Duff v. Knott County

• Decision Date: 17 March 1931
• Citation: 238 Ky. 71,36 S.W.2d 870
• Parties: DUFF v. KNOTT COUNTY.
• Court: Kentucky Court of Appeals

36 S.W.2d 870

238 Ky. 71

DUFF v. KNOTT COUNTY.

Court of Appeals of Kentucky

March 17, 1931

Appeal from Circuit Court, Fayette County.

Action by Knott County against C. E. Duff. Judgment for plaintiff and defendant appeals.

Affirmed.

A. F Byrd and Wallace Muir, both of Lexington, and Scott E. Duff of Frankfort, for appellant.

John S Carroll and Carroll & Carroll, all of Frankfort, and J. E. Perkins, of Hindman, for appellee.

WILLIS J.

Knott county recovered a judgment for $7,700 against C. E. Duff, and he has prosecuted an appeal for the purpose of procuring its reversal. The judgment was rendered upon the pleadings, and the facts alleged require recitation in order that the questions presented may be understood.

The people of Knott county voted in favor of a bond issue of $200,000 for road and bridge purposes. The first effort to sell the bonds was unsuccessful. On a second call for bids, Duff submitted a bid and condition consisting of two separate sheets.

The first sheet was an offer to pay par for the bonds, plus a premium of $100. It was dated, signed, and appeared upon its face to be complete. The acceptance and approval of the fiscal court was indorsed thereon and signed by the county judge and the county clerk. Annexed to the bid and stated to be a condition avoiding it if not also accepted was a proposition that the fiscal court should allow the bidder $7,700 to cover attorney fees, cost of blank bonds, and other expenses in connection with the transaction, to be paid in New York funds simultaneously with the delivery of the bonds. It provided further that Duff was to furnish for the county a bank acceptable to it that would carry its funds during the construction of the roads and pay 4 per cent. interest on daily balances, to be calculated according to a plan stated in the proposition. Duff agreed also to pay the expenses of a committee of the fiscal court, with power to enter into a contract, to accompany him to the banks. He further agreed to furnish, at his own expense, a complete transcript of the proceedings. The second sheet was likewise indorsed, accepted, and approved by the fiscal court and signed by the county judge and clerk. The bid or first sheet, contained no reference to the condition contained in the second sheet, but the latter referred to the first sheet as "my bid hereto attached *** conditioned as follows: one part being void without the other, is that you are to allow me the sum of $7,700 for attorney fees, blank bonds and other expenses in connection with the transaction." On the same day the bid is dated, the fiscal court entered an order to the effect "that the bid of C. E. Duff be accepted," and that order is signed by the county judge and four justices, constituting the entire fiscal court, with the exception of one justice, who voted to accept the bid of Duff but did not sign the order. No reference to the condition annexed to the bid was made by the order.

Within a month, however, an order was entered by the fiscal court to the effect that "H. A. Smith" be allowed the sum of $7,700 for legal and professional services in connection with the $200,000 bond issue, which sum was ordered to be paid by the county treasurer from the road and bridge funds of the county.

Shortly thereafter the fiscal court, then composed of a new set of magistrates and another county judge, entered an order directing a suit to be brought to recover the $7,700. the petition, filed on April 1, 1926, alleged that the "H. A. Smith" mentioned in the order was not a real person, but a fictitious name, and that the money was appropriated for the benefit of the defendant, Duff, who had received and accepted it. It was alleged in the petition that there was no consideration for the payment or appropriation of the money, and that it was paid to Duff without right or authority of law.

After some preliminary motions were disposed of, Duff filed an answer admitting that he had received the money, but justifying it upon several grounds:

(1) He averred that it was the duty of the fiscal court to pay for the printing of the bonds, for the opinion of an attorney acceptable to bond buyers respecting the legality thereof, and for incidental expenses in connection with the sale of the bonds, and it had the right to pay the buyer of the bonds an amount sufficient to provide things the fiscal court was authorized to furnish. Duff denied any knowledge of the order respecting the fictitious appropriation to "H. A. Smith," and averred that the money was paid to him in accordance with the written conditions of his bid.

(2) He alleged further that he was not a real bidder for the bonds, or the buyer thereof, but acted merely as an agent of the fiscal court in negotiating a sale of the bonds, and in securing banking facilities, for which services he was entitled to compensation, together with reimbursement for expenses, all of which the fiscal court was authorized to pay, and undertook to provide in the manner mentioned.

