Board of Drainage Commissioners of New River Drainage District v. Arnold

120 S.E. 310, 156 Ga. 733, 1923 Ga. LEXIS 321

Opinion

Hines, J.

(After stating the foregoing facts.)

By agreement between the parties the trial judge, upon the hearing of the application for injunction, was to pass upon but two questions, and to grant or refuse an injunction in accordance with his decision thereof. One of these questions was, whether injunction would lie to enjoin the sales of the lands of the plaintiffs, under the levies thereon of the executions which had been issued to enforce the collection of the assessments made thereon, to meet the principal and interest of the drainage-district bonds; it being conceded by all parties that these executions were void, not because the assessments were void, but because they were not issued against the lands of the plaintiffs which had been assessed, but generally against all the property of the plaintiffs. The other question was, whether these assessments should have been enjoined under the facts of this case. We confine ourselves to these questions. It is contended by the defendants that the plaintiffs had an ample remedy by illegality to stop the sales of their lands under these void executions, and that for this reason injunction would not lie.

Did the plaintiffs have an adequate remedy by affidavit of illegality? If each owner of land could file an affidavit of illegality to an execution issued to enforce the collection of an assessment thereon to pay the principal or interest on drainage bonds (Rice v. Macon, 117 Ga. 401, 43 S. E. 773; Mayor &c. of Gainesville v. Dean, 124 Ga. 750, 53 S. E. 183), such remedy would not prevent several owners of such property from joining in a common attack on the validity of the assessments or the legality of the executions issued to collect them, in order to save a multiplicity of. suits. Sanders v. Gainesville, 141 Ga. 441 (81 S. E. 215); Hall v. Macon, 147 Ga. 704 (95 S. E. 248); Goolsby v. Board of Drainage Commissioners, 156 Ga. 213 (119 S. E. 644). So we are of the opinion that injunction will lie, at the instance of several landowners in a drainage district, to restrain the enforcement of void executions issued to collect assessments levied upon their lands in such district.

We come now to consider the more serious questions involved in this case, and to determine whether the trial judge erred in granting tlie sweeping injunction which he issued. The trial judge rested his decision upon the facts that the bonds were illegally sold for less than par, and that the attorney for the drainage commissioners, the engineer in charge of this project, and the contractor had illegally confederated and conspired with the purchaser of the bonds in illegally acquiring them. The facts surrounding the sale of these bonds were not fully developed upon the hearing. It seems that the Hanchett Bond Company made a bid of 91 cents on the dollar for these securities. Inferentially this bid was rejected by the drainage commissioners, on the ground that it was an open and brazen infraction of the statute which prohibits the sale of drainage bonds at less than par. The commissioners and the bond company then undertook to whip the devil around the stump. Two contracts for the sale of these bonds were made. One was between the commissioners and the bond companjq by which the latter agreed to buy these bonds and pay for them at par. The other contract was between the commissioners and one Forman, by which the commissioners agreed to pay him a commission of 9 per cent, for negotiating the sale of these bonds. These contracts were not introduced in evidence on the hearing of the application for injunction. No reason appears for the failure of the plaintiffs to put them in evidence. Forman was the cashier of the bond company. Plaintiffs allege, and the judge was authorized to find, that this commission went to the bond company, and that this arrangement was a scheme and subterfuge by which the parties undertook to evade the provision of the statute forbidding the sale of these bonds at less than par. The attorney for the commissioners, their engineer, and the contractor for this work knew that these bonds were being sold at less than par, and took an active part in bringing about the execution of these contracts. In the contract with the contractor there is a provision that it was not to be binding upon the parties unless these bonds were sold, or some other arrangement had been made by the commissioners for financing this project. The pay of.the attorney and the engineer depended upon their sale. The attorney approved the contracts under which the bonds were sold.

