Case Name: INDEPENDENT SCHOOL DISTRICT NO. 35 AND OTHERS v. OLIVER IRON MINING COMPANY AND OTHERS
Court: Minnesota Supreme Court
Jurisdiction: Minnesota
Decision Date: 1926-05-14
Citations: 169 Minn. 15
Docket Number: No. 25,110
Parties: INDEPENDENT SCHOOL DISTRICT NO. 35 AND OTHERS v. OLIVER IRON MINING COMPANY AND OTHERS.
Judges: DiBELL, J.
Reporter: Minnesota Reports
Volume: 169
Pages: 15–38

Head Matter:
INDEPENDENT SCHOOL DISTRICT NO. 35 AND OTHERS v. OLIVER IRON MINING COMPANY AND OTHERS.
May 14, 1926.
No. 25,110.
Gunderson & Leach, H. V. Mercer, Joseph E. Austin, A, R. Folsom, Archer & Rosemeier and Thad. S. Bean, for appellants.
Washburn, Bailey & Mitchell, for respondents.
Reported in 208 N. W. 952, 210 N. W. 856.

Opinion:
Hor/C, J.
Action upon two undertakings; the one given by defendants conditioned to pay plaintiffs any damages sustained by them if a preliminary injunction, procured in the suit brought by the defendants herein against the plaintiffs herein, was finally dissolved; and the other, a supersedeas given on appeal to this court, the defendants herein as plaintiffs in said action having been defeated in the court below: The appeal was unsuccessful and this action resulted. Oliver I. Min. Co. v. Independent School Dist. 155 Minn. 400, 193 N. W. 949. The court below ruled that plaintiffs herein were not entitled to damages and dismissed the action on the merits without findings. They appeal from the order denying their motion for findings or a new trial.
The following extract from the memorandum accompanying the order of the learned trial court shows the reasons for the decision:
"The plaintiffs were finally defeated in their action for an injunction on two grounds as I understand it: 1. That the power was in the electors to ratify the action of the board and that such ratification was effectual, and that there was no limitation upon the power of the electors as to the amount of money that could he raised for the building of schoolhouses' and the purchasing of school sites. And 2. That the plaintiffs were guilty of such laches as would prevent them from recovering in the case. When the present action had been partly tried the court reached the conclusion that, no matter what the evidence showed in the instant case, there ought not to be any recovery by reason of the fact that owing to the manner in which the cost-plus contract had been let by the School District to the National Contracting Company, the attempt to sell the bonds through a fiscal agency agreement, which was in fact an arrangement to sell for less than par and accrued interest, and the fact that the school board was letting contracts hundreds of thousands of dollars above any authorization from the electors and above any money in the treasury to pay for the same, and the fact that the position of the parties was changed after the giving of the original stipulation by the ratification election, and the further fact that the law with reference to the authority of the electors to authorize such expense was very doubtful, that it would be inequitable to permit the plaintiffs in the instant case to recover any damages."
Judge Hughes further stated that the school district was constantly letting contracts to different plaintiffs herein without authority and without money to pay with and no one could tell where the end would be, had not the injunction suit been brought, and concludes that if under those circumstances taxpayers, though guilty of laches, resort to injunction they should not be mulcted in damages, and that plaintiffs are not in with clean hands before a court of equity.
As we understand respondents it is conceded that the right of a recovery is grounded on contract obligations evidenced by the two bonds mentioned but that it was necessary to bring the suit in equity solely because of the propriety of avoiding a multiplicity of actions. In other words the suit is properly brought in equity to enforce legal obligations. It follows that all equitable defenses available in an action at law, but none other, may be interposed. Nor do we take it to be denied that matters determined in the injunction suit cannot be relitigated herein. Defendants herein cannot "go behind the decree in the case in which their bonds were given. The law and the facts of that case, as settled by the court, are conclusive of their rights in this proceeding. They cannot be permitted to raise any question as to either." Oelrichs v. Spain, 15 Wall. 211, 21 L. ed. 43. To the same effect is Pelkey v. Nat. Surety Co. 143 Minn. 176, 173 N. W. 435; Landis v. Wolf, 206 Ill. 392, 69 N. E. 103; Yale v. Baum, 70 Miss. 225, 11 South. 879; Revell v. Smith, 25 Okla. 508, 106 Pac. 863; Fullerton v. Pool, 9 Wyo. 9, 59 Pac. 431.
