Miller v. Park City

Mr. Justice Lansden delivered the opinion of the court. The complainants filed this bill as citizens and taxpayers of Park City, a municipal corporation situated in Knox county, Tenn., for the purpose of enjoining the municipality from making a sale of certain bonds which it had issued under authority of chapter 127, Acts of 1911, and designated as “funding and street improvement bonds.” The grounds for relief charged in the hill are that the municipal authorities, in violation of the enabling act aforesaid, had sold and delivered the bonds to the Union Bank of Knoxville, as agent for the Provident Savings & Trust Bank of Cincinnati, for the purpose of concealing a sale below par, in violation of the enabling act, and that in fact the bonds were sold for 81,169.32 less than par. It also charged that the city council had passed an ordinance upon its second reading which apportioned said sum between two certain funds arising from the general revenues of the city, and transferred said amount from said funds to the bond fund for the purpose of further concealing the fact that the bonds had been sold below par. This, it is alleged, is a fraud upon the complainants and all of the taxpayers of the municipality, and it is prayed that the defendants be enjoined from selling and delivering the bonds, and from passing upon its third reading the ordinance referred to, and for judgment against the Union Bank and the Provident Savings Bank & Trust Company for the sum of $1,169.32, the [430] amount alleged to be necessary to make tbe bond sale legal and at' par. All of tbe defendants, except tbe Provident Savings Bank & Trust Company, answered tbe bill and denied all of its material allegations; that defendant did not answer, and no property belonging to it was attached. Upon the bearing tbe chancellor dismissed tbe bill, with costs, and tbe complainants have appealed to this court and assigned four errors. In tbe view that we take of tbe case, it is only necessary to notice tbe first two errors assigned, which are, in substance, that tbe chancellor erred in decreeing that the sale of tbe bonds was free from fraud and that tbe general power to sell tbe bonds conferred upon tbe defendants by tbe enabling act carried with it tbe implied power to use all reasonable means and incur all proper and necessary expenses to effectuate a sale. Tlie enabling act clearly forbids a sale of tbe bonds at less than par. Par value means what tbe words signify and no definition of tbe phrase occurs to us which can make its meaning plainer. So tbe question for determination is not whether tbe defendants bad tbe power to malee a sale of the bonds for less than their par value, because this they plainly could not do. But tbe real question is: Were tbe bonds sold at less than par? Tbe offer submitted by tbe purchaser which was accepted by the defendants contained tbe following proposition: “We offer to pay you tbe par value of $25,000 and accrued interest to date of delivery. It is understood, however, that, if we are successful bidders, we will [431] be made an allowance of $1,000 for attorney’s fees and other expenses incident to the negotiation.” The expenses outside of attorney’s fees amounted to $169.32, and were for printing and lithographing the bonds, postage, etc. This sale was made, and the bonds delivered to the purchaser, and the purchase price paid, before the bill was filed and the injunction granted. It would necessarily follow that, in so far as the bill seeks to prevent a sale of the bonds, it was filed too late; and in so far as it seeks a personal judgment against the Provident Savings & Trust Bank of Cincinnati, it must be dismissed, because the court has not acquired jurisdiction over it. The bill can only remain for the purpose of recovering a personal judgment of the defendants Dooley, Queen er and Keener, as the committee appointed by the city council to negotiate the bonds. That these defendants acted in entire good faith in negotiating the sale in question, there can be no doubt upon the record. They have so testified, and there is nothing to the contrary. In addition, they made report to the city council of their doings in the premises, which that body fully approved. Without saying whether 'the approval by the city council of the sale of the bonds, with full knowledge of all the facts, would acquit the last-named defendants of all liability now claimed against them, it is quite clear that the recovery sought arises out of an alleged breach of duty which they owed to the municipality, and not the public at large. The right of action, [432] if any, would lie in favor of the municipal corporation. It has never declined to bring suit upon such alleged liability, and the complainants have riot requested it so to do. In this connection, it should be borne in mind that the complainants’ bill, as against these particular defendants, does not seek to restrain threatened wrongful action, but seeks to recover for the benefit of complainants and all other taxpayers of Park City for an alleged breach of duty. The learned chancellor held that they were in no attitude to do this, and in this there was no error. This really disposes of the case, but we think it proper to say that the sale of the bonds was entirely lawful. They were sold at par and accrued interest. One thous- and dollars was deducted by agreement for counsel fees, and the remainder for printing bills and the like. It has been held in numerous cases that the deduction of such expenses, wrhen reasonable in amount and done in good faith, does not violate the prohibition contained in the enabling act against a sale at less than par. It would seem that there co\ild be no fair dispute over a deduction for expenses incident to printing the bonds and placing them upon the market, because the city could not reasonably expect a purchaser of its obligations until the obligation itself was cast into such form and published in such manner as the market would demand. It could not fairly be said to have bonds for sale, until they were formulated so as to conform to the provisions of the enabling act and printed in accordance with the demands of the market. A like reason would in433 elude reasonable attorney’s fees. It is well known that public securities are not readily marketable until their legality and validity have been approved by competent and reputable attorneys. It is needless to say that if charges of this kind are sought to be made the cover for an actual sale at less than par, or if they are grossly unreasonable and attended by marks of bad faith, the court would not hesitate to declare such transactions fraudulent and void. But in this case there is not only no proof of fraud, but the history of the transaction, as disclosed by the record, evidences the best of faith. The negotiation of the bonds pended from the 1st of May until the -24th of June, during which time the attorneys selected to pass upon them were corresponding with the defendants about various questions concerning the validity of the' bonds. There was no haste, no concealment, and the bid accepted was admittedly the highest and best bid offered. It should be stated that the city council had passed an ordinance upon its second reading, and would have passed it upon its third reading, but for the injunction in this case, which had, for its effect, the transfer from city funds to this particular bond fund of a sufficient sum to cover the expenses of the bond sale. With this done, it is undoubtedly true that the bonds were sold at par. They were in fact sold at par and accrued interest; but, the expenses having been advanced by the purchaser the amount was deducted from the proceeds of the [434] bond sale, and the city authorities were in the act of restoring this when this hill was filed. The city council could have appropriated a sufficient sum out of its general funds to pay the expenses of the sale in advance, and this would have been a proper municipal purpose. It would seem equally clear that they could make the necessary appropriation after the sale to reimburse the bond fund from which the expenses had been deducted. The decree of the chancellor is affirmed with the costs.