Munro v. City of Albuquerque , 48 N.M. 306 ( 1943 )

The law as declared in the prevailing opinion disposing of appeal No. 4722 strikes a blow at municipal credit in New Mexico so deadly that its recovery therefrom will not be witnessed within half a century. At the same time it operates to bring about a complete destruction of the investments of hundreds, if not more, of our people from all walks of life scattered throughout the nation — in some instances their life savings — made on the faith of an admittedly unfulfilled promise on the part of certain municipalities over the state. Nevertheless, contemplation of a result so harsh and so unjust cannot properly control disposition of the appeal before us, if the conclusion reached be inescapable. The majority feel such is the case here. I entertain an abiding conviction that the weight of reason, logic and well-considered precedent, including unreversed decisions of this court, support a conclusion directly contrary to the one announced by the majority. This, I shall endeavor to demonstrate.

In its early stages the prevailing opinion seeks support for the conclusion later to be announced in a failure to find in the enabling act, the paving statute, authority for imposing general liability on the city. Failing to find such authority, the conclusion arguendo is that it does not exist. Of course, no such authority is to be found in the statute. It is contrary to the whole plan and philosophy of special improvement assessments that the general credit of the city shall be pledged for the retirement of special improvement bonds. Any effort so to do would violate constitutional inhibitions. City of Santa Fe v. First National Bank, 41 N.M. 130, 65 P.2d 857; Henning v. Town of Hot Springs, 44 N.M. 321, 102 P.2d 25.

The fallacy of this argument in support of the opinion lies in the fact that liability of the kind here sought to be enforced, viz., for breach of duty as trustee, arises not from within butoutside the statute. And, by overwhelming authority, including some decisions of our own, such a liability is not within statutory or constitutional limitations touching the creation and amount of municipal indebtedness. Barker v. State ex rel. Napoleon, 39 N.M. 434, 49 P.2d 246; State ex rel. Martin v. Harris, 45 N.M. 335, 115 P.2d 80; In re Atchison T. S.F.R. Co.'s Taxes, 41 N.M. 9, 63 P.2d 345; 38 Am.Jur. 138, 139; 38 A.L.R. 1277.

Another slender reed upon which rests, in part, the ultimate conclusion of nonliability announced in the prevailing opinion is disclosed in the effort to deduce from the language of the statute giving a bondholder the right to foreclose, if the city doesn't, a license in the city to do the very thing which the language relied upon condemns. Reference is to the following language of the statute, L. 1923, c. 133, to-wit: "In case the governing body of such municipality shall fail or refuse to cause any lot or parcel of land to be sold for any delinquent assessment or installment thereof or interest thereon, then the holder or holders of any bond or bonds secured by such assessment may foreclose the assessment lien on such delinquent property in the method now provided by statute for the foreclosure of mortgages (mortgaged) real estate."

Obviously, this language recognizes the city's failure or refusal to foreclose as a default for theretofore the plain duty to enforce appears, to-wit: "In case any such lot or parcel of land so assessed is delinquent in the payment of such assessment or any installment of principal thereof or interest thereon the same shall be sold at the same time and in the same manner as the sale of property in such municipality for delinquent general taxes and at such sale said property shall be bought in by such municipality providing there is no other purchaser therefor."

It impresses one as a strained and unwarranted construction and the imputation to the legislature of an intent wholly foreign to its mind to hold that in opening its mouth to guard against default, it authorized and licensed default. Quite contrary to any such intent and as we ourselves have held, the whole theory of special improvement bonds contemplates prompt payment and collection of assessments, principal and interest, and punctual retirement of outstanding bonds as they mature. Any other theory would acknowledge insolvency of a paving district from the start and in effect operate as a fraud on investors. See State ex rel. Ackerman v. City of Carlsbad, 39 N.M. 352, 47 P.2d 865. To impute to the legislature an intent that would make a paving district insolvent from the time of its origin or, at the least, assure default in meeting principal and interest of its bonds at maturity, is truly unwarranted. This would be an inevitable result of what the opinion says arguendo was likely in the legislative mind.

