City of Miami v. Benson

• Decision Date: 24 March 1953
• Citation: 63 So.2d 916
• Parties: CITY OF MIAMI et al. v. BENSON et al.
• Court: Florida Supreme Court

Page 916

63 So.2d 916

CITY OF MIAMI et al. v. BENSON et al.

Supreme Court of Florida, en Banc.

March 24, 1953.

John E. Cicero, City Atty., J. W. Watson, Jr., Sp. Bond Counsel, Robert M. Haverfield, Asst. City. Atty., Miami, and Turner, Hendrick & Fascell, Coral Gables, for petitioners.

Sibley & Davis, Miami Beach, for respondent.

MATHEWS, Justice.

The petitioners, the City of Miami, a municipal corporation and the City Commissioners, et al., have filed a petition for a writ of certiorari to review an interlocutory order made by the Chancellor in this case wherein the respondent filed a bill of complaint for himself and all other taxpayers similarly situated, seeking an injunction enjoining the City Commission and the City of Miami from disposing of twenty-seven million dollars of municipal bonds on the ground that the sale was against public policy and, therefore, void.

A contractor for the construction of a sewerage plant was allowed to intervene in the cause because of his interest in constructing the plant should the bonds be sold. The contractor and the other defendants filed a motion to dismiss the bill of complaint, which motions were denied by the Chancellor. Petition for certiorari was filed seeking a review of this interlocutory order denying the motions to dismiss.

The authority to issue the bonds in question and the validity of such bonds are not in question. They were duly authorized, voted upon by the freeholders as required by law, all steps in connection therewith were validated by proper decree of the Circuit Court which was affirmed by this Court.

The primary question for our determination is: Is the contract for sale against public policy and, therefore, void?

On March 11, 1952, the City Commission entered into a contract with The First Boston Corporation by which the said corporation was employed to act as advisor to and to assist the City Commission relating to the sewage bonds. As a preamble to the contract it is shown that The First Boston Corporation was a firm of 'high standing and experience in municipal finance' and 'can render a valuable service in assisting the City to consummate its present sewage program.' The essential parts of the contract may be summarized as follows:

'(1) That the City of Miami employ the First Boston Corporation to act as the City's fiscal agent and advisor on all matters pertinent to the bond issue program;

'(2) That First Boston Corporation prepare an offering prospectus on the proposed bond issue;

'(3) That First Boston Corporation form a nation-wide account to underwrite the proposed bond issue for sale to the public;

'(4) That First Boston Corporation popularize the issue in advance with prospective bond buyers;

'(5) That First Boston Corporation inform the various statistical services of details concerning the proposed financing; supply the City with information on market conditions; and advise the City as to the timing of the offering of the bonds;

'(6) That the City keep First Boston Corporation fully informed on all matters relating to the bond issue program;

'(7) That, when financing details have been arranged, the City negotiate with first Boston Corporation in the first instance for the sale of the bonds;

'(8) That if bonds are purchased by First Boston Corporation, there is to be no charge for the services outlined in paragraphs (1) to (5) above;

'(9) That if bonds are sold to anyone other than First Boston Corporation, the latter is to receive for the said services payment of $2.00 per bond on the principal amount of bonds sold, plus out-of-pocket expenses not to exceed $5,000.00;

'(10) That in the event financing does not take place, the City is to reimburse First Boston Corporation for out-of-pocket expenses not to exceed $1,500.00;

'(11) That the contract is to remain in effect through two years from March 11, 1952, unless extended by mutual consent.'

The bill of complaint alleged that the First Boston Corporation was employed because of its high standing and superior knowledge with reference to municipal financing to act as the City's confidential advisor to render valuable services as the agent of the City, and by reason of the contract, it was obligated to advise and assist the City on all pertinent matters relating to the sewage disposal program and to prepare an offering prospectus, setting forth information relating to the bond issue.

