Grady v. City of Livingston ( 1943 )

This is one of four separate actions commenced by the two taxpaying plaintiffs to recover approximately $10,000 in the aggregate paid by the city of Livingston to the corporate defendants. The plaintiffs are the same in each of the four cases but a single corporate defendant is named in each action. The four cases were briefed and argued together. The money sought to be recovered was allowed and paid on bills against the city presented in the usual form, approved and warrants issued therefor, and was for goods, wares and merchandise sold and delivered to the city by the defendant corporations, and used for municipal purposes. The city of Livingston was made a defendant when, upon demand, the city council failed and refused to commence the proceedings demanded.

The right to recover the money is predicated upon the fact that certain members of the city council and other city officials, at the times the things bought by the city were contracted and paid for, were connected with as employees or officials of the defendant corporations, and that by reason of the relations existing between such city officials and employees and the corporate defendants, the contracts between the city and the defendants were alleged to be void; that the contracts being void the defendants still retain title to the goods sold the city and the city never parted with title to the money paid for the goods. No offer is made to return the goods, which the city received and used under the alleged void contracts, and it clearly appears that any return of such goods would be impossible by reason of their having been consumed or used.

The trial court made extended findings of fact. We give the substance of such as tend to emphasize the more important issues. The issues in the four cases were the same, and the Continental Oil Company case was tried as typical of the four. So far as the record shows all of the merchandise and supplies purchased from the defendant Continental Oil Company consisted of gasoline.

In Finding No. 9 the court mentions the fact that the city bought the supplies from the Continental Oil Company and the same was consumed by the city for municipal purposes in the operation and maintenance of its water works system, its street department and for other purposes, and further finds that "the said city has not offered to return, and has not returned, any thereof, but has used and consumed the same, and that it is now and was at the time of the commencement of this action, and has been at all times since the receipt of the same by the said city, impossible for it to return the same to said defendant; that said gasoline and petroleum products sold and delivered to the said city, as alleged in each of the causes of action in the complaint contained, were at the respective times of the sale thereof, and payment therefor, of the reasonable value of the prices and amounts which said city paid for the same as hereinabove set forth, and that all of the said gasoline and petroleum products sold by defendant to the city as aforesaid, were sold at the reasonable price therefor."

In Finding No. 10 the court finds that out of the money the defendant received from the city for gasoline sold to it five cents per gallon was paid by the defendant to the state of Montana as and for the five cent tax on all gasoline sold by vendors of such products, and that pursuant to the provisions of section 2396.4, Revised Codes, the city had received back from the state such five cents per gallon as a rebate allowed on all purchases of gasoline made by the city, such rebate amounting to the sum of $351.95 and the plaintiffs in this action make no allowance for that amount. It is not to be understood that failure of plaintiffs to take this tax refund made to the city into account has any particular bearing on the merits of the actions, but certainly in an equitable action reduction of the amount demanded to the extent of such refund should have been made.

The court's Finding No. 11 is as follows:

"That all of the sales of gasoline and petroleum products made by defendant Continental Oil Co. to the said city of Livingston set forth in the complaint * * * were made * * * during the period from May 1st, 1937, to April 3d 1939, and * * * were received and consumed * * * prior to April 3d 1939, in the various municipal activities and business of said city, and it is, and at all times since the receipt and use thereof by said city has been, impossible for the city to return the same or any thereof * * * and idle, useless and unavailing for defendant Continental Oil Co. to demand the return thereof.

"That notwithstanding the facts and premises the plaintiffs and said city of Livingston have at all times aforesaid, and until March 29, 1940, the date of the commencement of this action, stood by, waited and forbore bringing any action or suit to enjoin the execution of any of the sales mentioned in the complaint herein, and forbore bringing any action or proceeding to set aside the same, and that none of said sales have been rescinded, and by the use and consumption of said gasoline and petroleum products said city has put it out of its power to restore same, or any thereof, to said defendant."

