192 S.W.2d 189 | Ky. Ct. App. | 1946
Reversing. *419
The principal question is the application of Section 157 of the Constitution, which limits the annual indebtedness of a city to the amount of its annual revenue, to an issue of street paving bonds of Morehead, or, specifically, to the unpaid balance. On July 19, 1927, the City directed the original construction of certain streets and drainage sewers at the expense of the abutting property. Other streets were added from time to time. Sec. 3643-1 et seq., Kentucky Statutes. An ordinance was adopted on April 10, 1928, making the apportionments and assessments, and another on August 22, 1928, providing for the issuance of the bonds and collection of the assessments for their payment in accordance with the plan and the statutes. The early financial depression upset the anticipated ease of paying for the improvements and set in motion a chain of lawsuits. Two of them reached this court. City of Morehead v. Blair,
Street improvement bonds issued under authority of Section 3643-5, Kentucky Statutes, now Kentucky Revised Statutes 94.620, have been of two classes with respect to the character of obligation or liability of the city issuing them. The terms of one class made the bonds a direct obligation or a pledge of the faith and credit of the city for the payment thereof, and the other only constituted the city a collecting medium. The City maintains that these are of the first class. The bondholders *420 maintain that they are of the second class and that the legal liability of the City, which they seek to enforce, arises from the operation of the law and not from the voluntary assumption of a contract obligation.
The plan established by the statute authorized the construction or repair of streets and other public ways and improvements by alternative methods: at the expense of either the abutting property or the City itself, in whole or in part, as the council might determine. Section 3643-1 et seq., Kentucky Statutes (now Kentucky Revised Statutes
Obviously, it depends upon the terms of the ordinances whether the City assumes to pay for the improvements or to satisfy the bonds issued therefor as a municipal debt. Sometimes those terms do in fact obligate the city or pledge its faith and credit for the payment without limitation, although it may perhaps not have been the definite purpose that they should. Sometimes it is done deliberately. In either case, the aggregate obligation must come within the constitutional and statutory debt limitation or receive the approval of the voters. Section 3643-12, 3706, Kentucky Statutes (now KRS 94.660). Thus, in German National Bank of Covington v. City of Covington, supra, the city did pledge its faith and credit for the payment of the obligations without qualification, and the bonds were held to constitute a personal debt of the city and uncollectible *421
because they represented an indebtedness exceeding the revenue and income for the year in which it was created. The case involved a city of the fourth class, but the statute was substantially the same in the respect we are considering as that governing a city of the fifth class in which Morehead is placed. Schuster v. City Council of Oakdale,
We turn to the record of this case for its classification. The ordinance adopted July 19, 1927, ordered the original construction of certain streets, including intersections, upon the 10-year plan as authorized by Section 3643 of the Statutes, at the exclusive cost to the owners of the property abutting on the streets. It was provided that when the work had been completed bonds should be issued for any part of the assessed cost not paid in cash by the property owners, and that: "Said bonds shall not be a general obligation of or pledge the faith and credit of the City of Morehead, Kentucky, for payment thereof, but the said city in issuing same shall obligate only the amount of money herein provided to be paid into the street-improvement fund and shall pledge its faith and be duty bound to use all legal means available to enforce the liens against the property herein ordered to be improved, as provided by Section 3643-9, Kentucky Statutes." The bonds issued were in accordance with the form stipulated in the ordinance, viz: *422
"Know all men by these presents: That the City of Morehead, in the State of Kentucky, promises to pay the bearer the sum of $_________ on the _____ day of __________ at the Morehead State Bank in the City of Morehead, Kentucky, with interest thereon at 6% per annum from the date hereof, payable annually, until the payment of said principal sum, upon presentation and surrender of the proper coupons hereto attached at said bank in Morehead, Kentucky, for the payment of which sum and interest the said City of Morehead, Kentucky, is hereby held and firmly bound to pay out of the street improvement fund out of sums realized from the apportionments and assessments against the property and lots abutting streets to be improved; by virtue of an ordinance adopted by the council of said City of Morehead on the _____ day of July, 1927, after said sums have been collected and paid into said fund, and said City of Morehead hereby pledges its faith and credit to use all legal measures to enforce the collection of said apportionments in accordance with the provisions of Section 3643-9, Kentucky Statutes. The principal sum of this bond shall be payable at maturity upon presentation and surrender of same at the office of the city treasurer in the City of Morehead, Kentucky, or at the Morehead State Bank."
