Village of Heyburn v. Security S. T. Co. , 55 Idaho 732 ( 1935 )

Respondent, Village of Heyburn, commenced this action against appellant, Security Savings and Trust Company, the owner and holder for collection, of nine funding bonds of $500 each, aggregating $4,500, appearing upon their faces to have been issued by respondent June 1, 1922, seeking to have said bonds canceled and adjudged and decreed to be void.

About June 1, 1922, respondent's officers concluded respondent was indebted on outstanding warrants in the sum of $4,813.34, exclusive of accrued interest, and for the purpose of obtaining funds with which to partially pay this warrant indebtedness issued the funding bonds in question. Ultimately the bonds were sold to five individual purchasers by Morris Brothers Corporation of Portland. Respondent paid some interest coupons on the bonds and then defaulted. The purchasers assigned the bonds, together with the unpaid coupons, to appellant and it instituted an action on June 26, 1928, against respondent village to recover the amounts due on the unpaid coupons. In that action the jury returned a general verdict for defendant, respondent herein. Thereafter, prior to the entry of judgment but after the entry of the verdict, respondent instituted the present action seeking cancelation of the bonds, pleading the substance and attaching copies of the various pleadings and the judgment in the former action instituted to recover on the unpaid coupons. Respondent further pleaded that the bonds incurred an indebtedness exceeding the income and revenue of the village for the year in which they were issued; that they were issued without the assent of two-thirds of the qualified electors voting at an election held for that purpose; that the indebtedness represented by the bonds, with the other outstanding bonds of the village, exceeded in the aggregate ten per cent of the assessed full cash valuation of the property of respondent; that the bonds were issued for the payment of illegal warrants and not for the purpose of paying any valid outstanding indebtedness of the village; that the bonds were not in the hands of or owned by an innocent purchaser, and that appellant was not a holder in due course. This cause was tried to the court, and findings of fact, conclusions of law and judgment entered in favor of respondent, from which judgment this appeal is prosecuted.

Appellant designates some 21 assignments of error, which in the interest of brevity need not be fully set forth inasmuch as appellant has pointed out that the assignments raise three general questions, an answer to which is determinative of the questions involved. These questions as stated by appellant are as follows:

1. "Does the judgment in the former action constitute an adjudication of all questions involved in this action and a determination that the bonds are invalid and that the purchasers are not holders in due course?"

2. "If the above questions are open, were the purchasers under the facts found and disclosed, holders in due course?"

3. "If invalidity of bonds and that purchasers are not holders in due course be determined, either by the judgment in the former suit or by independent proof offered in this, is not the plaintiff required to 'do equity' by returning the money received for the bonds?"

In the instant action the trial court, among other things, found and concluded that all the issues involved in this action were involved in the former action and were judicially determined in said former action in favor of respondent and against appellant; that the judgment made and entered in the former action constitutes res judicata of all the issues involved in this action and is and constitutes an estoppel by judgment against the appellant to deny or refute any and all of the issues that were involved in said action. Likewise the court found and concluded upon each of the issues involved in this action in favor of respondent and against appellant, among these the court concluding that judgment in the former action constituted an adjudication that the bonds of respondent were not legal, valid or enforceable obligations against respondent, and that the individual purchasers and appellant were not holders in due course.