The court below seems to have been of the opinion that plaintiffs had pursued such reckless and irregular conduct in disregard of defendants' rights as taxpayers that there was good cause for the injunction sought, and hence damages suffered, though covered by their undertakings, may be withheld in the discretion of the court. The strongest support for this position in any case cited or found is the argument in Russell v. Farley, 105 U. S. 433, 26 L. ed. 1060, but the decision is not finally placed upon the basis of discretion, but upon the merits as revealed by the record. The facts are wholly dissimilar from those here presented. The suit in which that injunction issued and the bond was given involved a quantity of railroad iron and the final decree awarded part thereof to the plaintiff Farley and part to "the defendant, and "adjudged that neither the plaintiff nor the defendant Russell is entitled to costs or damages herein."- Upon the appeal from the decree it was contended that the court below had no power to decree that Russell was not entitled to damages, thereby precluding him from an action on the bond; and, if it had the power to decree on the subject of damages, it was error to deny them. It is to be observed that there was an •adjudication as to damages in the injunction suit, not so in the injunction suit herein, for the findings in the latter expressly state that no issue except the one as to the validity of the contracts involved was litigated or decided.
In the Russell case after giving a history of the chancery practice, showing that the requiring of security as a condition for issuing a temporary injunction was discretionary, the court says:
"Since the discretion of imposing terms upon the party, as a condition of granting or withholding an injunction, is an inherent power of the court, exercised for the purpose of effecting justice between the parties, it would seem to'follow that, in the absence of an imperative statute to the contrary, the court should have the power to mitigate the terms imposed, or to relieve from them altogether, whenever in the course of the proceedings it appears that it would be inequitable or oppressive to continue them. Besides, the power to impose a condition implies the power to relieve from it at the final hearing, it may manifestly appear that the suit has been fairly and honestly pursued or defended by the party who was required to enter into the undertaking, and that it would be inequitable to subject him to any other liability than that which the law imposes in ordinary cases. In such a case it would be a perversion, rather than a furtherance, of justice to deny to the court the power to supersede the stipulation imposed."
The court concluded that the circuit court had the power to determine whether or not damages were recoverable in the suit, and held that on the threshold of the inquiry as to the merits of the decision below the court was met by the prominent fact that the injunction had never been entirely dissolved, and it had never been decided that the complainant was not entitled to it, at least for a portion of the iron claimed by Russell. In the opinion is also found this significant language: .
"When the court sees no just cause for superseding or suspending the effect of an injunction bond, or undertaking, it should be enforced in pursuance of its terms; and the party for whose benefit it was given will be entitled to an assessment of damages."
No other case to which our attention has been called puts the matter stronger for respondent than the above. Coosaw Min. Co. v. Carolina Min. Co. (O. C.) 75 F. 860, qualifies the right to deny recovery on the injunction bond to cases in which it does not appear that the ones enjoined were put to any disadvantage by reason thereof.
It is true that in the former action the court could have ascertained the damages. Hayden v. Keith, 32 Minn. 277, 20 N. W. 195. But, not having so done, the sole remedy is on the undertakings. As already indicated, these are contracts to be construed in the light of the statutes under which they were given. As well stated by Justice Harlan in his dissenting opinion in Tullock v. Mulvane, 184 U. S. 497, 22 Sup. Ct. 372, 46 L. ed. 657, this undertaking is a contract.
"In the absence of a statute fixing the measure of damages or limiting the recovery, we think the bond should be viewed in the light of an independent contract, and is to be interpreted by the general principles of the common law."
Recovery on an undertaking is not made dependent by our statute upon the court's discretion. However, if there be any equitable defenses by way of estoppel or otherwise, it' was for defendants to plead and prove them herein, unless the record in the injunction suit plainly disclosed the existence of such defenses. No finding in the injunction suit, in view of the finding above referred to, tends to establish a defense to the undertakings. No findings were made in the present action. The whole record in the injunction suit was received in evidence, but even with that in, we are convinced, in view of the fact that only the validity of the contracts was litigated, that it cannot truthfully be said that such equities appear on the face of this record that the plaintiffs' contractors and subcontractors are not entitled to the actual damages sustained from being enjoined from proceeding with .their contracts.
We may here remark that we see no good reason for the admission in evidence of the record in Williams v. Nat. Cont. Co. 160 Minn. 293, 199 N. W. 919, not involving a contract of the sort involved in the injunction suit as to the plaintiffs' contractors and subcontractors herein, nor the record in the commission suit for the sale of the bonds issued by the district for the building project.
