Marks v. City of Mandan

I agree with the opinion prepared by Judge Morris, with the exception of that portion of the opinion that deals with § 184 of the Constitution of North Dakota. I dissent from the holding that the liability which chapter 171, Laws 1929, imposes upon a city that issues special improvement warrants, for any deficiency that may exist in the special fund against which the warrants are drawn upon the maturity of the last warrant, does not constitute an indebtedness of the city within the meaning of § 184 of the Constitution. In my opinion the effect of said chapter 171, Laws 1929, is that a city "incurs an indebtedness," within the purview of said § 184 of the Constitution, when it issues a special improvement warrant.

Section 184 of the Constitution provides: "Any city, county, township, town, school district, or any other political subdivision incurring indebtedness shall at or before the time of so doing, provide for the collection of an annual tax sufficient to pay the interest and also the principal thereof when due, and all laws or ordinances providing for the payment of the interest or principal of any debt shall be irrepealable until such debt be paid."

The city of Mandan issued certain special improvement warrants to pay for the construction of a sewer system. Each of the warrants contained a provision pledging the faith and credit of the city to levy special assessments for the total cost of the improvement, cause the same to be collected and paid into the fund applicable to the payment of such warrants, and further "to levy a tax upon all taxable property of the city for the payment of any deficiency which may exist in said fund upon the maturity of all warrants of this series, and to cause each step authorized by law to be taken for the punctual payment of the principal and interest of this warrant at maturity." This latter recital in the warrants was in conformity with the provisions of chapter 171, Laws 1929, that: "Whenever all special assessments collected for a specific improvement are insufficient to pay the special improvement warrants issued against such improvement with interest, the city council or city commission, as the case may be, shall upon the maturity of the last special improvement warrant, levy a tax upon all the taxable property in the city for the payment of such deficiency."

The contingency specified in the statute and in the recital in the warrants has come to pass — that is, all the special assessments collected for the specific improvement are insufficient to pay the special improvement warrants issued against such improvement and upon the maturity of the last special improvement warrant there is a deficiency in the fund into which the collections of the special assessments have been paid, and this proceeding is brought to compel the levy of a tax upon all the taxable property in the city for the payment of such deficiency. As I understand the opinion of the majority, it is predicated upon the premise that the contract and the statute which impose an obligation upon the city to levy such general taxes and the provision in the special assessment warrants pledging the faith and credit of the city to do so, are valid and enforceable, but, that notwithstanding this, the city did not incur any indebtedness by issuing the warrants, within the purview of § 184 of the Constitution.

It is true warrants issued by a city pursuant to law for an improvement and payable solely out of special assessments upon property benefited by the improvement are not "debts" or "indebtedness" within the purview of the debt limiting provisions of the state Constitution. Vallelly v. Park Comrs. 16 N.D. 25, 111 N.W. 615. In such cases no debt is contracted or indebtedness incurred by the city to be paid by it.

"The debt is to be paid by the property benefited; that is, from the funds of the individuals, and not from the funds of the municipality. . . . The municipality acts merely as an assessing and collecting agent. A full performance of the obligation of the municipality under such a law involves it in no financial liability. The individual property owner who is benefited pays the debt. It is through a breach of its obligation, and not by a performance of it, that the municipality incurs a financial liability." State ex rel. University School Lands v. McMillan,12 N.D. 280, 303, 304, 96 N.W. 310, 318.

The indebtedness evidenced by the special assessment warrants in question here was not payable solely out of special assessments. The undertaking of the city, sought to be enforced here, was that if the special assessments did not produce sufficient moneys to pay the special assessment warrants in full, the city would pay the balance remaining out of its general revenues.

The right of action here is not predicated upon any breach of obligation of the city to properly assess and collect the special assessments and disburse the proceeds thereof to those entitled to receive them. It is predicated upon an alleged legal obligation, extraneous to the special assessments, which the city assumed when the warrants were issued, — an obligation different from, and in addition to, the obligations of the city incident to the assessment and collection of the special assessments, and the disbursement of the proceeds thereof. This obligation is not payable out of a special fund collected from individuals whose property has received correlative special benefits. It is payable out of general taxes to be imposed upon all taxpayers. In my opinion, the assumption by the city of this obligation constituted the incurring of an indebtedness. Garrett v. Swanton, 216 Cal. 220, 229, 230,13 P.2d 725, 729.

