Stephens County v. H. C. Burt & Co.

LESLIE, J. The plaintiff, Stephens county, sued the defendant, H. C. Burt (whose trade-name is H. O. Burt & Co.), in Stephens •epunty. The defendant filed his plea of privilege to be sued in Harris county, Texas. Trial was had before the court without a jury on the issues arising upon the plea of privilege, and judgment sustaining the plea was rendered. The plaintiff appeals. Venue was sought under section 7, art. 1995, Rev. St. 1925, the general venue statute, as amended by Acts 1st Called Sess. 1927, c. 72, § 1, providing for venue of suits originating in fraud. The suit was grounded on fraud alleged to have been committed in Stephens county, and as we interpret the pleadings they set forth a cause of action based upon an alleged fraud, as contradistinguished from a cause of action based upon some character of contract, express or implied. The gist of the action is for damages sustained by reason of the appellee’s fraudulent acquisition of public funds in Stephens county. Said county, having voted a “million dollar special road bond,” sold the same to H. C. Burt for par and accrued interest, as required by article 708, Rev. St. 1925: “Bonds shall never be sold at less than their par value and accrued interest, exclusive of commissions.” The above article is mandatory, and no citation of authority to that effect is necessary. Burt, in his offer to buy the bonds, proposed to pay par and accrued interest to date of delivery and payment. The fraud upon which this action is based and venue claimed is predicated upon an alleged failure and refusal of the defendant Burt and the commissioners’ court of Stephens county, in the consummation of the above deal, to observe either the spirit or the letter of the above statutory provisions, as well as others hereinafter to be noticed. There are three or four different phases of the alleged fraud, and each will be noticed. It is alleged (and such appears to be the fact) that the bonds were to be sold at “par and accrued interest to date of delivery and payment,” under an agreement whereby said bonds were to bear the date of January 12, 1925, and which said bonds were to be delivered to said Burt & Co. as follows: $300,-000 within three months from date, or April 12, 1925; $300,000 within six months from date, or July 12, 1925; $100,000 within nine months from date, or October 12, 1925. The purchaser was obligated to take up the bonds on the above schedule only, but the contract extended to the purchaser the option of talc-ing up and paying for all of said bonds or any portion thereof at any time after the same were ready for delivery. On the same day— January 12, 1925 — the above sale was agreed upon, Stephens county and the H. O. Burt Company entered into an additional contract whereby said purchaser agreed to print said road bonds — 1,000 in number — and to pay “all shipping charges on such bonds in connection with their sale and delivery, and to pay all proper insurance and exchange thereon,” in *952 consideration of which Stephens county agreed to pay H. 0. Burt “an amount equivalent to interest on such bonds from their date • up to the date of delivery and receipt of payment therefor. * * * Such compensation shall be paid at the time of delivery and receipt of payment for such bonds * * * or installments.” In operating under the foregoing contract or arrangement, the county and the defendant Burt pursued the following practical course: February 7,1925, said commissioners’ court entered the following order: “It is ordered by the court that, in the event H. O. Burt & Company desires to take up and pay for the three installment deliveries of Stephens County Series C road bonds before dates specified in contract of purchase dated January 12th, 1925, that H. O. Burt & -Company be allowed on each installment the amount of the accrued- interest that they, would receive if payment were made on dates mentioned in the contract, and it is further ordered that payment be made to H. C. Burt- & Company for said accrued interest on each installment immediately after the treasurer has received payment for the bond at par and accrued interest.” (Italics ours.) February IS, 1925, H. C. Burt took up the first installment of bonds, amounting to $300,-000, paying par and $1,375 accrued interest. February 20, 1925, Burt took up all remaining installments of the bond, paying therefor $700,000 and $3,956.90 accrued interest. February 18, 1925, the county paid out of the special road bonds to H. O. Burt & Co. the sum of $4,125, stated to be “for refund bond sale contract.” February 24, 1925. the county paid to H. C. Burt from said funds $24,750. stated to be “for interest on bond sale.” It thus appears that the commissioners’ court of Stephens county paid to said- Burt for the printing, transporting, insurance, etc., provided for in the order of February 7,1925, the sum of $28,875. It appears tha.t, instead of paying for the printing, etc., an amount equivalent to the interest on such bonds from their date until the date,of delivery and re-' ceipt of payment therefor, the commissioners’ court, by its order of February 7th, extended to H. C. Burt the option of taking up each installment of the-bonds on a date earlier than that specified, as hereinbefore set out, and'in that same connection and with some degree of liberality paid to him the -amount of. the accrued interest that Burt would have received, if payments had been made on the dates'mentioned in the contract; that is, at the end' of three, six, and nine months. ";r At this point it may well be noticed that the undisputed testimony was to the effect that the services rendered. by .Burt in the above respect was .of a reasonable value of $500 or $600. One experienced printer of 15 years’ standing testified that he would have done the work for $600, had hq been given-the privilege of doing, so. Appellee Burt introduced no proof whatever upon the trial. If the reasonable value of the printing of the bonds, etc., did, in fact, exceed $2,000, then, as contended by the appellant, the contract should not have been made without “first submitting such proposed contract to' competitive