We may also suggest that the discretion originally exercised by courts of equity in granting temporary injunctions without protecting the party enjoined against loss, has been circumscribed by statute. After hearing is had, the law requires the bond to be filed before the writ issues (G-. S. 1923, § 9388). The amount of the bond above $250 still rests within the discretion of the court. But it is clear that such discretion must be exercised with a view to protect the one enjoined against the probable loss that he may sustain, if it be finally determined that the injunction should not have issued. We are therefore of the opinion that under our statute the defenses to an action upon the preliminary injunction bond are such equities and defenses only as ordinarily are available in actions brought on contract.
Granting however that the trial court may, in an injunction suit, determine whether or not the defendant should have damages, it does occur to us that, after the court has determined that the plaintiff was not entitled to the injunction, the statute governing appeals and the bond required on appeal come into operation. As to that bond the trial court has no discretion to withhold recovery for the actual damages suffered by the prevailing party whose hands were tied by the supersedeas. There is no good reason for holding that after a trial court, upon a trial on the merits, has determined that there was no ground for the injunction, still during the period of an unsuccessful appeal the actual loss sustained from the delay is not recoverable under the supersedeas bond. We think that as to damages coming within the terms of the undertaking on the appeal, the only defenses should be such equitable defenses as are ordinarily available in actions on contractual obligations. There is to be found no condition either in the statute (G. S. 1923, § 9500), or in the supersedeas undertaking herein, making recovery depend upon whether or not the questions of law or fact on the appeal were doubtful or clear.
Respondents contend that they were defeated on the injunction suit solely on the issue of ratification of the contracts asserted by the supplemental answer, and that the undertaking for the preliminary injunction having been given to take effect as of January 14, 1922, when such injunction issued (though executed after the ratification election of January 30, 1922), there was good cause for granting the writ in the first instance and therefore no recovery can be had. We think this position is not justified. The defenses in the injunction suit were two, namely, that the contracts involved were valid so far as any attack could come from these defendants because of their laches and that they were valid because ratified by the electors. Findings were made both on laches and ratification in. favor of the validity of the contracts.
Where two distinct issues of fact are raised and .litigated and appropriate findings made, there is no room for saying that the one should be disregarded as immaterial and the legal consequences drawn therefrom become a dictum, merely because the finding on the other -issue was sufficient to sustain the conclusion of law. On the appeal in the injunction suit, 155 Minn. 400, 193 N. W. 949, after stating that the finding of laches challenged by the appeal was amply sustained, we held the result of such finding "necessarily [to] be that plaintiffs [the defendants herein] were not entitled to an injunction, even had there been no ratification by electors." The reasons are fully given on page 411 of the opinion why that was true especially as to the contractors. We therefore conclude that, when the preliminary injunction was granted on condition that the undertaking in- suit should be given, the obligors were not then or since entitled to the writ, and that it was so decreed on the merits, out-, side and apart from the ratification election of January 30, 1922. Hence authorities cited by respondents are not' in point, such as Scott v. Frank, 121 Iowa, 218, 94 N. W. 764; Jewel Tea Co. v. Stewart, 142 Iowa, 353, 120 N. W. 962; N. Y. & L. B. R. Co. v. Dennis, 40 N. J. L. 340; Palmer v. Foley, 71 N. Y. 106; Apollinaris Co. v. Venable, 136 N. Y. 46, 32 N. E. 555; Yarwood v. Cedar Canyon C. Min. Co. 37 Wash. 56, 79 Pac. 483; Puget Sound Harbor No. 16 v. Aetna A. &.L. Co. 97 Wash. 413, 166 Pac. 785; American Sur. Co. v. Jones, 140 C. C. A. 183, 224 F. 673. In none of those cases did it turn out that a defense to the preliminary injunction which was here pleaded as existing when the writ issued was litigated and found true.
Respondents insist that plaintiffs are estopped by what occurred in the trial of the injunction suit to claim damages under the undertaking in existence at that time. Certainly nothing could be claimed then to have taken place which would estop them from enforcing the supersedeas undertaking given thereafter. Was there as to the preliminary injunction undertaking?
