personal and mixed, and wheresoever situated, to my five children, W. J. P. Foulkes, J. J. C. Foulkes, Mrs. Rose Owens, Mrs. Nellie Heiden and Mrs. Carrie Blanz, each a one-fifth part, so that with the said advancements each of my said five children shall share and share alike in my estate, except as to the special bequests above made, in paragraphs one and two.”

In paragraph 4 appellant is given certain lots, the value fixed at $2,000, and charged with an additional advancement of $600, all to be charged against him as an advancement. One of the daughters, Mrs. Owens, is also charged with a $2,000 advancement in paragraph 5.

The Union and Mercantile Trust Company of Little Rock was appointed executor, in paragraph 7, and it was shown that one of the sisters had died since the death of the testatrix, leaving no heirs, with the estate to be divided among four instead of five children.

There was some testimony tending to show that the value placed upon the devise of the home place to appel-lee was much greater than its market value, and also relative to the claim of appellant that he should be entitled to a credit upon the amount of the advancement charged to him in paragraph 5, as well as to collection and disposition of rents from the property devised to appellee.

The testatrix had the right to dispose of her property among her children according to her pleasure, or to give it all to somebody else, if she preferred to do so, by will properly executed, and there is no right of election of appellee to renounce the Avill and take under the law as though no will had been executed, such as a widow has, to elect between the provision of a will and of the statute.

In Wisner v. Richardson, 132 Ark. 575, 202 S. W. 17, where the appellants were attempting to avoid the payment of certain debts charged against the land devised to them, the court said: “But their election in the premises extended only to the right to take, or not to take, under the terms of the will. They could not elect to take the benefits granted by the will and renounce its burdens. If they elected to claim the property devised to them, they took that property with the burden upon it which the' will imposed, and that burden was to pay the debts. They, of course, took no interest in the tract, which was devised by the testatrix to her husband. Appellants refer to themselves as the heirs of their sister. So they are. But the will arrested the operation of the law of descent and distribution. Collateral heirs are not given a right, such as a widow has, to elect between the provisions of a will and the provisions of the statute. ’ ’

The intention of the testatrix is clearly and accurately expressed in the devise made to this appellee, and he had no right, as a devisee, to renounce the devise in the one paragraph of the will and insist upon the devise made in the other paragraph, since he believed it would be less burdensome and equal a greater amount, and provide a greater benefit to him than if he took in accordance with the devise in both paragraphs.

There is no conflict between the devise made, nor any provision or expression in the will indicating a contrary intention of the testatrix that this devisee should share in the distribution of the estate, except in the manner and as provided for by the will, and the court erred in decreeing otherwise. Of course he can pay in a less sum than the difference between the value of the property as fixed by the devise in paragraph 3 and the one-fourth interest in the estate by the amount, crediting the one-fourth of the residuum of the estate to which he is entitled under paragraph 6 will reduce it.

There is no merit in the motion to dismiss the appeal on the ground that the judgment Appealed from is not final.

It follows that the judgment of the lower court and the decree of the chancellor is erroneous, and it is reversed, and the cause remanded with directions to enter decree not inconsistent with this opinion, and for further necessary proceedings.


author: McHaney, J.,

text:
    Stumpff v. Louann Provision Company.
    Opinion delivered February 28, 1927.
    1. Highways — jurisdiction of couNTY couRt. — Before a village became an incorporated town, the county court had jurisdiction to vacate an old county road and open a new road, under Crawford & Moses’ Dig'., § 5226, giving the county court power to establish and open new roads and to change and vacate roads.
    2. Highways — validity of order vacating road — evidence.—In a suit to enjoin the erection of a house along a former public road which had been vacated by the county court, evidence held to sustain a finding that the order vacating the old road and opening a new road, on which a nunc pro tunc order was based, was made before the town’s incorporation, and that such order was not procured by fraud.
    3. Highways — order vacating road — collateral attack. — A suit to enjoin the erection of a house along the location of a road which had been vacated by an order of the county court is a collateral attack upon a judgment of the county court.
    4. Judgment — presumption on collateral attack. — In a collateral attack upon a judgment of a court of general jurisdiction every presumption will be indulged in favor of the jurisdiction of the court and the validity of the judgment.
    5. Judgment — collateral attack.- — As the county court is a court of superior jurisdiction, its judgment, rendered in pursuance of jurisdiction rightfully acquired, cannot be attacked collaterally.
    6. Highways — collateral attack on order vacating road. — Persons claiming a vested right in' an easement over a public road which had been vacated by , order of the county court 'in the exercise of its jurisdiction under Crawford. & Moses’ Dig., § 5226, could not enjoin the erection of a building thereon, as such proceeding would be a collateral attack upon the order of the county court.
    7. Judgment — evidence on collateral attack. — Though evidence should be clear, decisive and unequivocal to warrant the entry of a nunc pro tunc order, the rule does not apply where such an order is collaterally attacked.
    8. Highways — relief from order vacating road. — Where an order of the county court in the exercise of its jurisdiction vacating an old county road affected vested rights, the remedy of persons aggrieved was by appeal from such order, and not a collateral attack on the order.
    Appeal from Ouachita Chancery Court, Second Division ; George M. Le-Groy, Chancellor;
    reversed.