The majority construe said § 184 as applying only to a "debt" in the strict and technical sense of that word, and, hold that hence the section has no application to the "incurring" by a city of a contingent liability which may or may not ultimately become an absolute debt. In my opinion § 184 was intended to apply not only to "debts" in the strict and technical sense of that term, but to any and all "indebtedness" whether the same be absolute or contingent. I believe it was the intention of the framers of the Constitution, and of the people who adopted it, to inhibit a city (and other political subdivisions of the state) from incurring any obligation that upon the happening of some future event would, without further act on the part of the city, become an absolute debt of the city. It is to be noted that § 184 does not say that a city shall at or before the time it "contracts" a "debt" make the provision for the payment prescribed in such section. It says that a city at or before the time of "incurring indebtedness" shall make such provision. It is not to be supposed that the framers of the Constitution employed any words without occasion or deliberate intent, but rather that they "expressed themselves in careful and measured terms corresponding with the immense importance" of the rules they were formulating. Cooley, Constitutional Limitations, 7th ed. p. 92. In § 184, the framers of the Constitution used the words "incurring indebtedness." It is rather significant that in the two preceding sections they employed the terms "contract" and "debt." In § 182 of the Constitution they said: "The state may, to meet casual deficits or failure in the revenue, or in case of extraordinary emergencies, contract debts, . . . ."

In § 183 they said: "The debt of any . . . city . . . shall never exceed 5 per centum upon the assessed value of the taxable property therein; . . . ."

"The word incur is defined by Webster as ``to become liable or subject to; to render liable or subject to.' Black — (Black, Law Dictionary, 2d ed.) — says: ``Men contract debts. They incur liabilities. . . . Incur means something beyond contracts, something not embraced in the word debt.' In Scott v. Tyler, 14 Barb. (N.Y.) 202, incur is held to mean ``to become liable for.' In Flanagan v. Baltimore O.R. Co. 83 Iowa 639, 50 N.W. 60: — ``To become liable for.' . . . Hence it is apparent that the word incurred means more and embraces a different class of liabilities or obligations from those contracted." Bank of Indian Territory v. Eckles, 19 Okla. 159, 91 P. 695, 697.

Corpus Juris (31 C.J. p. 410) defines incur as meaning: "To assume, contract for, or become liable or subject to through one's own action; to become liable for or subject to; to bring on; to occasion or cause; to render liable or subject to; . . . ."

The word indebtedness is defined by Webster and by the New Standard Dictionary as, "The state of being indebted."

Corpus Juris (31 C.J. pp. 411-413) says: "Judicial definitions of the term indebtedness are numerous, and they must be read in connection with the facts out of which their necessity arose. Although the term has been said to have a fixed and well-understood meaning, it is a wide term of large meaning; and it must be construed in every case in accord with the context. . . . The term ordinarily may be defined as meaning the condition of owing money; the state of being by voluntary obligation, express or implied, under legal liability to pay in the present or at some future time for something already received, or for something yet to be furnished or rendered; the state of being indebted, . . . . Indebtedness is sometimes used in the sense ofdebts. However, indebtedness is of a wider and even less technical significance than debt."

While "debt" is a common-law term of technical meaning, and in this sense means "that for which an action of debt or indebitatus assumpsit will lie," it is used in different statutes and constitutions in a sense varying from a very restricted to a very general one. 17 C.J. 1371, 1372. It has been said that its meaning "in any particular statute or constitution is to be determined by construction, and decisions upon one statute or constitution often tend to confuse rather than aid in ascertaining its signification in another relating to an entirely different subject." Note in 37 L.R.A.(N.S.) 1058. In the technical sense of the term, a sum payable upon a contingency is not a debt and does not become a debt until the contingency has happened. Notwithstanding this, however, legal writers, courts and law-makers frequently speak of "contingent debts." 13 C.J. p. 114; U.S. Rev. Stat. § 5068; Woodward v. Herbert, 24 Me. 358; 2 Collier, Bankruptcy, 13th ed. pp. 1372, 1418; 17 C.J.S. p. 183.

