Commonwealth v. Philadelphia County

Opinion by

Mb. Justice Dean,

The form of the action in the court below was assumpsit, for recovery of tax on personal property for year 1890. By the act of June 1,1889, the commonwealth, for her own use, imposes certain taxes on personal property in the counties and cities within her- limits. The same act directs how the taxes shall be assessed, collected and paid into the state treasury. After providing for assessment, it directs : (1) It shall be collected by the different counties and cities. (2) On the first Monday of September in each year, such amounts as have then been collected for that year shall be paid to the state treasurer. (3) On the second Monday of November following, the re mainder shall be paid. (4) Then, the state treasurer shall return to the county or city one third the net amount of taxes thus paid into the state treasury; the purpose of such return being the reimbursement of the county or city for the expenses incurred in the assessment and collection of the tax.

Under the act of March 30, 1811, it was made the duty of the auditor general to examine and adjust the accounts between the commonwealth and the counties, according to law and equity. So, on the 31st of December, 1890, the auditor general settled and adjusted the commonwealth’s account against Philadelphia county for the personal tax of the year 1890. The following is an abstract of that settlement:

Amount of tax for year 1890, . . $779,811.22

Deduct treasurer’s commission 1 pr. ct. 7,798.11 — $772,013.11

Add balance at settlement March 7,

1890,...... $170,895.48

$942,908.59

By payment into state treasury on account of state tax, . . . 320,895.48

Net balance due, . $622,013.11

To this settlement the auditor general appended this explanation :

“ Note: The board of revenue commissioners decided that the act of June 1, 1889, requires the several counties of the commonwealth to pay into the state treasury the entire amount of tax for the year 1890, less county treasurer’s commission of 1 per cent. After this is done, the auditor general will issue his warrant for $259,937.07 in favor of your county, being one third of said tax per section 16, act of June 1,1889. On December 30, 1890, the auditor general issued a warrant in favor of above county for $150,000 as payment in part of above $259,937.07.

Thomas McCamant,

“ Auditor General.”

From this settlement no appeal was taken, and the balance, $622,013.11, not having been paid, the commonwealth, on the 31st of August, 1891, brought this suit against Philadelphia to enforce payment. The case was tried without a jury, under the act of 1874, before Judges Simonton and McPherson. On the trial, these.were the facts which either were not disputed or must now be taken as established:

John Bardsley had been elected and was duly qualified as treasurer of the county of Philadelphia for three years from the first Monday of January, 1889, and continued in the office until May 20,1891, when he resigned. The state had opened with him four separate accounts : Personal property tax; license tax ; mercantile tax ; loans tax. As to the license and mercantile tax, he acted solely for the state. By the express terms of the act, the taxes on personal property were transmitted through him to the state treasury. While in office, he received large sums of county and state money from both sources, and became a defaulter as to each in the sum of more than half a million dollars. The quarterly returns and payments directed by the act of June 7, 1887, were not demanded or enforced against him by the auditor general, and he was permitted to retain large sums after they should have been paid into the state treasury. He appropriated to his own use, indiscriminately, the money of the commonwealth and county, and both will be losers to the amount of many hundreds of thousands of dollars by his dishonesty. The money claimed in this suit was paid to him by the receiver of taxes for the county and is lost, for he is now in prison for a long term, and is hopelessly insolvent. One hundred and forty-five thousand dollars of the money received for taxes on personal property for the year 1890 was paid by him into the state treasury, and appropriated on another account of the commonwealth by his directions, but the commonwealth’s officers had no knowledge of the fact that it was taken from the personal property tax money. Seventy-five thousand dollars of this sum was paid prior to the settlement by the auditor general, and $70,000 afterwards. The sureties of John Bardsley on his bond to the commonwealth paid the amount of the bond, $120,000, in October, 1891, to the commonwealth, and that sum was applied in part payment of indebtedness of Bardsley on other accounts.

In reviewing a case tried under the act of 1874, on assignments of error to the rejection of testimony, we must treat the offers as stating the facts. Their relevancy, the inferences to be drawn from them, and the legal conclusions, are for the court.

