Court Opinion

ID: 6237930
Source: CourtListenerOpinion
Date Created: 2022-02-17 20:37:04.613406+00
Date Added: 2024-06-11T08:58:06.449294
License: Public Domain

Mr. Justice Gokdon
delivered the following concurring opinion, October 5th, 1885:
I concur in the opinion of the majority of this court as delivered by the Chief Justice; and I also agree with the court below that the contract of May 14th, 1881, if of any value whatever, must be taken as an absolute sale of the bonds of the city of Pittsburgh to Henry Whelen and Wilson McCandless. “ The city of Pittsburgh sells at par and accrued interest, to Henry Whelen of the city of Philadelphia, and Wilson McCandless of the city of Pittsburgh, $6,000,000 of the Improvement Loan Bonds, authorized by the Act of the 9th of May, A. D. 1879, and its several supplements.” Then follow the conditions of payment and delivery, and it concludes with its execution by the signatures and seals of the sub-committee of finance, and Whelen and McCandless. “ If this is not a contract of sale I must confess my ignorance of the form and purport of such an instrument, and it does seem to me that the contrary assumption ignores both the common and technical meaning of the words which the parties have made use of. “ The city of Pittsburgh sells at par and accrued interest, to Henry Whelen and Wilson McCandless, $6,000,000 of the Improvement Loan Bonds.” There is no such thing as an avoidance or misinterpretation of this language; it is a plain, straightforward sale of .these bonds at par, as required by the Act quoted. Indeed, nothing else is pretended; the counsel for the appellants says: “ the syndicate are, in effect, purchasers of the bonds.”
By what authority, then, does it come about that Whelen and McCandless, by a subsequent clause of this same contract, are to be allowed a commission of one per centum-on all bonds purchased or exchanged by them? A commission for buying these securities ? It can hardly be argued that as agents for the city they sold to themselves. Such a transaction would be a legal curiosity, and worthy of careful scrutiny, but the fact is, that they were purchasers directly from the city, and so the contract of sale reads. It follows that this pretended *201commission means nothing more or less than an abatement of one per centum from the price to be paid for the bonds; in other words, these purchasers were to have them at one cent less on the dollar than par. The result is, that the city authorities were acting ultra vires when they made this contract.
The Master, however, argues that if these parties acted in good faith under the previous arrangements, that is, those of the 23d of April, 1880, and 23d March, 1881, and bought the bonds themselves at as high a price as could be obtained from any other party, the allowance of a commission did not •violate either the spirit or letter of the statutory prohibition. There is here, however, an assumption that the facts do not support. These parties cannot stand on the hypothesis that in the final contract they were acting as agents for the city, not only because of the patent inconsistency of making a sale to themselves, but because this contract so modifies the previous arrangements as to annul the agency for the disposition of the bonds, and substitute the agreement for an absolute sale. Moreover, whether the appellants bought the bonds for a price as high as others would have given, is a matter unknown, for no opportunity was given for competition after the supplementary Acts of March 11th, and April 15th, 1881. Thus the Master’s conclusion respecting the commissions fails for .the want of the facts necessary for its support, and there is only left the anomaly of a bonus given to Whelen and McCandless, not as sellers, but as purchasers, of the city bonds. The fact that these securities have, in violation of the express terms of the Act of Assembly, been sold at less than their par value, cannot be concealed or its effect destroyed by so flimsy a theoiy as that volunteered by the Master. Worse still, if his hypothesis be correct; if these men were indeed still acting, under the previous arrangements, as the agents of the city in the execution of the contract of the 14th of May, then, according to the Master’s own finding, was the whole transaction in which they were engaged, so tainted with fraud (he calls it legal fraud), that the city was not bound by it.
