Court Opinion

ID: 3852225
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:33:44.939346+00
Date Added: 2024-06-11T07:40:58.016174
License: Public Domain

The fundamental premise upon which the reasoning and conclusion of the majority rest is that the authorization of a municipal loan ipso facto creates a debt of the city, and thereby increases the city's indebtedness to the extent of the amount authorized. In my opinion that proposition is unsound. In any ordinary and natural sense of the word a debt is an obligation on A's part to pay a fixed sum to B. There is no debt where there is no creditor. That such is not only the lexicographer's meaning but also the legal meaning1 of the term is very clear from our cases, where it has been pointed out that a municipal debt is incurred when the municipality becomes *Page 50 
obligated to pay a certain amount to a person or entity other than itself: see City of Erie's App., 91 Pa. 398, 402; Brookev. Phila., 162 Pa. 123, 128; McGuire v. Phila. (No. 1), 245 Pa. 287,292. Courts should not juggle with words or stretch their meaning beyond recognition in order to reach desired results. The majority urge that the application in this case of the usual and literal sense of the term would create "a complete barrier to progress and in an emergency [leave] the city helpless," while "vast improvements . . . would go unfinished and disintegrate." But so-called emergencies, and the furtherance of what a short-lived city administration may conceive to be progress, can furnish no justification for such distortion of the language and the spirit of the law as the majority would here employ. Laws exist for the purpose of restraining those departures from the paths of common sense and reason which inevitably occur in times of crisis and hardship. Emergencies make bad law, and decisions which are founded on temporary expediency and on the impulsion of a crisis remain when the need for them has passed and when returning reason is forced to counteract their unmeasured and untimely effects.
It is said by the majority that plaintiff's contention "involves the contradiction that at one moment and for one purpose the authorized debt is a valid debt of the municipality and at another moment and for another purpose is not." But the majority are entangled in the very same contradiction when they talk of the city's power to cancel the authorization of a loan. If the authorization is a debt, then a city is unique among debtors in being able to cancel its debt of its own motion and whenever it so desires. If the authorization of a loan constitutes a debt in the case of a municipal corporation, why is it not likewise a debt in the case of other corporations or of individuals? Why is not a principal immediately eligible to be declared insolvent and placed in receivership when he authorizes his agent to obligate *Page 51 
him to an amount in excess of the fair value of his assets? The mere statement of conclusions such as these suffices to show the unsoundness of the premise from which they flow.
The majority say that section 8, of article IX, was "not intended to strait-jacket municipal financing, nor to disrupt and to plunge into chaos the internal management of the city's financial affairs." In my opinion their conclusion will have just that result. It has been the general rule — and, in the absence of a contrary decision of an appellate court of this State, municipal officers may justifiably have relied on it — that an issue of bonds which is within the legal limit at the time of issuance is not made void by a prior authorization given at a time when the amount authorized would have exceeded the then existing limit.2 But under the ruling of the majority the validity of a loan is irrevocably determined as of the time of its authorization, and if a subsequent change in conditions cannot nullify a valid authorization, neither can such a change validate a loan rendered invalid because in excess of the debt limit at the time of authorization. A city may therefore be forbidden to issue bonds which are well within its debt limit at the time of issuance simply because, at some prior time, *Page 52 
when the loan was authorized, the amount thereof was not within the then existing debt limit.
The majority attempt to find support in the Brooke andMcGuire cases. But neither of those cases supports their position. An examination of the facts in the Brooke case — not stated or otherwise indicated in the majority opinion — makes it obvious that it has not the slightest bearing on the present situation. The holding there was that, in ascertaining the city's total indebtedness, the amount of certificates of the city's funded debt, held in the city sinking fund, was a proper item for deduction. That problem is not involved here, and the question of the status of authorized but unissued loans was in no way presented in that case. The majority's reliance is placed on a statement on page 135, to the effect that "the real debt of the city is the authorized debt, less the amount of the city certificates purchased and uncanceled in [the sinking] fund." What is meant by the word "authorized" in this statement does not clearly appear. In any event, its use in that connection is manifestly of no particular significance to the present case, since the opinion contains no discussion or intimation concerning the effect of the authorization of loans.