The scope of the estoppel of a former judgment, when the parties are the same, depends upon whether the question arises upon the same claim or demand or upon a different claim or demand. (Tait v. Western Maryland R. Co., 289 U.S. 620,53 Sup. Ct. 706, 77 L. ed. 1405; United States v. Moser, 256 U.S. 236,241, 45 Sup. Ct. 66, 69 L. ed. 262.) While in an action between the same parties upon the same claim or demand the former adjudication concludes parties and privies as to every matter offered and received to sustain or defeat the claim and also as to every matter which might and should have been litigated in the first suit (Joyce v. Murphey Land etc. Co., 35 Idaho 549,208 P. 241; South Boise Water Co. v. McDonald, 50 Idaho 409,296 P. 591), the rule applies only where the same cause of action is sued on. (Lynn v. McCue, 94 Kan. 761, 147 P. 808.) Where the second action, between the same parties, is upon a different claim or demand, the judgment in the prior action operates as an estoppel only as to those matters which were in fact decided, and the judgment in the former action is not conclusive in the later action as to those matters which might have been decided. (Last Chance Min. Co. v. Tyler Min. Co.,157 U.S. 687, 15 Sup. Ct. 733, 39 L. ed. 859, 862; New Orleans v.Citizens' Bank, 167 U.S. 371, 17 Sup. Ct. 905, 42 L. ed. 202;Southern Pac. R. Co. v. United States, 168 U.S. 1,18 Sup. Ct. 18, 42 L. ed. 335; Russell v. Place, 94 U.S. 606,24 L. ed. 214; Forsyth v. Hammond, 166 U.S. 506, 17 Sup. Ct. 665,41 L. ed. 1095; Elgin v. Marshall, 106 U.S. 578, 1 Sup. Ct. 484;27 L. ed. 249; United States v. Moser, supra; Troxell v.Delaware L. W. R. Co., 227 U.S. 434, 33 Sup. Ct. 274,57 L.ed. 586; Mason Lumber Co. v. Buchtel, 101 U.S. 638, 25 L. ed. 1073;Virginia-Carolina Chemical Co. v. Kirvin, 215 U.S. 252, 257,30 Sup. Ct. 78, 54 L. ed. 179, 184; Fehringer v. F. H. MartinDrug Co., 56 Colo. 445, 138 P. 1007; Voyles v. Straka,77 Utah, 171, 292 P. 913; Horton v. Goodenough, 184 Cal. 451,194 P. 34; Estate of Clark, 190 Cal. 354, 212 P. 622;Cressler v. Brown, 79 Okl. 170, 192 P. 417; Scott v. Wagner,2 Kan. App. 386, 42 P. 741; 34 C. J. 8714; 15 Cal. Jur., secs. 189, 193, pp. 136, 142.) The pronouncement of the rule which is probably most frequently cited and quoted is to be found in Cromwell v. Sac County, 94 U.S. 351, 24 L. ed. 195, and is as follows:

"In considering the operation of this judgment, it should be borne in mind, as stated by counsel, that there is a difference between the effect of a judgment as a bar or estoppel against the prosecution of a second action upon the same claim or demand, and its effect as an estoppel in another action between the same parties upon a different claim or cause of action. In the former case, the judgment, if rendered upon the merits, constitutes an absolute bar to a subsequent action. It is a finality as to the claim or demand in controversy, concluding parties and those in privity with them, not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose. . . .

"But where the second action between the same parties is upon a different claim or demand, the judgment in the prior action operates as an estoppel only as to those matters in issue or points controverted, upon the determination of which the finding or verdict was rendered. In all cases, therefore, where it is sought to apply the estoppel of a judgment rendered upon one cause of action to matters arising in a suit upon a different cause of action, the inquiry must always be as to the point or question actually litigated and determined in the original action; not what might have been thus litigated and determined. Only upon such matters is the judgment conclusive in another action."

A more recent pronouncement of the rule is to be found inTait v. Western Maryland R. Co., supra, in the following language:

"The scope of the estoppel of a judgment depends upon whether the question arises in a subsequent action between the same parties upon the same claim or demand or upon a different claim or demand.

"In the former case a judgment upon the merits is an absolute bar to the subsequent action.

"In the latter the inquiry is whether the point or question to be determined in the later action is the same as that litigated and determined in the original action."

It is likewise settled law that to this operation of the judgment it must appear, either upon the face of the record or from extrinsic evidence, that the precise question was raised and determined in the former suit. (Mason v. Ruby, 35 Idaho 157,204 P. 1071; Marshall v. Underwood, 38 Idaho 464,221 P. 1105; Fehringer v. F. H. Martin Drug Co., supra; Russell v.Place, supra.)

Applying the foregoing rules to the action at bar, it appears at once that the parties in the former and present suits are identical; however, it appears that the cause and form of action in the former suit is different from the form and cause of action in the instant suit. The former was an action at law brought to recover the amount of due and unpaid coupons, — the instant action seeks to obtain a decree of a court of equity canceling bonds both due and not due, the situation being that although the parties are the same the two actions were not upon the same claim or demand and the question being: What matters were raised and determined in the former suit?

