230 Wis. 1 | Wis. | 1939
The facts are in the main undisputed. Bloomer is a city of the fourth class located in Chippewa county. . Plaintiff is mayor of the city and is a taxpayer. Defendants Kitch, Schlenk, and Schmidmayr were members of the city council and with Harry Reetz, a brother of plaintiff, constituted the common council of the city. Defendant F. C. Dutton was city clerk, and A. J. Prueher was the city attorney. The action questions the propriety of the purchase by the city of a bank building for use as a city hall and general utility office. The city of Bloomer owns and operates a municipal electric and water plant. The plant was operated by the city council and not by a board of commissioners. The Bank of Bloomer and the Peoples State Bank each owned separate banking houses in the city of Bloomer. They were consolidated and the building occupied by the Peoples State Bank was vacant and for sale at the time here involved. In the meantime, the Peoples State Bank had become delinquent and gone through a reorganization, whereby its doubt
Plaintiff’s first contention is that the mayor has a right without authorization by the city council to commence an action in the name of the city against councilmen who have illegally abstracted funds from the city treasury. It is not deemed necessary to deal with this contention for the reason that plaintiff sufficiently establishes his position as a taxpayer and discloses that the council is so constituted that demand upon it for action would be futile.
We shall, therefore, proceed to an examination of the merits of plaintiff’s contention that the contract in question was void, and that the disbursement involved in the purchase constituted an illegal disbursement of public moneys made under such circumstances as to fix upon defendants a personal liability to reimburse the public treasury. On the supposition that the council was acting as a utilities board, plaintiff contends that the transaction was void viewed from the standpoint of the utility law. Attention of the court is first directed by plaintiff to the fact that the Bloomer utilities were managed by the common council in violation of sec. 66.06 (10) (a), Stats., which provides that in cities of the fourth class owning a public utility, the council shall provide for a nonpartisan management thereof and create for each utility a board of commissioners. It was held in Rice Lake v. United States F. & G. Co. 216 Wis. 1, 255 N. W. 130, that under sec. 66.06 (10) (g) a city of the fourth class might provide for operation of its utilities by the board of public works, and that under sec. 62.14 (1) the council might abolish the board of public works and assume the duties themselves. The city of Bloomer made no attempt, so far as the record discloses, to follow the statutory procedure, and apparently assumed the management without any ceremony.
The next objection is that the purchase of the building by the city in its proprietary capacity as owner and operator of a public utility was void, (1) because the sinking-fund requirements and other reserves required by sec. 66.06 (11) (c), Stats., had not been set up or any attempt made to comply with sec. 66.06 (9) (b) 3; and (2) because real estate may not properly be the subject of investment by a municipal utility under the provisions of the same section.
Sec. 66.06 (11) (c), Stats., provides:
“The income of a public utility owned by a municipality, shall first be used to meet operation, maintenance, depreciation, interest, and sinking-fund requirements, local and school-tax equivalents, additions and improvements, and other necessary disbursements or indebtedness. Income in excess of these requirements may be used to purchase and hold interest-bearing bonds, issued for the acquisition of the utility, or bonds issued by the United States or any municipal corporation of this state, or insurance upon the life of an officer or manager of such utility, or may be paid into the general fund.”
Sec. 66.06 (9) (b) 3, Stats., so far as material, provides:
“As accurately as possible in advance, said board or council shall by ordinance fix and determine: (a) The proportion of the revenues of such public utility which shall be neces*9 sary for the reasonable and proper operation and maintenance thereof; (b) the proportion of the said revenues which shall be set aside as a proper and adequate depreciation fund.”