The first assignment of error pressed in the argument by counsel for Philadelphia county, appellant, is to the exclusion of the offer to prove that the personal property tax for 1890 was assessed. and collected by the county, and paid over to John Bardsley, county treasurer. The conclusion sought to be drawn from the facts is that, under the act of 1889, the county treasurer was the agent of the commonwealth, and the payment to him discharged the county.

If this were a new or doubtful question, the very large amount involved would impel us to a careful consideration of the able argument of counsel for appellant. But, while it is plausible, it leads to a conclusion which is not the law. More than thirty years ago, after most careful consideration, both by the court below and this court, of the whole question, in Commonwealth v. Schuylkill County, 86 Pa. 524, it was decided, under similar facts, the county treasurer was not the agent of the commonwealth, but of the county, until the tax was paid by him to the state treasurer. The act of assembly of 29th of April, 1844, which provided for the assessment, collection, and payment into the state treasury by each county of its quota of state tax, as respects the question before us, is substantially the same in its provisions as the act of 1889. Under each act, the several counties are required to assess, collect and remit the tax to the state treasurer. The same defence was made by the county in that case as in this, and the late Judge Pearson, who presided, answered it thus: “ It is also urged that in collecting state taxes, the county treasurer acts as agent for the state, and not for the count3>-, and no advantage can be taken by the state of the delinquency of her own agent. The law in force since 1834 required the county treasurer to collect state taxes, and to give bond for the faithful performance of his duty. The people of the county alone have authority to select the individual who shall perform that duty, and, when selected, none other can be employed. They must take care whom they choose for that purpose. To our mind, there is not even the semblance of hardship in making the same persons who select the agent responsible for his acts. It is no new duty thrown on the officer after his election ; the people choose him, with full knowledge that he must receive the state as well as the county funds. The liability is not, however, put on that position, but on the positive words of the act of assembly, which holds the county responsible for the taxes until paid into the state treasury.”

On appeal to this court,-the judgment was affirmed, and it was said by Justice Strong, who delivered the opinion: “We consider it perfectly clear that the county is made responsible to the state for the quota of tax assessed against it, from which it cannot be discharged but by payment into the state treasury. If the collectors fail to collect the taxes due the state, the county treasurer must pay the amount out of any money in the treasury. If the taxes are collected, but not paid over by the county treasurer, he is responsible for the interest which the county may be obliged to pay, not liable to the state, but to the county.”

It was settled by that case, that, as to taxes assessed against the county, the county treasurer, in receiving and paying them over to the state, is the agent of the county. Nothing relieves the county from liability to the state but actual payment to the state treasurer. The decision has been followed since without interruption, and must be considered the law, binding on all the courts of the commonwealth until the legislature, by distinct enactment, establishes a new line at which the duty of a county treasurer ends, and his power and responsibility as an officer of the commonwealth begin.

Philadelphia v. Martin, 125 Pa. 583, cited by counsel for the county, is not in conflict with Schuylkill County v. The Commonwealth, for the question there was altogether different from this. It was: Does the commission which the state is required to pay to the county treasurer belong to the officer or to the county? The answer was, to the officer. The decision is authority on that point alone.

It is further assigned for error, that 1145,000 of the personal property tax received by Bardsley was applied by him on another account with the commonwealth, for which the county was in no way responsible. It is argued that such an appropriation was an embezzlement by him as a trustee of county funds, and that fact now appearing, the commonwealth holds the money on the same trust. Assuming that a knowledge on part of the state treasurer of such misappropriation of the county’s money, at the time it was made, would have turned the commonwealth into a trustee for the county, there is no pretence here that the state treasurer knew from what fund this money was taken when it was paid by Bardsley. It was applied as he directed on an account which showed a large balance against him. Under all the facts developed, it is doubtful if anything would have been gained by either party by identifying misappropriations of the defaulting officer. He seems to have used county money to pay the state, and state money to pay the county, with an impartiality measured only by his necessities and the amount within his reach.