In interpreting the indebtedness limiting provisions of the Constitution, the object sought to be accomplished thereby should be kept in mind. The framers of the Constitution had the benefit of the experiences of other states. At the time our Constitution was framed, the history of many states afforded convincing evidence for the necessity of constitutional inhibition against unbridled expenditure by political subdivisions. Many counties and cities had become bankrupt through the extravagant management of their governing bodies, and in many instances such expenditures had been approved by the vote of the people. The framers of the Constitution had in mind the evil to which municipalities of other states had been subjected by the creation of obligations to be paid at some future date, especially where no adequate provision had been made for payment. The clear and unmistakable purpose of the framers of the Constitution of the state, by inserting the several sections in Article 12 of the Constitution, was effectually to protect the taxpayers, present as well as future, from abuse of the public credit and the consequent oppression of burdensome, if not ruinous, taxation. 37 L.R.A.(N.S.) 1060, 1061. By § 183 they put a definite limit upon the amount of debt that a city or other political subdivision may incur. That limit was predicated upon the assessed value of the taxable property therein. By § 184 they prohibited a city or other political subdivision from incurring any indebtedness whatsoever, unless at or before the time of so doing, provision were made, by an irrepealable law or ordinance, "for the collection of an annual tax sufficient to pay the interest and principal thereof when due." By the following section (§ 185) they prohibited the state and all political subdivisions thereof from loaning or giving their credit or making donations to or in aid of any individual, association or corporation, except for the necessary support of the poor. These several constitutional provisions "are mandatory and prohibitory" (N.D. Const. § 21), and must be so construed. They were intended not only to limit the powers of political subdivisions to contract debts or incur indebtedness; they were intended also to require those who contract a debt or incur indebtedness to prepare for the day of payment so that when the debt or indebtedness falls due there will be funds available with which to make payment. They were intended to place it beyond the power of the Legislature to authorize or require cities or other political subdivisions to contract debts, or to incur or assume any indebtedness or any liabilities that later may ripen into debts, except to the extent and in the manner prescribed by such provisions.

If the framers of the Constitution had intended that § 184 should restrict only the power "to contract debts," but that it should not restrict the power of a governmental subdivision to assume a legal liability to pay a certain obligation that, upon the happening of some specified contingency, might become the absolute debt of such political subdivision at some future time, they would doubtless have used language that would have evidenced such intention. As pointed out, they used the terms "contract" and "debt" in the preceding sections. They did not use these terms in § 184, but used terms indicating an intention that the limitations of that section should extend beyond the contracting of debts; and that it was intended not only to forbid a political subdivision to contract debts, but to forbid it as well to take any action or assume any obligation that would render it liable to an indebtedness in any circumstances, either currently or at some future date, — except upon, or after, making provision, as prescribed by said § 184, for the payment of the interest and principal of such indebtedness when the same should become due.

It seems clear that the framers of the Constitution intended to make it impossible that a situation such as that which results from the enforcement of the liability against the city for the deficiency in the special improvement fund in this case should ever arise in this state. The special assessment warrants involved here were issued more than ten years ago. The obligation which it is sought to enforce is predicated alone upon the obligation that was assumed by the defendant city when the special assessment warrants were issued. The obligation of the city to pay the deficiency, and the duty of its officials to levy a general tax to provide the necessary funds for making such payment, are rooted in the special assessment warrants. The obligation of the city came into being when the warrants were issued. It was then that the city assumed, and rendered itself liable for, any deficiency there might be in the fund against which the warrants were drawn "upon the maturity of the last special improvement warrant."

