Court Opinion

ID: 9865166
Source: CourtListenerOpinion
Date Created: 2023-09-25 16:25:48.465229+00
Date Added: 2024-06-11T12:37:44.689981
License: Public Domain

Mr. Justice Butler,
concurring in part and dissenting-
in part.
I concur in the reversal of the judgment. I concur also in that part of the majority opinion holding that the bonds are not general obligations of the municipality, but dissent from the rest of the opinion.
Arthur W. Krauss, plaintiff below, obtained judgment against the city (formerly town) of Aurora, a municipal corporation. The city seeks a reversal of the judgment.
In December, 1925, the town of Aurora, acting under chapter 180, Session Laws of 1923, entitled “An act relating to local improvements in cities and towns,” ordered the construction of water extension mains, fire hydrants and incidentals, and designated the part of the *23town in which such local improvements were to be made as “Aurora Water District No. 3.” The total cost was $19,180. The town was to pay $1,944.59, and the rest was apportioned among several lots, each lot being assessed to the extent that it was found to be specially benefited by the improvement. To pay the part of the cost assessed against the property specially benefited by the improvement, special assessment bonds of the town were issued. They were subscribed by the mayor and countersigned by the town treasurer, with the corporate seal affixed, attested by the town clerk. The bonds were issued in full compliance with the requirements of the law and are admitted by all concerned to be valid special assessment bonds, payable out of the moneys collected on account of the special assessment. Acting under section 33 of chapter 180, supra, the board of trustees of the town, by ordinance adopted by a two-thirds vote, guaranteed, on behalf of the town, the payment of said special assessment bonds.
The complaint pleaded two causes of action. In the first, the plaintiff sought to recover a money judgment on the bonds as original obligations of the town; in the second, he sought to recover a money judgment on the guaranty. Judgment was rendered for Krauss for the face value of the bonds held by him, plus interest.
It seems clear that the bonds are not general obligations of the municipality.
The Local Improvement Act of 1923 (S. L. ’23, c. 180) provides (section 30) that the special assessment bonds issued thereunder “shall be payable out of the moneys collected on account of the assessments made for said improvements. ’ ’
Bach of the bonds in question contains the following recitals:
“This bond is issued for the purpose of paying the cost of water main extension improvements in Aurora Water District No. 3, in the Town of Aurora, by virtue of and in full conformity with an Act of the General Assembly of *24the State of Colorado, entitled, ‘An Act relating to local improvements in cities and towns,’ approved April 9, 1923 * * *.
‘ ‘ This bond is payable out of the proceeds of a special assessment to be levied upon real estate situate in the Town of Aurora, Colorado, in said Water District No. 3, specially benefited by said improvements, and the amount of the assessments to be made upon the real estate in said district for the payment thereof, with accrued interest, is by the aforesaid act, made a lien upon said real estate in the respective amounts to be apportioned to said real estate and assessed by an ordinance of said town, and it is hereby certified and recited * * * that every requirement of law relating to the creation of said Water District No. 3, the making of said local improvements, and the issue of this bond, has been fully complied with * * *. ”
There is nothing in the point made by counsel for Krauss that because the bonds do not provide that they are payable only out of the proceeds of a special assessment to be levied upon real estate in the water district, they are general obligations of the municipality. As we said in Sanborn v. Boulder, 74 Colo. 358, 361, 221 Pac. 1077, the effect of inserting the word “only” would be “merely to make more emphatic” the provision that already is clear. The bonds are local improvement bonds, and such bonds are not general obligations of the municipality.
Krauss was not entitled to recover on his first cause of action, and the trial court erred in rendering judgment thereon in his favor.
II. A more serious question is presented by the second cause of action, in which a recovery is sought on the guaranty. The friends of the court confine their discussion to this branch of the case. The matter is not free from difficulty.
Section 33, chapter 180, Session Laws of 1923, is as follows: ‘ ‘ The city council or board of trustees may, by ordinance, adopted by two-thirds vote, guarantee on be*25half of the city or town, the payment of all or any special assessment bonds issued in pursuance of this act.”