Any and all references in the pleadings in the former suit to those matters held by the trial court, and now urged, to beres judicata are to be found in the answer filed by respondent. It is there affirmatively alleged as matter of defense to the suit upon the coupons that respondent:

"Had no record of the issuance of any funding bonds . . . . or the registration thereof or of any proceeding authorizing or attempting to authorize or empower the issuance of such bonds; . . . . that if any funding bonds were issued or attempted to be issued . . . . the said bonds were not issued in accordance with law . . . .; that if any funding bonds were issued, the same were issued for the purpose of funding, refunding, purchase or redemption of warrants that were illegally and unlawfully issued by the said Village . . . . and that the said warrants so purported to be funded were not legal or valid obligations . . . . the same constituted incurring additional liability . . . . and increased the indebtedness . . . ., and the same were issued without submitting the question to the qualified electors of the said Village. . . . . That if the said bonds were issued, . . . . the same were not sold by the said Village in accordance with the provisions of the Statutes of the State of Idaho. . . . . That by reason thereof, the board of trustees . . . . were not authorized and could not legally make any valid or binding delivery of the said bonds or any part thereof."

It thus appears that in the former action at law respondent as defensive matter alleged several matters of mere defect, irregularity or infirmity in the issuance of the bonds, and some matters of illegality. In view of the fact that judgment in the former action was entered upon the verdict of a jury it would appear to be entirely logical and proper to examine the instructions upon and under which the verdict was rendered to determine what matters were presented to the jury and upon what matter the jury was required to pass in order to reach a verdict for respondent. (De Sollar v. Hanscome, 158 U.S. 216,15 Sup. Ct. 816, 34 L. ed. 956.) Instruction number 8 is the chief and controlling instruction of the court's charge to the jury with relation to the rendition of a verdict in respondent's favor, it being the only one which specifically advises the jury the essential issues it must determine in order to render a verdict for respondent. This instruction advised the jury the paramount issues it must determine, and the manner in which such issues must be determined, in order that it might render a verdict for respondent, being, in its material part, as follows:

"There are two questions for you to determine in this case: (1) Whether or not there were defects in the proceedings had in the issuance of the bonds which would render them invalid or create a defect in the title thereto. (2) Whether or not the plaintiff when it purchased said bonds had actual knowledge of such defects, if any, or knowledge of such facts that its acts in taking the bonds amounted to bad faith.

"If you find that defects in the proceedings render the bondsinvalid, or any defects of the title thereto, your verdict willbe nevertheless for the plaintiff unless you further find thatplaintiff had actual knowledge of such defects or knowledge ofsuch facts that its acts in taking the bonds amounted to badfaith. In other words, you must be satisfied by the evidence asherein elsewhere defined that both of the above questions areanswered in the affirmative before you can find for thedefendant."

There would seem to be no room for argument that in the face of the above instruction, whether it be a correct or incorrect statement of the applicable law, the jury could not reach a verdict for respondent unless it determined both that "there were defects in the proceedings had in the issuance of the bonds which would render them invalid or create a defect in the title thereto" and that when appellant's assignors "purchased said bonds (they) had actual knowledge of such defects, . . . . or knowledge of such facts that (their) acts in taking the bonds amounted to bad faith." The jury was required to answer these two issues in the affirmative before it could render a verdict in favor of respondent. Having rendered a verdict in favor of respondent it must follow that the jury determined that there were defects in the proceedings had in the issuance of the bonds which would render them invalid or create a defect in the title thereto and that the purchasers had either actual knowledge of such defects or knowledge of such facts that their acts in taking the bonds amounted to bad faith. Appellant herein, plaintiff in the former case, did not choose to appeal from the judgment or the order overruling its motion for new trial in the first action and have the questions determined in the former suit reviewed.

It has been urged that a special interrogatory submitted to and answered by the jury in the first action is out of harmony with the foregoing conclusion and the general verdict. This special interrogatory is as follows:

"Did the plaintiff or the plaintiff's Assignors, at the time of the purchase of the coupon bonds in controversy in this action, have any actual notice or knowledge that the Village of Heyburn, Idaho, claimed there were any irregularities in the issuance of the said bonds?

"ANSWER TO SPECIAL INTERROGATORY (Answer YES or NO).NO."

