CAMERON COUNTY W. IMP. DIST. NO. 8 v. De La Vergne E. Co.

• Decision Date: 11 January 1938
• Docket Number: No. 8597.,8597.
• Citation: 93 F.2d 373
• Parties: CAMERON COUNTY WATER IMPROVEMENT DIST. NO. 8 v. DE LA VERGNE ENGINE CO.
• Court: U.S. Court of Appeals — Fifth Circuit

93 F.2d 373 (1937)

CAMERON COUNTY WATER IMPROVEMENT DIST. NO. 8 v. DE LA VERGNE ENGINE CO.

No. 8597.

Circuit Court of Appeals, Fifth Circuit.

December 9, 1937.

Rehearing Denied January 11, 1938.

H. L. Faulk, of Brownsville, Tex., and J. C. Looney and James R. Norvell, both of Edinburg, Tex., for appellants.

Tom M. Davis, of Houston, Tex., and V. W. Taylor, of Brownsville, Tex., for appellee.

Before FOSTER and HOLMES, Circuit Judges, and STRUM, District Judge.

HOLMES, Circuit Judge.

The appellee recovered a judgment against appellants for a debt evidenced by a note of the Cameron County Water Improvement District No. 8, indorsed by C. P. Barreda, its president and a large landowner therein. The note was given for the purchase price of a pump, engine, and equipment sold to the district by appellee; and the judgment provided for the foreclosure of a chattel mortgage or title retention lien on the property sold, of a pledge lien on sixty-seven bonds of the district of the par value of $1,000 each belonging to C. P. Barreda, of a pledge lien on three notes of the district, aggregating $29,743.36, secured by thirty-three additional bonds of the district, and for a deficiency judgment against both of the appellants.

According to the terms of the original contract, appellee agreed to furnish and install the machinery for $32,755, payable $1,000 cash, and to accept the note of the district, indorsed by Barreda, for the balance, with interest at the rate of 6 per cent. per annum, payable one year after the delivery and installation of the machinery. Subsequently, an additional credit in the sum of $1,049.05, covering freight and other items which had been advanced by the district, was allowed on the purchase price, and a note indorsed by Barreda was taken for the balance, amounting to $30,705.95. When the note became due on December 5, 1931, the district was unable to pay the same, and an extension was granted by appellee, upon the indebtedness being further secured by notes and bonds of the district. Upon the expiration of said extension, the district and Barreda represented that they were unable to pay at that time, but that Barreda was going to obtain a large sum of money, and would pay the entire indebtedness out of said sum. Relying upon this assurance, appellee granted a further extension to January 1, 1933. After the last extension, there was paid on the indebtedness the sum of $2,103.42. The judgment appealed from is for the balance due on the note with interest.

The contract of purchase, pursuant to which the note was given, was contrary to the express provisions of the Constitution of the State of Texas and of title 128, article 7466 et seq., of the Revised Statutes of said state, as amended, Vernon's Ann.Civ. St. art. 7466 et seq. The applicable constitutional provisions forbid the Legislature to authorize the "issuance of any bonds or provide for any indebtedness against any reclamation district unless such proposition shall first be submitted to the qualified property tax-paying voters of such district, and the proposition adopted," article 16, § 59; and the Legislature is without power to authorize the payment of any such claim, article 3, § 53. It does not appear that the Legislature has attempted in any of its various acts to violate these constitutional restrictions. On the contrary, it has passed statutes to safeguard the taxpayers against unauthorized borrowing and spending by improvement districts. Article 7622, as amended by Acts 1929, 2d Called Sess., c. 6, § 1, and articles 7652, 7710, 7739, 7748, 7758, 7807 of the Revised Civil Statutes of the State of Texas 1925, Vernon's Ann.Civ.St. arts. 7622, 7652, 7710, 7739, 7748, 7758, 7807.

According to the undisputed testimony, there has never been an election in the district authorizing the issuance of the note to appellee. It is not contended that any such election has been held. Under these circumstances, there can be no recovery of the purchase price upon the express contract, because entered into in violation of a positive rule of law, and no recovery thereof upon an implied contract, because the parties should not be allowed to do indirectly what they are prohibited from doing directly. The parties to the contract were charged with notice of the constitutional and statutory limitations upon the powers of the district, and it is presumed that they made the contract sued on with full knowledge that no right of action could be maintained upon the note given for the purchase price.

At the time the contract to buy the machinery was entered into, the district had voted bonds in the total amount of one million dollars for the payment of rights of way, engine, pumps, equipment, and other costs of organizing and constructing the district; but the bonds were neither sold nor exchanged for the machinery, though some of them got into the hands of Barreda and were later pledged to secure his indorsement. There is a contention that in voting the bonds the taxpayers approved this purchase, because an item of $52,000 for "engine, pumps," etc., was advertised as part of the construction costs to be paid for with the proceeds of the bond issue; but the contract which forms the basis of this suit was not made pursuant to the statutes applicable to purchases with bonds or the proceeds thereof, since the bonds were neither exchanged for the property, as provided in article 7710, R. C. S. T., nor sold and the machinery purchased for cash, as is clearly intended in article 7748, R. C. S. T., which requires a warrant to be drawn on the depository for "the contract price in favor of the contractor or his assignee." It is probably true that, if the bonds had been sold and this machinery paid for out of the proceeds thereof, or if they had been exchanged for the machinery, the transaction would have been within statutory and constitutional authorization; but the law controlling the decision of this controversy arises out of what the parties did, and not what they might have done. They neither sold the bonds nor exchanged them for the property. They bought the engine, pump, and equipment on credit, making a small cash payment. The statutory scheme...