The last section was never complied with by the enactment of an ordinance, and in fact there was no formal compliance with either section. The evidence, however, quite satisfactorily establishes that the utilities had on hand enough funds in excess of requirements properly to qualify it under sec. 66.06 (11) (c), Stats., to make investments or h> pay into the general fund of the city a larger sum than is involved here. There is, then, a failure of the council to satisfy certain formal requirements of the sections heretofore quoted with respect- to determining and setting up formally reserves for maintenance and depreciation. On the other hand is the unquestioned fact that income in excess of these requirements was at hand, and under these circumstances the investment of the funds, or the paying of the funds into' the general fund of the city, could not be considered as so substantially illegal and improper as to visit upon the members of the council and the clerk a personal liability. The power tO' act was present, and the failure was formal in character. The objection that the investment of the surpluses in real estate is not within the permission of sec. 66.06 (11) (c) presents some difficulties. Literally, the objection is well founded. There is no authorization for such an investment. It is necessary, however, to consider the objection in connection with the other facts of the case in order to ascertain whether the board acted substantially without authority or whether it merely failed to adopt the proper form or procedure to carry out its undoubted powers. Resolution No. 188,- which followed the resolution in question, indicates what the council really intended to accomplish by this transaction. Reference to the resolution indicates that what was
It is convenient at this point to consider in their bearing upon the present case the Chippewa Bridge Case, supra, and also Wilcox v. Porth, 154 Wis. 422, 424, 143 N. W. 165, and Neacy v. Drew, 176 Wis. 348, 354, 187 N. W. 218. In the Chippewa Bridge Case the action was to restrain an unlawful use of public funds. Plaintiff there was a private corporation operating, a toll bridge. One of the defendants was city treasurer, another was city clerk, and another the American Bridge Company, a foreign corporation. The other defendants were copartners doing business under the name of Business Men’s League. The city had authority to
“The learned trial court found that the parties concerned in making the contracts in question acted in the utmost good faith. In one aspect of the matter that is probably correct. The officers doubtless had no other motive than to secure for their city a bridge as cheaply as possible. In that sense a public officer may act in good faith and yet be a wilful lawbreaker and guilty of a fraudulent appropriation of the people’s money. If such officers, knowingly or wilfully use such money contrary to- law, but otherwise to accomplish a legitimate municipal purpose in a legal sense, they are guilty of acting in bad faith, and of an actionable misappropriation of such money regardless of their good intentions. It will not do to allow such officers to escape responsibility in such cases because, though they broke the law, they acted in good faith. The law does not permit that, yet such species of good faith is one of the most common defenses insisted upon in cases of this kind. In view of the evidence showing that the money obtained tO' procure the bridge was taken from the public treasury, put into private hands, and shifted about to the end that it might be thereby removed beyond the control of the court in the taxpayer’s suit to prevent its being legally paid out, it is quite evident that the parties concerned*12 were apprehensive that their proceedings would not successfully bear the test of judicial investig-ation. Their conduct strongly tends to- show a willingness at least to disregard the charter restrictions upon their conduct, so far as such restrictions interfered with their own notions of how to obtain the bridge to the best advantage. That, properly speaking, was bad faith, however free the parties were from any conscious purpose to breák the law. It is far too frequent that officers of minor public corporations attempt to 'justify infidelity to the duties of their positions by the plea that the way they chose to accomplish legitimate ends was better than the one provided by law, so that there was no real loss to the public. Such attempts are generally, and of course must necessarily be, futile. Mueller v. Eau Claire County, 108 Wis. 304, 84 N. W. 430; Frederick v. Douglas County, 96 Wis. 411, 71 N. W. 798; Northern T. Co. v. Snyder, 113 Wis. 516, 89 N. W. 460.”
In Wilcox v. Porth, supra, which was a taxpayer’s action to recover from the defendants $734 for the benefit of the city on the ground that the money was unlawfully paid out of the funds of the city, it was alleged that the city entered into a contract with the defendant Hill for the pavement of part of one of the city streets with asphalt, and that Hill as such contractor agreed to provisions that required inspection by him to ascertain that every item of the contract was completed and all defects made good, followed by a sworn statement to this effect, in addition to- a favorable report of the city engineer before the work “will be accepted by the committee on streets and bridges.” This affidavit and engineer’s report were not filed with the city on July 7, 1911. On this day, however, the report of the street and bridge committee was filed with the common council stating in effect that Hill had completed the contract and recommending the approval of the work and the issuance of certificates and bonds pursuant to- the agreement. The council ultimately adopted the report and directed the payment. The answer
In Neacy v. Drew, supra, the action was by plaintiff, a taxpayer of the city of Milwaukee, to^ recover from the defendants for the benefit of the city the sum of $155,204.62, paid by the city of Milwaukee through its officers to the defendant Universal Concrete Products Company upon a contract entered into between the city and the products company which contract was claimed to be void. The question presented by the defendant in that case was, “Can the money paid by the city in good faith for the lighting posts which the concrete company has delivered over a period of five years be recovered from the concrete company and the city officers ?” This court gave an affirmative answer to^ the question. The case arose on demurrer, and the allegations of the complaint were construed as charging bad faith. The conclusion of bad faith was based on the fact that the commissioner of public works acted in setting aside bids in direct violation of the charter provisions of the city of Milwaukee, and that by adjusting the specifications for lighting posts,
We conclude that the doctrines of the Chippewa Bridge, Wilcox, and Neacy Cases are not applicable to the foregoing objections. Here the council acting as a utility board by simply revising the formal procedures could have accomplished what evidently it was their purpose to accomplish. The purpose was lawful and the means, while irregular, are not specifically prohibited. As is usually the case where city officials neglect to follow orderly procedures, confusion arose, and the distinction between the city as proprietor of a utility and as a unit of government was lost sight of. The situation is not analogous to1 cases where contracts have been let without demanding bids. There the statutes prohibit any contract being let except in the manner prescribed by statute. Here there is no- violation of any substantial statutory policy, and the- confusion of identity between the utilities and the city may well, as found by the trial court, have lacked the quality of wilfulness and bad faith. It is difficult to suppose that in a situation where a quite simple change in formal procedure would have accomplished the purpose lawfully there was bad faith such as is dealt with in the Chippewa, Wilcox, and Neacy Cases. We think that personal liability of the defendants cannot be predicated upon any of the foregoing objections.
