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NCJ Number: 67906 Find in a Library
Title: MUNICIPAL FINANCE - CONFLICTS OF INTERESTS AND THEIR EFFECT ON THE VALIDITY OF MUNICIPAL BOND ISSUES
Journal: WASHINGTON AND LEE LAW REVIEW  Volume:37  Issue:1  Dated:(WINTER 1980)  Pages:201-217
Author(s): S M JOHNSON
Date Published: 1980
Page Count: 17
Format: Article
Language: English
Country: United States of America
Annotation: THE EFFECTS OF CONFLICTS OF INTEREST ON THE VALIDITY OF MUNICIPAL BONDS AND METHODS TO PROTECT BONDS FROM SUCH CHALLENGES ARE DISCUSSED.
Abstract: UNDER COMMON LAW AND STATE STATUTES, CONFLICTS OF INTEREST UNDERLYING THE ISSUANCE OF MUNICIPAL BONDS MAY RENDER THE BONDS VOID OR VOIDABLE AT THE DISCRETION OF THE MUNICIPALITY. ALTHOUGH A MUNICIPALITY MAY AVOID ITS OBLIGATIONS UNDER MUNICIPAL CONTRACTS TAINTED BY CONFLICTS OF INTEREST, COURTS HAVE PROTECTED THE BONA FIDE HOLDERS OF BONDS UNDER THE DOCTRINE OF ESTOPPEL. THUS, A MUNICIPAL ISSUER MAY NOT CONTEST THE VALIDITY OF ITS BONDS HELD BY PERSONS WHO HAVE PURCHASED THEM IN GOOD FAITH. BOND HOLDERS HAVE ADDITIONAL PROTECTION UNDER ESTOPPEL BY RECITAL, A DERIVATIVE OF THE MORE GENERAL COMMON LAW ESTOPPEL. THESE LEGAL DOCTRINES ARE CODIFIED IN ARTICLE 8 OF THE UNIFORM COMMERCIAL CODE. THEY ALSO LIMIT THE PROTECTION AFFORDED PURCHASERS THROUGH CERTAIN EXCEPTIONS WHICH PERMIT A MUNICIPALITY TO VOID BONDS BASED ON TWO DEFENSES: VIOLATION OF CONSTITUTIONAL PROVISIONS AND FAILURE OF SUBSTANTIAL COMPLIANCE WITH THE LAW GOVERNING AN ISSUE. BOND COUNSEL, HOWEVER, CAN PROTECT PURCHASERS BY REQUIRING THE ISSUER TO RECITE THE PURPOSE OF THE ISSUE ON THE FACE OF THE BONDS AND ENSURING THAT THE PURPOSE RECITED IS LEGALLY VALID. BECAUSE THE MOST EFFECTIVE GUARANTEE OF VALIDITY IS THE PREVENTION OR REMOVAL OF CONFLICTING INTEREST, BOND COUNSELS SHOULD INVESTIGATE ALL PUBLIC OFFICIALS AND EMPLOYEES INVOLVED IN THE BOND ISSUE PROCEDURE. STATUTORY DISCLOSURE PROVISIONS CANNOT CURE CONFLICT OF INTEREST DEFECTS, BUT VALIDATION HEARINGS PRIOR TO THE BOND ISSUANCE ARE A RELIABLE METHOD FOR DETERMINING VALIDITY. THE JUDICIAL PROCESSES FOR VALIDATION CASES ARE DETAILED. FOOTNOTES ARE INCLUDED. (AUTHOR ABSTRACT MODIFIED--MJM)
Index Term(s): Conflict of interest; Financial management; Local government
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http://www.ncjrs.gov/App/publications/abstract.aspx?ID=67906

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