In support of their position that the proposed loan acquired a fixed status of validity when authorized and that the constitutional measure is not to be applied thereafter, the majority place principal reliance upon the McGuire case. There the city, in computing its gross indebtedness for the purpose of determining its borrowing capacity, sought to deduct the amount of certain authorized but unissued loans. In refusing to permit such deduction, this court said, at pages 297-298: "If the city's contention as to this should prevail, it would mean that a municipality's indebtedness may be authorized by the corporate authorities and electors to an unlimited amount and that the Constitution permits the authorization of that which it at the same time declares shall not be consummated. This is trifling with *Page 53 
the spirit and intent of that instrument, conflicts with common sense in construing it and is in the teeth of the third section of the Act of 1874, which provides that 'the indebtedness of any county, city, borough, township, school district, or other municipality or incorporated district, in this Commonwealth, may be authorized to be increased to an amount exceeding two per centum, and not exceeding seven per centum, upon the last preceding assessed valuation of the taxable property therein.' The authorization of indebtedness by a municipality is thus clearly limited by the statute to seven per centum of the assessed valuation of taxable property. In the second section of the same act the municipal authorities are permitted 'to authorize' an increase of debt to the constitutional limit. Every authorization of a municipal loan is, therefore, to be regarded as exhausting pro tanto the municipality's borrowing capacity. It is not conceivable that the framers of the Constitution, or the people who adopted it, ever intended that an election should be held to authorize that which it may be impossible to carry out; yet this is the anomalous situation contended for by the defendants." It was thus held that the restriction applied to authorized but unissued loans. The court was, of course, confronted with the Act of April 20, 1874, P. L. 65, section 3, of which restricts the authorization of a municipality's indebtedness to an amount not exceeding the constitutional limit. Under the terms of the act, the constitutional limit applied to the authorization of loans, and each authorization was therefore to be considered a depletion of the municipality's borrowing capacity to the extent of the amount authorized. With that act before it, the court might very well have rested its decision in the McGuire case on that ground alone. In any case, however, it seems quite clear to me that, in suggesting that the Constitution itself required the same result, it was not intended to imply that the limitation on authorization relieved the issuance of bonds thereunder of a like limitation. Certainly the *Page 54 
judges who decided that case would have held the issuance of bonds not so relieved, and would very emphatically have rejected the contention that the McGuire case barred that conclusion. The fact that a city must abide by the restriction in authorizing loans does not acquit it of its constitutional obligation in consummating the process thus begun. While it may be true that the authorization is the initial step in the incurring of indebtedness, it certainly cannot be denied, in my opinion, that the debt is not in fact incurred until an obligation issues and the city becomes bound to pay an ascertained creditor. How then can the city say that, while subject to the constitutional inhibition in the early stage, it is released therefrom before the culmination? If at any time before the debt is in fact incurred it appears that the limitation will be exceeded, it is the duty of the proper court, when its aid is sought, to interfere and prevent transgression of the fundamental law.
It is claimed that a literal interpretation of the term "debt" and of the constitutional provision limiting indebtedness would compel the conclusion that bonds validly issued and in the hands of innocent purchasers become void whenever a decrease in assessed value brings the total municipal indebtedness beyond the figure representing the city's debt limit. I do not see how such a supposition could be seriously entertained for a moment. Do the majority suppose that, before the decisions in the Brooke and McGuire cases,3
which they say establish the *Page 55 
rule, outstanding bonds were thus endangered by a decline in assessments? Do they imagine that such a situation obtains in those jurisdictions which, as indicated above, follow a contrary rule?4 If so, it would mean that, under that rule, no municipal bond could be safely bought at any time, for neither a valid authorization nor a valid issuance would save it from the danger. The majority say that since the present debt of Philadelphia exceeds the constitutional limitation by over $30,000,000, "the bonds representing this excess would be void," under *Page 56 
the contrary rule. What bonds represent this excess? How could it be determined which bonds were to be declared void? All of them, it may be assumed, were issued and purchased before the decline in assessments, and all are in the same situation. No such result as the majority claim could ever have been supposed to follow from a holding so widely followed as is the rule that the validity of municipal bonds is to be determined as of the time of issuance. If the majority say that the result follows not from that rule but from the rule that the amount to be issued must be within the debt limit both at the time of authorization and at the time of issuance, then it seems plain to me they overlook a clear distinction. Bonds are not to be voided in the hands of innocent purchasers as a result of a change in conditions after their purchase, for the obvious reason that the rights of innocent purchasers may not be thus prejudiced. When the bond is purchased a contract is formed between the city and the purchaser, consideration has passed to the city, and its obligation given in exchange cannot be impaired by a subsequent change of conditions. No such contract exists before the actual issuance of the bonds, however, and the rights of innocent purchasers are not then involved, no matter how many times the issuance has been authorized. The reasons which prevent the invalidation of bonds by a decline in assessments after purchase therefore do not apply where the decline occurs before the bonds have been issued although after their authorization.
To suggest, as the majority opinion does, at least inferentially, that administrative officers of municipalities have heretofore disregarded the possibility of a decline in assessments after the valid authorization of a loan is to take judicial notice of facts which are not at all matters of common knowledge and which would indeed be difficult to determine. I must confess to grave doubt that municipal officials have uniformly been so careless as to neglect to reexamine the assessments before the *Page 57 
issuance of bonds when there has been a substantial lapse of time and a notable decline in real estate values since the authorization. Of course if the majority mean that municipal officers have honored outstanding bonds without searching for a decline in assessments after the issuance thereof, there is no cause to dispute the statement.