“Any town, village or city may construct, acquire or lease any plant and equipment located within or without the municipality.”
The argument of plaintiff is that the referendum was necessary, and that the adverse vote upon the referendum concluded the council. The answer to this is that the resolution directing purchase of the city hall does not purport to purchase equipment but to make an investment, and if the resolution is to be taken at its face value, it does not constitute the purchase of plant or equipment, and the referendum is neither required to be held nor binding if the vote is adverse to the purchase. If the substance of the resolution is to be taken, its purpose was to pay a debt of the utilities to the city, not to purchase plant or equipment. In the same class belongs the objection that the approval of the public service commission was not obtained. Sec. 196.49 (2), Stats., so far as material, reads as follows:
“No public utility shall begin the construction, installation or operation of any new plant, equipment, property or facility, nor the construction or installation of any extension, improvement or addition to its existing plant, equipment, property, apparatus or facilities unless and until it shall have complied with any applicable general or special order of the commission.”
This section does not apply to investments or to payment of debts of the municipal utility.
It is next objected that the resolution in question was not effective until presented to the mayor for his approval or veto, and that this resolution was never properly certified or presented for this purpose. Sec. 62.09 (8) (c) contains the familiar description of the veto power, and provides that
We now come to the most important objection to- the transaction in question. It is contended that the contract with the bank was void because it constituted a violation of secs. 348.28 and 62.09 (7) (d), Stats. So far as material, these sections read as follows:
348.28 “Any officer, agent or clerk of the state or of any county, town, school district, school board or city therein, or in the employment thereof, . . . who- shall have, reserve or acquire any pecuniary interest, directly or indirectly, present or prospective, absolute or conditional, in any way or manner, in any purchase or sale of any personal or real property or'thing in action, or in any contract, proposal or bid in relation to the same, or in relation to any public service, or in any tax sale, tax title, bill of sale, deed, mortgage, cer*17 tificate, account, order, warrant or receipt made by, to or with him in his official capacity, or employment, or in any public or official service, or who shall make any contract or pledge, or contract any indebtedness or liability, or do any other act in his official capacity, or in any public or official service not authorized or required by law, . . . shall be punished by imprisonment in the county jail not more than one year, or in the state prison not more than five years, or by fine not exceeding five hundred dollars. . . . Any contract, to which the state or any county, city, village, town, school board or school district is a party, entered into in violation of the provisions of this section, shall be absolutely null and void and the state, county, city, village, town, school board or school district shall incur no liability whatever thereon.”
62.09 (7) (d) “No city officer shall be interested, directly or indirectly, in any improvement or contract to' which the city is a party, and whenever it shall appear that such is the case such contract shall be absolutely null and void and the city shall incur no liability whatever thereon.”
The facts applicable to this contention are that each of the defendant council members, Kitch, Schlenk, and Schmid-mayr, are owners and holders of trust certificates in the segregated trust created upon the reorganization of the Peoples State Bank, and the defendant Dutton, city clerk, is a stockholder as well as the holder of trust certificates of this bank. It is contended that these interests are enough tO' disqualify the members of the council from voting, and the city clerk from taking any part or acting for the city in any respect to the execution of this contract, that upon this branch of the case there could not be a good-faith violation of the statute, and that moneys disbursed upon a contract void for this reason must necessarily be recoverable from those who participated in the violation of the malfeasance statute. We do not deem the ownership of the trust certificates a circumstance sufficient to disqualify the council members from voting upon this acquisition. They were merely depositors of the bank
“It is understood that the reorganized bank shall have the privilege of purchasing at any time at the value thereof, any of the assets so segregated, and to substitute therefor any of the loans which shall have been taken over by the reorganized bank.”
It is contended that this gave the bank the power' to trade assets with the segregated trust at the will of the directors and officers of the bank. We do not so construe it. The bank is permitted to purchase any of the assets in the segregated trust. That clearly has ím application to1 the present situation. It may substitute for loans in the segregated trust loans that were taken over by the reorganized bank, and clearly this has no reference to' the building. We see no possibility under this agreement of transferring the bank building to the segregated trust. Under these conditions, the trust-certificate holders have no interest in its purchase or sale, and are not within the disqualification set forth in sec! 348.28, Stats.