In other findings of the court it is set forth that the city records on two occasions were examined by the state examiner's office, approximately a year intervening between the two examinations, and following each examination written advice was sent by the state examiner to the city officials with directions that such advice by the state examiner be read at a regular meeting of the council. The attention of the council and mayor was called to the fact that various city officials had been guilty of violating numerous statutes, particularly section 445 of the Revised Codes, but that such officials continued to authorize purchases by the city from the corporate defendants in which the various members of the council and the mayor were interested. Following the receipt of one such advice from the state examiner, the court by Finding No. 20, sets forth: "That thereafter, on December 5th, 1938, at a meeting of the city council of the defendant city, at which the defendant M.K. Musser (9) the Mayor of the said city, presided and was present, the report aforesaid of the State Examiner was read, accepted, and placed on file by the said city council; and that then and there and thereby the said defendant, M.K. Musser, learned of its contents."

In Finding No. 21 the specific statutes that were called to the attention of the mayor and city council by the state examiner are mentioned. In another finding the court sets forth that on January 4, 1940, the plaintiffs demanded of the defendant Continental Oil Company the repayment to the city of the several sums of money received by it alleged to be in violation of law. The court's conclusions of law were as follows:

"1. That the plaintiffs are not entitled, in law or in equity, to recover in this action.

"2. That the defendant, Continental Oil Co., is entitled to a dismissal of this action with its costs herein incurred.

"3. That the remaining defendants herein named are entitled to a dismissal of this action with their costs herein incurred."

Judgment in accordance with such findings of fact and conclusions of law was made and entered. The appeals are from the judgments.

The actions are in equity.

Thirty-two specifications of error are assigned, which, for the purposes of argument, are grouped by counsel for plaintiffs under three "points of law" as follows:

"1. The sales described in the complaint are wholly void because of the interest therein of the mayor and members of the city council.

"2. Where the contracts or sales involved are made contrary to the express prohibition of statute all sums paid by the municipality may be recovered with interest and without restitution made or offered for the services, goods, or other property received.

"3. The interest which invalidates is that of an employee, or of an officer or stockholder in a contracting corporation."

We think the merits of these actions can be arrived at more directly by their consideration under the following headings which will bring before us all the essentials:

1. Are contracts made in violation of sections 444 and 445, Revised Codes, void or only voidable under section 446?

2. Do plaintiffs' bills state a cause of action?

3. Granting that the transactions between the municipality and the corporations violated the statutes, is the remedy by actions in equity or by prosecutions under the criminal law?

4. The contracts being illegal, was the city under any obligation to return the merchandise or account for its value?

5. Good faith.

We will take these questions up in the order mentioned.

No. 1. Section 445, Revised Codes, enumerates the public officials who shall not be personally interested in purchases or sales made by them in their official capacity. The individual defendants are among those enumerated. Section 446 provides: "Every contract made in violation of any of the provisions of the two preceding sections may be avoided at the instance of any party except the officer interested therein."

We will say in passing that the trial court having found that the merchandise sold by the defendant corporations to the city had been consumed and could not be returned, we are inclined to think that the plaintiffs' right to recover is barred by sections 12 and 27 of Article III of the Constitution of Montana, relating to Due Process. (See secs. 651 and 657, 12 Am. Jur.) We deem it unnecessary however to determine that question in these actions.

