Court Opinion

ID: 7971415
Source: CourtListenerOpinion
Date Created: 2022-09-09 00:55:30.924423+00
Date Added: 2024-06-11T16:34:47.156719
License: Public Domain

BROWN, J.
(dissenting).
I dissent. My reason for doing so is not that I do not share the sympathy of my brethren for the city of Fergus Falls and its taxpayers, but because the conclusion reached by them is not in harmony with the law as we find it in the books, and is subversive of the best interests of taxpayers and municipalities generally. The decision will tend to encourage public officials inclined in that direction in' the notion that public funds may be lawfully invested In private enterprises, and establish a rule that, although a crime to so divert such funds, the legality of the transaction can be called in question in a civil action only when the interests of the municipality demand that it be impeached. The public interests would be best subserved by a square, blunt decision that public funds cannot be so used, and that contracts of this kind are a nullity, and cannot be enforced.
*172There is no controversy or dispute as to the facts. The complaint alleges, and the court below found, that the city of Fergus Falls loaned to one Dawson Bell the sum of $10,000, to be repaid in five years, with interest at the rate of two per cent, per annum. At the time of the loan Bell owned the real property described in the complaint, and executed to C. D. Wright, in trust for the city, a mortgage thereon as security for such repayment. Wright subsequently assigned the mortgage.to the city, and it now seeks, to foreclose it. Bell is dead. Defendant hotel company has succeeded to his title to the property, but did not, in the purchase thereof, assume or agree to pay the mortgage debt. It does not appear that the money so loaned Bell was used in the purchase or •improvement of the mortgaged property. From aught that appears, the loan was an ordinary business transaction, and the city offers no suggestion that its officers exceeded their authority, but, on the- contrary, affirms, adopts, and approves their conduct.
The real question in the case is whether municipal corporations of this state can engage in the loaning business, and as this question is answered so should the case be decided. It is generally understood that such corporations are limited and restricted in their contracts and dealings to matters essential to the good order and government of the municipality and the comfort and welfare of the inhabitants. Contracts with individuals in the interests of private affairs are beyond their authority, and void. This rule is one universally recognized and applied. That the contract involved in this case was one with an individual, and in the interests of private affairs, is not disputed. That the loan of public funds to further and promote private objects and interests is against the best interests of the municipality whose funds are so loaned, and against public policy, cannot for a moment be doubted. That such a transaction is not only beyond the legitimate authority and power of the municipality, and, in this state, a palpable violation of positive law, cannot be denied. Yet this court solemnly declares the same a valid and enforceable contract and transaction.
The rigor of the old rule of ultra vires has been much relaxed of late years, especially as to private corporations, and the doctrine of estoppel is now often applied to the end that justice may be *173done. As to contracts merely ultra vires,- — that is, contracts not within the express or implied delegated authority of the corporation, — the doctrine of estoppel is applied to prevent a party who has received the benefit of a part performance from setting up want of authority in the corporation as a defense to a performance on his part. And perhaps this doctrine has been applied in some cases for a like purpose where the contract is not 'only ultra vires, but illegal, because prohibited by law. But the great preponderance of the authorities hold the illegal contract wholly void, and incapable of ratification. 1 Beach, Pub. Corp. §§ 217, 218, 248; Ottawa v. Carey, 108 U. S. 110, 2 Sup. Ct. 361; Smith v. City, 77 N. Y. 130; McDonald v. Mayor, 68 N. Y. 23; Lewis v. City of Shreveport, 108 U. S. 282, 2 Sup. Ct. 634; Board v. Arrighi, 54 Miss. 668; Oregonian Ry. Co. v. Oregon Ry. & Nav. Co., 10 Saw. 464, 22 Fed. 245, 23 Fed. 232.
Such contracts are on a par with illegal contracts between individuals, and possess no greater virtue because made by a corporation. And the rule is, as I understand it, that, whether partly performed or not, they are utterly void, and cannot be enforced. See authorities supra, and 1 Beach, Pub. Corp. § 217, et seq.; Sutro v. Pettit, 74 Cal. 332, 16 Pac. 7. Says Blackburn, J., in Riche v. Ashbury, L. R. 9 Exch. 224, 262:
“I do not entertain any doubt that if, on the true construction of a statute creating a corporation, it appears to be the intention of the legislature, expressed or implied, that the corporation shall not enter into a particular contract, every court, whether of law or equity, is bound to treat a contract entered into contrary to the enactment as illegal, and therefore wholly void.”
The right of the city of Fergus Falls to collect and expend public money is limited by the act of the legislature creating it to public purposes, and a diversion of such funds to a private purpose is not only beyond its delegated authority, but palpably against public policy, and should for this reason, if for no other, be held void. But such a diversion of public funds is expressly made a felony by section 369 of our Penal Code (G. S. 1894, § 6663), ,and this renders the transaction wholly illegal, irrespective of other considerations. But my brethren say that the city is not responsible for the un*174lawful acts of its officers. This may be, and doubtless is, true, as a general proposition of law, but cannot be true when applied to a city attempting to enforce a contract which is the result and grows out of such unlawful conduct. If a municipality departs from its true character, and enters into competition with money loaners, it must submit to the law applicable to the business thus engaged in. It Is elementary that a principal cannot adopt or ratify a contract made by his agent in violation of his authority in part and reject it in part. If the principal ratify such a contract, he must take it clothed with such virtues and benefits as it is possessed of, and burdened with such inequities and illegal features as the transaction giving it existence surrounds it. 1 Am. & Eng. Enc. 1192, and cases cited. A municipal corporation cannot enter the field of commercial enterprises without subjecting itself to all commercial laws and usages. In Newbery v. Fox, 37 Minn. 141, 33 N. W. 333, this court said, at page 143:
“The doctrine of ultra vires has, with good reason, been applied with greater strictness to municipal bodies than to private corporations. * * * A different rule of law would, in effect, vastly enlarge the power of public agents to bind a municipality by contracts, not only unauthorized, but prohibited, by the law. It would tend to nullify the limitations and restrictions imposed with respect to the powers of such agents, and to a dangerous extent expose the public to the very evils and abuses which such limitations are designed to prevent.”
