Doherty & Co. v. Steele

Mr. Justice Denison

delivered the opinion of the court.

Steele was plaintiff below and obtained a decree requiring Doherty & Company to return to the East Denver Irrigation District certain bonds of that district which had been delivered to them in partial performance of a contract. The facts are fully set forth in the case of The Antero & Lost Park Reservoir Co., et al. v. Lowe, 69 Colo. 409, 194 Pac. 945.

Briefly, the district, in 1910, by its board of directors, entered into a contract with a corporation which we will call the Promotion Company, for the purchase of a completed system of irrigation, — reservoirs, canals, gates, etc., —specified in detail in the contract, with certain water and water rights, all to be paid for by the district in bonds of the district, to the amount of $3,000,000. The contract provided that the system should be completed and turned over to the district not later than June 1st, 1913. The Promotion Company had a contract with The Antero and Lost Park Reservoir Company for the purchase of its system for $1,500,000, and were to extend and enlarge it 1;o satisfy the specifications of the contract. In August, 1912, a supplementary contract was made by the authority of the electors of the district and by that contract $250,000 of the par value of the $3,000,000 bond issue was authorized to be delivered to the Promotion Company upon the transfer to the district by the Promotion Company of a certain small ditch and certain rights of way for ditches, the whole value of which did not exceed $8,000; and the time for the completion of the system was extended to January 1st, 1914. The claim of plaintiff was that this arrangement was a subterfuge to avoid the express provisions of the statute in pursuance of which the transaction was had so as to make the advances of bonds on the purchase price of the' completed system. In view of the decision we have reached, however, that is immaterial.

No work of any importance was done by the Promotion Company. For a little work, however, they obtained $18,000 of the bonds and later $29,000 advance payment on the reservoir called the Irondale, which contained only 800 acre feet of water and was of no value except in connection with the completed system.

The Promotion Company assigned its interests to one Lucas, who, February 3rd, 1913, obtained what was called a modified contract which in the case of Antero &c. Co. v. Lowe we held was void. Under the authority of this void contract $713,500 par value of the district bonds were delivered to Lucas and by him to Doherty & Company, and Lucas, who, it is claimed, was merely a dummy for Doherty & Company, did a large amount of work, but failed to complete the system and has never done so.

The above covers all the essential particulars.

Steele, a taxpayer and landowner of the district, brought this suit on behalf of himself and others, to compel the return of the bonds so delivered, and the court granted the decree upon the theory that the bonds were delivered as an advance payment upon a contract for the purchase of property which, unless completed, was of no value to the district, and which was to be completed and delivered as a whole.

In this interpretation of the contracts we agree with the court below. It is manifest that the system unless completed was of no value whatever to the district, that it was ruinous to the district to have the completion fail and that the contract required a complete system to be delivered before payment, and we regard those sections of the statute concerning purchase of completed systems as intended to prevent such difficulties as appear in this case.

We notice nine points which the plaintiffs in error have argued:

1. They say that Steele, the plaintiff taxpayer, had no right to maintain the action. The principal grounds of this argument are that the notice, required to be given to the directors before a taxpayer is entitled to bring such an action, was not given, or was not sufficient, and that the choice of remedies was within the discretion of the board of directors and could not be usurped by a taxpayer or by the court.

It is sufficient answer to this that the district itself urged before the court below and urges here the same relief which is asked by Steele, who asks no relief other than that asked by the district. ■ The district, although in the case from the beginning, has never made objection. • On what reasonable ground can the other defendants now claim that the district was entitled to the exercise of the discretion of the directors before this suit was begun? Have they not exercised it and are they not exercising it now?

We have been able to find no authority on this question of the attitude of the district; but, if we reverse the case on this ground, we say to the district: “You may not have what you ask because you are not asking for it.” “You cannot have what you ask because you. have had no opportunity to decide whether you will ask for it.”

We cannot see that it makes any difference when the district had exercised its discretion, if it is doing so now. It has not complained of its deprivation, and those who are complaining are doing so against the earnest protest and to the injury of the district.

To dismiss this bill because the plaintiff, Steele, did not take the right formal step at the start, when the real purpose of that step has been accomplished, would be to “twist the strands of precedent into a rope with which to strangle Justice.” Our opinion is that this point is not well taken.