The majority opinion also endeavors to draw some support for the conclusion announced from the history of an amendment to Laws 1923, c. 133 (House Bill 172) in the course of its passage through the legislature. The amendment, as pointed out in the prevailing opinion, was one striking out the language which would have made the assessments a personal liability of the owner of the property benefited. Obviously, the amendment is wholly without bearing on the question at issue in this case. It is public knowledge that this stricken language was removed to immunize the act against successful attack on constitutional grounds, having nothing to do with the question before us. 5 McQuillin on "Municipal Corporations", 2d Ed. 737, § 2238; Ivanhoe v. Enterprise, 29 Or. 245, 45 P. 771, 35 L.R.A. 58, with case note.

Having demonstrated, as I feel, the unsoundness and irrelevancy of the several auxiliary considerations, drawn upon by the prevailing opinion for its support, in part, we turn now to the legal proposition upon which it bases chief reliance for its correctness. The opinion sets forth four separate grounds of nonliability on the city's part as advanced by its counsel. After quoting them seriatim, the opinion states: "Since our conclusion is that the City is correct in its proposition numbered ``3', we find it unnecessary to discuss the other proposition(s) except incidentally."

Proposition No. 3 as stated in the opinion reads: "3. The statutory right of the plaintiff, as bondholder, to foreclose is exclusive, whether they have a right of action for breach of contract, for breach of trust, or in tort."

The prevailing opinion then proceeds to ground itself upon the proposition that the legislature having created a new right and having afforded a remedy for the enforcement of that right, has by implication and under the doctrine "expressio unius est exclusio alterius", denied to the bondholder any recovery on the cause of action asserted for judgment against the city at large. In my opinion, this view, supported as it is by some of the cases cited, gives an illegitimate and perverted application to the doctrine relied upon, and therein lies a fundamental weakness in the support provided for the majority opinion. It overlooks the controlling consideration mentioned at the outset of this dissent that recovery is not predicated on the statute — does not arise upon any authority for recovery to be found in the statute — but stems rather from a breach of trusteeship — a tort — and the remedy residing in the body of the law for the vindication of rights and the redress of wrongs.

A case recently decided in this court, Ritter v. Albuquerque Gas Electric Co., 47 N.M. 329, 142 P.2d 919, will illustrate my point. No doctrine has been more thoroughly established by this court than that the Workmen's Compensation Act creates a new right and provides a remedy. The remedy has been held to be a part of the right. Taylor v. American Employers Insurance Co.,35 N.M. 544, 3 P.2d 76. Accordingly, we held in the Taylor case that the employer could not waive the time limit on filing claims nor create estoppel by actions or conduct that would toll the time. In the Ritter case, nevertheless, we upheld an agreement as not forbidden affording the employee a remedy outside that provided by the act and said he could enforce it or, rather, was not barred from claiming damages for its breach.

Let us suppose a case wherein a workman suffers injury — the loss of an arm or a leg. Through a fraudulent promise to compensate, the employer persuades him to delay filing a claim until it is too late — until it is barred by limitations — to bring the analogy closer to this case. Would it be said or held by this court that the workman could not recover damages from the employer in deceit for breach of the agreement to compensate? According to my understanding of the majority opinion, such a holding would be inevitable.

Let us suppose another case having to do with a city's duty as trustee under a paving bond issue. Suppose the money sufficient to retire the bond issue is collected by city officials and embezzled. Could it be successfully maintained that a judgment payable from the city's general revenues was unwarranted and not to be sustained? Obviously, it could not. And, yet, one may look in vain for authority in the statute for such a recovery.