Judge Dillon says:
“The history of the workings of municipal bodies has demonstrated the salutary nature of this principle, and that it is the part of true wisdom to keep the corporate wings clipped down to the lawful standard.”
But the law of ultra vires, as applied to contracts merely in excess of corporate power, is not the law by which this case should be judged. We have the additional element of illegality, and the law with respect to illegal contracts should control. Comyn, in Ms work on Contracts, lays down the law as follows:
“And this distinction is taken in the books, namely, where the action is in affirmance of an illegal contract, the object of which is *175to enforce the performance of an engagement prohibited by law, clearly such an action can in no case be maintained; but when the action proceeds in disaffirmance of such a contract, and, instead of endeavoring to enforce it, presumes it to be void, and seeks to prevent the defendant from retaining the benefit which he derived from an unlawful act, then it is consonant to the spirit and policy of the law that plaintiff should recover.”
This is the law to-day, and is supported by the great weight of authority. It applies to this, case, because the transaction here in question is not only illegal as against public policy, but illegal because a violation of law. See State v. Torinus, 24 Minn. 332; Bisbee v. McAllen, 39 Minn. 143, 39 N. W. 299. In Borough of Henderson v. County of Sibley, 28 Minn. 515, 11 N. W. 91, and City of Chaska v. Hedman, 53 Minn. 525, 55 N. W. 737, the unlawful contract and the illegal acts of the public officers were repudiated, and the action was to recover the money unlawfully taken from the treasury. This same remedy should have been resorted to by the plaintiff, instead of attempting to ratify and confirm the illegal conduct of its officers.
My brethren make no attempt to distinguish this case from State v. Torinus, supra, which is directly in the teeth of their decision. Neither do they explain why there should be a departure from Bisbee v. McAllen, supra. In that case there was a sale of groceries and provisions, and the defendant pleaded as a defense to an action to recover the purchase price thereof that plaintiff’s weights and measures by which the goods were sold had not been sealed and tested as required by the statute of the state. The court held the transaction illegal, and that plaintiff could not recover. There was no attempt to apply the doctrine of estoppel in that case, though equity and good conscience would seem to have justified its application, if it can be justified in this case. The transaction involved in this case was void ab initio because of its illegality, and I submit that life could not be infused into it by even a most vigorous application of the doctrine of estoppel. 1 Am. & Eng. Enc. 1182, et seq. The case of City v. Montgomery, 31 Ala. 76, is directly in point. It is there said, at page 88:
“It is further urged in favor of the maintenance of this action, *176that inasmuch as the plank-road company has had the benefit of the city bonds, and obtained them on the faith of the contract which is the subject of this suit, the obligors in -this bond should be held estopped from disputing the authority of the city to make the contract. If this doctrine be established, then corporations, no matter how limited their powers, may make themselves omnipotent. They have only to induce persons to contract with them beyond the scope of their powers, and their very usurpations have the effect of conferring powers on them which the legislature have withheld. A proposition so erroneous can scarcely need argument to overturn it. See, on this point, Pennsylvania v. Dandridge, 8 Gill & J. 248, 320, and authorities cited; Albert v. Savings, 1 Md. Ch. 407, 413; Smith v. Alabama, 4 Ala. 558; Hodges v. City, 2 Denio, 110; Life v. Mechanics, 7 Wend. 31; New York v. Ely, 5 Conn. 560. It will be remembered that, in this case, it is the corporation itself which sues. The suit is an attempt to enforce a contract which the corporation had no authority to make, save as above indicated. We cannot apply the doctrine of estoppel to such a case as this.”
Defendant is not estopped from denying the validity of the mortgage merely because it succeeded to Bell’s title to the property. Galkins v. Copley, 29 Minn. 471, 13 N. W. 904; Gerdine v. Menage, 41 Minn. 417, 43 N. W. 91. Farmer v. City of St. Paul, 65 Minn. 176, 67 N. W. 990, is not in point. It appeared in that case that the city of St. Paul was liable for the care and support of persons committed to prison by the municipal court of that city. Such- prisoners were committed to the House of Good Shepherd, which was not a public prison or workhouse, and the court held the contract between the city and the persons in charge of such House of Good Shepherd for the support of such prisoners to be unauthorized, but very properly held that it was only “technically illegal”; this result no doubt being founded on the fact of the liability of the city to pay the expense of such persons at some proper place of confinement, and no illegal obligation was in any way created. Neither is the case of Deering & Co. v. Peterson, 75 Minn. 118, 77 N. W. 568, in point. In that case it appears that the legislature had authorized the loan of seed grain to farmers who had lost their crops by hail, and the contract involved was made and entered into ih accordance with the requirements and commands of the statutes, and not, as in this case, in violation thereof. This court, subsequent to the date of the contract, declared the seed-grain law un*177constitutional, thereby rendering the contract, as said in Farmer v. City of St. Paul, supra, “technically illegal.”
For these reasons I think the order appealed from should be reversed, and a new trial granted. If this decision be followed in the future, cities, towns, and villages of this state may understand that it is lawful to appropriate funds from the public treasury for investment in boot and shoe factories, brick yards, and hotels and lunch counters.