The case of Antero Co. v. Lowe, et al., is not in conflict with this conclusion. The plaintiffs in that case, taxpayers of this same district, were seeking to compel the district, against its will, to enforce specific performance of these very contracts, a manifest attempt to usurp the discretion of the district authorities; and in all the Colorado cases cited by plaintiff in error the corporation was resisting the action of the taxpayer or stockholder.

2. It is claimed that the complaint states no cause of action against Doherty & Company because the district seeks the recovery of the bonds and an injunction against taxes to pay them; that that remedy is inconsistent with and a renunciation of the remedy of recovery of the value of the bonds.

If the bonds were so wrongfully delivered that they ought to be returned, then they to whom they were so delivered ought to return' them. They cannot relieve themselves of that obligation by transferring the bonds to others, whether those others be holders in due course or not. They are in a position' like that of one who has received another’s goods and sold them and thus converted them to his own use.

If the bonds were delivered conditionally,' as an advance, as the trial court found, then, upon the fulfillment of the condition, i. e., the failure to convey a completed system, they to whom they were so delivered are under obligation to return them, and they cannot relieve themselves of that duty, by a transfer to others, holders in due course or otherwise. If they to whom the bonds were delivered have put it beyond their power to return them, equity is not therefore powerless but will require them to compensate the obligors, according to the elementary equity practice. The equity of the case, stripped of its details, we attempt to illustrate under the discussion of point 7.

3. It is claimed there is no cause of action against Doherty & Company because the complaint shows that the district is not liable upon the bonds. That is one of the reasons why Doherty & Company are obligated to return the bonds, which the decree orders them to do.

4. It is objected that the action was ex delicto and the judgment ex contractu. It is not important in equity to determine to which grand division of common law actions, ex delicto or ex contractu, an action belongs. The avoidance of the contract of February 3rd was a sufficient point on which to hang the equity jurisdiction, even if there were nothing more, and, once attached, such jurisdiction would be retained to do complete justice. This is an elementary rule of equity, which has been applied in Zobel v. Fannie Rawlings Co., 49 Colo. 134, 111 Pac. 843; United Coal Co. v. Canon City Coal Co., 24 Colo. 116, 48 Pac. 1045; Cree v. Lewis, 49 Colo. 186, 112 Pac. 326. There is no distinction in equity between a cause of action ex contractu and ex delicto. The question always is: “Is ground for equitable relief alleged and proved?” Nevin v. Lulu & White S. M. Co., 10 Colo. 357, 364, 15 Pac. 611, 614, and many other Colorado cases; Gates v. Paul, 117 Wis. 170, 94 N. W. 55. See also Denver Tramway Co. v. Cloud, 6 Colo. App. 445, 40 Pac. 779.

The case of Connell v. El Paso G. M. & M. Co., 33 Colo. 30, 78 Pac. 677, does not support plaintiff in error.' In that case there was no allegation or evidence of anything but a fraudulent misstatement of fact. Here there is a complete cause of action alleged and proved, even if we eliminate all allegations and evidence of conspiracy and fraud. That the court will grant relief on any facts alleged and proved, see Kayser v. Maugham, 8 Colo. 232, 251, 6 Pac. 803; Powell v. Bank, 19 Colo. App. 57, 62; 74 Pac. 536; Jaksich v. Guisti, 36 Nev. 104, 134 Pac. 452.

5. Keversal is asked because the complaint did. not offer to do equity. A taxpayer could not offer the status quo. Miller v. Perris Irr. Dist., 92 Fed. 263, 267; Sechrist v. Rialto Irr. Dist., 129 Cal. 640, 62 Pac. 261. The court treated the matter as if equity had been offered and required equity on the part of the district, which was the real plaintiff, at least at the time the case was tried.

The point that the court did not require the district to do real equity is not well taken. The district got nothing of any value. The court gives back everything the district got. True, it is worthless to those to whom it is returned, but it is worthless to the district without the completed system, and, whoever else may be in fault that the system is not completed, the district is not.

6. It is claimed that the district dealt with Lucas as a principal, knowing of his relation to Doherty & Company, the argument being that if Doherty & Company are held it must be upon the theory that Lucas was their agent. Of what consequence is it whether the district contracted with Doherty & Company or Lucas? Doherty & Company got the bonds through Lucas, with full notice of their infirmities. What we have said above shows that Doherty & Company, are bound to return them for that reason, whether the contract be regarded as theirs or Lucas’.