Was the sale of these bonds for less than par illegal? The drainage law provides that iC The commissioners may sell these bonds at not less than par, and devote the proceeds to the payment of the work as it progresses.” Acts 1911, p. 108; Acts 1918, p. 147; Acts 1921, p. 185; Park’s Supp. Code 1922, p. 67, § 439 (ii). Under this law the drainage commissioners are only authorized to sell these bonds at par. They can not directly or indirectly sell them for less than par. Any sale of them at less than par is illegal and voidable. The par value of an interest-bearing bond on the day of its issuance is the principal thereof; On any date subsequent to its issuance, such par value is the sum of the principal and accrued interest. Duval County v. Knight, 42 Fla. 366 (29 So. 408); State of Illinois v. Delafield, 8 Paige (N. Y.), 527, affirmed in 2 Hill (N. Y.), 159, 26 Wend. (N. Y.) 192; Ft. Edward v. Fish, 156 N. Y. 363 (50 N. E. 973), affirming 86 Hun (N. Y.), 548; Citizens Sav. Bk. v. Greenburgh, 173 N. Y. 215, 65 N. E. 978; People v. Miller, 84 App. Div. 166 (82 N. Y. Supp. 607); Hogg’s Appeal, 22 Pa. 488; Diefenderfer v. State, 13 Wyo. 405 (80 Pac. 667); Smith v. State, 99 Miss. 859 (56 So. 179, 35 L. R. A. (N. S.) 789); Miller v. Park City, 126 Tenn. 427 (150 S. W. 90, Ann. Cas. 1913E, 83); 2 Dill. Mun. Cor. (5th ed.) § 895; Peery v. Los Angeles, 187 Cal. 753 (203 Pac. 992, 19 A. L. R. 1044); Davies County Ct. v. Howard, 13 Bush (Ky.), 101; Moose v. Alexander County, 172 N. C. 419 (90 S. E. 441, Ann. Cas. 1917E, 1183); Hunt v. Fawcett, 8 Wash. 396 (36 Pac. 318); 15 C. J. 628, § 339; Wilson v. Hebert, Tex. Civ. App. (174 S. W. 861).

The allowance of commissions to the purchaser of bonds violates a statute which prohibits their sale for less than par, and as between the maker of the bonds and the purchaser is void. Whelen’s Appeal, 108 Pa. 162, 1 Atl. 88. Where the sale of bonds below par is prohibited, a contract to sell them nominally at par, but to pay a commission to the purchaser, is void. Hunt v. Fawcett, supra. Under such a statute a sale of bonds, drawing 8 per cent, interest, in part for cash and in part for time certificates of deposit running from three to eighteen months with interest at 2 per cent., is unauthorized. Moose v. Alexander County, supra. Selling bonds bearing 8 per cent, interest from date, and taldng a non-interest-bearing deposit certificate therefor, was virtually selling them at less than par. Delafield v. Illinois, 26 Wend. (N. Y.) 192. So we are clearly of the opinion that the drainage commissioners were without authority to make the contract with Forman for the payment of commissions for the sale of these bonds, if the purchaser was to get such commissions, and the scheme was one to conceal the fact that the sale of these securities was for less than par. We are also of the opinion that the commissioners could not accept from the purchaser of these bonds the face thereof at any time subsequent to the date of their issuance, and permit such purchaser to collect the accrued interest due thereon. The commissioners were without authority to accept from the purchaser a non-interest-bearing certificate of deposit in lieu of money, and to deliver these bonds to the purchaser, thus enabling the purchaser to receive the accrued interest thereon prior to the actual payment of the purchase-price. This being so, what is the effect of this transaction upon the contract for the making of this improvement ? Under the circumstances, should the court have granted the temporary injunction which it did grant in this case? The court seemed to treat the contract for the sale of these bonds as'absolutely void, because of the illegal contract with Forman for the payment of commissions for their sale which went to the purchaser, and which all the parties intended to go to the purchaser.

The contract between the drainage commissioners and the Hanchett Bond Company was for the sale of these bonds at par, and was in all respects, so far as the record in this case'discloses, a legal and binding contract. This contract binds the bond company to pay for these bonds in accordance with the terms of the drainage act. If the purchaser has not paid for them at their par value, it can be made to do so. This contract, valid on its face and by its terms, is not rendered invalid by reason of the illegal and void contract entered into between the drainage commissioners and Forman for the payment of a commission to the latter for the sale of these bonds; and this is true although the purchaser was to get the benefit of this commission. But conceding that the taint of the commission contract affects and renders void the contract for the purchase of these bonds, how then does this matter stand ? The drainage commissioners would be entitled to an injunction restraining the purchaser from disposing of these bonds and the proceeds thereof, where such bonds are negotiable, as the drainage district would be liable to pay the same to a bona fide holder to whom they had been transferred without notice of the illegality in their sale by the commissioners. State of Illinois v. Delafield, and Delafield v. Illinois, supra. But before the com missioners could rescind the contract and recover these bonds, they would have to restore to the purchaser the money which they have already received from the sale of the bonds. Civil Code (1910), § 4305. If the commissioners undertook to rescind the contract of sale, they would be entitled to have returned any of these bonds remaining in the hands of the purchaser and to be paid the par value of those disposed of by the purchaser. County of Lawrence v. Northwestern R. Co., 32 Pa. 144. Conceding that the contract for the sale of these bonds is illegal and void because they were sold at less than par, should present and future assessments for their payment, and the payment by the drainage commissioners tó the contractor, the attorney, and the engineer, be enjoined, although it should be found that the commissioners, the contractor, the attorney, the engineer, and the purchaser confederated to sell these bonds at less than par in the teeth of the drainage act? No attack is made by the plaintiffs on the contracts between the drainage commissioners and the contractor, the attorney, and the engineer, other than that they are void because the contracts for the sale of the bonds are void. While the commissioners, the purchaser, the contractor, the attorney, and the engineer may be liable to the drainage district for the difference between the par value of these bonds and the amount received from their sale, on the ground that these parties were joint conspirators to effect this sale, this fact would not render the contracts between the commissioners and the contractor, the attorney, and the engineer illegal and void. The taint in the contract for the sale of these bonds does not vitiate these other contracts.