Taking up the construction of section 446, Revised Codes,[1] statutes must be construed by giving to the words employed "the approved usage of the language." (Sec. 15, Rev. Codes.) That being the statutory rule, section 446 "does not require construction, but it construes itself." (Cruse v. Fischl,55 Mont. 258, 175 P. 878, 880.) This rule of statutory construction has been followed without exception in a long line of decisions by this court running over a period of sixty years, and if we now depart from that rule it will become necessary to overrule and set aside these decisions as to such rule. (King v. National M. E. Co., 4 Mont. 1, 1 P. 727; Dunn v.Great Falls, 13 Mont. 58, 31 P. 1017; State v. CudahyPacking Co., 33 Mont. 179, 82 P. 833, 114 Am. St. Rep. 804, 8 Ann. Cas. 717; Osterholm v. Boston Mont. Co., 40 Mont. 508,107 P. 499; Cruse v. Fischl, supra; Northern P. Ry. Co. v. Sanders County, 66 Mont. 608, 214 P. 596; State ex rel.Mineral County v. State Highway Comm., 82 Mont. 63, 72,265 P. 1; State ex rel. Clifton v. State Highway Comm.,82 Mont. 382, 267 P. 499; State ex rel. v. Hays, 86 Mont. 58,282 P. 32; Great No. U. Co. v. Public Ser. Comm., 88 Mont. 180,293 P. 294; Murray Hospital v. Angrove, 92 Mont. 101,10 P.2d 577; Chicago, M. St. P., etc., Ry. Co. v.Fallon County, 95 Mont. 568, 28 P.2d 462; McMullen v.Shields, 96 Mont. 191, 29 P.2d 652; State ex rel. DuFresne v. Leslie, 100 Mont. 449, 50 P.2d 959, 101 A.L.R. 1329; Vaughn Ragsdale Co. v. State Board of Equalization,109 Mont. 52, 96 P.2d 420.) In State v. Highway Comm., supra [82 Mont. 63, 265 P. 4], it was said, "``It is not allowable to interpret what has no need of interpretation, or, when the words have a definite and precise meaning, to go elsewhere in search of conjecture in order to restrict or extend their meaning.'"

The fact that section 446 provides that contracts made in[2] violation thereof may be avoided by certain parties but not by others means that as against the latter such contracts are binding and effective; if such contracts were absolutely void they could have no such effect. (See Stevens v. Woodmen of the World,105 Mont. 121, 127, 71 P.2d 898, 903.) While contracts forbidden by statute are generally spoken of as void the rule is necessarily otherwise where as here the express statutory provision is that they are only voidable and voidable only by certain interested parties and not by others, and this is particularly so where the statute prescribes a penalty for its violation. (12 Am. Jur., sec. 158, p. 654. See, also, 6 R.C.L., sec. 105, p. 700.)

American Jurisprudence as cited says: "Where a statute which prohibits an agreement at the same time also limits its effect or declares the consequences which shall attach to the making thereof, the rule that an agreement prohibited by statute is void does not apply and the effect of such an agreement is governed by the statute." Section 445, Revised Codes, prohibits such contracts as those involved here, and section 10827, Revised Codes, declares the consequences that shall attach to the making of such contracts by the defendant officials.

Voidable contracts are not legally void and cannot be set[3] aside or disregarded until they are decreed to be void by a court having jurisdiction. A contract may be obviously void, but if the parties thereto elect to proceed thereunder they may do so if no other parties are injured. If the city of Livingston chose to accept the goods it would be absurd to contend that either the city or any party acting in its behalf could be compelled to bring an action to have the contracts declared void.

In Stevens v. Woodmen of the World, supra, this court said: "When we say that a contract is void as a result of fraud * * * all that is meant by such term, * * * is that a court of law will not lend its aid to enforce the performance of a contract. In the case of Ewell v. Daggs, 108 U.S. 143, 2 S. Ct. 408,412, 27 L. Ed. 682, it was said, ``It is quite true that the usury statute referred to declares the contract of loan, so far as the whole interest is concerned, to be void "and of no effect." But these words are often used in statutes * * * in the sense of voidable merely, that is, capable of being avoided, and not as meaning that the act or transaction is absolutely a nullity. * * * It is sometimes said that a deed obtained by fraud is void, meaning that the party defrauded may, at his election, treat it as void. All that can be meant by the term, according to any legal usage, is that a court of law will not lend its aid to enforce the performance of a contract which appears to have been entered into by both the contracting parties for the express purpose of carrying into effect that which is prohibited by the law of the land.'" The fact that the city in the cases at bar, or any other party than the interested official had the right of election in the[4] premises, clearly makes such contracts voidable only. It appears to us to be too clear to require argument that the purpose of section 446 is to leave the public body which may be a party to such contracts free to accept or reject such contracts at its option.