The purpose of the constitutional restriction was to prevent extravagant spending by municipalities on the strength of unlimited borrowing power. As was aptly said by Mr. Justice MITCHELL in Keller v. Scranton, 200 Pa. 130, at page 135, "The constitutional provision is intended as a restraint on . . . spendthrift tendency, to curb the extravagance of municipal expenditure on credit, to prevent municipalities from loading the future with obligations to pay for things the present desires but cannot justly afford, and in short to establish the principle that beyond the defined limits they must pay as they go." To allow a city to issue bonds in excess of the limitation on the ground that the proposed loan did not exceed the limit at the time of its authorization is to defeat the purpose of the limitation in the most obvious sort of way. The Constitution should not be thus lightly set at naught for the sake of expediency and of temporary advantage.
It is very plain that the issuance of these bonds will obligate the city to pay the face value thereof to the holders, and that no such obligation exists prior to their issuance. Such issuance will, therefore, in my opinion increase the obligations and consequently the indebtedness of the city. Since its total debt is already in excess of the constitutional limit, the proposed issue should be declared invalid. For these reasons I would grant the relief sought.
Mr. Justice LINN joins in this opinion.
1 "An indebtedness [of a municipality] cannot arise unless there is a legal, equitable, or moral obligation to pay a sum of money to another who occupies the position of creditor and who has a legal or moral right to call upon or constrain the debtor to pay": 19 Rawle C. L. 276. "The term 'indebtedness' may be said to include obligations of every character whereby a municipality agrees or is bound to pay a sum of money to another": Dillon, Municipal Corporations, (5th ed.), section 193.
2 See Thompson Houston Elec. Co. v. Newton, 42 Fed. 723; Dudleyv. Lake County Commrs., 80 Fed. 672, 677; Rathbone v. Board ofCommrs., 83 Fed. 125, 132; Board of Education of Huron v. Nat.Life Ins. Co., 94 Fed. 324; Lake County Board v. Sutliff, 97 Fed. 270, 281; Corning v. Board of Commrs. of Meade County, 102 Fed. 57; Clark v. Los Angeles, 160 Cal. 30; Frost v. CentralCity, 134 Ky. 434; Kirby v. Monroe, 214 Mich. 615; Crayton v.Charlotte, 175 N.C. 17; Cohen v. Houston, 176 S.W. (Tex.Civ.App.) 809; Dillon, Municipal Corporations, (5th ed.), section 207; 44 Corpus Juris 1188, 1209. In the latter authority it is said, at page 1188: "Whether a limitation of bonded indebtedness is exceeded by a particular issue of bonds must be determined as of the time of the actual issuance of the bonds, and not as of a prior date when the bonds are authorized by popular vote."
3 In Redding v. Esplen Boro., 207 Pa. 248, it was held that where a contract for the construction of a sewer was entered into by the borough at a time when the amount thereof, together with the amount of bonds previously authorized but not yet issued, exceeded the constitutional limit upon the borough's indebtedness, the contract did not involve an increase of debt beyond the constitutional limit, and the contractors were entitled to be paid. It was there said, at page 251: "When does the liability of the borough in this case for the bonds authorized by the ordinances, numbered 63 and 64, attach? Is the indebtedness incurred by the borough when the ordinances were passed on July 19, 1900, or is the indebtedness only created when the bonds were issued, October 23, 1900? If the liability was created when the ordinances were passed, then the amount of the bonds authorized to be issued constituted an indebtedness equal to about two per cent of the assessed valuation of the property of the borough, and any claim or liability for the cost of the construction of the sewer added thereto would exceed the constitutional limit of indebtedness. But was the indebtedness created by the passage of the ordinances? If, as stated in O'Malley v. Olyphant Boro., supra, neither the ordinances nor the contract imposed absolute liability on the borough for the expense of the sewer, how can it be said that any liability is imposed upon the borough by the ordinance alone authorizing the issue of bonds? It may be that the bonds will never be issued, or that only a portion of them will be issued. . . . If the indebtedness was created by the passage of the ordinance, and delay for any reason should occur before the bonds should be issued, the municipality would be utterly helpless to, in the meantime, construct any improvements or incur any indebtedness whatever. Surely it could not be contemplated that all work must stop until the bonds authorized by the ordinance are actually issued. . . . It would be a harsh construction that would make the ordinance itself alone an indebtedness to defeat the claim of the contractors for the construction of the sewer who have in good faith performed their contract."
It should be noted that the holding of the majority in the present case, if applied to the facts in the Redding case, would make necessary the harsh result there deplored and rejected.
4 In Gibson v. Knapp, 21 Misc. (N.Y.) 499, it was held that the fact that municipal bonds previously issued are at the time of suit in excess of the limit of city indebtedness does not render them void, the test being whether they were valid when sold by the city. *Page 58