Flanagan v. Drainage District No. 17

• Decision Date: 30 January 1928
• Docket Number: 149
• Citation: 2 S.W.2d 70,176 Ark. 31
• Parties: FLANAGAN v. DRAINAGE DISTRICT No. 17
• Court: Arkansas Supreme Court

2 S.W.2d 70

176 Ark. 31

FLANAGAN v. DRAINAGE DISTRICT No. 17

No. 149

Supreme Court of Arkansas

January 30, 1928

Appeal from Mississippi Chancery Court, Chickasawba District; J. M Futrell, Chancellor; affirmed.

Decree affirmed.

J. T Coston, for appellant.

Trieber & Lasley and Coleman & Riddick, for appellee.

OPINION

WOOD, J.

Drainage District No. 17 in Mississippi County, Arkansas, was a very large district, created by act No. 103 of the Acts of 1917, p. 485. The plans of the district showed that it would require many drains or ditches to complete the project. Among these was a ditch or drain designated as Improvement No. 48, which hereafter, for convenience, will be so called, which would drain approximately seventy thousand acres of the district.

On the 15th of July, 1920, a contract was entered into by one J. T. Flanagan and District No. 17 for the construction of improvement No. 48 as called for by the plans. On February 8, 1921, Flanagan assigned the contract to the Harding Construction Company, a Minnesota corporation, and on the same day the Harding Construction Company in turn assigned a two-thirds interest in the contract to Andrew and Toleff Jacobson, and they in turn conveyed a one-sixth interest in the contract to J. O. and A. G. Shuland. On the 10th of October, 1921, after Flanagan had done considerable clearing on the right-of-way under the contract, and was ready to commence excavation, he was notified by the directors of the district that his contract would not be carried out by the district.

In December, 1920, J. R. McGibbon entered into a contract to purchase $ 450,000 worth of the bonds of the district. John R. McGibbon was manager of the Northwestern Mortgage & Security Company of Fargo, North Dakota, which the Jacobsons controlled. The contract for the purchase of the bonds was in his name, but he was buying the bonds for the company he was managing. On November 7, 1921, Baker and Shepherd, two landowners in the drainage district, filed a bill in the chancery court of Mississippi County against Flanagan and his associates and McGibbon and his associates, and later filed an amended complaint in which it was alleged:

That Flanagan was in reality the purchaser of the bonds, and that the two contracts were let at one and the same time, one being the consideration for the other; (2) that the construction contract was let privately, for an exorbitant price, without competition; (3) that an error of two feet was made in establishing the levels of Improvement No. 48; (4) that, on account of said error, Improvement District No. 48 would not give the relief intended to be given to the landowners; and (5) that, if the plans were changed so as to construct Improvement No. 48 deep enough to give the relief intended, it would be so deep that it could not be maintained, owing to quicksand and other defects in the soil.

The complaint and amended complaint both concluded with a prayer for the cancellation of both contracts, and that Flanagan be enjoined from attempting to enforce his contract, and that some sum be fixed by this court, to be deposited with the court by Drainage District No. 17, to protect the same J. T. Flanagan in any judgment for damages that he may secure in this cause for breach of said contract, heretofore set-out, in the event it should be finally determined that said contract was a valid obligation on the part of said Drainage District No. 17. Flanagan and his associates and McGibbon and his associates filed an answer, denying all charges of fraud and irregularity in letting the contracts, and embodied in the answer a cross-bill against the district, concluding with a prayer for an injunction enjoining the district from annulling its contract. Later an amendment was filed by the defendants to their cross-complaint, in which they reaffirmed the allegations of the original cross-complaint and alleged that the district had abrogated its contract with Flanagan and had repudiated its contract with McGibbon for the sale of $ 450,000 worth of the bonds of the district, and had sold and delivered these bonds to other parties; that, if Flanagan and his associates had been allowed to perform the contract, they would have realized a profit of $ 300,000 net, and if McGibbon and his associates had been allowed to purchase the bonds in accordance with the provision of his contract, they would have realized a net profit of $ 75,000. McGibbon and his associates therefore prayed judgment in that sum against the district for a violation of the contract for the sale of bonds to McGibbon, and Flanagan and his associates prayed judgment in the sum of $ 300,000 for the violation of the construction contract with the district for the construction of Improvement No. 48.