bids,” as provided in article 2368, Rev. St. That statute provides that the penalty for failing to advertise for bids when a contract is in excess of $2,000 renders the contract void. Such being the case, it must be conceded that the appellee Burt was aware of this statute, and well knew that it stood out as a sentinel on guard for the protection of the county and public, regardless of any indifference which either he or the majority of the commissioners’ court might display towards such a beneficent law. The arrangement entered into between these parties had a further advantage for the purchaser of the bonds. It enabled Burt to collect for the printing, etc., not merely “an amount equivalent to the interest on such bonds from their,date up to the date of delivery and receipt of payment,” the amount denominated in the order and agreement of January 12th, but he was, under the subsequent order of February 7th, above quoted, paid the sum of $28,875 under such arrangement, whereas the accrued interest on the bonds at the date they were, in fact, paid for and delivered was at most but $5,331.90, a sum itself considerably in excess of $600 indicated by all the testimony as a fair and reasonable value for the printing done. A mere statement of the facts indicates the probable merit in appellant’s contention that the consideration (printing of bonds, etc.) paid by Burt & Co. for the $28,875 was grossly inadequate and shocking to the conscience of a reasonable person, and amounted to. a fraud on the public, and Stephens county in-particular. Gulf Bitulithic Co. v. Nueces County (Tex. Com. App.) 11 S.W.(2d) 305; 2 Pomeroy’s Equity Jurisprudence, p. 1939. The appellant further contends that, under another view or phase of the case, no consideration whatever was paid for the major portion of the $28,875. This conclusion is deduced from the following circumstances: The undisputed testimony is to the effect that $500 or $600 was a reasonable price for the- printing, etc. Burt did not testify to the contrary, and no testimony was offered to refute the contention. Plainly Burt & Co. contracted to purchase the bonds and pajr par and accrued interest to date of payment and delivery. liTo'w the sum equivalent to the interest on the bonds from date until they were actually paid for and delivered (February 13 and 24, 1925) amounted to only $5,331.90. Had the original contract of January 12th been adhered to, in all fairness the' county would have paid no more than the suin, last mentioned: Nevertheless, since the county elected to enter the" *953 order of February 7th aforesaid, and pay Burt & Co. the sum of $28,875, it is indeed difficult to discern what consideration passed to the county for the large sum of $23,543.10, which, combined with the sum of $5,331.90 (interest actually accruing), made up the total of the amount paid for printing the bonds, etc. In fact, the payment of this additional sum of $23,543.10 has all the earmarks of a generous donation of public funds, unwarranted by law. The separate phases of appellee’s dealings with Stephens county have been noticed. Combined they have a broader aspect. When considered as a whole, we are of the opinion that the transactions involved in the appellee’s purchase of the Stephens county road bonds evidence a definite and deliberate design on the part of those selling, as well as the purchaser, to evade, not only the provision of the statute relating to competitive bids, when contracts involve a sum in excess of $2,000, but also evidence the purpose and design to evade another statute (article 708, Rev. St. 1925), which prohibits the sale of such bonds at less than par and accumulated interest, exclusive of commissions. If substance rather than shadow be given paramount consideration, it must appear that the method adopted by the parties by which the appellee was enabled to' purchase the bonds, apparently at par and accumulated interest, and at the same time print the bonds under an agreement by which he was to receive $28,875 for a printing job of the probable value of $600, was but a pretext by , means of which the appellee purchased the county’s road bonds at a discount of 2.354 per cent., which was in contravention of law, as was well known by the. appellee. In any event, he was charged with such information. From the foregoing, it follows that we are of the opinion that, by reason of the manner in which the appellee acquired the county’s funds herein sued for, he was guilty of a constructive fraud, perpetrated in Stephens county, Texas. Corpus Juris, vol. 26, p. 1061, defines such a fraud as follows: “Constructive fraud is a breach of legal or equitable duty which, irrespective of the moral guilt of the fraud feasor, the law declares fraudulent because of its tendency to deceive others, to violate public or private confidence, or to injure public interests.” For further discussion of this character of fraud, see Parker v. Solis (Tex. Civ. App.) 277 S. W. 714; Glaser v. Henderson (Tex. Civ. App.) 2 S.W.(2d) 987; Gulf Bitulithic Co. v. Nueces County (Tex. Civ. App.) 297 S. W. 747. While it is not necessary for us to determine here whether fraud was established upon the hearing of the plea with that degree of certainty necessary to warrant recovery, it does appear, to say the least, that there was sufficient evidence upon the hearing to make a prima facie case, or to show a substantial controversy over the question of alleged fraud. Upon such a showing the requirements of the venue statute are met. First Nat. Bank v. Childs (Tex. Civ. App.) 231 S. W. 807. Further, there can be no doubt about section 7, art. 1995, the general) venue statute, applying in this character of alleged fraud. As stated by our Supreme Court through Justice Gaines in Boothe v. Fiest et al., 80 Tex. 141, 15 S. W. 799, 800: “The exception (section 7) in the statute applies as well to constructive as to actual fraud. Stanley v. Westrop, 16 Tex. 200.” For the reasons assigned, we believe the triál court erred in sustaining the appellee’s plea of privilege. The other points raised by appellant are overruled. The judgment of the trial court is reversed and the cause remanded.