City of Ft. Scott, Kan., v. W.G. Eads Brokerage Co.

• Decision Date: 04 August 1902
• Docket Number: 1,711.
• Citation: 117 F. 51
• Parties: CITY OF FT. SCOTT, KAN., v. W. G. EADS BROKERAGE CO.
• Court: U.S. Court of Appeals — Eighth Circuit

117 F. 51

CITY OF FT. SCOTT, KAN., v. W. G. EADS BROKERAGE CO.

No. 1,711.

United States Court of Appeals, Eighth Circuit.

August 4, 1902

Syllabus by the Court.

The powers of municipal corporations are limited to those expressly granted and those fairly implied therefrom or incidental thereto, and a reasonable doubt of the existence of a power is fatal to its being.

The prescription, by the statutes, under which a municipality is organized or acting, of the manner in which it shall exercise one of its powers, limits the right to exercise it to that method, and its use in any other way is ultra vires of the corporation, and void.

When a municipal corporation of Kansas has a sinking fund in excess of $2,000 for investment in the purchase of its bonds, the statutes of that state require it to advertise for bids and to invest the fund in the bonds of those parties who offer them at the lowest price. Gen. St. Kan., 1899, Secs. 6284 6294. A city in such a situation made a contract with a brokerage company to repay it the amount it should expend in the purchase of the city's bonds, not exceeding their par value and 10 per cent. premium, and to pay the company for its services in addition more than 16 per cent. of the par value of the bonds it bought. Held, the statute prescribing the method of investing the sinking fund was exclusive, the contract with the brokerage company was ultra vires of the city and void, and a contract to pay the reasonable value of such services was void for the same reason.

A municipal corporation, which has retained the benefits of a contract invalid not because it was beyond the scope of its powers but because in the making or performance of the agreement the power of the municipality was illegally exercised, may be estopped from denying the validity of the contract as against an innocent party, who has changed his position in reliance upon the action of the municipality. But no such estoppel can arise in favor of one who knowingly agrees to assist the municipality in the illegal exercise of its power.

A false representation by one party of a material fact of which the other party is actually and permissively ignorant is essential to the existence of an equitable estoppel.

Where the pleadings disclose the right of a party to a judgment in his favor, such a judgment may be entered by the court, under Gen. St. Kan. 1899, Sec. 4675, notwithstanding the fact that an adverse verdict has been rendered.

A contract for the purchase of personal property is void for want of consideration and mutuality if the quantity to be bought is conditioned by the will, wish, or want of one of the parties.

B Hudson and W. R. Biddle, for plaintiff in error.

T. F Garver (J. B. Larimer, on the brief), for defendant in error.

This writ of error was sued out to reverse a judgment for $4,722 against the city of Ft. Scott and in favor of the W. G. Eads Brokerage Company, a corporation, for a breach of a contract. The judgment rests on a peremptory had a bonded debt of $234,000 and a sinking fund of about $45,000. The bonded had a bonded debt of $234,000 and a sinking fund of about $45,000. The bonded debt was drawing about 6 per cent. per annum, and the sinking fund only 1 1/2 per cent. per annum. The city and the brokerage company supposed that none of the bonds of the city were redeemable until the expiration of 9 3/4 years from the time the contract was made, although the fact was that bonds to the amount of $20,000 were then payable upon call. Thereupon the brokerage company wrote to the city that it thought it possible that it might be able to buy bonds enough to at once apply the sinking fund, and that, if it was able to do this, it would charge the city one-half of the net saving resulting to it from the purchases. On September 25, 1899, the city accepted this proposition on the conditions that it would take from the brokerage company and pay for its bonds to the amount in par value of $40,000, that the premium on them should not exceed 10 per cent., that the compensation of the brokerage company should be paid in city warrants, that the interest on the bonds bought should be reckoned on the theory that they would mature 9 3/4 years from October 1, 1899, that the brokerage company should render a true account of the bonds it bought by means of canceled drafts and receipts which should show absolutely and definitely the purchase price of the bonds, and that the term of the contract should end on January 15, 1900. After this contract was made the brokerage company discovered the fact that bonds of the city to the amount of $20,000 were subject to call, prepared a notice calling them, caused the mayor and the clerk of the city to sign this notice, and published it in a daily newspaper. This notice stated that these bonds were called for payment at the Kansas state fiscal agency in the city of New York on January 1, 1900. The city sent the necessary funds to that agency to pay the bonds and the interest upon them, and these bonds were paid with these funds of the city, and were canceled. The brokerage company never bought any bonds of the city under the contract. On December 19, 1899, the term of the contract was extended to February 15, 1900. The brokerage company incurred traveling expenses of its officers and agents, and rendered services in searching out the holders of the city bonds and endeavoring to obtain them, which one of its witnesses testified were worth $4,275. On January 23, 1900, the city notified the company to take no further steps to secure bonds in addition to those aggregating $20,000, which had been called, and on February 15, 1900, the parties agreed that the contract between them should cease and terminate upon the delivery to the brokerage company of warrants of the city to the amount of $4,275. No warrants were ever delivered, and the company brought this action to recover the $4,275 on the ground that by the contract of February 15, 1900, its claim against the city had been compromised, and the city had agreed to pay this amount to settle it, and on the further ground that its services in procuring the surrender of the bonds for $20,000 and its endeavors to obtain other bonds were reasonably worth $4,275. The court below sustained its claims, and directed a verdict and judgment for the amount it demanded.