      STATEMENT BY THE COURT.
    Prior to the discovery of oil in and near it in 1922, the town of Louann was an unincorporated village. In that year oil was discovered, and the village grew in population rapidly, and, on July 2, 1923, the town was incorporated. The Camden and Louann road, a public highway, passed through the village and ran across 80 acres.of land which formerly belonged to O. C. Peeves.. Reeves sold about one acre of this tract to appellee, Q. C. Murphy, which acre was situated north of the Missouri Pacific Railroad and north and east of the depot in'said town. This Camden and Louann public road passed along to the north of Murphy’s property and adjacent thereto. The town of Louann had been platted prior to its incorporation, and one c.f its streets running north and south was designated on said plat as Main Street, another running east and west was known as Alton Avenue. First Street is a street running north and south and is the second street east of Main Street. H. B. Solmson, trustee, owned all the land east of First Street to the eastern end of Alton Street, on both sides of Alton Avenue, all of which property had been platted as Myar’s Addition, and through it passed the Camden and Louann road after crossing First Street to the east end of Alton Avenue. Appellee, Murphy, and appellant, Shirev. owned the remainder of the land on either side of said public road east of Main Street, and in February, 1923, appellant Shirey, appellee Murphy and H. B. Solmson presented a petition to the county court of Ouachita County, asking that the route of the old original public road be changed through their land and that the same be opened along the route known as Alton Street to a width of sixty feet, the petitioners being the owners of all the property on both sides of the old road and on both sides of the location to which the same was sought to be changed. • The petition was filed under § 5226 of Crawford & Moses’ Digest.
    No action on this petition was shown on the records of the county court until September 22, 1924, when the. court entered an order nunc pro tunc granting the petition, vacating the old road, and opening as a public road the location as shown on the map or plat as Alton Street from the point where Alton Avenue intersected at the east end the original road, westerly to its intersection with Main Street, as shown on the map. This nunc pro tunc orden was entered as of the 14th day of March, 1923. After the time when it is said that the order changing the public road was made by the county court, a map of the town of Louann was laid out by appellant Shirey, with'Alton Avenue open and the original county road closed. Appellant Shirey and Stumpff owned lots which occupied a part of the old public road, and commenced to build a house thereon. The appellees procured a restraining order preventing the erection of a house on any part of the old public road, and this order was made permanent by a final decree of the court. In the decree the court found that the county court of Ouachita County made a nunc pro tunc order on September 22, 1924, as of March 18, 1923, by which it undertook to vacate and change said road; that the order was actually made on March 18, 1923, but was not entered until September 22, 1924, and that there was no fraud in obtaining or making said order nor in the obtaining or making, of the nunc 'pro tunc order; that the appellees had vested rights in the easement over said public road, and that the construction of a building thereon would be an obstruction of said road and a violation of the rights of appellees.
    From the decree of the court making the injunction perpetual comes this appeal.

      Gctughan & Sifford, for appellant.

      Thos. W. Hardy, for appellee.
   McHaney, J.,

(after stating the facts). The county court had jurisdiction to make the order vacating the old county road and opening same on Alton Avenue. Section 5226 of Crawford & Moses’ Digest reads as follows:

"All public roads and highways shall be laid out, opened and repaired agreeably to the provisions of this act, and the county court of each county shall have full power and authority to make and enforce all orders necessary as well for establishing and opening new roads as for changing and vacating any public road or part thereof.”