Not so the city clerk, however. He was a stockholder in the bank, and this court has held many times that the stockholder in a corporation has such an interest as will disqualify him from acting on behalf of a city or other governmental unit. Bissell L. Co. v. Northwestern C. & S. Co. 189 Wis. 343, 207 N. W. 697; Swiss v. United States Nat. Bank, 196 Wis. 171, 218 N. W. 842; Washington County v. Groth, 198 Wis. 56, 223 N. W. 575.
“A city attorney or a city engineer not elected but appointed by the city council, might be held not tO' be an officer in the sense stated, but in giving advice or passing upon the legal aspects or the engineering features involved, would be acting for the city and as the agent of the city in determining in respect to those matters and would, it would seem, be covered by the statute.”
In this case J. G. Prueher, not a defendant here, was city attorney and acted for the city, first, in advising the mayor that he must put the resolution of purchase, and, second, in drawing the papers to carry out the transaction. This is not of particular importance here because Mr. Prueher was not made a party. It appears of record tha.t W. E. Kitch, city treasurer, was a stockholder of the bank, and that he responded to the warrant and permitted the withdrawal of the
Defendant Dutton, the city clerk, also acted for the city. He performed the usual function of a city clerk with respect to the resolutions and actually drew the warrant for the disbursement of the purchase price. Being a party, it is necessary to consider the consequences of his participation. We see no escape from the conclusion that the transaction was wholly void because of the participation in it of officers acting for the city who had a disqualifying interest under the statutes heretofore referred to. As a consequence there has been an illegal disbursement of public funds upon a wholly void contract. The members oí the common council not being disqualified, and there being no evidence of knowledge on their part of the disqualification of the city clerk and city attorney, they cannot be regarded as participating in an illegal act. On the other hand, it is evident that defendant Dutton sustains a personal liability. The trial court held that the defendants all acted in good faith, and the question is whether, as related to the city clerk, this finding may be upheld and the case thus taken out of the rule of the Chippewa Bridge Case. It appears to us that there is no avoiding the conclusion that the action of the city clerk was not in good faith. In the case of Shulse v. Maryville, 223 Wis. 624, 271 N. W. 643, we referred to good-faith violations of regulatory statutes which would be effective to excuse defendants from making reimbursement to public treasuries. We find
In Arbuthnot v. Kelley, 165 Wis. 362, 162 N. W. 168, a town chairman sold articles to the town which were useful to the town, and the sales saved the town considerable inconvenience. The sales were alleged to have been made in good faith without solicitation, and the articles were either consumed or so placed that they could not be restored. The trial court absolved the defendant from liability because of his good faith. This court said in reversing this judgment (p. 363):
“There cannot be such a thing as excusable violation of the criminal statute, such as the one involved here, on the ground of good faith or fatal laches, short of the limitation of the written law, as to remedies for the wrong. If good faith, or mere delay, as in this case, in resorting to a remedy, could be invoked to, in effect, change the title to money illegally obtained from a municipality therefrom to the wrongdoer, the legislative policy embodied in the written law could be easily set at naught by judicial administration. The remedy invoked here, while of an equitable nature, as regards appellant, is to enforce a legal liability to the town. The wrong which afforded appellant such a remedy, was the failure of the public officers to perform their duty.”
By reason of the foregoing, we are compelled to conclude that the defendant city clerk is liable to reimburse the city of Bloomer for the amount illegally disbursed by him in violation of sec. 348.28, Stats. It is earnestly contended that the proper action of the city in this case should have been one to rescind the transaction, and that the bank should have been made a party so that unjust enrichment of the city and such hardship as is involved in the enforced reimbursement of the city by defendants or any of them might be avoided. Under the doctrine of the Chippewa Bridge Case this argument has no merit. The responsibility of those who participated in
“Parties illegally obtaining public money, and officers who are guilty participants in the matter, are liable at the suit of a taxpayer for the restoration thereof to the proper custodian of the same. The unfaithful officers who may be the instruments in taking the money from where it belonged and placing the same where it does not belong are just as liable as the persons who' are enriched by the transaction. It is only by making the former liable, with or without being joined with the latter, that the public treasury can be efficiently guarded.”
It is apparent from this that the mere fact that the city clerk is the only person made defendant in this case, whereas it appears that perhaps his liability was shared by other city officers, is of no consequence. However, in view of the fact that the city in its brief consents that the judgment of this court requiring reimbursement of the city treasury be conditioned upon the execution of the deed by the city conveying the bank property to the persons required to- make restitution, we think it not inequitable that the judgment take this form.
By the Court. — Judgment affirmed so far as it dismisses plaintiff’s action against defendants Kitch, Schlenk, and Schmidmayr. Judgment reversed in so far as it dismisses action against F. C. Dutton, and cause remanded with directions to enter judgment against defendant Dutton in accordance with the demands of the complaint, upon condition that the city of Bloomer execute to the said F. C. Dutton a quitclaim deed of the bank premises here involved. Plaintiff to have costs against defendant F. C. Dutton.