It is true that we adopted our sections 444, 445, and 446 from[5] California's Political Code, and that the supreme court of that state in Berka v. Woodward, 125 Cal. 119, 57 P. 777, 45 L.R.A. 420, 73 Am. St. Rep. 31, held a similar contract void and denied the culpable city official any restitution. Other California cases cited by plaintiffs followed the Berka case, except Miller v. City of Martinez, 28 Cal. App. 2d 364,82 P.2d 519, the decision in which was determined under an entirely different statute, and that case is not in point here. The Berka case furnished a pattern that has since been followed in that jurisdiction. The rule there adopted is not, in our opinion, a logical interpretation of section 922 of the California Political Code, which has its counterpart in our section 446. Their rule follows the old common law rule rather than the statute. We are not unmindful of the rule to the effect that, when one jurisdiction adopts a statute from another the adopting jurisdiction also adopts the construction placed on the statute by the highest court of the state from which the statute is taken. But we have laid down a further rule which is that "this court will not blindly follow the construction given a particular statute by the court of a state from which we borrowed it, when the decision does not appeal to us as founded on right reasoning." (Ancient Order of Hibernians, etc., v. Sparrow, 29 Mont. 132, 74 P. 197, 198, 164 L.R.A. 128, 101 Am. St. Rep. 563, 1 Ann. Cas. 144. See, also,In re Murphy Estate, 99 Mont. 114, 125, 43 P.2d 233.) Any statute that is construed to mean something contrary to the plain wording thereof is not entitled to approval on the ground that it is "founded on right reasoning." Furthermore, the Berka case was decided in 1899 and our sections 445 and 446, inclusive, appeared in our 1895 Codes. Our adoption, therefore, was prior to the decision in the Berka case, and the rule mentioned as to adoption does not apply in the cases at bar. Prior to the decision in the Berka case, this court had rendered its decision in State ex rel. N.W. Natl. Bank v. Dickerman,16 Mont. 278, 40 P. 698, and in Morse v. Granite County,19 Mont. 450, 48 P. 745, thereby establishing rules in this jurisdiction directly opposed to the holdings of the California courts construing the statutes mentioned. We think our construction of the statutes involved is more in accord with "sound reasoning" than those to the contrary cited from other jurisdictions. The contracts involved in these actions were not void but could have been avoided by timely action brought by any interested party other than the interested officials. Section 446 is not susceptible of any other reasonable construction.

No. 2. Do the complaints or bills state a cause of action? The[6] contracts being not void but voidable they cannot be avoided without restoring the consideration or otherwise doing equity. Since the complaints show affirmatively that restoration cannot be made no cause of action is stated. Plaintiffs' pleadings utterly fail to show any financial injury to anyone, but rather the violation of a criminal statute, not by the defendants from whom the plaintiffs seek redress but by the individual defendants named in the bills but from whom no recovery is sought.

No. 3. We think the plaintiffs have mistaken their remedy.[7] Sections 444 and 445 apply only to public officials, not to sellers of goods. Section 446 applies only to contracts in which the public officials mentioned in the two prior sections might be interested. Other sellers are not enjoined to observe any of the provisions of sections 444 and 445 and could not, except as possible accomplices, violate any of those laws as such laws apply to public officials only. We do not think there is any rule of equity that empowers any court to penalize a corporation on the ground that one of its agents, while serving a municipality, violated his trust as an officer of the municipality. The respective obligations of the official to his employer on the one hand and to the municipality on the other are separate and distinct. There is no relation whatever between the two. The employer is no more blamable for the action of the employee public official than the city. The remedy for violation of either does not depend in the slightest degree upon the other. The code sections mentioned and section 10827 were obviously intended to punish and to purge the public service of persons who betray the public trust reposed in them, not to confiscate the property of business concerns whose employees they happen to be. There is another, and a distinct remedy for the latter.

Counsel for plaintiffs, under the heading "Conclusion" at the close of his brief, confirms our view that the plaintiffs' remedy does not lie in equity, but in criminal actions. In plaintiffs' "Conclusion" it is said,

"What has been written on both sides of the controversy at bar must not serve, we note again, to obscure the fundamental issue before this Court. The respondents have repeatedly broken the criminal statutes of this state. * * *

"Are these respondents then entitled to any rights in equity to protect them in their possession of what amounts to the fruits of crime? The decided cases in point abundantly answer this query in the negative.