The happening of the contingency, — the existence of a deficiency in the fund against which the special warrants had been drawn at the time the last warrant matured, — did not constitute the "incurring" of an "indebtedness" by the city. That merely operated to mature and render enforceable the obligation the city had assumed when the warrants were issued. The "indebtedness" found to exist "upon the maturity of the last special improvement warrant" was not incurred when such warrant matured, it was incurred when the warrants were issued. The "state of being indebted" in which the city found itself did not result from any action on the part of the city or its officials interim the issuance of the warrants and the maturity of the last warrant. The "state of being indebted" for the amount of the deficiency in the special improvement fund, and the obligation of the city to pay such deficiency, came into being at the time of the issuance of the warrants, and existed solely as a result of their issuance.

"There is a clear and wide distinction between the creation of a liability and the accruing of a cause of action thereon, . . . A liability may be absolute or contingent; it may be unconditional or limited; it may be presently enforceable by action, or there may be time given for its performance; but, whatever its character, it is created by the consummation of the contract, act, or omission by which the liability is incurred." Hunt v. Ward, 99 Cal. 612, 615, 34 P. 335, 336, 37 Am. St. Rep. 87. See also First Nat. Bank v. Consolidated Lumber Co. 16 Cal. App. 267, 116 P. 680.

Here there was an existing indebtedness in the sum specified in the warrants, payable out of a special fund; and when the warrants were issued the city, under the recitals in the warrants and the provisions of the statute, agreed that if all the special assessments collected proved to be insufficient to pay the warrants, upon the maturity of the last warrant the city would levy a general tax to provide the necessary funds to pay whatever sum remained unpaid on such warrants. The liability was certain and definite; the time of performance was definite; the only matter of uncertainty was the amount that the city might ultimately be required to pay, and as to this a definite measure was prescribed by which such amount should be computed.

The majority opinion makes reference to the decision of this court in Bismarck Water Supply Co. v. Bismarck, 23 N.D. 352, 137 N.W. 34. The facts in that case readily distinguish it from this case; and that decision is no authority for sustaining the validity of the stipulations in the warrants and the provisions of the statute involved here. The question there was whether a certain contract entered into pursuant to an ordinance of the city created an indebtedness in excess of the debt limit prescribed by § 183 of the Constitution. The city had granted a franchise to the Water Supply Company to establish, maintain and operate "a water system and waterworks" in the city; and to "lay and maintain water mains and pipes under any and all avenues, streets, alleys, public grounds and thoroughfares of said city, for the purpose of distributing water throughout the city to its patrons for the period of twenty years." The ordinance granting the franchise, also, provided: "In the event of a change of grade on any street or highway where the party of the second part shall have heretofore laid pipes or mains, the party of the first part shall reimburse the party of the second part in full for any expense that said party of the second part may be put to on account of such change of grade, either by way of lowering its pipes or mains to avoid the action of frost, or raising its pipes or mains or otherwise."

After the ordinance had been passed and become effective, the city and the Water Supply Company entered into a written contract as required by the ordinance, which contract, among others, contained stipulations, substantially in the language of the last quoted provision of the ordinance. Some years after the contract was made the city changed the grade on a street where the Water Supply Company had theretofore laid pipes and mains pursuant to its franchise, with the result that the mains and pipes theretofore laid were brought "too near to the surface to be below the frost line, and it became necessary for the Water Supply Company to lower and relay such mains and pipes, which it did." The city refused to pay the Water Supply Company for the moneys necessarily expended in lowering and relaying the mains and pipes, and thereupon the Water Supply Company brought suit against the city. In its answer the city, among others, asserted as a defense that the liabilities attempted to be assumed by the city under the ordinance and contract, "when added to the then existing indebtedness of such city, exceeded the constitutional debt limit, and that consequently such ordinance and contract to such extent were and are null and void." The cause was submitted in the trial court on the pleadings alone, and judgment was ordered for the plaintiff. On appeal, the contention was again advanced by the city that the obligations assumed by the city under the ordinance and contract created an indebtedness, and that by such ordinance and contract the city had incurred an indebtedness in excess of the constitutional debt limit fixed by § 183 of the Constitution. This contention was disposed of by this Court in the opinion in the case in the following language:

"Nor do we deem its contention sound, to the effect that by such contract the city incurred an indebtedness in excess of the constitutional debt limit. The presumption is in favor of the validity of the acts of the defendant's officers. Furthermore, the answer sets forth no sufficient facts as a basis for this attempted defense. No indebtedness was incurred by the ordinance and contract in question in so far as expenses such as those here sued for are concerned. As to this feature of the contract the defendant city merely incurred a contingent future liability."23 N.D. 362, 137 N.W. 37.

