Court Opinion

ID: 6568702
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:22:03.277643+00
Date Added: 2024-06-11T15:56:50.070594
License: Public Domain

Mr. Justice Allen
dissenting:
I cannot concur in the conclusion reached by the majority, nor agree with the views expressed in the majority opinion.
Neither from the complaint, nor from the evidence, does it appear that plaintiff was entitled to maintain this suit which is based upon a cause of action, if any exists, belonging to The East Denver Municipal Irrigation District. The authorities uniformly hold, at least do the cases decided by this court on that point, and there is no dispute as to this proposition, that a taxpayer or stockholder cannot bring an action upon a cause of action belonging to the municipality or corporation, where the governing board or managing officers of the corporate body has, or have, not wrongfully refused to sue. The rule is too well settled to require discussion. However, attention may be called to the recent case of Lowe v. Antero, etc. Co., 69 Colo. 409, 194 Pac. 945, where, among other things, this court said:
“A taxpayer as a rule in the absence of fraud has no capacity to bring an action for- the district against the will, discretion and judgment of the board and the district *44in whom are vested by statute the power and authority to exercise such judgment, neither can the court exercise the discretion vested by law in the board or the electors. Discretion exercised by the proper authorities, unless abused, cannot be reviewed by the court at the instance of a tax payer.”
There is no question but that the right of action in the instant case belonged to the irrigation district. Whatever may be said as to notice to, or demand of, the district to bring this action, the record shows that the district did not wrongfully refuse to bring suit, and did not abuse its discretion in not instituting litigation. This situation alone is sufficient to show that plaintiff had no capacity to sue.
The majority opinion attempts to meet the situation above pointed out, by relying upon the novel proposition that defendant Doherty & Company' cannot object to plaintiff’s incapacity to sue because “the district itself urged * * * and urges here the same relief which is asked by Steele” the plaintiff. I do not find that the district urged any relief. It filed an answer, admitting certain allegations of the complaint, and prayed that “it may go hence with its costs.” Of course, the fact remains that the district itself did not object to plaintiff’s bringing the action, and is not complaining of having been deprived of the exercise of its discretion. This fact appears to be seized upon by the majority opinion, but such fact in no way affects the right of the defendant Doherty & Company to object to plaintiff’s capacity to sue.
Plaintiff’s right to maintain the action depends on the facts as they existed at the time the action was commenced. If his right then existed, the district could not deprive him of the right to proceed with the action. If his right did not exist, the district could not invest him with such right. In the instant case it is wholly immaterial what attitude the district took after the action was commenced. The plaintiff had control of the suit.
“It is a principle of equity practice, when a person *45brings a suit in behalf of himself and such others as may wish to come in who are similarly situated, that the complaining stockholder controls the case and may continue, compromise, abandon 'or discontinue it at his pleasure until a creditor similarly situated has procured an order to be made a party to the action, or until interlocutory judgment is entered.” 3 Cook on Corporations, sec. 748, p. 2738.
The law which prevents a taxpayer or stockholder from suing upon a cause of action belonging to the municipality or corporation is not so much for the benefit of the latter as for the benefit of third persons, against whom the cause of action may exist. Such persons may settle the controversy with the corporation or district without suit. There may often be a reasonable compromise. This reason is apparently recognized in Wallace v. Lincoln Savings Bank, 89 Tenn. 630, 15 S. W. 448, 24 Am. St. Rep. 625, where the court said:
“A very wide discretion is necessarily reposed in the directors of a corporation. It is not the duty of the managers of such association to bring suit upon every supposed wrong or injury to the corporation. If it were so, strangers could never know when a settlement, compromise or adjustment was a finality, if the matter was subject to be overhauled at the suit of any discontented shareholder.”
The district could not authorize the plaintiff to sue, nor invest him with the capacity to sue by failing to object to his right to maintain the action. Whatever the district may have done, the defendant Doherty & Company is entitled to insist upon and have applied the well settled rule that a taxpayer cannot sue to enforce a cause of action existing in favor of the corporation or district, except when necessary to prevent a failure of justice.