The bill of complaint further alleged that from August 16, 1952 until the 23rd day of January, 1953 no official communication was received by the City or the City Commissioners from the First Boston Corporation relative to the sale and disposition of the bonds or with reference to the interest rate to be paid upon the bonds; that at a regular meeting of the City Commission, on February 4, 1953, the City Manager reported to the Commission that he had received a note from the Vice-President of the First Boston Corporation that he (the Vice-President) would like to appear before the Commission to make a report as to progress. Later in the day the Commission heard a report from the Vice-President in which he explained the things which had been done for the City to get the best interest cost they could. At this meeting he advised the Commission that he desired they have a confidential meeting so that what he said would not be 'broad-cast all over the country.' At this meeting he stated that he would have a proposal with reference to the bonds and interest rate for immediate acceptance, and that his report and advice should be in the confidential meeting. On February 5, 1953 the Vice-President of the corporation appeared before the Commission and advised that they had tried to get the lowest possible interest rate for the City 'as agent for the City.' He told the Commission that it had employed his corporation to advise and assist the City in financial matters and that the corporation had tied up and associated with it in the proposed purchase of the bonds, all of the big outstanding competitive bond houses in the country. He, thereupon, submitted his proposal. The Vice-President explained to the Commission in detail and that they had juggled the figures 'because, frankly, we were trying to confuse people so they couldn't figure out what interest rate we used.' It was alleged in the bill of complaint that this juggling of figures admittedly to confuse other bond-buying houses prevented the City of Miami from having any knowledge of the interest rate they would be called upon to pay on the bonds, and that this confusion was for the purpose of not permitting it to appear what profit on the re-sale of these bonds would be made by the corporation which was the agent of the City.

The proposal submitted by the First Boston Corporation was that it would buy the bonds from the City at a private sale for a negotiated price and a negotiated interest rate. The City Commission by a vote of 3 to 2 contracted to sell these bonds to its advisor employee and agent The First Boston Corporation. The suit was brought to enjoin the consummation of the sale.

Among the grounds upon which the motion to dismiss was based were: the complaint is without equity; that should relief be granted, greater injury would accrue to the defendants than to the plaintiff and all others similarly situated; that plaintiff is guilty of laches; and that no fraud, corruption or bad faith had been alleged.

We may eliminate at the outset any question of bad faith, fraud or corruption. There is nothing in this record of fraud, bad faith or corruption on the part of the city officials or on the part of The First Boston Corporation. It is assumed that they are men of honesty and integrity and that their intentions were good. The First Boston Corporation has a high standing in the financial world for fair dealing and a superior knowledge of municipal financing gained over an experience of a long period of years.

The question here is not whether the contracts in question were entered into in bad faith, or corruptly, or for the purpose of perpetrating a fraud upon the taxpayers, but rather--are the contracts against public policy and, therefore, void?

In the case of Pittsburgh, Cincinnati, Chicago & St. Louis Railway Co. v. Kinney, 95 Ohio St. 64, 115 N.E. 505, 506, 507, L.R.A.1917D, 641, Ann.Cas.1918B, 286, it was said:

'* * * When a contract is contrary to some provision of the Constitution, we say it is prohibited by the Constitution, not by public policy. When a contract is contrary to a statute, we say it is prohibited by a statute, not by a public policy. When a contract is contrary to a settled line of judicial decisions, we say it is prohibited by the law of the land, but we do not say it is contrary to public policy. Public policy is the cornerstone--the foundation--of all Constitutions, statutes, and judicial decisions; and its latitude and longitude, its height and its depth, greater than any or all of them. If this be not true, whence came the first judicial decision on matter of public policy? There was no precedent for it, else it would not have been the first.'

In this case there can be no question that the City Commissioners, in their official capacity, were the trustees for all of the taxpayers and citizens of Miami; that they employed the First Boston Corporation as their agent or employee to assist and advise them concerning the prospectus for this bond issue and to assist them in obtaining the highest price for the bonds with the lowest interest rate; that the City Commission, under special charter authority, had the right and power to sell the bonds at private sale; that there was no special statutory authority for the City Commission to sell such bonds to their agent, advisor or employee, and if the agent entered into negotiations to purchase the said bonds from the City, then the agent, advisor and employee, as the representative of the City, would be under a duty and obligation to sell the bonds at...