Before SANBORN and THAYER, Circuit Judges, and LOCHREN, District Judge.

SANBORN Circuit Judge, after stating the case as above, .

The foundation of the judgment in question in this case is an alleged agreement of compromise and settlement of a claim against the city of Ft. Scott for compensation for services rendered about the investment of the sinking fund of the city under a contract between the brokerage company and the municipality. This judgment is challenged on the ground that the original contract was beyond the powers of the city. If the city was without power to make any contract to employ or pay any one for purchasing or procuring bonds for the investment of its sinking fund, it was equally without power to make a valid agreement to compromise or to settle a claim founded on such an agreement. It could not, by an agreement to compromise a baseless claim, subject itself to liability that it could not create by contract. Hence the charge that the agreement to pay for services rendered to assist the city in procuring bonds in which its sinking fund might be invested was void lies at the root of the whole matter. When the original contract between the city and the brokerage company was made to pay to the latter one-half of the difference between the premiums it should expend for the purchase of the bonds of the city and the amount of interest thereon for 9 3/4 years, the city had a sinking fund of about $45,000, and this contract was made for the sole purpose of purchasing bonds in which this fund might be invested. The city then had bonds outstanding to the amount of $20,000 which were redeemable at its pleasure. The statutes of the state of Kansas expressly provided that, when there were sufficient funds in the hands of the city treasurer of this city belonging to the sinking fund, he should call in and pay as many redeemable bonds as that fund would liquidate, and that at the expiration of 30 days from the date of the last publication of his call the bonds called should cease to bear interest. Gen. St. Kan. 1899, Sec. 5722. Both of the parties to the original contract supposed, when it was made, that none of the bonds were redeemable in less than 9 3/4 years, so that, as far as this agreement related in any way to the bonds that were then redeemable upon call, it was made under a mutual mistake of fact, and was voidable. They made their agreement under the mutual understanding that bonds must be and were to be purchased for the investment of the sinking fund. Upon this subject the statutes of Kansas provided:

Each city governed by the provisions of this act shall be a body corporate and politic and shall have power: * * * 4th. To make all contracts and do all other acts in relation to the property and concerns of the city necessary to the exercise of its corporate administrative powers. ' Gen. St. Kan. 1899, Sec. 702.

'The mayor and council shall have the care, management and control of the city and its property and finances and shall have power to enact ordinances for the purposes hereinafter named not repugnant to the constitution and laws of this state. * * * 40th. To appropriate money and provide for the current expenses of the city: provided, that no indebtedness shall be incurred, or order or warrant or evidence of indebtedness of the city shall be drawn or issued on the treasurer in payment of any indebtedness to exceed the amount of funds on hand on the treasury...