Utah State University of Agriculture and Applied Science v. Sutro & Co.
| Decision Date | 05 May 1982 |
| Docket Number | 16276,16277,16289,16275,16286,Nos. 16274,16291,16296 and 16297,16288,16294,16295,16292,16290,16287,16278,16285,16279,s. 16274 |
| Citation | 646 P.2d 715 |
| Parties | 4 Ed. Law Rep. 1311 UTAH STATE UNIVERSITY OF AGRICULTURE AND APPLIED SCIENCE, a Utah body politic and corporate, Plaintiff and Respondent, v. SUTRO & CO.; Bear Stearns & Co.; Hornblower & Weeks-Hemphill, Noyes, Inc.; Merrill Lynch, Pierce, Fenner & Smith; Bosworth, Sullivan & Co.; and Shearson, Hammill & Co., Defendants, Third-Party Plaintiffs and Appellants, v. Phillip A. BULLEN, et al., Third-Party Defendants. |
| Court | Utah Supreme Court |
Harold G. Christensen, R. Brent Stephens, Dee V. Benson, Salt Lake City, for Bosworth.
Keith E. Taylor, Daniel M. Allred, Kathlene W. Lowe, Salt Lake City, for Sutro.
David L. Wilkinson, Atty. Gen., Salt Lake City, for USU, plaintiff and respondent.
Robert S. Campbell, Jr., H. Wayne Wadsworth, Michael F. Heyrend, Salt Lake City, John W. Morrison, David R. Melton, Chicago, Ill., Lyle W. Hillyard, Logan, Darwin Hansen, Bountiful, for third-party defendants.
These actions were brought on behalf of Utah State University of Agriculture and Applied Science (herein referred to as USU) against the five named defendants, who are brokers and dealers in stocks and securities (herein referred to as the brokers), to recover losses sustained by USU as a result of a program of investments carried on through the brokers between September, 1970, and March, 1973. The brokers denied liability, filed counterclaims and also filed third-party claims against the named USU officials and members of the USU Institutional Council (herein referred to as the Council members) seeking indemnity for any losses that may be assessed against the brokers.
Pursuant to motions, the trial court entered the following orders: denied defendants' motions to dismiss; granted USU's motion for partial summary judgment against defendant brokers, ruling that they are liable as a matter of law; and dismissed the defendants' counterclaims and their third-party actions against the Institutional Council members. This Court granted the brokers' petitions for intermediate appeal, in which these actions are combined.
In view of the fact that the rulings under attack were made by the trial court as a matter of law, without giving the brokers an opportunity to present evidence and have findings of fact made thereon, for the purpose of this review we accept their assertions as true, 1 but we expressly note that in our exposition of facts in that light we do not desire to indicate any view as to how the disputed issues of fact may be resolved upon a trial thereof.
Motivated by a desire to better manage USU's financial resources, in the summer of 1970 its Institutional Council decided upon and launched what is referred to as an "aggressive program" of investing in stocks, which led to opening accounts with the defendant brokers. It adopted resolutions authorizing dealings in stocks and securities by its vice-president, Dee A. Broadbent, and Donald A. Catron, controller. The brokers aver that it was at the request of these USU officials that they engaged in dealing in the stocks.
It is not to be questioned that the defendants, who are licensed to render service as brokers, must be deemed to have and use specialized knowledge, experience and integrity in rendering that service; and more specifically here, that they have an especially high degree of care to ascertain the authority of a trustee (plaintiff) dealing with public funds. Upon trial, there will be an issue as to what those standards are, and the extent to which the brokers discharged the high responsibilities which the law imposes upon them. The brokers contend that they discharged their duties in accordance with the standards of their business, in ascertaining the authority of USU to so invest its funds; that they requested and received the resolutions of the Council indicating such authority; that they acted in good faith upon the resolutions and assurances given to them as to the University's authority to invest its funds for its potential benefit; and that they did nothing other than "to scrupulously, fairly, and diligently carry out instructions given them" by the Council and its agents authorized for that purpose; and that in the hundreds of transactions over a period of 3 years they acted only as conduits, transferring the stocks from various principals to USU and vice versa, and only in relatively few instances were themselves principals, selling the stocks to USU.