The majority opinion appears to hold that if a suit in equity is brought by a taxpayer, on a cause of action belonging to the corporation or district, the complaint need not offer to do equity because, as the opinion states, “a *46taxpayer could not offer the status quo.” The maxim, “He who seeks equity must do equity,” certainly operates in favor of only the party against whom relief is sought, and is applied to promote the ends of justice. A defendant cannot be deprived of the benefits of the maxim or rule simply because the plaintiff or complainant is a taxpayer. If the taxpayer himself, in his individual capacity, cannot do equity, he can ask, and the decree may provide, that the corporation or district may do equity. In Mosher v. Sinnott, 20 Colo. App. 455, 79 Pac. 742, a decree was held erroneous because it did not require the corporation to do equity. That was an action brought by a stockholder. The court also held that the complaint failed to state facts sufficient to constitute a cause of action in that it failed to offer to do equity with reference to certain defendants. The complaint in the instant case made no offer to do equity, or make provision whereby equity may be done with reference to the defendant Doherty & Company, and for this reason was demurrable. 21 C. J. 400. The majority opinion assumes that equity was done by the decree. The decree provides that the clerk of the court, as commissipner, “shpuld execute and deliver to Doherty & Company, * * * a deed conveying all right, title and interest the district has to and in the irrigation system and every part thereof.”
The decree, in respect to the matter above mentioned, is erroneous for two reasons: First, because the court had no power to convey, or to order a conveyance of, the “irrigation system and every part thereof.” The property was acquired by the irrigation district under a statute which provides, in section 3452 R. S. 1908, as follows:
“The title to all property acquired under the provisions of this act shall immediately and by operation of law vest in such irrigation district, in its corporate name, and shall be held by such district in trust for, and is hereby dedicated and set apart for the uses and purposes set forth in this act. * * * ”
The property was, therefore, inalienable. If the dis*47trict could not convey, a court could not direct a conveyance. The second reason why the decree is erroneous, in this connection, is that equity is not done to the defendant Doherty & Company by transferring to it the irrigation ' system. A conveyance of the bare bones of systems, whose only value depended upon the appurtenant lands, would not in any just sense be a restoration of the status quo. What would be conveyed, would have little, if any, value to the defendant.
If there is no other way of doing equity than by such conveyance as is provided for in the decree, then it is impossible to do equity, in which event the action cannot be maintained. Plaintiff should have been left to pursue his remedy in an action for damages. Auld v. Travis, 5 Colo. App. 535, 544, 39 Pac. 357.
The majority opinion takes up the discussion of another point in the case by stating that “it is objected that the action was ex delicto and the judgment ex contractu.” I think the contention of the plaintiff in error, in this connection, is not as stated in the words above quoted, but is in the language of one of the headings in a brief, namely, that “the whole structure of the complaint was founded on active, fraudulent conspiracy, and proof thereof failing, (it) should have been dismissed.”
The allegations of conspiracy saturated the complaint. The court found that there is not sufficient evidence to sustain plaintiff’s charge of conspiracy. The complaint is too lengthy, even so far as conspiracy is concerned, to be here reviewed, and the allegations cannot be summarized in a brief space. In view of the allegations in this case, I am unable to agree with the majority opinion that the rule controlling here is simply, “Is ground for equitable relief alleged and proved?” The rule to be applied is that stated in 21 C. J. 674, as follows:
“If by its allegations the bill is framed for relief upon a certain and definite theory, relief must be granted on that theory or not at all.”
*48In a note, citing a large number of cases, it is said, in 21 C. J. 675:
“Where the bill is framed on the theory that there was fraud entitling plaintiff to relief, it must be proved as laid in order to warrant a decree in plaintiff’s favor; relief will not be granted on proof of other facts, although included in the charge of fraud and sufficient under some circumstances to constitute a claim for relief under another head of equity.”