It is quite apparent from the record that at the time of thepurchase of the coupon bonds in controversy respondent made no claim that there were any irregularities in their issuance. Noclaim to such effect was made until some time after purchase. It also appears that the interrogatory asks only whether the purchasers had actual notice or knowledge. Appellant may or may not have had actual knowledge or notice, and yet may have had knowledge of such facts that the acts in purchasing amounted to bad faith. I. C. A., sec. 26-402, provides:

"A holder in due course is a holder who has taken the instrument under the following conditions: . . . .

"4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it."

I. C. A., sec. 26-406 provides:

"To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect or knowledge of such facts that his action in taking the instrument amounted to bad faith."

It appears that the general verdict is not inconsistent with, antagonistic to, or in irreconcilable conflict with the special interrogatory. While it is provided by statute, I. C. A., sec. 7-220, that "Where a special finding of fact is inconsistent with the general verdict, the former controls the latter, and the court must give judgment accordingly.", yet the general verdict is controlling when the special finding is not inconsistent or in irreconcilable conflict therewith. The rule stated in 64 C. J., sec. 965, p. 1179, supported by numerous cases, is as follows:

"The general verdict will stand unless it and the special findings or answers to interrogatories are clearly and absolutely irreconcilable so that both cannot stand. To be in irreconcilable conflict with the general verdict, the special answers or findings must exclude every reasonable theory, hypothesis, or conclusion which would authorize the verdict, and the conflict must be incapable, or beyond the possibility, of removal by any supposable or conceivable evidence legitimately admissible under the issues."

While the conclusion heretofore reached is that the judgment in the former case constitutes res judicata of those matters actually determined, it does not follow therefrom that the former judgment is res judicata as to every question at issue in the present case, nor does it follow therefrom that the former action constitutes res judicata upon questions which are determinative of respondent's obligation to do equity in this suit. It must be borne in mind that respondent is not defending an action to recover a judgment upon the bonds or coupons. Respondent has taken the initiative and has instituted this action to obtain a decree of a court of equity declaring the bonds to be void and canceling them. The question is: Even though the former suit determined "there were defects in the proceedings had in the issuance of the bonds which would render them invalid or create a defect in the title thereto," and that neither appellant nor the purchasers are holders in due course, can respondent, after having received the money paid for the bonds, defective in their issuance, have a cancelation of such bonds without doing equity? In other words, did the former suit determine that such a defect or invalidity existed in the issuance of the bonds which would release respondent from. doing equity? In this respect it is urged by respondent that the principle that the court in a suit in equity should require the plaintiff to do equity does not apply in this action as plaintiff is a public corporation and the bonds were issued in violation of constitutional and statutory restrictions enacted for the protection of the taxpayers of the village, and that where the invalidity is due to essential lack of power no liability is raised against the corporation. In the instant case those matters of illegality or infirmity in the issuance of the bonds, upon which respondent bases its prayer for cancelation, are to be found in paragraph 9 of its complaint, which recites as follows:

"That at the time the said bonds were issued they incurred an indebtedness exceeding the income and revenue of the plaintiff the Village of Heyburn, for the year in which they were issued; that they were issued without the assent of two-thirds of the qualified electors thereof, voting at an election to be held for that purpose; that the said indebtedness represented by said bonds, together with the other bonds of the Village of Heyburn, that were outstanding at the time the same were issued, exceeded in the aggregate ten per cent of the assessed full cash value of the real estate and personal property of said Village of Heyburn according to the assessment roll of the preceding year; that the said bonds were issued for the payment of illegal and unlawful warrants of the said Village of Heyburn, and not for the payment of any valid, existingoutstanding indebtedness of the said Village of Heyburn."