But this is not a proceeding,by the drainage district to rescind the contract of sale. It is a proceeding by landowners in this district to enjoin present and future assessments for the payment of these bonds; and this action on their part was taken after these bonds had been delivered by the drainage commissioners, with a large part of the purchase-money paid and a large sum, with the knowledge of plaintiffs, expended under the contract between the commissioners and the contractor for the drainage of this district. If action had been taken by the plaintiffs before these bonds were delivered and before funds arising from their sale had been expended in this project, any contract for the sale thereof at less than par could have been enjoined, and thus nipped in the bud. The plaintiffs were petitioners for the creation of this district. One of them knew that the drainage commissioners were undertaking to sell the bonds for less than par. There is no denial on their part of knowledge of the fact that the commissioners made the contracts for the sale of these bonds. They knew that the proceeds of the bonds were to be used in making this improvement. They saw that the work was in progress, permitted it to progress, and knew that large sums} of money were being expended in the improvement. They knew that bonds would be sold for the purpose of raising these funds, and that these funds arose from the proceeds of the sale of the bonds. They stood by and permitted such expenditures. They are not now entitled to an injunction. Holt v. Parsons, 118 Ga. 895 (45 S. E. 690).

The right of the drainage commissioners against the original purchaser of these bonds to recover the par value thereof is not now for decision by this court. Certainly the original purchaser was chargeable with notice of the terms of the drainage act of 1911, including the provision which prohibits the sale of the bonds at less than par; and such original purchaser would not be a bona fide purchaser, if he bought the bonds at less than par. Anthony v. County of Jasper, 101 U. S. 693 (25 L. ed. 1005). If the commissioners have a contract by which the original purchaser was to pay the par value of these bonds, an action would lie thereon against such original purchaser to recover such value; and this action would not be defeated by the illegal contract for the payment of a commission. Certainly the commissioners could proceed to rescind the contract of sale if it was void because it provided for the sale of the bonds at less than par, or upon restoring to the purchaser any money received thereon; and would be entitled to recover any bonds remaining in the hands of the original purchaser and the par value of those disposed of by such purchaser. If all of the bonds had been disposed of by the original purchaser, then the drainage commissioners would be entitled to recover the par value of all of such bonds.

The sale of these bonds at less than par does not affect their validity in the hands of innocent purchasers. Citizens’ Savings Bank v. Greenburgh; 173 N. Y. 215 (65 N. E. 978); Woods v. Lawrence Count, 1 Black, 386 (17 L. ed. 122); Mercer County v. Hacket, 1 Wall. 83 (17 L. ed. 548); Cromwell v. County of Sac, 96 U. S. 51 (24 L. ed. 681); County of Knox v. Aspinwall, 21 How. (U. S.) 539 (16 L. ed. 208); Whelen's Appeal, 108 Pa. 162 (1 Atl. 88).

If tlie plaintiffs have been damaged by the commissioners and their confederates by the illegal manner in which they sold these drainage bonds, the plaintiffs will have to resort to their remedies at law for redress. They are not now entitled to the. remedy of injunction, the effect of which is to entirely stop the completion of this enterprise.

We are of the opinion that the court erred in enjoining the present and future assessments for the payment of these bonds and all payments by the drainage commissioners to the contractor, the' attorney, and the engineer under the contracts made by the former with these latter parties. The court did right in enjoining the enforcement of the executions against the plaintiffs which are conceded by the defendants to be null and void. The judgment of the court enjoining these fi. fas. is affirmed, and the judgment granting an injunction in all other matters is reversed.

Judgment affirmed in part and reversed in part.

All the Justices concur. Russell, C. J., concurs specially.