(3) He insisted finally that the county could not rescind the transaction in part and maintain it in part, and, having accepted, kept, and used the bond money and services of appellant, it could not repudiate the contract and recover the payment. A further contention is made that the whole transaction was ratified after the event, and that such ratification embraced the payment to Duff, and estopped the county from reclaiming the money paid to Duff as an integral part of the deal.

Kentucky Statutes, § 4307, provides that bonds of the character in question shall be sold "at not less than par value and accrued interest." The limitation refers to the selling price of the bonds, and does not mean that the fiscal court may not do such things or incur such expense, as may be customary and reasonable in preparing, issuing, and selling the bonds. The power to sell implies the right to do all the things necessary to bring about a sale. Such implied power may, under some circumstances, include the right to employ brokers and to pay them a reasonable commission to effect the sale of county road bonds. Crick v. Rash, 190 Ky. 820. 229 S.W. 63.

But that question is not the one presented by the allegations of the answer as amended. The fiscal court of Knott county did not purport to employ or pay an agent or broker. No such order of the court is exhibited, and the court is authorized by law to speak only by its orders, duly authenticated. Kentucky Statutes, §§ 1838, 1842, 1843; Fox v. Lantrip, 162 Ky. 178, 172 S.W. 133; Riddell v. Boone County, 183 Ky. 77, 208 S.W. 323; McKechnie v. Canada, 198 Ky. 807, 250 S.W. 111; Conrad v. Pendleton County, 209 Ky. 526, 273 S.W. 57; Vanzant v. Watson, 230 Ky. 316, 19 S.W.2d 994.

The asserted agency is incompatible with the relationship of seller and buyer of bonds manifested by the orders of the court and the other written documents. 2 C.J. p. 712, § 367; Kilbourn v. Sunderland, 130 U.S. 505, 9 S.Ct. 594, 32 L.Ed. 1005; Donovan v. Campion (C. C. A.) 85 F. 71; Ferguson v. Gooch, 94 Va. 1, 26 S.E. 397, 40 L. R. A. 234.

"The true test is whether the agent owes fidelity to each party to the contract, and has a discretion to exercise for either party, in a matter where there is a conflict of interest between the two principals, so that a strain might be placed upon the probity of the agent, and he might be under temptation to betray or neglect the interests of one of the parties." Manchester Fire Ins. Co. v. Insurance Co. of Illinois, 91 Ill.App. 609.

The relation of buyer and seller in its very nature contradicts the theory of agency, which implies trust, confidence, and fidelity to the interests of the principal. In re Whelen's Appeal, 108 Pa. 165, 1 A. 88. It is plain, therefore, that the answer as amended presented no defense for Duff in so far as the alleged agency was concerned.

It is true that a fiscal court may ratify and confirm any contract it might have made in the first instance. Estill County v. Wallace, 219 Ky. 174, 292 S.W. 816; Commonwealth v. Scarborough, 148 Ky. 561, 147 S.W. 31; Flowers v. Logan County, 138 Ky. 59, 127 S.W. 512, 137 Am. St. Rep. 347; J. I. Case Threshing Machine Co. v. Com., 177 Ky. 454, 197 S.W. 940.

But a ratification, to be effective, as will be seen from the cases cited, must be made in the same manner and with the same formality that is required to bind the county in entering into a contract within its authority. The ratification must be by an order unequivocal in character and duly entered and signed in the manner directed by the statutes governing the action of fiscal courts. No such record is pleaded. The order appropriating the $7,700 is made to a fictitious person, contains no reference to Mr. Duff, and he does not rely upon it in any respect. The sole basis for the payment to Duff was the conditional contract annexed to his bid for the bonds, and, so far as shown, that instrument is not mentioned or described in any order of the fiscal court.

In so far as a rescission is concerned, it is sufficient to say that neither party sought such relief. The county rested its right to a recovery upon the ground that the payment to Duff was unauthorized by law, or any valid orders of the fiscal court, whilst Duff justifies his retention of the money upon the ground that its payment to him was provided for by the conditions accompanying his bid for the purchase of the bonds.

Thus we are brought to the vital question presented by the pleadings whether the fiscal court, in concluding a sale of road bonds under section 4307, Kentucky Statutes, may allow the buyer a deduction from the purchase price to cover the cost of printing the bonds, to procure an opinion of counsel, and to provide for the payment of necessary incidental...