But aside from this, the claim raises a distinct cause of action, not entering into the settlement and adjustment authorized to be made by the auditor general. To make it the subject of inquiry here, would, in effect, be to sustain a suit by the county against the commonwealth for the tortious act of the county’s agent in another transaction. Under such a construction of the act of 1811, holding on to taxes when paid, would require greater vigilance than collecting them when assessed; instead of money in the treasury determining the commonwealth’s ability to pay for public purposes, it would only show the amount on hand, subject to depletion for unknown claims. We think the court very properly declined to go into an inquiry which could not have profited defendant. The authorities cited by the learned counsel for appellant are all cases where the suit was by the beneficiary against an individual depositary of the trust fund, and therefore do not rule the case before us. The subject can always be sued either at law or equity; the sovereign, never except bjr express statutory permission.

The next error complained of by the county, is the refusal of the court to enter a credit for the one third of the full amount of personal property tax assessed for the year 1890, under the 16th section of the act of 1889. This section directs : “That one third of the net amount of tax .... that is collected and paid into the state treasury by a county .... shall be returned by the state treasurer to such county .... for its own use in pajnnent of the expenses incurred by it in the assessment and collection of said tax.”

The amount of tax for 1890, as fixed by the board of revenue commissioners, was $779,811.22. If this amount had been paid into the state treasury, then the county would have been entitled to an immediate return of one third, and this, according to the computation made by the revenue board, as appears by the note appended to their settlement, was $259,937.07.

The construction put upon this provision of the act by the ■court below is doubtless correct as an interpretation. The intent was to stimulate prompt payment by the counties of the •state’s portion of the tax; and to that eiid, the county was not to get one third until it had collected and paid the whole. ■

But the commonwealth had returned $150,000; this was claimed to be an improvident payment, and the commonwealth asked that it be repaid. The court refused to charge this back to the county as a premature and illegal payment. The commonwealth having chosen to anticipate the return payment to the amount of $150,000, the demand now that it be paid back is not reasonable, in view of the fact that no question is raised as to the ability^ and willingness of the county to establish its right to the money by paying into the treasury the whole amount of the personal property tax yet unpaid, as soon as the amount is finally determined. The court below, even on a strict interpretation of the law, Very properly declined to disturb a payment which the commonwealth chose to make.

But the county claims a credit for the $109,937.07 remainder of the one third. This claim was not sustained, because, as the court below held, the settlement, as shown by abundant authority, was conclusive unless appealed from, and unless unusual circumstances existed the defendant could show nothing except payment after the settlement.

Judgment was accordingly entered against the county on this statement of the account:

Balance on settlement, .... $622,013.11

Payment January 18, 1891,.... 150,000.00

Balance, ..... $472,013.11

Interest at 6 per cent from April 8, 1891,

to April 18, 1893,..... 57,428.42

Attorney general, ..... 23,600.65

Judgment entered against county for, . $553,042.18

This is an action of assumpsit and gives effect to the same principles as those administered in a bill in equity. Although there is no formal plea, the case has been heard as if defendant had, under the old system of pleading, put in the plea of payment with leave to give the special matter in evidence. Under this plea the county could prove any facts which would go tc show that plaintiff ought not, in equity and good conscience, to recover the whole or any part of the claim. While it is true, as has been more than once said, “ judicial equity is not as broad as natural justice,” yet it seems to us, judicial equity, having a due regard for the law, can take notice of the facts in this case and so mold its decree as to prevent manifest injustice. Look at the facts as offered to be proven at the trial, and which are really not disputed by the commonwealth. The. county, through its proper officers, before the 1st of January, 1891, had assessed and collected the entire $779,811.22, personal property taxes for the year 1890, and paid them to John Bardsley, the county treasurer; the law required quarterly returns and payments by him to the commonwealth of all moneys received by him for use of commonwealth, and peremptorily enjoined payment of this particular tax, not later than the first Monday of September and second Monday of November. The county had, up to that point, performed its whole duty. But the law is settled, that Bardsley was the agent of the county, and therefore the responsibility of the county did not end until the money reached the state treasurer. The commonwealth had a right to insist on a strict compliance with the law, nay, it was her duty to do so; but, acting through her own officers, she did not so insist; on the contrary, it was proposed to prove that this money was, with the knowledge and consent of her officers, retained by Bardsley. We recognize fully the law, that laches cannot be imputed to the commonwealth, and her rights cannot be destroyed by the neglect of her agents. The United States v. Kirkpatrick, 9 Wheaton, 720, is the leading authority for this principle. It has been followed not only in this, but in all the other states of the Union. Its place in the law of the land is too firmly fixed to be shaken by the hardship of a particular case. But while the commonwealth cannot lose by the neglect of her own officers, and the county must, in this case, lose, it does not follow, under such circumstances, the commonwealth shall be the gainer. She is entitled to have put into her treasury just the amount of taxes which would have been there, if she had rigidly insisted on a compliance with the law. Taking the settlement of the Slat December, 1890, as fixing the rights of the commonwealth and the liability of the county as of that date, then what would have been the situation if the commonwealth had demanded an immediate compliance with its terms?