In his own language: “That the city has not ratified said contract of May 14th, 1881. He is, therefore, of the opinion that the city of Pittsburgh has the right to disaffirm said contract of May 14th, 1881.” We cannot exactly understand how the city can disaffirm a contract it never made; but no matter, for the effect of the finding is not only to avoid the contract, but also what might be regarded as its ratification by.the city councils in their action, on the report of the financial committee, of December 11th, 1882. In this I agree with the Master; that is, on the hypothesis that he is correct in assuming that Whelen and McCandless were, at the time of *202making the contract under consideration, acting as agents of the city, and as such were to receive commissions for the sale of the bonds to themselves. Such a contract with a trustee, acting for himself as well as for his principal, would be constructively fraudulent, and, without regard to the bona fides of the transaction, voidable by the principal.
If, however, as the report abundantly shows, there was fraud in fact, either by false assertion, or by the suppression or concealment of that which these agents, if such they were, knew to be proper for the officers of the city to know, the contract would for that reason be void, and not susceptible of ratification if it involved a loss to the city. Indeed, such ratification on part of the city officials would in itself be a fraud, and therefore open to the investigation of the citizen. With the principle here stated the learned Master was doubtless acquainted, hence, he designates the actual fraud which he has discovered and pointed out, as legal fraud, thus making the contract susceptible of ratification by the councils, and so turns the plaintiffs out of court. The error involved in this conclusion is obvious, and needs no discussion.
If, on the other hand, the appellants are to be regarded as mere purchasers, as they seem to have regarded themselves, and if at the time of the making of the 14th of May contract they were released from their previous obligation as city agents, they were bound by no legal tie which prevented them from making the best bargain possible with the municipality. In such case, their experience and knowledge were their own, and they were not obliged to impart it to the committee with which they were dealing. In either case, however, the contract comes to nothing; in the one because it is void for fraud; in the other because prohibited by the Act of 1879, hence its execution on part of the city was unlawful.
But, returning to the position assumed by the Master, and treating these men as the confidential agents of the city, it is impossible for me to comprehend how this transaction can have one moment’s favorable consideration in a court professing to be governed by the rules of equity. I have no hesitation in assenting to what his Honor, Judge Ewing, finds to be a fact; that is, that there was actual fraud in the procurement and making of the contract, and that with the peculiar moral ideas of the defendants we have nothing to do. They may have thought it a good thing to first gain the position of a financial confidant of the municipality, and when in that position make a bargain with it as though they were dealing at arms’ length. But, with the honorable judge below, I am not of that opinion. To sustain the court in this finding we need go no farther than the Master’s report, and even in it we *203•might confine ourselves to the citation of the testimony of Mr. Whelen. This gentleman when asked whether his firm had not been dealing in Pittsburgh bonds prior to the execution of the contract of May 14th, 1881, answered: “ I think not; it would not have been a wise thing on our partand on being further interrogated why he did not consider it a wise thing for his firm to do, said: “ why, after I became the owner of a lot of bonds of course it would be my interest to put the price of the bonds up, if I could, and not before, and that is true of all marketable securities.” Under this piece of evidence, the Master, whilst giving Mr. Whelen credit for acting up to what he believed to be the whole measure of his duty to the city, concludes that he misapprended his real position, and regarded himself only as a possible purchaser of the bonds. T agree that there is here somehow a misapprehension; Mr. Whelen certainly did misapprehend both his position and duty, or the Master misapprehended Mr. Whelen and his associates. If it be true that these bankers, whilst acting as agents for the city, were thus quietly endeavoring, if but negatively, to prevent an appreciation of Pittsburgh securities, and in this manner to keep down the city’s credit until they could secure to themselves the control of the forthcoming bonds, the moral vision of that man, or court, that cannot see a gross fraud in such a transaction, must not only be obscured but totally perverted.