It will be seen from the above statement of facts that the chancellor found that the county court did make the order changing and vacating the public road from its then location in the town of Louann and opening same on Alton Avenue, and that this order was entered on September 22, 1924, as of March 18, 1923. Appellees contend that there was no evidence to show that the county court ever made or rendered any judgment in March, 1923, for the reason that the judge’s docket and the records of the court do not show such order was made, and they further contend that no evidence was introduced to show that any such order was made at the time the nunc pro tunc order was entered. In this appellees are in error, as R. L. Shirey, one of the appellants, states that he moved to Camden albout April, 1923, and that he saw Judge Hawkins, the county judge, and asked him what he had done about the road matter, and that the judge told him it had all been settled; that he had granted the petition to change the road, and that he heard no more about it until this suit was filed. After this conversation with the county judge, he commenced the erection of a house on the old road location, on the strength of what the judge had told him.

Q. C. Murphy and T. W. Hardy testified for the appellees to the effect that the county judge had told them, some time in the spring or summer of 1923, that the town of Louann bad been incorporated, and that he had nothing further to do with it. We think the court, in view of the facts and circumstances surrounding this case, was justified in finding that the nunc pro tunc order was properly made, the original order having actually been made in March, 1923, but not entered until September, 1924, and that there was no fraud in the procuring of the order nor in the entry nunc pro tunc. We cannot therefore say that the finding of the chancellor in this regard was against the clear preponderance of the evidence.

Moreover, this action involves a collateral attack upon the judgment of the county court.

A direct attack on a judgment is usually defined as an attempt to reform or vacate it in a suit brought in the same action and in the same court for that purpose. On the other hand, a collateral attack upon a judgment has been defined to mean any proceeding in which the integrity of a judgment is challenged, except those made in the action wherein the judgment is rendered, or by appeal, and except suits brought to obtain decrees declaring judgments to he void ab initio. Hooper v. Wist, 138 Ark. 294, 211 8. W. 145; Cassady v. Norris, 118 Ark. 457, 177 S. W. 10.

In the same case, announcing the well established rule relating to the presumption in favor of the validity of a-judgment on. collateral attack, the court used this lánguage: “It is well settled in this State that, in a collateral attack upon a judgment of a court of general jurisdiction, every presumption will be indulged in favor of the jurisdiction of the court and the validity of the judgment or decree.” Crittenden Lbr. Co. v. McDougal, 101 Ark. 390, 142 S. W. 836; Clay v. Barnes, 121 Ark. 474, 181 S. W. 303; Jones v. Ainell, 123 Ark. 532, 186 S. W. 65.

• The county court is a court of superior jurisdiction, and its .judgment, rendered in pursuance of jurisdiction rightfully acquired, cannot be attacked collaterally. Sharum v. Meriwether, 156 Ark. 331, 246 S. W. 501.

If the appellees felt themselves aggrieved hv the action of the county court in entering its nunc pro time order on September 22, 1924, their remedy was by way of appeal from the finding of the county court on that date that it had, on March 18,1923, made the order it was then entering.' Counsel for appellees cite the ease of Turnbow v. Baird, 143 Ark. 543, 220 S. W. 826, holding: “Courts should be cautious in rendering* mine pro tunc orders and decrees; and, while the power may he exercised on parol testimony alone, the evidence should he clear, decisive and unequivocal,” but this refers to the rule of evidence governing the court in determining whether the order or decree in question was actually made, and not the rule to govern the validity of such an order or decree on collateral attack. In other words, this was the correct rule to govern the county court in determining on September 22, 1924, -whether it had made the order vacating the old county road and establishing a new road over Alton Street on March 18,1923, and this would have been the correct rule for the determination of this question on appeal to the circuit court.

If the vacating of the. old county road involved the vested rights of the appellees, then they should have appealed from the order of the county court made on September 22, 1924, holding that it had made an order on March 18, 3923, vacating the old road and laying it out anew over Alton Street. Having failed to do so within the time allowed by law, they cannot come into a court of equity and by collateral attack upon the judgment of the county court obtain the relief which should have been sought by appeal.

