Crist v. Town of Gallup

McGHEE, Justice.

This is an action against the Town of Gallup to recover the value of bonds made worthless by the act of the town in paying bonds out of their numerical order. The trial court rendered judgment on the pleadings on the grounds the sole remedy of the plaintiff was by foreclosure, and that the issuance of the bonds was not submitted to a vote of the people as provided by Art. 9, Sec. 12 of the Constitution of New Mexico. We will refer to the parties as they appeared below.

By conventional proceedings, the municipality created a street improvement district, levied an assessment against the abutting property, and issued paving bonds payable out of the proceeds of the assessment, unless the owner of the property paid the assessment in full within 30 days after it became effective, it then was payable in 10 equal annual installments, the first on or before June 1, 1932, and the others successively on the same day in each year thereafter until paid in full. Failure to pay any installment when due immediately matured the whole of the unpaid principal. The bonds were in the principal sum of $100,-000 consisting of 200 bonds in the denomination of $500 each. They all matured on Dec. 1, 1941, and were payable in numerical order. The plaintiff is the owner of 26 of these bonds, being numbers 63, 66 to 75, inclusive, and 81 to 95, inclusive. Attached to the bonds are numerous interest coupons.

The complaint had withstood attack by demurrer and stated a cause of action unless defeated by the defensive new matter. On account of the state of the pleadings the trial judge apparently considered only the two defensive matters above stated. Previously, Judge Moise had sustained demurrers to such new matter, but after our decision in Munro v. City Albuquerque, 48 N.M. 306, 150 P.2d 733, Judge Barker believed such decisions to be erroneous and as the orders were only interlocutory, in effect vacated them by allowing such matter to be again pleaded. This was a matter within his discretion and was not error as contended by plaintiff. 41 Am. Jur. Sec. 255, Pleading, p. 472.

Is foreclosure the sole remedy of plaintiff?

As áhown by the recitations in the judgment, the trial judge based his decision on the Munro Case, supra. In that case we excused the City from liability for failure to foreclose assessment liens and allowing them to be barred by limitations, on the ground the bondholder was given the equal right of foreclosure, and that it was his duty to inspect the records and himself file suit on default of the city. It is true the majority spoke quite softly of the trust relation, but it did not repudiate this doctrine, which had been firmly established by 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, and State ex rel. Lynch v. District Court of McKinley Co., 41 N.M. 658, 73 P.2d 333, 113 A.L.R. 746. This limited result was reached over the vigorous protests of Mr, Justice Sadler and District Judge Barker* who sat in the case as a member of this court.

In Freeman v. Town of Gallup, 10 Cir., 152 F.2d 273, 274, in a case involving paving bonds of the same series as in this case, the circuit court of appeals of the Tenth Circuit gave our decision in the Munro case the same construction as did Judge Barker in the present case, that is, that plaintiff’s sole remedy was by foreclosure, although Judge Phillips seems to have been largely influenced by his interpretation of our limitation statute, overlooking, however, the trust relation where limitation does not start running until the trust is repudiated.

We are of the opinion the Supreme Court of Colorado stated the correct rule on this point in Wangnild v. Town of Haxtun, 106 Colo. 180, 103 P.2d 474, and in the second appeal of the same case in 109 Colo. 518, 127 P.2d 328, that the owner of special improvements bonds could maintain an action for damages resulting from the failure of the treasurer of the municipality to pay the bonds in their numerical order as required by statute, which caused depletion of the fund out of which the bonds were payable to such extent that it did not contain money for payment of the owner’s bonds.

We likewise approve the statement of that court in the second appeal that the town was a trustee of the special assessment funds acting for the bondholders, who were the cestuis que trustent, and that where such relationship exists no statute of limitations begins to run until there has been a repudiation of the trust.

The trial court erred in holding plaintiff’s sole remedy was by foreclosure.

Does the fact that the issuance of the bonds sued on was not submitted to a vote of the qualified electors of the town as provided by Article 9, Section 12, of the New Mexico Constitution prevent recovery?

The liability sought to be imposed on the defendant is not because sufficient assessments were not levied to meet the indebtedness or that it assumed such indebtedness as a general liability, but for unlawful disbursements of funds collected, to the damage of plaintiff. As stated by Mr. Justice Sadler in his dissenting opinion in the Munro case, it arises not from within, but without the statute, and as he said, by our own decisions such a liability is not within (statutory or constitutional limitations touching the creation and amount of municipal indebtedness. See 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 in Eddy Co. for 1933, 41 N.M. 9, 63 P.2d 345; 38 Am.Jur. 138, 139; 38 A.L.R. 1277.

"íhe trial court also erred in its decision on this point.

An additional affirmative defense is urged but it was not passed on by the trial court on account of the state of the pleadings, that some bonds were accepted by the town from property owners as payment of the assessments and the liens against their property released, without any money changing hands; and that the town maintained complete records of such transactions.

Ordinarily, we do not pass on questions not necessary for a decision, but due to the long lapse of time since this case was filed and the misunderstanding of our holding in the Munro case, we state these facts, if true, do not constitute a defense. The bondholders had the right to assume that only money would be received in payment and they were not required to inspect the records to see that worthless bonds were being accepted.

The judgment will be reversed and the case remanded to the district court for further proceedings in accordance with this opinion, and it is so ordered.

BRICE, C. J., and LUJAN and SADLER, JJ., concur.