It is seen that the promise and commitment of the City contained in the bonds is to pay them out of the fund to be realized from the property assessments by virtue of the ordinance if the money shall have been collected and paid into the fund, and the only pledge is that the City shall use all legal measures to enforce those collections in accordance with the statute. The instruments definitely and specifically declare that they are not the liability of the City. The obligations are in every respect like those of the City of Louisa, and held not to be a debt of the City. The bonds issued by Prestonsburg did not contain the negative statement but were held to bind the city only to the extent of the improvement fund. City of Prestonsburg v. People's State Bank,
We think the trial court was in error in applying the Covington case, supra, and holding the unpaid balance of the bonds uncollectible from the City because the debt exceeded the constitutional limitation. *423
Nor do we reach the same conclusion with respect to the character of the suits which the trial court conceived to be two causes of action, i. e., as being (1) to collect the bonds, in which judgment for the principal and interest was asked, and (2) to compel the City to enforce the collection of the delinquent assessments. The court applied the rule which does not permit the splitting of a cause of action, and regarded the cases as being cases might be technically construed as of all classes, merely and exclusively to recover upon the bonds. The but they have one end in view. The first suit was filed against the City and its Board of Councilmen on December 5, 1935. Although the petition set up the bonds and their nonpayment, it also listed the names of many owners of property who were delinquent in the payment of their assessments, and prayed judgment for (1) the amount of the delinquencies, and (2) a mandatory injunction to compel the defendants to enforce the collection of the defaulted assessments. From time to time other delinquents were added. The prayer for judgment on the bonds must be read as a whole and in connection with the allegations. The prosecution of the suit was tolled while the City undertook to perform its duties, such as it did in Peters v. City of Morehead, supra, which seems to have been a test case. Two other suits were filed by the same plaintiffs, holders of the bonds, in September, 1942, to recover judgment against the City for deficiencies which arose by reason of the pleas of the property owners of spoliation and certain settlements made by the City without suit for less than the assessments. The fourth suit was something of an omnium-gatherum and prayed for an accounting of each assessment and recovery against the City far its derelictions and negligent failure to comply with the statute and ordinances requiring that all assessments be placed upon the tax list and collected accordingly into the street improvement fund. Of necessity the bonds were set up as the basis or terms of liability. As stated, all the suits were consolidated. The practice seems to have been proper. Cf. City of Prestonsburg v. People's State Bank,
In reaching this decision we have also disagreed *424 with the trial court in his further opinion that the Council could not indirectly bind the City to pay the bonds without thereby creating an indebtedness, or commit the City indirectly to pay an obligation in excess of the constitutional limitations where it could not do so directly; nor that when the contractor voluntarily accepted the bonds in payment for his work, all former contracts and liabilities merged into the bonds, which thereby became a debt of the City, and behind which the holders of the bonds cannot go. We do not think that is right.
When a city chooses to avail itself of the terms of the statute, it assumes the responsibility and duty of complying with its terms and with the terms of the ordinances. It binds itself to make proper assessments and use due diligence to collect the bonds, particularly to do affirmatively all those things required by the statute and assumed by the ordinance; also to pay deficiencies arising from a failure of the liens to produce the respective apportionments. Those were the obligations of the City of Morehead in this instance.
The consolidated cases eventuated into questions of liability (1) for deficiencies where the assessment exceeded 50% of the value of the property; (2) where the City had accepted less than the full assessment; and (3) where the City failed to collect the assessments or prosecute suits for the enforcement of the liens. Back of all these issues lay the charge that the City had not duly complied with the statute and its ordinance to place the assessments upon the tax roll and collect the same currently as taxes. That liability has been frequently recognized. See Cohen v. City of Henderson,
(1) Section 157 of the Constitution prohibits a city or other taxing district from becoming "indebted" in any year for an amount exceeding the income and revenue provided for that year and declares, "any indebtedness contracted in violation of this section shall be void." This indebtedness is one created by contract or voluntarily incurred in such manner as would otherwise bind the municipality to pay. It does not include a liability imposed by law for what is done without right or what is done negligently. O'Bryan v. City of Owensboro,
(2) It is true that the provisions of the statute with reference to the method of assessment of property and the collection like city taxes did not at the time these ordinances were adopted contain the provisions that "the City Council shall provide for the payment of any such excess by the City" — having reference to the excess over one-half the value of the property. That provision came into the statute by the amendment or re-enactment of Section 3643-7, Kentucky Statutes, by an Act of 1928, Chapter 98, page 370. But even before that amendment the City was responsible for the excess over the amount which could be validly levied against the abutting property where it was less than one-half of such apportionment. W. T. Congleton Company v. City of Williamsburg,
The judgment is reversed for consistent proceedings.