The same implication may, in like manner, be drawn from the fact that not a word was said to the committee of the sale by Whelen in November, 1880, of five per cent. Pittsburgh bonds at $1.05; the quotation by his own house, in July of the same year, of the same bonds, at a premium; of the sale of compromise bonds at $1.07 and $1.08, and of the premium on the five per cent, building bonds of 1880. So, syndicate and committee alike seem to have overlooked the prompt and eager bidding of the city banks and business men for the $1,400,000 Temporary Loan of March 1879. Furthermore, in the face of this exhibit of the sound financial standing of Pittsburgh; regardless of its assured commercial prosperity, its .credit was impeached. This .credit had been at one time doubtful, therefore, and notwithstanding all the evidence to the contrary, it was alleged still to be doubtful. Great care seems to have been taken to impress this upon the committee; a committee, who having tried the experiment, soon discovered that however it might be as to their skill in the several businesses in which they were engaged and understood, they were no match for these astute bankers in the matter of finance. As the Master informs us, the mere shrug of Whelen’s shoulders was a.matter.of awe and terror-to those *204unskilled committeemen. Now, all this was well enough as long as these appellants were understood to be acting as agents of the city in the sale of her bonds, for in that case they could make nothing by the depreciation of these securities since they could only have their commissions, and all that they said and did might be regarded as merely an effort to enhance the value of their services in the eyes of the committee. So, it would have been all well enough had they from the first occupied the position of mere purchasers or bidders, for then their knowledge would have been their own, and the city could not justly have complained that they withheld it; in that case they would have dealt with her at arms’ length, and if by their skill and silence they got the better of the bargain, they would have been of good standing at least in the. forum of legal ethics. But if we are to take it that all this negotiation for special legislation, all this suppressio veri, this carefulness to do nothing that would tend to appreciate the credit of Pittsburgh, had for its object the contract of May 14th, 1881, by which they, acting as the agents of the city, procured a sale of the bonds to themselves, and at the same,time retained their commissions; when by these means they seek to draw from the municipal treasury some half million dollars which as much belong to the city as any other part of the proceeds of the bonds, the matter presents a very different appearance. It cannot be sleeked over under the name of ‘legal fraud’ and so passed off as something that has done the citizen no harm; as a matter with which he has nothing to do, and as though if only the treasury were thus depleted in a genteel manner, and by respectable men he ought to be satisfied. How coolly this man, whom the Master presents to us as a paid city agent, tells us that his house took care not to have anything to do with these bonds till after the contract of the 14th of May ; “ It would not have been a wise thing”; it would have been working in the interest of his principal, and that was not a wise thing to do. But “after I became the owner of a lot of bonds it would be to my interest to put up the price of those bonds, if I could, and not before.” And this agent, this attorney in fact of the city'', who steadily keeps in view his own interest to the exclusion of that .of his principal; who carefully prepares the way for the 14th of May contract, through and by which he and his associates are to get at par city bonds representing 16,000,000, which even then commanded a premium of five per centum, and which he and they knew would, in their hands, still further appreciate ; this municipal agent and his associates, who, if the Master’s position be correct, deserve anything rather than compensa*205tion, are to have for their services in thus helping themselves, in addition to their enormous speculation, the modest sum of sixty thousand dollars!!
Now, while I think the conclusions above stated are fairly deducible from the position assumed by the Master; that is, that the appellants occupied the double position of purchasers and agents, yet with the majority of this court, I am unwilling to adopt a position which would put the appellants in a light so unenviable. The character of the men engaged in this transaction would seem to negative so harsh an assumption, and we, therefore, the rather adopt the conclusion of the court below, that the agreement of the 14th of May abrogated the previously existing agency, and put the appellants in the position of purchasers of the bonds at a discount of one per centum.
I also agree, that though the contract of the city with the appellants was without warrant of law, that this fact in no wise affects innocent holders of the bonds to whom they have been passed by the defendants. The position of such holders has been so fully discussed in the recent ease of Kerr v. The City of Corry, (9 Out. 282), that further time spent upon the question would be to no purpose.
Trttnkey and Sterrett, JJ., concur in the decree, for reasons expressed in the opinions of the Chief Justice and Justice Gordon.