1. It is contended that the guaranty violates sections 1 and 2 of article XI of the state Constitution, which pro'vide, respectively, that no city or town “shall lend or pledge the credit or faith thereof, directly or indirectly, in any manner to, or in aid of, any person, company or corporation, public or private, for any amount, or for any purpose whatever; or become responsible for any debt, contract or liability of any person, company or corporation, public or private, in or out of the state”; and that no city or town “shall make any donation or grant to, or in aid of * * * any person, company or corporation, public or private * *
In effect, the argument is this: The bonds are not bonds of the municipality but of the improvement district. The improvement district is a public corporation distinct from the municipality. If it is not that, it is at least a person or an aggregation of persons. In guaranteeing the payment of the bonds, the municipality lent or pledged its credit in aid of that public corporation, person or aggregation of persons, and became responsible for the contract or liability thereof in violation of the constitutional provision just quoted. The argument is unsound. An improvement district is thus defined in section 5, chapter 180, Session Laws of 1923: “The term ‘district’ when used in this act, means the geographical division or divisions of the municipality within which any local improvement may be made, or when so declared by the council or trustees, may include the entire municipal area.” Such district has no governing body, no officers, no power to make contracts or to levy taxes; it collects no money and disburses none; it cannot sue or be sued — in short, it has no power, governmental or otherwise.
Counsel quote and have been misled by the following language in the opinion of Sanborn v. Boulder, supra. These constitutional provisions relate to obligations of . the city and not to obligations of a local improvement *26district. These bonds, as we have held, are, and on their face they purport to be, bonds of the local improvement district, and not bonds of the city, and are made payable only out of assessments for the improvements and levied upon the frontage. They are obligations, therefore, not of the city, but of an improvement district and are not within such inhibitions of the state Constitution * * *.” We there had before us the question whether the provisions of section 8 of article XI of the state Constitution relating to the contracting of debts by loan, applied to local improvement bonds, payable out of special assessments. We held that they did not. We did not use the quoted words in the sense in which counsel in the case at bar used them in argument. We called the bonds those of the local improvement district to distinguish them from general obligation bonds of the city. The words were used rather loosely. The local improvement act of 1923, cited above, puts the matter beyond question. Section 30 provides for the issuance of “special assessment bonds of the city or town,” payable out of moneys collected on account of assessments for local improvements. The bonds in question purport to be bonds of the town of Aurora, and such in law and in fact they are.
Strictly speaking, the so-called guaranty is not a guaranty at all; it is a misnomer to call it such. To constitute a guaranty, there must be a principal debtor or obligor. A guaranty is “a promise to answer for the payment of some debt or the performance of some obligation, on default of such payment or performance, by a third person who is liable or expected to become liable therefor in the first instance.” 12 R. C. L., p. 1053, §1. The majority take the position that the bonds are debts of the specially benefited property owners. I challenge the correctness of that position. The bonds are not the bonds of the property owners. The property owners are not obligors thereon, and the bondholders cannot sue them thereon any more than they can sue the district.
What, then, is the situation? The town undertook a *27public improvement of benefit to the entire community, though certain property is specially benefited. Work that benefits only private property owners cannot be done by a municipality. When completed, the water mains belong, not to the property owners, but to the municipality, which must maintain them out of the proceeds of general taxes. The work could have been done at the expense of all the owners of property in the municipality, and the fact that a special benefit would accrue to abutting property would not exempt owners of property in a distant part of the municipality from the obligation to pay their share of the general taxes the proceeds of which would be used to pay for the improvements; and in such case the burden resulting from the delinquency of some taxpayers would be borne, at least temporarily, by the other taxpayers, for they would have to pay increased taxes until by redemption of property from tax sales, and by the sale of tax certificates acquired by the municipality, the loss would be made up. However, instead of doing the work at the general expense, certain property was assessed to the extent that it was specially benefited by the improvement, and in order to raise funds to do the work the town issued its bonds payable out of the proceeds of the special assessments.