The incident was this: A day or so before the trial, defendants had served and filed a supplemental answer setting up the additional defense that on January 30, 1922, long after the answer had been served, the electors had duly ratified the contracts which were sought to be enjoined. In introducing testimony touching the purpose and result of the election, objection was made as to what transpired after suit was begun. During the resulting discussion the court put the question to Mr. Mercer, the spokesman for the other attorneys for the defendants in the suit, in regard to what effect such subsequent events might have upon the liability of the obligors in the undertaking:
"What do you say to the proposition that in case the plaintiffs were right to start with, how are you going to save them from that if they should not prevail by reason then of these proceedings that you are going to try to show ?"
Mr. Mercer: "That would be a perfect defense so far as their bond is concerned."
The Court: "That is, it would be a perfect action against them?"
Mr. Mercer: "No, no, a perfect defense against the bond."
The Court: "They have given bond to protect everybody, including the National Contracting Company. Suppose the National Contracting Company has been damaged $200,000 by reason of that injunction here, how are the plaintiffs going to get away from it if suit is brought?"
Mr. Mercer: "That is a different question."
The evidence was then received, without anything else in the way of admissions of fact or law, subject to a motion to strike, which motion was renewed both as to the evidence and the supplemental answer at the close of the trial. Clearly the obligors in the under taking did not assume that anything had been said on which they could rely as a defense if sued upon the instrument. The motion to strike was evidently denied, for it was found that a valid election was held as alleged in that answer. It is impossible to find any estoppel in the answers of the attorney to the queries of the court as to what the legal effect of the evidence offered would have upon a possible future lawsuit.
It has never been understood that an off-hand opinion on a legal question given by one of the attorneys of a party at the invitation of the court should bind the client in any other case. It was not the admission of a fact at issue in the case or even involved. It is doubtful whether the attorney and the court understood one another and surely the last quoted answer of Mr. Mercer should set at rest any contention that as to the contractors there could be any basis whatever for estoppel in the incident noted. Moreover the objection to the supplemental answer stressed at the trial and on the appeal of the injunction suit was that the contracts were void in the primary sense, hence could not be ratified and therefore the ratification set up in the supplemental answer was not a defense at all. Indeed the written motion to strike was "on the ground that the allegations , therein contained are irrelevant and immaterial and state no defense to the cause of action set up in the complaint herein." The record shows the motion was denied (folios 608-610, récord former appeal). It would appear that a refusal to permit such pleading in the case would have come near being an abuse of discretion. No estoppel is made to appear and we pass the many cases cited by respondent on estoppel as not in point.
There can be no question that after the ratification election the contracts, work on which was stayed, were valid and as to the contractors we find no equities appearing in the record of the injunction suit that should deprive them of the actual damages sustained. But it is contended the undertaking executed by defendants to take effect as of the time the preliminary injunction issued does not cover damages sustained after the ratification election. The undertaking was exacted to stay performance of the contracts. All the parties deemed it to have that effect. It would have been idle to have applied for a dissolution of the injunction after the election, for even after the trial the court, presumably at the instance of the plaintiffs, in that suit kept the preliminary injunction in force until the supersedeas could be filed. Again bonds for preliminary injunctions must be given with the understanding that it protects the party enjoined even though the issues in the suit may undergo* a change by amendment of the pleadings or by such supplemental pleadings as may be permissible by the usual practice. Houghton v. Meyer, 208 U. S. 149, 28 Sup. Ct. 234, 52 L. ed. 432, is instructive on the point that a bond exacted on granting a restraining order, but before a hearing on the propriety of issuing a temporary injunction, does protect until the trial court files a decision on the merits.
We are agreed that neither from the findings nor the whole record in the injunction suit, including the decision in this court, can the defendants herein claim any equitable defense to the actual damages the contractors or subcontractors may have sustained through being enjoined from proceeding with their contracts after the ratification election of January 30, 1922. But the contention is made that during the 16 days prior thereto there should be no recovery inasmuch as the contracts, the performance of which the defendants interrupted, were not then legal and defendants were only prevented from- so asserting in the injunction suit because of their own laches, and that to permit a recovery for that period would be to transform defendants' laches into a cause of action for the contractors. We do not consider the argument sound. In no sense is the cause of action herein predicated upon defendants' laches which availed the plaintiffs herein as a defense, nor is it even rested upon the validity of the contracts with the school district, but upon the express terms of the undertaking given by defendants. They saw fit to go into court and with its strong arm interrupt the work of the plaintiffs herein because of the alleged illegality of their contracts, saying if we do not establish our right to annul the contracts and to permanently stop work thereunder, we will pay you the damages you sustain by the interruption. The court found two grounds which defeated such right, one being the laches which exist ed when the suit was begun, and the other the validation of the contract by the voters 16 days later. Each ground was sufficient, and it follows that under the terms of the bond the obligors became liable for damages flowing from the interruption.