Every case which this court has decided, and I have cited several of them hereinabove, holding that a judgment for tort against a municipal corporation is not within the interdiction of the Bateman Act nor proscribed by statutory debt limits for municipalities, argues against the soundness of the position announced in the majority opinion. Certainly, the Bateman Act is no less forceful or restrictive in its inhibition against contracting a debt in excess of current revenues — indeed, it is more so — than is the restriction, correctly implied, in the enabling statute here involved against payment of the bonds from any other source than proceeds of the special assessments. The doctrine of "expressio unius est exclusio alterius", here invoked to support the holding announced, could be invoked with scarcely less logic and reason to sustain the Bateman Act in prohibiting payment of tort judgments. The Bateman Act assuredly has said that municipal indebtedness shall be paid from current revenues and not otherwise. We have held that debts in excess thereof are void. If the doctrine here relied on by the majority as defeating liability has ever been urged as proscribing payment of a tort judgment under the Bateman Act, it certainly has not been upheld, and the Harris, Napoleon and Atchison T. S.F. Railway cases, cited supra, stand as the law of this State on the subject.

It is not my understanding that the prevailing opinion goes so far as to suggest overruling Hodges v. City of Roswell, 31 N.M. 384, 247 P. 310; State ex rel. Ackerman v. City of Carlsbad,39 N.M. 352, 47 P.2d 865; State ex rel. Lynch v. District Court,41 N.M. 658, 73 P.2d 333, 113 A.L.R. 746, holding the city to be a trustee under paving statutes and ordinances such as we have before us. The most the opinion does in this respect is to say we should accept with "caution" what is said in some of these cases on that subject. However, any admonition of caution seems quite amiss when considered in the light of the foregoing authorities and Gray v. City of Santa Fe, 10 Cir., 89 F.2d 406, and Gray v. City of Santa Fe, 10 Cir., 135 F.2d 374; City of New Orleans v. Warner, 175 U.S. 120, 20 S. Ct. 44, 44 L. Ed. 96; Scott on Trusts, § 863; 34 Amer.Jur. 86; 6 McQuillin on "Municipal Corporations" 126 and a large number of others which could be cited.

So, it will be taken as an accepted doctrine in this jurisdiction, which the majority seem displeased with but do not repudiate, that the city was acting as a trustee. So acting, one of its prime duties as trustee was to enforce collection of the paving certificates which formed the security behind the bonds. It is an admitted fact that the city defaulted in the performance of this duty as to large numbers of delinquent properties and continued its default until they became barred by limitations. It is also stipulated as a fact in this case: "that if the defendant, City of Albuquerque, had not allowed the assessments on the numerous properties hereinabove mentioned to be and become barred by the statute of limitations of the State of New Mexico, and had enforced the collection of said assessments against the said properties in accordance with the terms of the said ordinance and the said bond, there would have been sufficient money collected in the paving fund applicable to this series of bonds to have paid the principal of plaintiff's bond in full; * * *".

It is further stipulated that all interest coupons on the bond here involved were paid with due regularity, the first default occurring in the payment of the principal amount of the bond maturing on May 1, 1940.

It thus results that except as this plaintiff is to be charged with notice of the city's default by the condition of the city's paving accounts disclosing delinquent properties, he had no actual notice that delinquencies were taking place. The parties have so stipulated. Indeed, the receipt with regularity of interest on his bond would reassure him that delinquencies were not occurring and relieve him of constructive notice to the contrary if otherwise chargeable. City of McLaughlin v. Turgeon, 8 Cir., 75 F.2d 402.

No doubt one reason for the many admitted defaults of the present defendant in commencing foreclosures, was the belief then generally entertained (so general and long continued as to amount to a practical construction by municipalities and the public of the limitations statutes), as pointed out in the dissenting opinion in Altman v. Kilburn, 45 N.M. 453, 116 P.2d 812, 136 A.L.R. 554, that there was no statute of limitations applicable to a city's right to foreclose paving certificates. This thought is echoed in the brief filed by the city's counsel in the case at bar, in the statement: "Of course, the decision on limitations as to the assessees was undoubtedly generally not expected." However, the Altman case decided the law to the contrary of what they say and I agree was "generally expected" and all causes of action more than four years old which previously had existed either in the city or in the bond holders were suddenly found to be barred. But for the decision in Altman v. Kilburn, supra, this case would not be in court. The bond holders today find themselves the losers on both propositions. The municipalities, whose primary duty it was to foreclose, having defaulted, are relieved of the default, while using and enjoying paved streets paid for by the savings of others over the land, hundreds of whom will never receive back any portion of their investment.