"Counsel on the other side have not argued this question at all as we read their brief. Nor as we understand the views of the trial court was this question decided below.

"Rather the rights of the parties were adjudged as though there were no violation involved of a penal statute, no crime committed and unblushingly admitted. * * *

"If they cannot find their property, the rights of the municipality are not in any degree lessened. It in its turn is entitled to its own, viz: its moneys unlawfully and illegally paid over to criminals, and by them had in hand as the profits of their crime. These profits they must disgorge."

In passing it is noteworthy that what plaintiffs seek to make the defendants "disgorge" is not merely the profits of the transactions but the entire amount the city paid for the goods it has consumed.

It must also be kept in mind that the actions before us are in[8] equity, not criminal prosecutions. In 10 R.C.L., page 341, section 91, we read: "Barring these possible exceptions, therefore it is a universally acknowledged principle that a court of equity has no jurisdiction in matters merely criminal or immoral. It leaves the correction of these matters to the criminal courts. The remedy at law by indictment and prosecution is presumed to be adequate, but if it is not so, the relief must come from the lawmaking power, and not from the courts."

This court said in State ex rel. Stewart v. DistrictCourt, 77 Mont. 361, 370, 251 P. 137, 139, 49 A.L.R. 627, "It is now universally held that, except where there is express statutory authority therefor, equity has no criminal jurisdiction, and the acts or omissions will not be enjoined merely on the ground that they constitute a violation of law and are punishable as crimes."

In Huntington v. Attrill, 146 U.S. 657, 664, 13 S. Ct. 224,227, 36 L. Ed. 1123, it was said: "Penal laws, strictly and properly, are those imposing punishment for an offense committed against the state and which, by the English and American constitutions the executive of the state has the power to pardon. Statutes giving a private action against a wrongdoer are sometimes spoken of as penal in their nature but in such cases it has been pointed out that neither the liability imposed nor the remedy given is strictly penal. * * *

"The test whether a law is penal, in the strict and primary sense, is whether the wrong sought to be redressed is a wrong to the public or a wrong to the individual. * * *

"Crimes and offenses against the laws of any state can only be defined, prosecuted, and pardoned by the sovereign authority of that state; * * *."

It should be further remembered that under our laws no person[9] may be branded as a criminal unless and until he be proceeded against by indictment or information in a proceeding that measures up to the constitutional requirements of due process of law. Section 10827, Revised Codes, provides severe punishment for the violation of section 445, and the guilt of the individual defendants in these actions may not be presumed in advance of a fair trial. "No person can be punished for a public offense, except upon a legal conviction in a court having jurisdiction thereof." (Sec. 11606, Rev. Codes.) And, "a defendant in a criminal action is presumed to be innocent until the contrary is proved." (Sec. 11971, Rev. Codes.)

No. 4. Should plaintiffs be decreed the right to recover the[10] moneys paid to the corporations without restoring the goods? Or, in other words, may the city in these equitable actions, avoid fully performed contracts, even where made in violation of a specific statute, and recover the money paid for the merchandise received under the contract, where, as here, it is admitted that the merchandise has been used and cannot be restored? Not without abrogating the established rule in this jurisdiction.