By the so-called guaranty, the town assumed an obligation additional to the obligation it already was under. What is that additional obligation? It is contended by some of the friends of the court that the obligation is merely to levy the special assessments and collect the money and apply it to the payment of the bonds; but that cannot be, for that is a statutory duty already resting upon the municipality, and the guaranty, so construed, would add nothing to it. The obligation is, not to pay in any event, but only upon a contingency that may or may never arise; and the way in which the obligation may be enforced is provided in chapter 181, Session Laws of 1923. Section 1 provides that a city or town that has guaranteed the payment of any local improvement bond *28“may provide for payment under such guarantee, as specified herein, and such guarantee shall not be construed as a debt of such city or town. ’’ Section 2 provides that in case there is not sufficient money in the local improvement fund to pay the bond or interest coupon, the bond or coupon may be paid by an interest-bearing’ warrant drawn on the improvement district fund, and that the city or town shall cause taxes to be levied upon all the taxable property of the city or town sufficient to pay the warrants, “provided that the owner of any warrant remaining’ unpaid shall be entitled to all the rights which he would have as the owner of the bond or interest coupon which such warrant was issued to pay, and by accepting such warrant, he shall not lose any right or security he had as owner of such bond or interest coupon.” Section 3 is as follows: “Any city or town which shall become the owner of any such bond or interest coupon, shall be subrogated to all the rights of any prior owner, and the proper officials of said city or town shall use all lawful means to collect the amount of principal and interest due thereon. If after the payment in full of the principal and interest of all bonds of any improvement district, there shall remain any surplus money in the special fund created therefor, such money shall be placed to the credit of the general fund of the city or town.”
There is no merit in the contention that the purchase of bonds by the issuance of warrants, as provided in that statute, is permissive only. In the circumstances, the word “may” should be construed to mean “shall.” The procedure provided for in that statute was intended for the protection of the bondholders. The public interests and the rights of bondholders require that the provisions of that statute be regarded as mandatory.
In Supervisors v. United States, 4 Wall. 435, 18 L. Ed. 419, the court said:
“The conclusion to be deduced from the authorities is, that where power is given to public officers, in the lan*29guage of the act before us, or in equivalent language— whenever the public interest or individual rights call for its exercise — the language used, though permissive in form, is in fact peremptory. What they are empowered to do for a third person the law requires shall be done. The power is given, not for their benefit, but for his. It is placed with the depositary to meet the demands of right, and to prevent a failure of justice. It is given as a remedy to those entitled to invoke its aid, and who would otherwise be remediless.
“In all such cases it is held that the intent of the legislature, which is the test, was not to devolve a mere discretion, but to impose ‘a positive and absolute duty’.”
The Supreme Court of Utah, in Deseret Savings Bank v. Francis, 62 Utah 85, 217 Pac. 1114, expresses the rule in these words: “When power is given by statute to public officers, in permissive language, the language used will be regarded as peremptory where the public interest or individual rights require that it should be.”
Chapter 181, supra, is somewhat involved. However, it provides clearly that the guaranty shall not be construed as a debt of the municipality. Of course, the payment of special improvement bonds by warrants drawn on the improvement district fund is not open to legal objection, though in itself it adds nothing to the security of the holder of bonds, for the bonds themselves are made payable out of the proceeds of the special assessments.