The city owed on personal tax for 1890, . $779,811.22

If the commonwealth had demanded payment, instead of waiving compliance with the law, Bardsley would have paid into the state treasury that amount, and the commonwealth would have returned to the county one third, or 259,937.07

Leaving in the state treasury the two thirds or........$519,874.15

This is every cent which the commonwealth, under the law, had the right to retain of the county funds, if she had rigorously enforced payment; if the county’s defaulting officer had paid over the money placed in his hands, which the commonwealth permitted him to hold, neither would have lost on the personal property tax for 1890. In equity, all the commonwealth can reasonably ask is to be placed in precisely the same position she would have been in, had her officers vigilantly performed their duty, and Bardsley had honestly performed his.

That would leave the account stand thus:

Balance at settlement, .... $622,013.11

Deduct amount paid January 18, 1891, . . 150,000.00

$472,013.11

One third amount of tax to

be returned, . . . $259,937.07

Deduct amount returned

31st Dec., 1890, . . . 150,000.00 109,937.07

Balance, . . . $362,076.04

Interest from April 8, 1891 to Oct. 2, ’93, 53,949.32

Total amount due commonwealth on

judgment, . . . $416,025.36

And for this amount only judgment should be entered.

By this modification the commonwealth loses nothing. She fails to gain interest on $109,937.07, principal, which, if it had been promptly paid, should have been just as promptly returned to the county. To allow interest on that which she had no right to use if paid, would be giving her a profit on the neglect of her own officers.

Further, the item of $28,600.65, attorney general’s fees, is stricken off; this sum is not charged because payable to the attorney general; it goes not to him, but into the treasury as a sort of penalty on the debtor for tardiness in payment.

There is no evidence to show that any executive officer of the county of Philadelphia had any notice that a balance of $622,013.11 had been settled against the county on the 31st of December, 1890. So far as appears, the fact was known to only the officers of the commonwealth and the defaulting county treasurer, until about the 20th of May in the following year. The misappropriation of both state and county funds was then discovered to be of such magnitude, and the accounts so confused and intermingled, that the legal advisers of the county may very well have thought best to have a judicial investigation before counseling payment. The default on part of the county is only constructive ; under the law, the default of the officer is imputed to the county, as concerns the real obligation ; but in fact, the money had been collected and paid once to the officer. Before paying twice, the county instituted an inquiry as to what had become of the money it had paid once. Certainly, this ought not, in view of all the facts, to be treated as a punishable offence, warranting the imposition of a heavy penalty.

As to the settlement, we do not question the conclusiveness of it; we do hold, however, that in equity and good conscience, the amounts we have indicated must be treated as payments on the balance, and the charge for attorney general’s fees must bo stricken off.

What we have said, in effect disposes of the appeal of the commonwealth; it is dismissed. As to the appeal of the county of Philadelphia, the 18th and 19th assignments of error are sustained for the reasons already given, but not because, as stated in the assignments, the 16th section of the act of June 1, 1889, did not warrant the settlement of December 81, 1890. The judgment of the court below as herein modified is affirmed.