7. The contract of 1912 provided for the delivery of certain rights of way of a value relatively nominal, and it is now claimed that this $250,000 in bonds ought not to be returned, first, because delivered upon a completed contract, and second, because adjudged properly delivered in a former case, number 774 Adams County district court.

As to the first reason, the court found that these bonds were delivered as an advance payment upon contemplation of the fulfillment of the whole contract and conveyance of a completed system. We think that decision is right. The equity of this case, stripped of its verbiage, is clear: L. agrees with D. to build a house on Lot 10; to acquire the right to a distant spring, with a right of way for a pipe; to lay a pipe from the spring, to the house, and to convey the whole to D., free of incumbrance for $5,000, to be paid on conveyance. He gets the right of way and conveys it to D., and receives $1,000 of the $5,000. He never finishes or conveys the house, spring, pipe or lot. Ought he in equity to return the $1,000 on the reconveyance of the right of way? The question answers itself. It is absurd and inequitable to suppose that the right of way alone was intended to be purchased by the district without any ditches, reservoirs or water, or without a complete workable system, nor does it appeal strongly to a chancellor to see a consideration of about $6,000 set up to support the retention of this $250,000. So true is this that, if the trial court could not have found these bonds to be an advancement, it could hardly have escaped finding a conspiracy to defraud the district.

As to the second reason, we do not find that in the former case, No. 774, in the district court of Adams County, anything whatever was held with reference to this $250,000. There was a finding that the bonds were delivered “on account and in fulfillment of the contract” of 1912, which is not inconsistent with the finding of the trial court in the present case. No judgment in respect to these bonds was rendered in that suit.

The court below construed the contracts of 1910 and 1912 correctly, that is, that they provided for the delivery to the district of a completed system, not for the construction of a system nor for the delivery of a partial system. In Antero Co. v. Lowe, we gave the same construction to the same contracts. The district court held as we did in Antero v. Lowe, that the contract of 1913 was void, and correctly held that therefore that instrument had no effect, not even to annul or vary the - contracts of 1910, or 1912.

It follows from the construction of these contracts, that the payment of $250,000 in bonds must have been as an advance, subject to the completion of the contract, and this relieves us from the necessity of determining whether the contract for these partial payments was valid at all, which we are inclined, with the court below, seriously to doubt.

8. Forty-seven thousand dollars in the bonds of the district were delivered prior to the assignment to Lucas and subsequently acquired by Doherty & Company, as the court finds, with full knowledge of everything aífecting them, in pursuance, it is claimed, of a provision of the contract that payment in bonds might be made from time to time. These bonds, like the $250,000 in bonds above mentioned, were delivered for something that has no value whatever to the district unless the completed system is conveyed to it. These bonds, like the others, then, must be regarded as the court below did regard them, as conditionally delivered, and in equity they should be returned by those to whom they were delivered or those who have received them with notice.

9. The court ordered Doherty & Company to pay to the district the amount of a certain assessment of damages upon condemnation of some of the property intended to be a part of the system. The point is made that this order was error because the district is not liable for that amount, which is about $13,000, such award not being a judgment but an assessment which the district must pay only in case it decides to take the condemned property.

The defendant in error answers that by saying that, inasmuch as the ditch has been built and maintained for seven years on the ground, that the. district cannot now elect to abandon, but must pay. We think that position is correct.

The court intimated that it would give judgment for the par value, which we think is correct, because, when the district has been paid for the bonds, it will owe their par value. It might be reasonable to say, as some of the cases do, that it would be unfair to render a judgment against one in the position of Doherty & Company, for the par value, and then permit the district to take that money and go into the market and buy the bonds for less; but that is not what the court in this case has done; it has permitted Doherty & Company to go into the market themselves, get the bonds as cheaply as they can, and return them to the district. If they cannot get them for less than the par value, neither could the district.

There are other points which we do not think it necessary to mention here. The decree is fair and equitable and is affirmed.

Mr. Justice Allen and Mr. Justice Bailey, dissent.

Mr. Justice Whitford, not participating.