The result of our views is that the decree of the chancery court was wrong, and that it should be reversed and the cause dismissed, and it is so ordered.


text:
    Helena v. First National Bank of Helena.
    Opinion delivered March 7, 1927.
    1. Banks and banking — conversion of trust fund. — Where bank officers know that a fund on deposit is a trust fund, they cannot appropriate that fund to the private benefit of the bank or knowingly participate with the trustee in appropriating the fund to his own use, without being liable to refund the money.
    2. Trusts — deposit of trust fund. — A trustee may legally deposit the trust funds in a bank to his individual account and credit, and knowledge of the bank that a fund so credited is a trust fund does not affect the légal character of the act.

      3. Banks and banking — deposit of trust funds. — A bank has a right to presume that a trustee will apply trust funds deposited to his individual credit to proper purposes under the trust.
    4. Banks and banking — deposit of trust fund. — The mere fact ■ that a bank knows funds credited’ to a depositor individually are trust funds does not charge the bank with notice of his intention to misappropriate them or put it upon notice that such was his intention.
    Appeal from Phillips Chancery Court; A. L. Hutchins, Chancellor;
    affirmed.
    STATEMENT OE EAOTS.
    The city of Helena brought this suit in equity against the First National Bank of Helena and its stockholders for the purpose of following and recovering the sum of $51,618.62 which, it was claimed, the bank had knowingly allowed Joseph C. Myers, as treasurer of the city, to convert to his own use. The bank answered and denied all the material allegations of the complaint. It specifically denied that it had allowed or in any way participated in the conversion of the funds of the city of Helena by its former treasurer.
    The basic facts necessary to a determination of the issues raised by the appeal may be briefly stated as follows: On May 9, 1914, Joseph C. Myers was elected treasurer of the city of Helena, and continued in office until May 3, 1922, at which time he resigned. Joseph C. Myers, as treasurer of the city of Helena, deposited in the First National Bank of Helena, from time to time, more than $110,000 of the funds of the city. The deposits were placed in the bank :by Myers in his individual name, with knowledge on the part of the bank that the funds were the funds of the city of Plelena, and had come to his hands as city treasurer. Joseph C. Myers issued his own checks on said funds from time to time, until about the time he resigned, when an investigation showed that he was short in his accounts as city treasurer in the sum of $51,618.62. The funds, so far as the record discloses any actual knowledge on the part of the bank, showed that it believed that Myers was paying out the funds in behalf of the city of- Helena to liquidate its indebtedness for current expenses of running the city government and for other legal debts of the city. The evidence shows that all the funds were drawn out on checks signed by Joseph C. Myers, and there is nothing in the record to show that any of these amounts were paid to the bank, or that it received any benefit therefrom. The officers knew, in a genéral way, that Myers was issuing the checks to persons having claims against the city, but never made any inquiry about the matter or attempted to see that the funds were paid out to those having legal demands against the city. Myers did not deposit any individual funds in the bank, and the officers of the bank knew that the money deposited by him belonged to the city of Helena. Myers did not have the checks in his possession, and did not know where they were. He had no way of ascertaining what percentage of the amount paid out on his personal checks went to the benefit of the city of Helena. He could only state, in a general way, that the money was checked out by him for city purposes, but he was not able to' account for thq shortage in his accounts as treasurer. Myers, during all this time, was engaged in insurance business, but carried his accounts in that business under his firm name and checked it out that way. The largest part of his business account was kept in another bank. • •
    The chancellor appointed a master, who filed a report finding the facts to be substantially as stated above. Exceptions were duly filed to the report of the master by the, plaintiff. The chancellor approved the report of the master, and found the issues generally in favor of the defendants. A decree was entered of record in favor of the defendants, and to reverse that decree the plaintiff has duly prosecuted an appeal to this court.

      John E. Miller and C. E. Yingling, for appellant.

      Breiver $ Cracraft and W. G, Dinning, for appellee:
   Hart, C. J.,

(after stating the facts). The general principle governing the bank’s liability is that the officers of the bank, who know that a fund on deposit is a trust fund, cannot appropriate tliat fund to the private benefit of the bank, or, where charged with notice of the conversion of the trustee, participate with him in appropriating it to his own use, without being liable to refund the money, if the appropriation is a breach of the trust. Allen v. Puritan Trust Co., 211 (Mass.) 409, 97 N. E. 916, L. R. A. 1915C, 518; and Blanton v. First National Bank of Forrest City, 136 Ark. 441, 206 S. W. 745.