The trial court, upon its finding, above mentioned, should have dismissed the complaint.
Another reason why the judgment should be reversed is that the complaint states no cause of action against Doherty & Company. The Gas Securities Company is made a defendant. The complaint alleges that The Gas Securities Company is now the owner and holder of the bonds, and that it acquired the bonds with full notice of all matters affecting the validity of the bonds, and prays that this company be compelled to bring in the bonds for cancellation. It thus appears from the complaint that the bonds are not valid, outstanding obligations of the irrigation district. This being true, it was impossible for the complaint to state a cause of action for a money judgment against the defendant Doherty & Company for the face, or any, value of the bonds in the hands of such a purchaser, and the decree to this end, based upon such a complaint, is erroneous. The conclusion above stated is further aided by the fact that the plaintiff took default against the Gas Securities'Company. Nothing stood in the way of full relief against the Securities Compány, and the court, in its original findings, held that the Securities Company should be compelled to return the bonds. This finding was changed in the final decree, the court then holding that the plaintiff is not entitled to any relief against The Gas Securities Company, and thereby the court, rather than the plaintiff, made the action really one against Doherty & Company. But the complaint still failed to state a cause of action against this defendant, because the allegations *49with reference to the Securities Company negatived a cause of action against Doherty & Company.
If the plaintiff or the district was entitled to some judgment against Doherty & Company, it would not be a judgment for the return of the $250,000 in bonds delivered under the contract of 1912. The decree, providing for the return of such bonds, should not be ¿firmed. In this connection, it may be assumed, as the trial court found, that the original contract, called the contract of 1910, was for an entire irrigating system for the entire price. If bonds were delivered under the contract of 1910, they may have been mere advances and subject to recovery if the entire system were not completed. However, under the contract of 1912, the bonds were not delivered as advances, but were delivered upon a completed contract, namely the contract of 1912. It may be true, as stated in the majority opinon, that the consideration for the $250,000 bonds was worth only $6,000, but the district got all it contracted for in the 1912 contract. When it received what it contracted for, it delivered the consideration moving from it, the $250,000 in bonds. It delivered them in pursuance of a complete and completed contract, and not as a partial payment on an uncompleted contract. The contract of. 1912 was entered into not only by resolution of the board of the district, but upon vote of the electors, and constituted a solemn obligation of the district. The court erred in ordering any judgment, based on the delivery of the $250,000 in bonds above mentioned.
The decree orders defendant Doherty & Company to bring in and deposit with the clerk of the court, $47,000 of the district bonds which, under the court’s findings, the defendant obtained from the Promotion Company. These bonds were delivered to the Promotion Company under the original contract, and prior to the assignment of contracts to Lucas or Doherty & Company, and were given in pursuance of a provision of the original contract that payment in bonds might be made from time to time. These bonds were delivered under circumstances similar *50to those attending the delivery of $40,000 in bonds to Kussell, Clark, and the Interstate Trust Company, which bonds, and the delivery thereof, were held valid by this court in Interstate Trust Co. v. Steele, 65 Colo. 99, 173 Pac. 875. That decision settles the validity of the delivery, and of the bonds, in this case, so far as concerns the $47,000 in bonds, above mentioned. The decree is based on the theory that if the Promotion Company still had these bonds, it would be compelled to return them to the district because the irrigation system was not completed, and that Doherty & Company received them from the Promotion Company with notice. Under the decision in the first Steele case, above cited, the Promotion Company would not have to return them, and hence the reason for the decree does not exist. At any rate, the bonds were valid in the hands of the Promotion Company, and could be transferred by it to any purchaser and the latter’s right to said bonds could not be affected by any subsequent failure to complete the contract. Doherty & Company, as to these bonds, is in the position of such purchaser. It was error to include these bonds in the judgment.
