Larry WILLIAMS; Gregory Peck; and Karen Netzel, Trustee of the Netzel Joint Trust, Appellants
BANK OF the OZARKS AS TRUSTEE FOR the REGISTERED OWNERS OF the $4,400,000 BENTON COUNTY PROPERTY OWNERS IMPROVEMENT DISTRICT NO. 7 SPECIAL ASSESSMENT BONDS, Appellee
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FROM THE BENTON COUNTY CIRCUIT COURT [NO. 04CV-15-476],
HONORABLE XOLLIE DUNCAN, JUDGE
Moore Pendergraft LLP, by: Timothy C. Hutchinson, for
separate appellants Larry Williams and Gregory Peck.
Miller, Butler, Schneider & Pawlik, PLLC, Rogers, by: Mason
L. Boling, for separate appellant Netzel Joint Trust.
Jiles, LLP, by: Mike Millar, Searcy and Nikki L. Cox, for
December 2000, the Benton County Property Owners Improvement
District No. 7 (the "District") issued $ 4.4
million in special-assessment bonds to fund the construction
of infrastructure improvements for the proposed Sugar Creek
subdivision in Benton County. Appellants Larry Williams,
Gregory Peck, and Pete Netzel, who were investors in the
development company that made the improvements to the land,
each executed guaranty agreements in which they guaranteed
payment of the principal and interest due on the bonds at
maturity. The bonds matured ten years later with
an unpaid principal balance of $ 3.48 million.
Special-assessment taxes, which the District pledged as
security for repayment of the bonds, were also delinquent.
Appellee Bank of the Ozarks (the "Bank"), as
trustee for the bondholders, sued the appellants for breach
of contract when they failed to pay the unpaid balance
according to the terms of their guaranty agreements. The
circuit court granted summary judgment in favor of the Bank.
The appellants now appeal the circuit courts order. We
2000, several property owners in Benton County petitioned the
county court to form an improvement district for the purpose
of creating a residential subdivision. The court granted the
petition and formed the District for the purpose of making
the infrastructure improvements typical of a subdivision,
including the construction of waterworks and the paving of
streets and sidewalks. The court also appointed three persons
named in the petition to the Districts board of
Shortly thereafter, the District hired an engineer to prepare
plans for the subdivision, including the specifications for
the infrastructure and improvements. The District also hired
an assessor to calculate the "assessed benefit," or
the difference between the current value of the property and
its increased value with the proposed improvements, for each
parcel in the district.
District used the assessed benefit to calculate a special
tax, which constituted
a lien on the property and was due annually to the county tax
collector. The District issued an order on November 3, 2000,
that levied the tax, and on December 1, 2000, it entered into
a pledge-and-mortgage agreement in favor of the Bank.
pledge and mortgage provided, in pertinent part, that the
maturity date of the bonds was December 1, 2010, and the
District pledged the proceeds of the special tax to the Bank
"for the purpose of securing the payment of the [b]onds
and the interest thereon as they severally mature[.]"
The pledge and mortgage further provided that the special tax
"shall be levied and collected annually until the
principal of and interest on all outstanding [b]onds are paid
in full[,]" and it defined the term "bonds
outstanding" as "[b]onds of the District which have
not matured." It declared, moreover, that a default
occurred when, inter alia, there was a "default
in the payment of the principal of or interest on any [b]ond
pledge and mortgage also addressed how the Bank was to apply
the tax proceeds once it received them from the District.
First, the Bank was required to deposit money into a
"Bond Fund" to "pay all principal of, interest
on, and [t]rustees fees in connection with the [b]onds which
will mature or become due" in the following year.
Second, the Bank was to make deposits into a "Debt
Service Reserve Fund" whose assets "shall be
applied to pay [t]rustees fees, interest on the [b]onds, and
principal of the [b]onds to the extent moneys in Bond Fund
are insufficient for that purpose."
appellants, who were investors in Sugar Creek, LLC, the
developer and principal owner of the property in the proposed
subdivision, thereafter executed identical guaranty
agreements "as [an] inducement to the purchase of the
bonds." The agreements provided that in the event of a
default, each appellant agreed "to pay the principal and
accumulated interest on the [b]onds at maturity or earlier
redemption," and the appellants obligations as
guarantors arose "absolutely ...