In Morse v. Granite County, supra, this court permitted a[11] recovery against the county because it had obligated itself, not by the voidable contract, but by keeping and using the property in spite of the fact that the contract was voidable. So here, having kept and consumed the goods in face of the fact that they were purchased under a voidable contract, the city is obligated to return the merchandise or pay the reasonable value thereof, and it therefore follows that the city cannot, after consuming the goods, and being unable to restore them, sue and recover the money paid for the goods. Obviously plaintiffs assume that because the vendee in the contracts is a municipality, a public body, a creature of the state, it is not amenable to the same rules of equity that maintain where the parties to such actions are private persons. The assumption ignores that profound obligation that rests upon the state, as the exemplar of law and justice, to observe with the strictest nicety all its contractual obligations irrespective of the perfidy or criminal liability of the other contracting party. Even if the state deal with a criminal behind the bars of prison, it would be contemptible for the state to fail to do equity. There is imposed upon the subdivision of the state and the municipalities created by state authority, a like obligation. Equity makes no distinction between public bodies and private persons as to obligations arising out of contract. (State ex rel. N.W. Bank v. Dickerman, supra; Morse v.Granite County, supra; First Nat. Bank v. Valley County,112 Mont. 18, 113 P.2d 783; First Nat. Bank v. Village ofGoodhue, 120 Minn. 362, 139 N.W. 599, 43 L.R.A. (n.s.), 84;Frisch v. City of St. Charles, 167 Minn. 171, 208 N.W. 650;Quackenbush v. City of Cheyenne, 52 Wyo. 146,70 P.2d 577; City of Concordia v. Hagaman, 1 Kan. App. 35,41 P. 133.) So long as we are proceeding in equity, we must observe the rule that "He who seeks equity must do equity," and not revert to the principles of the old common law applied under "bills of attainder and corruption of blood" and forfeit the criminal's property, particularly where, as here, the parties who appear to have violated the law have yet to be brought to trial.

The correct rule in our opinion appears in an early California case, the pertinent part of which is quoted by this court inState ex rel. N.W. Bank v. Dickerman, supra [16 Mont. 278,40 P. 700], where it is said: "The city is not exempted from the common obligation to do justice, which binds individuals. Such obligation rests upon all persons, whether natural or artificial. If the city obtain the money of another by mistake, or without authority of law, it is her duty to refund it. * * * (Argenti v. San Francisco, 16 Cal. [255], 282.) The legal liability springs from the moral duty to make restitution; and we do not appreciate the morality which denies in such cases any rights to the individual whose money or other property has been thus appropriated. The law countenances no such wretched ethics. Its command always is to do justice."

The rule on restoration applied in the Dickerman case was followed in Morse v. Granite County, supra, and Hicks v.Stillwater County, 84 Mont. 38, 274 P. 296, and in FirstNat. Bank v. Valley County, supra.

Since the contracts by which the city obtained the goods were[12] voidable, it could sue to recover the excess of the contract price over the real value, if any; which means again that it cannot equitably keep the goods and their value too. In other words, the statute not being penal, punitive nor one of forfeiture, the city cannot avoid the contract and recover the consideration paid, where it has consumed the goods, and has paid no more than their value. In equity, "the city is not exempted from the common obligation to do justice, which binds individuals." (State v. Dickerman, supra.) This court said, in First Nat. Bank v. Valley County, 112 Mont. 18, 113 P.2d 783, 784, with reference to the Morse case "the lower court was reversed, not on the theory that the sale was legal under the statute, but that the county could not retain the property and refuse to pay for it." That opinion was rendered by this court only two years ago.

No. 5. The question of good faith is not an issue in these[13] actions. It would be a vital issue in fixing the penalty to be imposed under section 10827, Revised Codes, if conviction were had in a criminal action, but not in an equity action. The fact that the interested city officials persisted in their illegal practices after being warned by the state examiner that their acts constituted a violation of the statute, would preclude the officials from any plea of good faith as a defense in a criminal action.

The lower court must be affirmed. First, because the actions do not state a cause of action in equity, no pecuniary injury being shown. Second, the record strongly tends to show the defendants have committed a criminal, but not a civil offense, and the offense is against the state, not the plaintiffs, and any recovery of a pecuniary nature would be payable to the state, not to the city of Livingston. Third, we decline by our judgment to commit the state to a violation of a fundamental maxim of equity in order that delinquent city officials or their employers may be punished indirectly, by way of forfeiture, for violations of a criminal statute, particularly where, as here, there is a full and complete remedy at law provided by section 10827, Revised Codes.

The judgments are affirmed.

MR. CHIEF JUSTICE JOHNSON concurs.