Furthermore, when present paving and other municipal improvements financed by special assessments against the property benefited require replacement and reconstruction, the municipalities themselves will be the first to feel the harmful effect of today's holding. There is no known substitute, short of general municipal taxation or indebtedness, for civic improvements financed by special assessments against the property benefited. With the collapse of that plan for all practical purposes, for want of any feasible way of financing same, the towns and cities of New Mexico will face almost insurmountable difficulties in accomplishing future municipal improvements after today's decision. It would furnish no answer to say, in avoidance of such a disastrous result, that by omitting a privilege in the bond holders to foreclose following default of the city in that behalf, the legislature could make mandatory the city's duty in such behalf, nonperformance of which duty would give rise to recoverable damages. If the duty already is not mandatory, as we think this opinion demonstrates, it is difficult to inject any language into the statute rendering more certain legislative intent that it was to be so considered.

Nevertheless, as already stated, if no other supportable conclusion than that announced by the majority can be reached, these unfortunate results, however regrettable, cannot be avoided. It has been demonstrated, in my opinion, that the prevailing opinion is bottomed upon a misapplication of the doctrine that where the legislature creates a new right and provides a remedy, those invoking the right are confined to the remedy supplied. With its main support gone, the correctness of the conclusion announced is exposed to serious challenge.

Certainly, the position of the city lacks the support of moral sanction. The city's counsel themselves practically admit as much. Seeking to mitigate the harshness of the position taken in the face of the many admitted defaults in the performance of its trust agreement, the following palliatory language is found in its brief, to-wit:

"It was as if the city said: we can't pledge ourself by contract to collect but we say we will establish an office, maintain records, receive and disburse the funds, and undertake, without contracting to do so, to enforce the collections, and if we fall down on the latter you collect yourself. The moral obligation of the city to enforce would ordinarily be strong. The simple truth is that the depression changed the sense of relative responsibilities. * * *

"Arrangements where the sanctions are in part moral, and knowingly not legal, are not at all uncommon in the ordinary dealings of mankind. Though they often lead to disappointment and are generally advised against by our profession, we all know that deals are often made in which one party says he will do things but refuses to assume legal responsibility for not doing so. * * *"

The trouble with this statement of counsel is that the city did assume a legal responsibility in the matter of these collections and the enforcement thereof and it should not be permitted to escape liability on the plea that it is only a moral responsibility. If a moral responsibility only, it is difficult to understand how mandamus may be employed to enforce its performance, a remedy which this court and other courts have held available to the bondholder. State ex rel. Lynch v. District Court, 41 N.M. 658, 73 P.2d 333, 113 A.L.R. 746; Gray v. City of Santa Fe, 10 Cir., 89 F.2d 406; Id., 10 Cir., 135 F.2d 374. Only clear legal rights are enforceable by mandamus. Carson Reclamation District v. Vigil, 31 N.M. 402, 246 P. 907. We know of no instance, nor do counsel cite any, where the remedy was employed to enforce performance of a moral obligation. While the prevailing opinion does not in words lend approval to counsel's appraisement of the city's responsibility as moral only, it does so in effect in its holding of nonliability on the city's part for a breach thereof.

Whenever a party is driven by the exigencies of his case to plead that he is morally obligated but not legally bound, it is time to look for some ground of legal liability and there is here no difficulty in finding it, well supported by abundant authority. City of New Orleans v. Warner, 175 U.S. 120,20 S. Ct. 44, 44 L. Ed. 96; Gray v. City of Santa Fe, supra; Id., supra; City of McLaughlin v. Turgeon, 8 Cir., 75 F.2d 402; Bessemer Inv. Co. v. City of Chester, 3 Cir., 113 F.2d 571; Stephens v. Hubbard, 234 Ky. 115, 27 S.W.2d 665; Henning v. City of Casper,50 Wyo. 1, 57 P.2d 1264, 62 P.2d 304; 6 McQuillin on "Municipal Corporations", 2 Ed., 126, § 2428; 44 Harvard Law Review 610; and extensive annotation in 38 A.L.R. 1271, supplemented in 51 A.L.R. 937, where innumerable cases are discussed and briefly analyzed.