The decree orders Doherty & Company to deliver up $673,500 in bonds, within ninety days, and, in effect, the decree further provides that on failure to deliver the bonds, there shall be a money judgment against the company “for the par value of the bonds and coupons.” Judgment for the par value of the bonds is unwarranted either by the allegations of the complaint or by the evidence. The par value of bonds or notes which have not been paid is, as a general rule, recoverable when they have been procured by false and fraudulent representations and have been fraudulently put into . circulation. That is, where the manner of their being procured and disposed of necessarily excluded the possibility of any equities on the part of the alleged wrong-doer. The trial court erred in applying the foregoing test, which applies only to illegal and fraudulent transactions. ‘ It does not apply in this case. The court found there was no fraud. If any money judg*51ment is recoverable, it is for the damage which is suffered by the district by the failure to return the bonds. The measure of damages is not the par value of the bonds but their present market value. In other words, it is what it would cost the district to procure the bonds. This is the rule adopted by the Supreme Court of the United States in City of Memphis v. Brown, 20 Wallace, 289, 22 L. Ed. 264, the court there said:
“If Brown & Co. have received bonds of the city, which they are bound to return, and do, not return, what damage does the city suffer? The face of the bonds and interest, it is said, as if they run to maturity, the city will then be liable for the payment of the whole amount. Not so. * * * The value of its bonds in the market is fifty cents on the dollar. With that amount of money it can now place in its treasury the bonds Brown & Co. fail to return. It is difficult to see that the damage sustained can be beyond that amount.”
It is no answer to this that, as stated in the majority opinion, Doherty & Company can go into the market themselves and get the bonds. That consideration can have no legitimate influence, any more than the contention made in the case above cited, relating to the ability of the city to go into the market to buy the bonds. This court should not ignore a rule of law simply because a way may be found by the defendant to avoid its application. The City of Memphis case should be treated as authoritative in this court. In Hayden v. Town of Aurora, 57 Colo. 389, 142 Pac. 183, we said:
“It is the policy of this court, declared again and again, in the absence, as in this case, of constitutional or statutory inhibition, or contrary holdings of its own, to follow decisions of the Federal Supreme Court, and it therefore becomes not only a duty, but our pleasure to now do so.”
The majority opinion concludes with the statement:
“The decree is fair and equitable and is affirmed.” As to the proposition that the decree is “fair and equitable” the conclusion of the majority opinion seems to be based *52on the reasoning that the work done by the contractor “is worthless to the district,” because not a “completed system,” and therefore the district should recover back everything it paid or advanced under any of the contracts.
An irrigation system may be useless until completed, but it is not, on that account, worthless. Whatever has been done short of completion, means that that much has already been done, and need not be performed again, whenever steps are or may be taken to build a complete system. According to the decree, Doherty &• Company received, on account of what was done, $683,000.00 in bonds. Doherty & Company did not obtain these bonds by fraud. They received them for moneys advanced, property rights procured, material and labor, and pursuant to contracts, including the valid contracts of 1910 and 1912. The defendant is compelled to return all of these bonds, and is allowed to retain nothing. It receives no compensation for work done, or property procured, and no reimbursement for moneys advanced. It receives only a worthless title to the incompleted irrigation system, and the majority opinion concedes that “it is worthless to those (Doherty & Company) to whom it (the system) is returned.” The defendant is therefore required to sustain a loss, and a very heavy one, represented by what it gave as the consideration for the $683,000.00 in bonds, and it is to be presumed that the consideration was fair and adequate, the record showing nothing to the contrary.
The defendant, Doherty & Company, is certainly entitled to the reasonable value of whatever it gave for the bonds, if the judgment for their return is to be upheld. It is an elementary rule that where labor is performed or materials furnished by one person for another under a contract which for reasons not prejudicial to the former is or becomes unenforceable, he may recover therefor upon a quantum meruit. 40 Cyc. 2825. Equitable considerations which support this rule existed in the instant case, but equity to defendant was neither offered by plaintiff *53nor done by the decree. The decree is unfair and inequitable and ought to be reversed.
I am authorized to state that Mr. Justice Bailey concurs in this dissent and agrees with the views herein expressed.