The only provision that demands attention is the one requiring a levy of taxes upon all taxable property to pay the warrants. It will be noted that the statute requires the municipality to “use all lawful means to collect the amount” of the bonds. Chapter 180, Session Laws of 1923, provides such lawful means. Section 24 provides that failure to pay any installment of the special assessment matures the whole of the unpaid principal. Section 26 requires the sale of the property concerning which there is a default. Section 37 provides that the treasurer of the municipality may purchase the property at such *30sale without paying cash therefor; that the certificates of purchase shall be credited at their face value on account of the assessments; and that the certificates may be sold at their face value and the proceeds credited to the fund created by ordinance for the payment of assessments. Section 3, chapter 181, Session Laws of 1923, provides, as we have seen, that any surplus remaining in the special assessment fund after payment of the bonds shall be placed to the credit of the general fund of the municipality. Thus the municipality is adequately protected against loss of money raised by general taxation to pay the warrants. There may not be any default in the payment of special assessments. If any such default should occur, the property may be sold at tax sale for cash, or, if not, the municipality itself may bid in the property and then dispose of the certificate of sale for cash, or the owners may redeem the property from the tax sale. The payment of the warrants, if any are issued, with money raised by general taxation is merely an advancement, the repayment of which is adequately secured. The general tax fund ultimately loses nothing. All the money required to pay the bonds is raised ultimately from the property specially assessed.
If the foregoing views are sound, it would follow that the so-called guaranty does not violate section 1 or section 2 of article XI of the state Constitution.
2. But it is said that chapter 181 of Session Laws of 1923, supra, provides for the levy of general taxes to pay the warrants, and that if the so-called guaranty is to be made good in that way, it would be the creation of a debt; that the debt so created in the present instance, together with other debts then existing, would exceed three per cent of the taxable valuation, and therefore would be in violation of section 8 of article XI of the state Constitution. For the following reasons this contention seems to me to be unsound:
(1) That section of the Constitution excepts from the provisions thereof debts contracted for supplying water *31to the city or town, and the water main extensions, though not “water works,” properly speaking, are for the purpose of supplying water to the municipality.
(2) There was no showing that the debts would exceed the three per cent constitutional limit. Section 8 of article XI provides: ‘ ‘ The valuation in this section mentioned shall be in all cases that of the assessment next preceding the last assessment before the adoption of such ordinance.” The ordinance was adopted December 7, 1925; therefore, the assessed valuation for the year 1924 is the valuation that would determine whether or not the debts would exceed the constitutional limit. There was no showing or offer to show the assessed valuation for that year. Proof of the assessed valuation for the year 1925 was not sufficient to raise the constitutional question, and the only offer made was to prove the assessed valuation for 1925.
(3) The so-called guaranty, taken in connection with chapter 181 of Session Laws of 1923, did not create a debt. In Johnson v. McDonald, 97 Colo. 324, 336, 49 P. (2d) 1017, we quoted with approval the following language from Seward v. Bowers, 37 N. M. 385, 24 P. (2d) 253, which, we said, “clearly defines a debt in the constitutional sense.” “The idea of a ‘debt’ in the constitutional sense is that an obligation has arisen out of contract, express or implied, which entitles the creditor unconditionally to receive from the debtor a sum of money, which the debtor is under a legal, equitable, or moral duty to pay without regard to any future contingency.”
The obligation in this case is, not to pay in any event, but only upon a contingency that may or may never arise.
Washington provides for a local improvement guaranty fund raised by general taxation, to be resorted to in case of failure of the local assessments to meet the bonds. In Comfort v. Tacoma, 142 Wash. 249, 252 Pac. 929, the important question was whether local improvement bonds became a debt of the city by virtue of the guaranty law, for if so they would increase the city’s debt beyond the *32one and one-half per cent limit without a vote of the people, and the statute would be unconstitutional. The court held that the bonds did not become a debt of the city, saying, in part:
“To state the matter more simply, the city agrees that if the property holders, whose property has been assessed for the improvement, fail to pay in the regular assessments to cover the bonds when due, then the city will make payment for them to a certain extent by accepting the bonds from the holders and levying a tax for the money to pay the same. This will readily be seen to be only a contingent liability as far as the city is concerned, and in no sense a debt proper.
“If A is indebted to B, and C promises that, if A does not pay B, then he (C) will, no one would contend that C had an outstanding debt. He has but a contingent liability that may or may not ripen into a debt. If A fails to pay, then, in that event, the contingent liability has ripened, and the debt is absolute as to C. But until that time arrives C owes B nothing.