In an able opinion involving paving bonds issued by the City of Sante Fe, presiding Judge Phillips of the United States Circuit Court of Appeals for this, the Tenth Circuit, laid down the rule to be deduced from the authorities as follows:

"Where no assessment has been made but the power to assess still remains, or where an invalid assessment has been made but the power to reassess exists, or where an assessment has not been collected when due but the assessment still subsists and may be collected, the remedy of the certificate holder or bondholder for the lack of diligence on the part of the City officials is mandamus to compel them to assess or reassess and enforce collection.

"On the other hand where the City is without power to levy a valid assessment or has levied an invalid assessment and is without power to reassess, or has by its neglect of duty, permitted a valid assessment to expire and become uncollectible,the City is liable for breach of duty or contract to pay thedebt evidenced by the certificate or bond." (Emphasis mine). Gray v. City of Santa Fe, 10 Cir., 89 F.2d 406, 411.

Under this test the City of Albuquerque is liable to the plaintiff for permitting the statute of limitations to outlaw a suit to foreclose the liens furnishing the security for his bond.

In Henning v. City of Casper, supra [50 Wyo. 1, 57 P.2d 1268], dealing with a somewhat similar situation, the Supreme Court of Wyoming made the following pointed remarks, very pertinent to the situation before this court on the eve of handing down this historic decision in the municipal life of the State, to-wit: "If an individual would give money to another in return for a supposedly valid obligation in writing, and the written instrument should turn out to be invalid, no court would hesitate an instant in making recovery possible. Principles of justice and honesty fundamentally apply to individuals, municipalities, states, and Nation alike, and should be applied alike, unless constitutional or statutory provisions forbid. Municipalities, it is true, are creatures of the Legislature and have only such powers as are granted them, and cannot do the things prohibited by law, as we held in the first part of Tobin v. Town Council,45 Wyo. 219, 17 P.2d 666, 84 A.L.R. 902. But courts ought not, and will not, according to the weight of authority, go too far in brushing aside principles of justice and honesty, and this fact was recognized by us in the second part of Tobin v. Town Council, supra. To give cities to understand that if they can get someone to buy worthless bonds, the purchaser may go and find hismoney where he can, and that upon them or their officers rests noduty whatever, does not sound like a salutary rule." (Emphasis mine.)

In reaching the conclusion they do, the majority are forced into the vulnerable position of asserting that the powers of foreclosure conferred by the legislature upon the city and the bondholders are of equal dignity and efficacy. In their opinion, they say: "The legislature in constituting the governing body of a municipality an instrumentality for the collection and enforcement of assessment needs could have imposed an absolute duty upon such governing body. The legislature might have made this proceeding the sole duty of the governing body of a municipality. We assume that whatever rights and powers the governing bodies have in this respect are derived from the act of the legislature and that the bond holder would not have any right to foreclose the assessment liens without an enabling act of the legislature. The power conferred by the legislature upon the governing body of a municipality and upon the bond holder are of equal dignity and efficacy, the only difference being apparently that the bond holder could not properly proceed to exercise the remedy except upon a showing that the city had failed or refused to do so."

An analysis of this brief excerpt from the prevailing opinion plainly discloses the several false premises upon which rests the ultimate conclusion of nonliability on the part of the city. (1) The legislature did impose upon the city an "absolute" duty of foreclosure, following delinquency; otherwise, its performance could not be enforced by mandamus, as we have held. (2) The legislature did make foreclosure the sole primary duty of the city, upon delinquency, the statutory privilege arising in the bondholder upon default in the performance thereof in no manner denying it character as such. (3) The duty (less aptly called "power" in the quotation above) of foreclosure in the city and the statutory privilege of foreclosure in the bondholder to cushion a city's default in the performance thereof are not of "equal dignity and efficacy", and in the very statement of the "only difference" between them as being "that the bond holder could not properly proceed to exercise the remedy except upon a showing that the city had failed or refused to do so", the majority prove convincingly that they are not of equal dignity and efficacy.