In this suit respondent relies for its proof of the above matters upon res judicata and also independent proof in the instant action. Respondent's contention again calls into question the scope of the estoppel of the former judgment; that is, Is the judgment in the former action res judicata in the instant suit upon those matters alleged in paragraph 9 above quoted? Applying the applicable rules, it does not appear that the former judgment is res judicata of any of the questions formed by the allegations of paragraph 9 of the complaint in the instant suit; it does not appear, either upon the face of the record, nor is it shown by extrinsic evidence, that any of the precise questions were actually determined in the former suit. As has been heretofore mentioned, respondent in the former action by answer alleged several matters with relation to irregularity, illegality, infirmity and defect in the issuance of the bonds, some of which went to the question of whether the bonds were wholly void and others of which went merely to questions of defect. Instruction number 8 advised the jury if it found any of these various defects to exist, and that the purchasers were not holders in due course, its verdict should be for respondent. The question then arises: What illegality, defect, infirmity or irregularity, in the issuance of the bonds did the jury find existed by their general verdict in favor of respondent? Instruction number 8 discloses that the trial court believed that sundry matters of illegality, irregularity or defect in the issuance of the bonds were in issue. Looking to the remaining instructions it appears that the court instructed the jury upon these issues. Without considering the correctness of these instructions, nevertheless it appears that many subordinate questions were submitted to the jury. Under these instructions the jury was at liberty to find for respondent if it found that any one of the subordinate issues with relation to irregularity, illegality or defect existed in the issuance of the bonds, and likewise found that the purchasers were not holders in due course. It cannot be ascertained from the record, the pleadings, the instructions nor from the general verdict which or what subordinate issue of illegality, irregularity or defect was found to exist by the jury. The instructions left it open to the jury to find for respondent upon either or any of several propositions, and the general verdict not specifying upon which the jury found, there can be no certainty that they found upon one rather than another. (De Sollar v. Hanscome, supra.) It cannot be said that the jury found such a defect existed in the issuance of the bonds as would exempt respondent from the obligation of doing equity. The judgment in the former suit, — the present suit not. being upon the same claim or demand, — cannot be said to be resjudicata herein to any further extent than having determined that there was some defect or irregularity in the issuance of the bonds and that appellants were not holders in due course, which does not constitute a determination that such an invalidity existed as would exempt respondent from doing equity.

While respondent urges that because it is a public corporation it is exempt from doing equity, it appears to be well established that a municipality or public corporation is not wholly immune, but, like all others, is subject to the doctrine, numerous cases having so determined. (Parkersburg v.Brown, 106 U.S. 487, 1 Sup. Ct. 442, 27 L. ed. 238; Louisianav. Wood, 102 U.S. 294, 26 L. ed. 153; Marsh v. Board ofSupervisors, 77 U.S. (10 Wall.) 676, 19 L. ed. 1040; Pimentalv. City of San Francisco, 21 Cal. 352; vol. 3, McQuillin's Municipal Corporations, 2d ed., 1002; First Nat. Bank v.Goodhue, 120 Minn. 362, 139 N.W. 599, 43 L.R.A., N.S., 84.) In County of Ada v. Bullen Bridge Co., 5 Idaho 188, 47 P. 818,824, 95 Am. St. 180, 36 L.R.A. 367 (on rehearing), in an action for equitable relief by cancelation of county warrants, while the court held that plaintiff had an adequate remedy at law, the following appears in the opinion:

"And further no offer is made by the county to place defendants in statu quo. This was not considered on the former hearing of this case. Equity would not permit the county to retain the bridge and other improvements and have said warrants cancelled. One of the fundamental principles of equity is, 'He who asks equity must do equity,' even in favor of one who has entered into and executed a voidable contract."

In Fales v. Weeter Lumber Co., Ltd., 26 Idaho 367,143 P. 526, the Weeter Lumber Company had foreclosed a materialman's lien on community property belonging to Fales and his wife, but had neglected to make the wife a party to the proceedings. Both Fales and his wife, and particularly the latter, contended that the judgment was void as to her and asked to have the same set aside. The court said:

"It is a familiar maxim of equity that a party asking equity must first do equity, and a court of conscience would not permit her to appropriate said material without paying for it, which the record shows she has not done. The record also shows that said lien attached before she began to reside upon said premises and that she had full knowledge that the Weeter Lumber Company had furnished said material and that it had not been paid for. As a matter of equity and good conscience, neither of the respondents would be permitted to maintain this action without first paying to the appellant the balance due for said building materials."

The court reaffirmed the above rule in Gerken v. DavidsonGrocery Co., 50 Idaho 315, 296 P. 192, in a case where a mortgage on community property was foreclosed without the wife being made a party. The wife thereafter instituted a suit in her name to vacate the judgment of foreclosure and to quiet title to the property, on the ground that the former decree was void as to her. Relief was denied upon the ground that the mortgage had not been paid.