The rule itself and the reasons for it are clearly stated by the Maryland Court of Appeals in Duckett v. National Mechanics’ Bank of Baltimore, 38 Atl. 983, 39 L. R. A. 84, 63 Am. St. Rep. 513. We quote from the opinion the following: “ft is immaterial, so far as respects the duty of the bank to the depositor, in what capacity the depositor holds or possesses the fund which he places on deposit. The obligation of the hank is simply to keep the fund safely and to return it to the proper person, or to pay it to his order. If it he deposited by one as trustee, the depositor, as trustee, has the right to withdraw it, and the bank, in the absence of knowledge or notice to the contrary, would 'be bound to assume that the trustee would appropriate the money, when drawn, to a proper use. Any other rule would throw upon a bank the duty of inquiring as to the appropriation of every fund deposited by a trustee or ‘other like fiduciary, and the imposition of such a duty would practically put an end to the banking business, because no bank could possibly conduct business if, without fault on its part, it were held accountable‘for the misconduct or malversation of its depositors who occupy some fiduciary relation to the fund placed by them with the bank. In the absence of notice or knowledge, a bank cannot question the right of its customer to withdraw funds, nor refuse (except in the instances already noted) to honor his demands by check; and therefore, even though the deposit be to the customer’s credit in trust, the bank is under no obligation to look after the appropriation of the trust funds when withdrawn, or to protect the trust by setting up a jus tertii against a demand. But, if the bank lias notice or knowledge that a breach of trust is being committed’ by an improper withdrawal of funds, or if it participates in the profits or fruits of the fraud, then it will be undoubtedly liable.”

As said in National Bank v. Insurance Co., 104 U. S. 54: “A bank account, it is true, even when it.is a trust fund, and designated as such by being kept in the name of the depositor as trustee, differs from other trust funds-which are permanently invested in the name of trustees for the sake of being held as such; for a bank account is made to be checked against, and represents a series of current' transactions. The contract between the bank and the depositor is that the former will pay according to the checks of the latter, and, when drawn in proper form, the bank is bound to presume that the trustee is in the course of lawfully performing his duty, and to honor them accordingly. ’ ’

It results from the principles of law decided in these cases, and many others which might be cited, that a trustee may legally deposit the trust funds in a bank to his individual account and credit, and that the knowledge on the part of the bank of- the nature of the fund received and credited does not affect the character of the act. The reason is that the bank has the right to presume that the fiduciary will apply the funds to their proper purposes under the trust.

The undisputed evidence in this case shows that the money in question was deposited by Myers as treasurer of the city of Helena, and that the bank knew that the funds deposited belonged to the city. The deposits were made in the individual name" of Myers, and were checked out in .k^at way. In 1922 an investigation showed that Myers was short in his accounts as city treasurer in the sum of $51,618.62.

It is not claimed or proved that the bank received any benefit from the conversion of the funds by Myers. The record does not show that the bank, fin any way, participated in the conversion of the funds or had any actual knowledge that Myers was checking out the funds for his individual benefit. The officers of the bank knew, in a general way, that the funds were being checked out by Myers to pay debts owed by the city of Helena, and they did not make any investigation to see that all the amounts checked out were applied to the payment of the debts of the city.

It is sought to hold the bank liable on the theory that the attendant circumstances charge it.with the knowledge that Myers was misappropriating the funds of the city. As we have already seen, the deposit by a trustee of funds belonging to the trust estate in his individual name and account at the bank is not a conversion of the trust fund. There is nothing in the present case from which it might be inferred that the hank participated in the conversion of the funds, except from the fact that it permitted Myers to draw out the funds without seeing to the proper application of them. It is insisted that the bank must have seen to the proper application of the funds, because it allowed Myers to deposit them in his individual name and to check them out that way. We do not think that this was sufficient to put the bank upon inquiry and to charge it with knowledge that Myers was misappropriating the funds belonging to the city.

