Fergus County v. Osweiler

• Decision Date: 31 December 1938
• Docket Number: 7815.
• Citation: 86 P.2d 410,107 Mont. 466
• Parties: FERGUS COUNTY v. OSWEILER.
• Court: Montana Supreme Court

86 P.2d 410

107 Mont. 466

FERGUS COUNTY v. OSWEILER.

No. 7815.

Supreme Court of Montana

December 31, 1938

Rehearing Denied Jan. 28, 1939.

Appeal from District Court, Tenth Judicial District, Fergus County Wm. L. Ford, Judge.

Action on a note by Fergus County against Peter J. Osweiler. Judgment for plaintiff, and defendant appeals.

Affirmed.

H Leonard DeKalb and Oscar O. Mueller, both of Lewistown, for appellant.

J. E McKenna and Aaron R. Shull, both of Lewistown, and Harrison J. Freebourn, of Helena, for respondent.

ANGSTMAN Justice.

The First National Bank of Fergus County became insolvent and suspended business December 10, 1923. It had on deposit at that time funds of Fergus county of approximately $700,000 secured by a depository bond executed by a number of individuals, of whom defendant was one. His liability on the bond was expressly limited to $30,000. Through moneys received from the receiver and property turned over by the bank, the liability of the bondsmen was reduced by 62%, leaving 38% still due. The county commissioners then adopted a resolution purporting to release any bondsmen who would pay to the county a sum in cash equal to 38% of his bond liability, or, in lieu of cash payment, upon such bondsmen giving a promissory note for such sum upon such terms and conditions and security as would be satisfactory to the county. Pursuant to that resolution defendant was requested to, and did on September 11, 1928, sign a promissory note in the sum of $11,400, payable May 1, 1932, bearing two per cent. interest until maturity, and eight per cent. thereafter. Thereafter defendant paid $400 on the principal of the note, and paid the interest up to December 31, 1929.

This action was brought to recover on the note. The defense asserted is that the note was based upon an illegal and void consideration, in that it was an attempt to postpone an obligation or liability contrary to the provisions of section 39, Article 5 of the Constitution. It was also alleged that no action was ever brought on the bond, and that action thereon is now barred by section 9029, Revised Codes. The reply in effect alleges that defendant is estopped from asserting the defense relied on.

The cause was tried to the court without a jury. The court found for plaintiff, and defendant has appealed from the judgment.

The court found that section 39, Article 5 of the Constitution, has no application to the facts of this case and that, if that section did apply, defendant is not estopped from setting up the illegality of the note. If the conclusion of the trial court is correct, then the judgment must be affirmed, even though the court may not have given the correct reason for its conclusion. Whitcomb v. Beyerlein, 84 Mont. 470, 276 P. 430; Dubie v. Batani, 97 Mont. 468, 37 P.2d 662.

Section 39 of Article 5 provides: "No obligation or liability of any person, association or corporation, held or owned by the state, or any municipal corporation therein, shall ever be exchanged, transferred, remitted, released or postponed, or in any way diminished by the legislative assembly; nor shall such liability or obligation be extinguished, except by the payment thereof into the proper treasury."

In considering the correctness of the court's conclusion we shall assume that the taking of the note in question constituted an unlawful postponement of the obligation or liability under the bond. It will be observed that section 39 prescribes no penalty for its violation. It simply declares a policy. It does not make it unlawful for the state or a subdivision thereof to become the payee of a promissory note. It does prohibit the postponement of an obligation, and for the purpose of this case we shall consider the note in question here, which gave defendant until 1932 to pay the obligation, as coming in conflict with section 39, Article 5.

The provisions of that section are designed for the benefit of taxpayers by protection of the obligations and liabilities held or owned by the state and municipal corporations. Under the facts here, if payment on the note cannot be enforced, then no recovery can be had at all because the statute of limitations has run against the liability under the bond and the constitutional provision which was intended to protect the taxpayer will be used to defeat justice and accomplish a legal wrong. It will operate to extinguish the obligation of defendant otherwise than by payment thereof into the proper treasury, contrary to the terms of the very section of the Constitution relied upon by defendant.

While generally a party to an illegal contract will not be permitted to enforce it, yet there is an exception to the rule which has been so uniformly accepted by the courts that it is no longer regarded as an exception, but has itself become a general rule. It is...