The most recent case in this court dealing with such a question is Williams v. City of Emmett, 51 Idaho 500,6 P.2d 475, 478, in which this court recognized the principle, saying in the opinion as follows:

"Clearly the court could not enter an equitable decree without taking account of the benefits to the city resulting from the execution of the contract. The city could not have these benefits and a return of the money paid out on account of them too, even though the agreement under which the benefits were had was illegal. . . . . No fraud is alleged or shown in this case. The contract is not malum in se nor is it prohibited in law under a penalty which renders its making a penal offense. It is simply a contract illegal and void and therefore unenforceable because the city officials did not pursue the methods provided by law to accomplish the objects of the agreement. The city, however, did use the street sprinkler and there was nothing unlawful in that use."

In the note to City of Henderson v. Redman, 185 Ky. 146,214 S.W. 809, 7 A.L.R. 346, note beginning on page 353, A.L.R., is to be found a collection of most of the cases dealing with the question of the obligation of a municipality or public corporation to do equity or to return money received by it. Therein it is pointed out that the fundamental question to be determined with relation to the obligation of a public corporation to do equity is whether or not the doing of equity by the municipality would operate to invade the rights of taxpayers, in that the municipality would be doing that which it could not legally do otherwise. The rule, supported by the great weight of authority, is, that when the municipality has received the benefit of the proceeds of invalid instruments of indebtedness, and where the public corporation has the general power to contract indebtedness for the purpose of which it used the proceeds of invalid bonds or instruments of indebtedness, it may be held liable on implied contract for the money thus received and appropriated, without reference to the ground of the invalidity; providing, of course, that such invalidity is not due to a violation of public policy or express constitutional or statutory inhibition. That is, in order that an implied liability may be raised against a public corporation by reason of money it has received for invalid securities, it should appear that the enforcement of the implied liability will not evade the safeguards imposed by law as a protection for the taxpayers. When the municipality has received money, and has used such money for the benefit of the municipality, and such use does not operate to nullify those safeguards imposed by law for the protection of the taxpayers, then the municipality is liable upon implied contract for money received and so used. The annotation to City of Henderson v. Redman,supra, contains a thorough discussion of the question, and many authorities are there cited and quoted, and it would appear that no good purpose would be served therefore by a citation of such cases. The opinions of this court in Mittry Bros. v. BonnevilleCounty, 38 Idaho 306, 222 P. 292, and Deer Creek H. Dist. v.Doumecq H. Dist., 37 Idaho 601, 218 P. 371, in which recovery for material furnished and services rendered, which were not legitimately contracted for, was denied, are readily distinguishable and are not out of harmony with the conclusion reached herein. Those cases dealt with actions at law and the question of the obligation to do equity was not present and not decided. In those cases the public corporations involved did not receive cash, but goods and services, and the cases do not consider nor decide the question of whether in an equitable suit for cancelation of instruments of indebtedness the public corporation was obligated to do equity or place the adverse parties in statu quo by a return of the materials furnished. Furthermore, it does not appear that the cases are harmonious in point of fact with relation to the effect upon taxpayers for whom such rights exist. In the instant case, as appears hereinafter, there is no evasion of any prohibition. Recovery is permitted of that amount of money paid to, received by and spent by the municipality for legitimate purposes, not prohibited and which in no way affects the rights of taxpayers, and which is not in contravention of public policy or any right enacted for the benefit of taxpayers.

In the application of the foregoing rule to the instant case it is necessary to consider those matters alleged to make the bond issue illegal and invalid, in connection with the in. dependent proof submitted. The first matter of illegality alleged in the instant case, upon which respondent bases its right to cancelation, is:

"That at the time the said bonds were issued they incurred an indebtedness exceeding the income and revenue of the plaintiff the Village of Heyburn, for the year in which they were issued; that they were issued without the assent of two thirds of the qualified electors thereof, voting at an election to be held for that purpose."

It is unnecessary to determine whether or not there was an election held or whether the amount of the bonds exceeded the income and revenue of respondent, as these matters appear to have no effect upon the ultimate conclusion. The foregoing allegation is undoubtedly based upon the provisions of art. 8, sec. 3, of the Constitution, which provides in its material part as follows:

"No county, city, town, township, board of education, or school district, or other subdivision of the state, shall incur any indebtedness, or liability, in any manner, or for any purpose, exceeding in that year, the income and revenue provided for it for such year, without the assent of two thirds of the qualified electors thereof voting at an election to be held for that purpose. . . . . Any indebtedness or liability incurred contrary to this provision shall be void; provided, that this section shall not be construed to apply to the ordinary and necessary expenses authorized by the general laws of the state."