“So in the present case, the city will have nothing to pay if the property-holders meet their obligations and pay their assessments. If they fail to do so, then the city will pay into the fund to the extent outlined in the statute. ’ ’
3. For the reason that no debt was created or loan made by the so-called guaranty, it seems clear that the provisions of section 8987 of Compiled Laws of 1921, referred to in the majority opinion, has no application to the so-called guaranty.
4. Counsel quote the following from the opinion in Deter v. Delta, 73 Colo. 589, 217 Pac. 67: “* * * the guaranty by the city of payment of these local improvement bonds makes them a contingent liability of the city, and clearly requires the approval of the qualified taxpaying electors of the city before the city can issue them. ’ ’
The language has no application to this case. The city had enacted an ordinance purporting to create an im*33provement district. Four days later the suit was brought to restrain the enforcement of the ordinance. The case was controlled by a charter provision adopted by the city under authority of the Home Eule Amendment of the Constitution (section 6 of article XX), and the ordinance was adopted before chapter 181, Session Laws of 1923, hereinbefore referred to, was approved; hence the question of the effect of that statute was not before the court.
5. In my opinion, chapters 180 and 181 of Session Laws of 1923, construed together, as they should be, do not offend against the due process clause of either the federal or the state Constitution.
In other states plans have been adopted to supply deficiencies in special improvement funds, so as to meet local improvement bond payments, and they have been upheld as constitutional.
The statutes of some states provide for the creation, by the levy of general municipal taxes, of a special improvement guaranty fund with which to make good any insufficiency in the special assessment fund to pay local improvement bonds; and such statutes have been held not to violate the due process clauses or other provisions of the Constitutions. Wicks v. Salt Lake City, 60 Utah 265, 208 Pac. 538; American Company v. Lakeport, 220 Cal. 548, 32 P. (2d) 622. And see, Comfort v. City of Tacoma, supra.
In the Lakeport case, supra, the court said: “In other jurisdictions the precise question has been presented, namely, whether a municipality may constitutionally levy a general tax to meet delinquencies in special assessments for local improvements; and it has been uniformly decided in the affirmative * * * It should be noted, also, that the method employed by our statute is in effect an advancement of funds, which the city may normally be expected to recover upon resale of the lands secured at the delinquent sales.”
The court held in that case that a mandatory duty *34rested upon the respondents to levy and collect a tax to meet the delinquent assessments.
In Oregon Short Line R. R. Co. v. Berg, 52 Idaho 499, 16 P. (2d) 373, the guaranty fund statute was passed after the bonds were issued, and it was held, the court dividing four to three, that as applied to such bonds the statute was a denial of due process. In the dissenting opinion it is said: “Every reported case in which similar laws have been attacked has sustained the legislation in its prospective operation.” (Italics are mine.) In the case at bar chapter 181 of Session Laws of 1923 was enacted before the creation of the special improvement district and the issuance of the bonds.
In Stanley v. Jeffries, 86 Mont. 114, 284 Pac. 134, the court said: “When, therefore, the legislature provided that, as to special improvement districts created in the future, a fund shall be created to insure the prompt payment of bonds and warrants issued in payment of such improvements, it but modified the special improvement district law to impose upon the general public, within the municipality, a conditional obligation to pay a small portion of the cost of erecting the public improvement, whereas it might have, lawfully, imposed a much greater burden upon the municipality.”
I submit that the General Assembly has adopted a plan, feasible and fair, whereby a most desirable object may be accomplished without offending against any constitutional provision. It is well to remember that all presumptions are in favor of legislative acts, and that courts should not declare them unconstitutional unless their conflict with the Constitution is clear beyond any reasonable doubt.
From an examination of the pertinent statutes and the authorities, it would seem that the remedy of the defendant in error is, not to sue for a money judgment, as was done in this case, but to demand a purchase of his bonds by the municipality and the issuance of a warrant in payment therefor; and if the warrant is not paid and no tax *35levy is made to pay the same, to sue in mandamus to compel such levy.
The judgment is wrong and its reversal is proper.
Mr. Justice Bouok concurs herein.