How can it be fairly said that the statutory right of foreclosure in the bondholder is as high in rank, dignity or efficacy, as the mandatory duty of foreclosure imposed on the city, when the one never so much as comes into being until, through either mere negligent or deliberate inaction of the party charged with the duty, the breath of life is blown into theright? How can it be considered of equal efficacy when the city holds possession of all lien certificates whose foreclosure is sought and it is given express statutory authority to bid in the property as trustee for the benefit of all the bond holders? And, is it not ironic to speak of the bondholder's secondary statutory privilege arising upon nonperformance of the city's primary duty as being of equal efficacy, in the face of the known fact that the bondholders are scattered to the four corners of the nation and must act concertedly, if at all, only after long and extensive inter-communication, organization of bond holders' committees and the collection of funds to finance the litigation?

These are but a few pertinent questions to which the prevailing opinion supplies no answer. But there is still another whose correct answer conclusively establishes the fallacy of the majority assertion that the bondholder's right and the city'sduty are of equal dignity and efficacy. If they are so, upon what legal theory may the bondholder by mandamus compel the city to perform an act which he may himself do as well and as effectively? Why would it not furnish a complete legal defense in mandamus for the respondent to answer: "Foreclose yourself — the duty of foreclosure residing in you is as great and its performance by you as efficacious as that imposed upon me. Proceed on your own account."

The prevailing opinion has not and cannot furnish a satisfactory answer to these queries. The very fact that mandamus will lie at the suit of the bondholder to compel the city to foreclose fastens the primary duty of foreclosure on the city. And once it is conceded that the primary duty rests on the city, its liability for a breach thereof is abundantly established.

Much is said in the prevailing opinion of a supposed unfair advantage possessed by the bondholder in standing by and permitting the statute of limitations to run and thereby gaining a security never contemplated by the statute — the general taxing power of the city. It all comes back to the question of where rests the primary duty of foreclosure. If it rests on the city, as has been demonstrated, then all the city need do is to perform in good faith its mandatory duty of foreclosure and the bond holder will never be in a position to stand by and watch limitations run on the right of foreclosure, if so disposed.

If, in the beginning, the city entertained the ideas now advanced that the duty on it is not absolute; that the right arising in the bond holder after its default is of equal rank and dignity with the duty imposed on it, good faith on its part as a trustee would seem to have called upon it to notify the bond holders that it was repudiating the trust in order that they might protect themselves. Cf. City of New Orleans v. Warner, supra. Not only was no such notice given the plaintiff, a bond holder, but the city continued seasonably to pay him interest, which it had not collected, up to the very last installment, thus lulling him into a sense of false security, while permitting the statute of limitations to bar foreclosure on delinquent properties. I cannot approve either the reasoning or any authority that will absolve the wrongdoer from responsibility in such circumstances.

As to appeal No. 4718, affirmed by the majority, "not for the reasons given by the district court", but for the reasons stated in disposing of appeal No. 4722, my disagreement naturally persists. The majority hold the complaint filed below and before us upon review of the judgment in appeal No. 4718 fails to state a cause of action against the city. For all the reasons heretofore given, in my opinion, it does.

I dissent.

WM. J. BARKER, District Judge, concurs.

On Motion for Rehearing. The above-entitled causes having heretofore been heard and submitted on motion for rehearing, and the Court being now sufficiently advised in the premises, Chief Justice SADLER, Mr. Justice MABRY, Mr. Justice BICKLEY, District Judge WILLIAM J. BARKER and District Judge LUIS E. ARMIJO sitting, it is ordered, adjudged and decreed that said motion for rehearing be and the same is hereby denied.

Chief Justice SADLER and District Judge WILLIAM J. BARKER dissenting from such action by written opinion on file herein.