The record discloses that the bonds herein purported to have been issued were issued for the purpose of funding the outstanding warrant indebtedness of the village. The record also discloses that at least some portion of the fund received was used for such purpose. It has been held by this court that such bonds when legally issued do not increase the legal indebtedness within the meaning of the foregoing constitutional provision, but simply change the form of existing indebtedness from warrant to bond. (Butler v. Lewiston, 11 Idaho 393,83 P. 234; Veatch v. Moscow, 18 Idaho 313, 109 P. 722, 21 Ann. Cas. 1332; Sebern v. Cobb, 41 Idaho 386, 238 P. 1023.)

The second allegation is that:

"The said indebtedness represented by said bonds, together with the other bonds of the Village of Heyburn, that were outstanding at the time the same were issued, exceeded in the aggregate ten per cent of the assessed full cash value of the real estate and personal property of said Village of Heyburn according to the assessment roll of the preceding year."

Even though it be said that it appears from the independent proof submitted in this suit that this allegation has been established, it does not follow that such fact would have any effect upon respondent's obligation to do equity. Such conclusion, under the facts of this case, would amount to nothing more than a determination that respondent could not obligate itself by way of a bond issue to raise funds for the purpose of paying its outstanding warrant indebtedness. Although respondent may have been prohibited from changing its obligation from a warrant indebtedness to a bonded indebtedness, the conclusion in no way affects the liability of respondent upon its warrant indebtedness, nor from paying such warrant indebtedness with funds derived from other sources than a bond issue.

The third matter of illegality alleged appears to be the controlling issue as to respondent's obligation to do equity. The allegation recites:

"That the said bonds were issued for the payment of illegal and unlawful warrants of the said Village of Heyburn, and not for the payment of any valid, existing outstanding indebtedness of the said Village of Heyburn."

In this behalf it is urged that certain of the outstanding warrants paid with the money received were issued to village officers and that there were certain double payments of outstanding warrants. No findings were made by the court as to the amounts paid for the various purposes, and from the record it cannot be clearly ascertained what amounts, if any, were used to pay illegal warrants, what amounts, if any, were used to make double payments, what amounts, if any, were used to pay ordinary and necessary expenses authorized by the general laws of the state, nor can it be ascertained whether warrants paid to public officials were illegal. The record discloses that the city actually received $4,050, in cash, and that it expended this fund for various purposes. The situation is, in effect, that the village has received this amount of money from appellant; that, the receipt of the cash by respondent and its use for the benefit of the municipality created a liability in equity on the part of respondent to return that portion of the amount received which was used by respondent for the payment of the then outstanding legal warrants of the village, the ordinary expenses of the village, and any other legal indebtedness of the village not prohibited by the provisions of the Constitution or statutes. Fundamentally, the receipt of the fund is ostensibly not an increase of indebtedness in so far as the fund was used in the payment of outstanding legal warrants, or the ordinary and necessary expenses authorized by general laws and not prohibited by the Constitution. By the provisions of art. 8, sec. 3, of the Constitution ordinary and necessary expenses authorized by the general laws of the state are not within the constitutional inhibition. (Thomas v. Glindeman,33 Idaho 394, 195 P. 92; Dexter Horton Trust etc. Bank v.Clearwater County, 235 Fed. 743, 752.) I. C. A., secs. 49-1909 and 57-201, prohibit municipal officers from being interested in municipal contracts. (Collman v. Wanamaker, 27 Idaho 342,149 P. 292.) To the operation of the foregoing section the capacity of the individual must be ascertained as of the time the services were performed and the contract entered into.

It is my opinion the judgment should be reversed and the cause remanded, with instructions to the trial court to ascertain what, if any, legal obligations evidenced by warrants, were paid out of the money received from the sale of the purported bonds, and what, if any, moneys from said fund were paid for the ordinary and necessary expenses of the municipality under the provisions of art. 8, sec. 3, of the Constitution. In other words, respondent should be required to do equity.

Givens, C.J., concurs in the foregoing dissenting opinion.