In discussing this important question in Bischoff v. Yorkville Bank, 218 N. Y. 106, 112 N. E. 759, L. R. A. 1916F, p. 1059, the New York Court of Appeals said: “A. bank does not become privy to a misappropriation by merely paying or honoring the checks of a depositor drawn upon his individual account, in which there are, in the knowledge of the bank, credits created by deposits of trust funds. The law does not require'the hank, under such facts, to assume the hazard of correctly reading in each check the purpose of the drawer, or, being ignorant of the purpose, to dishonor the check. The presumption is, and, after the deposits are made, remains until annulled by adequate notice or knowledge, that the depositor would preserve or lawfully apply the trust funds. The contract, arising by implication of law from a general deposit of moneys in a bank, is that the bank will, whenever required, pay the moneys in such sums and to such persons as the depositor shall direct and designate. Although the depositor is drawing checks which the bank may surmise or suspect are for his personal benefit, it is bound to presume, in the absence of adequate notice to the contrary, that they are properly and lawfully drawn. Adequate notice may come from circumstances which reasonably support the sole inference that a misappropriation is intended, as well as directly.”

To the same effect see Whiting v. Hudson Trust Co., 234 N. Y. 394, 138 N. E. 33, 25 A. L. R. 1470.

It is claimed by counsel for the plaintiff that this view is contrary to the rule in Duckett v. National Mechanics’ Bank of Baltimore, 39 L. R. A. 84. We do not agree with counsel in their contention, but are of the opinion that our present view is in accord with the principles decided in that case. In that case one of the checks was received by the bank with explicit directions to deposit it to the credit of a certain named trustee. The bank, instead of depositing it in the name of the individual as trustee, deposited it to the general account of the individual. The court said that the act of marking a trust fund to the personal credit of the trustee was wrong, and that the bank must bear the consequences of allowing the trustee to draw the fund out on his personal account. There the court had under consideration a single transaction, where the bank was the first wrongdoer, and it was properly held that the whole transaction showed that the bank participated in the conversion of the funds by crediting it to the individual and allowing him to draw the fund out that way, instead of crediting the item to him as trustee, as it was directed to do. In the present case, if the bank had been directed to credit the funds to' Myers as treasurer, and, instead of doing s.o, had allowed him to place the account in his own name and check the funds out in that way, it might be inferred that there was an intention from, the beginning, participated in by tbe bank and Myers, that tlie funds should 'be deposited in the individual name of Myers and checked out that way for the purpose of converting them to his own use or diverting them from their proper use. Here there is nothing from which to infer that the bank participated in any wrongdoing by Myers, except the fact that it allowed him to deposit the public funds of the city in his own name and to check them out that way. We think the better rule is to hold this to be insufficient to put the bank upon notice that Myers intended to misappropriate the funds. His account ran through a series of years, and there is nothing whatever in the record to show that the bank assisted him in misappropriating the funds of the city or had any intimation whatever that he was doing so. It is not even" claimed that the conversion of the funds resulted in any benefit, directly or indirectly, to the bank. The only reason for holding it liable was that it allowed him to deposit the funds in his own name and to check them out that way. As we have ‘ already stated, we think the better view and the one more in accord with reason and justice is that this state' of facts is not sufficient to put the bank 'upon notice that the treasurer intended to misappropriate the funds of the city.

Finally, it is insisted that such a view is contrary to the rule established in Blanton v. First National Bank of Forrest City, 136 Ark. 441, 206 S. W. 745. We do not agree with counsel for the plaintiff in this contention. In that case, under the facts alleged in the complaint and admitted by the demurrer, the cashier of the bank knew that the money belonged to the ward, and, contrary to explicit directions, he placed the amount to the individual credit of the guardian and allowed her to check out the money for her own private use.' Here there was nothing whatever to put the bank upon notice that Myers intended to check out the fmids for his own private use except the mere fact that it permitted him to deposit the funds in his individual name in the beginning; and, as we have already seen, this was not t sufficient to establish lmowl-edge or notice on tlio (part of tlie (bank, that Myers intended to misappropriate tlie public funds of the city.

It follows that the decree was correct, and must be affirmed. '

Kirby, J., concurs.


author: Mehapey, J.

text:
    Arnold v. Stephens.
    Opinion delivered March 7, 1927.
    Homestead — tkustee of express trust. — A tax collector is not a trustee of an express trust within -Const., art. 9, § 3, so as to subject his homestead to the lien of a judgment in favor of his sureties who were compelled to- pay money which he had collected and failed to pay over to the State.
    Appeal from Miller Chancery Court; C. E. Johnson, Chancellor;
    reversed.