During the first two years, while the stock market was rising, the investment program prospered and everyone concerned seemed to be happy about the situation. However, in the fall of 1972 there was a recession in the stock market and there were substantial declines in values of stocks owned by the University. In late November, 1972, during the course of an independent audit, the Attorney General was requested for an opinion as to the legality of the investments. On December 15, 1972, he issued an opinion that it was not lawful for the University to invest state funds in securities not expressly authorized in Sec. 33-1-1, U.C.A. 1953, which does not include common stocks. Acting thereon, at its next meeting in January, 1973, the Board of Higher Education instructed the USU Council by letter to liquidate all securities not expressly authorized by that statute. However, it appears that Mr. Catron did not fully comply with that mandate immediately; and that information was not officially transmitted to the brokers until March of 1973.
As a result of the losses incurred in the liquidation process, these suits were brought against the defendant brokers seeking to recoup losses running into millions of dollars on the ground that their contracts with the University had been illegal and void.
Principal among the issues raised by the brokers is their contention that the trial court erred in ruling that they could not assert estoppel against USU, a governmental institution, and that they are liable for its losses as a matter of law. They argue that this results in a grave injustice to them procedurally: it allows plaintiff USU to repudiate its representations made to them; to have the advantage of their services without compensation; to accept the benefits of the investment program and disavow the losses; then to arbitrarily impose the losses on defendant brokers; all this without giving the brokers any opportunity to prove their contentions. The brokers essay the position that their evidence will convince any fairminded trier of facts that to apply the rule that estoppel does not apply against the government would result in such obvious and serious injustice as to bring this case within the well-recognized exception to that general rule.
We have no doubt about the soundness nor the salutary purpose of the rule that estoppel generally is not assertable against the government or governmental institutions. 2 There are good and sufficient reasons for that rule, including the safeguarding of the interests of the public, which are often somewhat in hazard because of the vagaries of political tides, frequent changes of public officials, the possibility of collusion, or of circumventing procedures set up by law, then suing for the value of goods furnished or services rendered. Notwithstanding our approval of that rule, like most general rules, there are exceptions when its rigid application would defeat, rather than serve, the higher purpose that all rules are intended to serve: that of doing justice. 3 The rule is therefore applied when it will serve that purpose. But in unusual circumstances, when it is plainly apparent that its application would result in injustice, and there would be no substantial adverse effect on public policy, the courts will honor the higher purpose of doing justice by invoking the exception, rather than departing from that desired objective in slavish adherence to a general rule. 4
In addressing the question whether under any state of facts that may be found in this case the defense of estoppel may be applied, there are some observations to be made. The first is that there is a distinction to be drawn between contracts or activities which are either malum in se, or which are strictly prohibited by statute, and thus may be strongly against public policy, as compared to activities such as those of concern here which, though not authorized by law, are not inherently evil. In the former class of cases, it is quite universally held that no estoppel will lie against the government, whereas in activities which are merely ultra vires the courts are more likely to allow such a defense; and this is also true of situations when the governmental entity engages in proprietary or business activities. 5 In this case, the activities with which we are concerned were business activities. That activities such as those in question here were ultra vires has been adjudged in our case of First Equity Corp. v. Utah State University, 6 but the plaintiff's reliance on that case as squarely supporting its position here is misplaced. The holding there was that because the contract was ultra vires the broker could not enforce it, quite different from the situation confronted in this case.
Further pursuing the inquiry as to whether these contracts between plaintiff USU and the defendant brokers should be regarded as utterly illegal and void, as compared to being simply not authorized by law, it seems helpful to figuratively "try the shoe on the other foot." Suppose in an instance where a broker had made a substantial stock purchase at USU's request and held it for a few months, there had been an increase in value with a profit of say $100,000, and that the broker had refused to remit and defended on the ground that the contract was completely void. The rejection of that contention seems so obviously just as to hardly...
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