Price v. Scranton

Argued January 20, 1936. The City of Scranton, in contracting for the construction of a sewer system, issued its 6% bonds, 64 in number, each of the face value of $100, to the contractor. It was stipulated in the bonds that they rested alone for their security upon assessments made and levied upon the land abutting the improvement. The bonds were issued on December 10, 1928, and were payable within five years, to be called by the city treasurer as often as there were sufficient funds in his hands from the assessments. The city's liability was expressly limited to the amount collected on the assessments. Fifty of these bonds were assigned to plaintiffs' decedent. The present suit in assumpsit, for the principal of the bonds and the unpaid interest thereon, was brought six months after the expiration of the five-year period. By agreement the case was tried without a jury, and judgment was entered for plaintiffs by the court below for the amount of the bonds, with interest from November 10, 1933. Defendant has appealed.

It is clear that the city was obliged to exercise due diligence in the levying and collection of the assessments from which the bonds were to be paid. The ordinance under which the bonds were issued, and to which reference was made on the face of each bond, provided: "In case of default in the payment of any assessment for sixty days after the completion of the work, the city treasurer shall certify the same to the city solicitor for collection." Payment of the bonds was to be made within five years, and, since liability was restricted to the amount to be collected from the assessments, the plain implication of this provision is that the city would make reasonable efforts to collect during the five-year period. It has been held in similar cases that, where the liability of a city for improvement bonds, or for a contract for the construction of an improvement, is limited to the amount collected from assessments on the improved properties, the city is bound to exercise due diligence in the levying and collection of the assessments, and failure to do so is a breach of contract which renders the city liable for the unpaid face of the bonds or contract price: O'Hara v. Scranton, 205 Pa. 142; Dime Depositand Discount Bank of Scranton v. Scranton, 208 Pa. 383; Dale v.Scranton, 231 Pa. 604; Nolan v. Reading, 235 Pa. 367. Lack of due diligence may be found in the levying of assessments which are invalid (Gable v. Altoona, 200 Pa. 15), in the levying of inadequate assessments (Nolan v. Reading, supra), in failure to file liens against the improved properties within the time allowed (O'Hara v. Scranton, supra), in failure to preserve the liens (Dime Deposit and Discount Bank of Scranton v. Scranton, supra), or in failure to press the liens to collection within a reasonable time: Dale v. Scranton, supra.

The court below found that the city was negligent in its collection of the assessments upon which the bonds rested. We think this conclusion is adequately supported by the facts, which are not in dispute. It appears that $2,186.74 had been collected as principal on liens against the improved properties up to the time of suit. Of that amount $400 was devoted to the payment of principal of the bonds, the balance being applied to interest. Of the thirty-eight liens filed against abutting properties, twelve have been paid, and twelve others duly kept alive by writs of scire facias but not yet collected. Fourteen were entered against the city, which had bought the properties at tax sales. These liens against the city, which amount to $2,695.69, and none of which has been paid, have been allowed to expire. The remaining liens total $1,944.01, the sole security and source of payment for the unpaid bonds, $6,000 in principal amount. Thus, at the end of the five-year period fixed for payment, one-sixteenth of the principal of the bonds has been paid (including none of those held by plaintiffs), and the unpaid bonds are secured by liens totaling one-fourth of their amount. The city has neither paid nor preserved the liens against its own properties, nor sold the properties in satisfaction thereof. No reason for its neglect in this respect appears. Clearly the city has not shown the due diligence that it was bound to exercise, and it must therefore, under the cases above cited, be held liable for breach of its obligation to do so, to the extent of the unpaid bonds. As was said inDale v. Scranton, supra, at page 610: "It would be most unconscionable to permit the city to stand idly by for a period of four years and more, either refusing or neglecting to do its duty in the collection of the assessments, and then to say to the [creditor] you have no redress except to await the pleasure of the municipal authorities who in their own good time may or may not press the claims to collection." In issuing these bonds, by means of which it has acquired a public improvement, the city has limited its liability on them to a special fund which it alone "had the power to create and the specific means to secure and collect": O'Hara v. Scranton, supra. Under such circumstances, it is only proper that the city be held to a high degree of diligence in performing its obligation with regard to that fund. In the present case the city's conduct of the matter does not measure up to the required standard.

First Catholic Slovak Union v. Scranton, 311 Pa. 500, is no bar to this conclusion. We there reversed a judgment against the city on similar bonds, and sent the case back for a new trial, on the ground that the facts did not sufficiently appear in the record to permit a finding of neglect on the city's part. We explicitly postponed discussion and decision of the questions involved because of the inadequacy of the presentation of the case in the court below. The case affords no solace to the city in the present situation.

Judgment affirmed.