The district answered the complaint of the plaintiff, admitted its allegations, and denied the allegations of the cross-complaint, and prayed for cancellation of the construction and bond contracts.

Issues were joined by a denial by the defendants of the allegations of the amendments to the amended or supplemental complaint of the plaintiffs, except the district admitted, as stated, the allegations of the complaint, and denied the allegations of the cross-complaint; and there was also an answer of the plaintiffs to the allegations of the cross-complaint and amended cross-complaint, in which the allegations of these pleadings were denied.

On November 7, 1921, a temporary injunction was issued restraining the district, its commissioners and Flanagan from carrying out the provisions of the contract for the construction of Improvement No. 48, and restraining the district from paying to Flanagan any sum of money in settlement or adjustment, as damages, for the breach of such contract, and restraining Flanagan, his agents, attorneys and employees, from instituting any separate action seeking to recover damages from the district, or to interfere or prevent the district from selling or delivering the bonds.

A large volume of testimony was taken, fully developing the facts on the issues joined.

On September 24, 1923, the chancery court of Mississippi County, through its chancellor, J. M. Futrell, rendered the following decree:

"This cause coming on for final hearing, come all of the above-named parties by their respective solicitors, and the cause is submitted to the court on the pleadings filed therein, with the exhibits thereto, and on the depositions of the witnesses filed in this cause, with the exhibits thereto and the court, after argument of counsel, being well and sufficiently advised in the premises, finds that the contract entered into by and between J. T. Flanagan and the board of directors of Drainage District No. 17 of Mississippi County, Arkansas, dated July 15, 1920, was a valid contract at the time it was entered into, but that Drainage District No. 17 subsequently became entitled to rescind the said contract on account of legal impossibility of performance, subject to its liability to reimburse the said J. T. Flanagan for all expense incurred by him in making the necessary preparations to perform and carry out said contract up to the date he had knowledge of the fact that the district would not permit him to carry out said contract, together with the contract price of any work done by him under the contract up to said date, and including any damages sustained by him in connection with the performance of the contract up to said date, but not including anticipated profits on materials not furnished or work done.

"Wherefore it is considered, ordered, adjudged and decreed that the injunction heretofore issued restraining the parties from carrying out the contract referred to be and the same is hereby made perpetual, and that the cross-complainants, J. T. Flanagan, J. R. McGibbon, Toleff Jacobson, Andrew Jacobson, J. O. Shuland, A. G. Shuland and Harding Construction Company, have and recover of and from Drainage District No. 17 of Mississippi County the contract price for all work actually done by them in performance of the contract referred to up to the time the said J. T. Flanagan had knowledge of the fact that the drainage district would not permit the said contract to be carried out, together with all expenses necessarily incurred by said parties preparing to carry out and perform said contract prior to the time referred to, including any damages sustained by them in performance of said contract up to said time, the amount of the recovery to be determined hereafter by the court or by the master to be appointed by the court; it is further ordered that such amount shall be determined from the evidence already submitted in the cause, and from such additional evidence and testimony as the parties may see fit to produce on such issue, and jurisdiction of this suit is hereby retained until such issue is finally disposed of.

"The question of liability as between John R. McGibbon, Toleff Jacobson and Andrew Jacobson on the one side, and Drainage District No. 17 on the other, on the contract for the purchase of $ 450,000 of the district bonds at par, and the damages, if any, for the failure to carry out said contract, is reserved for future decision. The question of costs is also reserved for future decision.

"Archer Wheatley, Esq., is hereby appointed special master in this cause, and the issue noted above is hereby referred to him. He is hereby given the usual powers of a master, and is directed to ascertain and determine the facts with reference to said issue, and to report his findings of facts to the next term of this court, or either to the chancellor in vacation, if possible.

"The question of the liability of J. T. Flanagan and the other cross-complainants for interest on the $ 100,000 of the district's...