It seems the contracts were not in the sense illegal that the school district upon their completion could have insisted to pay only what »the work was worth to it. Under the situation here present, where the contracts had been let to the lowest bidder upon proper notice, for an authorized improvement, and the only objection to the making of the same was that the district had not sufficient funds in sight to cover the cost, the district itself would be estopped equally with defendants to question the contracts for all purposes, the contractors having in good faith proceeded with the work until near completion, as was adjudicated in the injunction suit.
The case of Chatfield v. Iowa & Ark. L. Co. 88 Ark. 895, 114 S. W. 473, cited by respondents does not appear to be at all helpful, for the cause of action here is not founded either upon laches of defendants or upon the validity of plaintiffs' contracts, but upon a distinct contract, the undertaking. A breach of the condition thereof, namely, failure to obtain an adjudication annulling the contracts, made defendants herein by the express terms of their contract liable to the contractors, plaintiffs herein, for the damages suffered by them from the interruption of their work. They did not establish the right, and the court found they did not have the right when the action was begun. The undertaking contains no condition that it was to be operative only in case the contracts attacked were held valid. In fact and in law the plaintiffs in the injunction suit could not limit the defendants therein to any particular defense. Any defense was open to them, and if any defense asserted defeated the plaintiffs in that suit, it mattered not what it might be, the obligation to pay for the loss caused by the preliminary injunction attached by the very terms of the undertaking.
In view of a retrial it may be suggested that the school district may stand in a different position to defendants than do the contractors. There are indications of extravagance in the plans of the buildings tbe district was constructing and also of recklessness and irregularity in not providing the means to pay for the contracts before letting the same. The school board must be held to know its duties and the financial status of the district. The ordinary contractor does not stop to question the authority of such an important body as this board to let contracts for needed and authorized buildings. The board owes to the taxpayers who must pay for school buildings the utmost good faith to see that the requirements of the law are followed in their erection. But even as to the district, we do not think it so clearly appeared from the record in the former case that no damages were recoverable under the undertaking that this action could be dismissed when it was, without an opportunity to place all its evidence before the court.
One phase of claimed attorneys' fees may be disposed of. Respondent presents many cases where attorneys' fees were disallowed though the injunction was dissolved. Some of the cases are from Federal courts. It must be remembered that the practice in the Federal courts is not to allow such fees. The same rule obtains in many state courts. We see also a distinction between the right to recover attorneys' fees as damages and the right to recover the loss directly flowing from the preliminary injunction as damages covered by the undertaking. The attorneys' fees may properly be held allowable as costs of suit and within the discretion of the court. We therefore consider cases involving solely attorneys' fees of little value as bearing on the recovery of actual damages from the fact of the restraint. The rule in the courts which permits attorneys' fees to be recovered on the bond, as we do (Frost v. Jordan, 37 Minn. 544, 36 N. W. 713), is that if the same were not earned solely in securing the dissolution of the injunction they are not allowable. Lamb v. Shaw, 43 Minn. 507, 45 N. W. 1134; Pelkey v. National Sur. Co. 143 Minn. 176, 173 N. W. 435. Our rule is clearly stated in the Pelkey case. Thereunder the school district is not entitled to recover attorneys' fees. One contract involved in the injunction suit was adjudged void, and as to that the defendant herein prevailed. So that not only were they entitled to have the parties to it enjoined, but they were granted further relief by recovering money for the district. We refer to the contract between the school district and its fiscal agent, the bank. So it seems, on all the authorities, the school district may not recover attorneys' .fees.
In the absence of a trial on the merits and proper findings it cannot now be determined whether as against the school district there is an equitable defense in the alleged fact that 95 per cent of the taxes received by the district come from defendants herein. This however and other matters alleged in the answer in diminution of damages and so-called counterclaims, are for defendants to prove and are not properly for decision now.
Upon this record we must refuse appellants' invitation to determine what items may be included in the damages, or upon what basis to be assessed. Those are matters to be first determined by the trial court.
We conclude that it was error to deny a new trial.
Order reversed.