In Bismarck Water Supply Co. v. Bismarck, supra, no obligation was incurred or assumed by the city to make any payment merely upon the happening of a contingency, and without any action on the part of the city or its officials. The only manner in which any liability could or would arise was by an affirmative action of the city changing a grade in such manner that the change operated to the injury of the property of the Water Supply Company employed by it in the operation of its business under its franchise.

It seems to me that the situation created by the application and enforcement of chapter 171, Laws 1929, in this case is one which the framers of the Constitution sought to provide against. I believe that when they said (§ 184) that a city shall not incur any indebtedness unless "at or before the time of so doing," it shall make provision "for the collection of an annual tax sufficient to pay the interest and also the principal thereof when due," they intended not merely to prohibit a city from contracting a debt unless it made such provision, but they intended as well to prohibit a city from assuming, or rendering itself liable or subject to, any legal liability, either absolute or contingent, to pay any indebtedness at some future time, unless before or at the time it assumed or rendered itself subject to such liability, provision were made for the payment of such indebtedness when the same became payable, as prescribed by the Constitution. In other words, I believe that it was the purpose and intent of § 184 of the Constitution to prohibit a city from placing itself in "a state of being indebted," either currently or at some future date, unless at or before the time the city made such commitment it made provision for the payment of such present or future indebtedness, when the same should become due, by the levy of the prescribed tax. It seems to me that any other construction ignores the objects sought to be accomplished by the Constitution, and makes it possible to bring upon the political subdivisions of the state, and their taxpayers, the very evils that the framers of the Constitution so earnestly sought to guard against.

The records of this court contain forceful proof that the obligation to pay a deficiency that may arise in a special assessment fund is not a mere shadowy or imaginary obligation. It is an obligation that may place upon a city an absolute financial obligation for a sum that may equal the whole amount of indebtedness that a city may contract. In fact, the deficiency may greatly exceed the constitutional debt limit. See Schieber v. Mohall, 66 N.D. 593, 268 N.W. 445. If a city may assume an obligation such as that which the city of Mandan assumed here, and such obligation be deemed nonexistent until it has become an absolute obligation to pay the deficiency found to exist in the special assessment fund upon the maturity of the last warrant, then a city that has no outstanding indebtedness today may tomorrow, upon the maturity of such last warrant, find itself in dire financial straits. A city that is without financial indebtedness today may tomorrow, upon the maturing of the last of a series of special assessment warrants issued twenty years ago for the construction of a sewer or a water main at that time (Comp. Laws 1913, § 3717; Laws 1923, chap. 288), or a similar warrant issued thirty years ago for the construction of a pavement at that time (Comp. Laws 1913 § 3719), find itself confronted with a deficiency in a special assessment fund in an amount as large as, or even in excess of, the debt the Constitution says is the maximum the city may contract. It may find itself with its credit exhausted and unable to make expenditures for even emergency purposes because of obligations that were actually assumed twenty or thirty years ago, but for the payment of which no provision had been made, either before or at the time they were assumed, as § 184 of the Constitution prescribes.

In my opinion the agreement in the special assessment warrants to levy a tax upon all taxable property of the city to pay any deficiency in the special assessment fund against which the warrants were drawn, and the requirements of chapter 171, Laws 1929, that the governing board of the city shall levy such tax, run counter to the prohibition of § 184 of the Constitution of this state; and, hence, both the agreement and the statute are null and void and do not confer upon the holders of the warrants any right of action against the city.

I am authorized to say that Judge Burr agrees with the views expressed in this opinion.

BURR, Ch. J., concurs.