      David C. Arnold, for appellant.

      Shaver, Shaver <& Williams, for appellee.
   Mehapey, J.

This suit was begun in the Miller Chancery 'Court by the sureties on the bond of Fincher Eason, tax collector, who alleged that they were compelled to pay and did pay to the State of Arkansas the sum of $43,442.50, which said Eason had collected in taxes and failed and neglected to pay over to the State of Arkansas. It was alleged that the estate of Fincher Eason is insolvent, and that there are no lands belonging to his estate other than lot 2, block 10, in Texarkana, which, at the time of his death, was occupied by him as a homestead.

Plaintiffs had presented their claim against the estate to the administrator, who disallowed it, and then presented it to the probate court, where it was disallowed, and an appeal taken to the circuit court of Miller County; that, in the Miller Circuit-Court, the sureties were given judgment for the above named sum. They alleged that the money converted by Eason was money in-his hands as tax collector, and converted by him, and that they were funds belonging to the State of Arkansas, and that, under the law, the State had a right to have its claim thereto declared a lien and charge against said homestead. The sureties asked to be subrogated to all the rights and equities of the State of Arkansas in, to, and against said homestead, and that said homestead be condemned and ordered sold and the proceeds applied to the payment in satisfaction of their claim.

• David C. Arnold, guardian, the appellant here, representing the minor heirs, denies • the allegations of the complaint, and denies that the State has a right against the homestead of the minors, and denies the plaintiffs are entitled to subrogation.

The chancellor held that the plaintiffs were entitled to be subrogated, and ordered that they be subrogated to all the rights, equities and privileges had and held by the State of Arkansas in and to the homestead, describing it, and ordered that the homestead be condemned and ordered sold in satisfaction of' the claim. From said decree David C. Arnold, guardian ad litem, has appealed to this court, and, as stated by attorneys for appellees: “The sole contention of counsel for appellants is that a tax collector, in collecting and disbursing the public revenues, and while so discharging the duties imposed upon him by law, was not a trustee of an express trust within the meaning of § 3, article 9, of the Constitution. The record in this case squarely presents the question for the court’s decision.”

Therefore the only question is whether the tax collector was a trustee of an express trust, under article 9, § 3, of the Constitution of Arkansas. The section reads as follows:

“A homestead of any resident of this State, who is married or head of a family, shall not be subject to the lien of any judgment, or decree of any court, or to sale under execution or other process thereon, except such as may be rendered for the purchase money or for specific liens, laborer’s or mechanic’s liens for improving the same, or for taxes, or against executors, administrators, guardians, receivers, attorneys for moneys collected by them and other trustees of an express trust for moneys due from them in their fiduciary capacity.”

It will he observed that the homestead is not subject to sale in this case unless the tax collector is a trustee of an express trust.

“Trusts are divided in reference to their creation into express trusts, implied trusts, resulting trusts, and constructive trusts. Express trusts are also called direct trusts. They are generally created by instruments that point out directly and expressly the property, persons, and purposes of the tru)s,t; hence they are called direct or express trusts in contradistinction from those trusts that are implied, presumed, or construed by law to arise out of the transaction of the parties. They may be discretionary or imperative, absolute or on condition. As express trusts are directly declared by the parties, there, can never be a controversy whether they exist or not.” Perry on Trusts, vol. 1, § 24.

As was said by the Supreme 'Court of Oklahoma: “Express trusts fere not defined by our statutes; that is, the statutes fail to prescribe or define just what acts are necessary on the part of the cestui que trust in order to create an express trust, but presumably look to and adopt the meaning given to the term by the commentators and courts of equity.” We not only have no definition of express trust in our statutes, but nothing that would give us any idea, or, at any rate, no definition of what is meant by the use of the term “express trust” in the above provision of the Constitution. We must therefore look elsewhere to ascertain what is meant by the term in our Constitution.

“In order to constitute an express trust therefore, there must be some act on the part of the cestui que trust expressive of an intent to create a trust and to make a designated party trustee thereunder. ’ ’ McCoy v. McCoy, 321 Pac. 176.

“Express trusts are tiróse which are created by the direct and positive acts of the parties by some writing, or deed, or will. Not that, in those cases, the language of the instrument need point out the nature, character, and limitations of the trust in direct terms, ipsissimis verbis; for it is sufficient that the intention to create it can be fairly collected upon the face of the instrument from the terms used, and the trust can be drawn, as it were, ex viseeribus verborum. Implied trusts are those which are deducible, from the'nature of the transaction, as a matter «f clear intention, although not found in the words of the parties; or which are superinduced upon the transaction by' operation of law, as matter of equity, independent of the particular intention of the parties.” Jones v. Byrne, 149 Fed. 457.

In construing the Constitution, this court has said:

“The cases enumerated in each are cases of special trusts. The persons expressly designated as not coming within the homestead exemption of the Constitution of 1874 are persons who hold moneys exclusively for the benefit of others, and the relations between whom and those for whom they hold money are purely of confidence and trust; and the ‘other trustees of express trust’ mentioned must mean the same class of trustees. The debts excepted are those contracted by them for such moneys. ’ ’ Sanders v. Sanders, 56 Ark. 555, 20 S. W. 517.

This court has again said: “Express trusts are those created by the direct and positive acts of the parties, manifested by some instrument in writing, whether by deed, will, or otherwise. Implied trusts are those which are deducible from the transaction as a matter of clear intention, but not found in the words of the parties, or which are superinduced upon the transaction by operation of law as matter of equity, independent of the particular intention of the parties.” U. S. Fid. & G. Co. v. Smith, 103 Ark. 145, 147 S. W. 54.

In the case last cited the agent of a railway company, in the performance of his duties, had collected certain sums of money, and failed to account for same, and this amount was paid by appellant as suréty on his fidelity bond, just as the sureties in the case at bar paid in this case, and, in the language of the court in the decision of that case we can say, “he certainly does not come within the exception of the Constitution as one of the persons mentioned therein, and we do not think that his being such agent and collecting the moneys in the performance of his duties constituted him a trustee of an express trust, so far as such money was concerned, nor that it was due from him to the railroad company in a fiduciary capacity, within the meaning of the Constitution, which would render his homestead subject to the payment of a judgment therefor. Such provision has reference only to the discharge of the duty of an express technical trust or such as is specifically mentioned in said article, and was not intended to, and does not, cover the relation of an ordinary clerk, employee, agent or servant, who has confidence reposed in him for the collection of money, and constitute him a trustee of an. express trust of such moneys when collected.

“Neither could the giving of a bond for the faithful performance of the duties and payment of moneys collected in such service change the relation to one of a technical trustee of an express trust.” U. S. Fid. & G. Co. v. Smith, 103 Ark. 145, 147 S. W. 54.

It would seem that the above case settles the law in Arkansas as to what constitutes one a trustee of an express trust, and rules this case. Again, it has been said by this court, after quoting with approval the former decisions as to what constitutes an express trust: “ The existence of liability must spring from some breach of trust, the defalcation or indebtedness must occur and exist while the trustee is acting in a fiduciary character, and must be no mere debt, but a contract which results from the rightful possession of money that belongs to another, and which is being used for his benefit.” Carr v. Harrington, 107 Ark. 535, 155 S. W. 1166.

Appellees call attention to Arkansas cases deciding that a tax collector is a county officer, and that officers were trustees, but it is unnecessary to discuss these cases further than to say that none of the cases cited by appel-lees hold that a county officer is a trustee of an express trust, and we think that the question of what it takes to constitute an express trust under our law is thoroughly settled by the cases to which we have called attention. The provision of the Constitution with reference to homestead exemption was adopted not only for the benefit of the owner himself, but for the benefit of his wife or widow and minor children, and the section of the Constitution referred to expressly states that it shall not be subject to sale except for the debts therein mentioned, and, among others, mentions trustees of an express trust. It does not mention county officers and it does not undertake to define what is meant by trustee of an express trust, and we therefore think that, when it used the expression, it used it in the sense and with the meaning mentioned in the authorities to which we have referred.

Since we hold that the tax collector was not a trustee of an express ’ trust, it follows that the case must be reversed and dismissed. It is so ordered.