Howard v. Smith

On the 26th day of June, 1890, the city of Corsicana and J.T. Howard entered into a written contract whereby Howard agreed to furnish all labor and material and pave certain streets of said city, and the latter agreed to pay him therefor a portion in cash, and for the balance to execute its notes in five equal installments, payable yearly, interest at eight per cent, reserving the right to pay all cash. No provision having been made for interest and sinking fund required by law, Howard, having concluded for that reason his contract was void, repudiated the same and so notified the city, there being nothing due him at that time.

After some negotiations the city and Howard entered into another contract, on the fourth day of November, 1890, whereby Howard agreed to do the work under the original contract, and the city agreed that it would carry out said original contract and, "at the expiration of six months after said work is completed, that the city shall issue five per cent thirty-year bonds, and deliver to the said Howard, for the amount then due the said Howard by notes or in cash on said contract." At the foot of this agreement the defendant Allyn signed the following: "I obligate myself that the above agreement will be faithfully carried out." It appears that no provision was made for interest or sinking fund by the city at the date of this contract, and before its execution the city had already incurred debts to the full amount permitted by law, which fact was known to all the parties thereto.

Howard paved the street in accordance with the terms of this contract, the work being completed on the 28th day of March, 1891, and, being unable to collect the balance of about $30,000 due for said work from the city, brought this suit against Allyn upon said guaranty. We have stated only so much of the facts certified by the Court of Civil Appeals as we deem important to a disposition of the case under our view of the law.

The question certified by said court is: "Did the guaranty of the contract in which the city agreed to issue its bonds in payment for street improvements, which all the parties then knew it had no legal power to do, bind the guarantor to pay the debt for such street improvements which was agreed to be paid in such bonds of the city?"

The contract of November 4, 1890, if valid, imposed upon the city a pecuniary obligation, in that it thereby agreed to pay for the pavement, part in money and the balance by issuing and delivering its bonds within a given time, the failure to do which would, under settled rules of law, have entitled Howard to demand the entire sum in money; and since the improvement was not a matter of current expense and it does not appear that there was any fund, at the date of the contract, within the control of the city, out of which it was to be paid, such obligation was a debt within the meaning of the Constitution; and since no provision was made for interest and sinking fund at the date of such contract, it was void and imposed no obligation upon the city to pay for the work. McNeil v. City of Waco, 89 Tex. 83, and cases cited; Bassett v. City of El Paso, 88 Tex. 168; Board of Lake Co. v. Rollins,130 U.S. 662; Millerstown v. Frederick, 114 Pa. St., 435; Crampton v. Zabriskie, 101 U.S. 601; Schumm v. Seymour, 24 N.J. Eq. 143; Mayor Council of Baltimore v. Gill, 31 Md. 375; Brady v. Mayor, etc., of N.Y., 16 How. Pr., 433.

A city can only act through its accredited officers and agents. They are mere trustees of its funds and credit for the purpose of applying them to the specific purposes for which such funds were created or credit allowed by law, and any attempt by them to misapply such funds or credit to the satisfaction of a void claim is a breach of trust — such misapplication is not merely without authority but is a clear violation of official duty and unlawful. So fixed is the policy of the law to prevent such breaches of trust, that our statute declares it to be a felony for any officer of any county, city or town in this State, or any clerk or other person employed by such officer, to pay or deliver any money, property, or other thing of value belonging to such county, city or town, that may have come into his custody or possession, by virtue of his office or employment, to any person knowing that he is not entitled to receive it. Rev. Stats., Penal Code, art. 103.

Therefore, if it be conceded, as contended by Howard, that when the time arrived for the city to have issued and delivered its bonds it may, by reason of having retired some of its indebtedness or by increase in values, have done so without exceeding its limit, still such action on the part of its officers would have been a breach of trust and unlawful. Crampton. v. Zabriskie, 101 U.S. 601; Mayor City Council of Baltimore v. Gill, 31 Md. 375; Merrill v. Plainfield, 45 N.H. 126; Terrett v. Town of Sharon, 34 Conn. 105; Hooper v. Ely, 46 Mo., 505.

Thus it will be observed, that we rest our conclusions as to the invalidity of the contract and the consequent want of authority and breach of duty on the part of the officials in paying or delivering the funds of the city thereon, upon the fact that such contract attempted to impose a "debt" upon the city, without at the same time making provision for interest and sinking fund, and not upon the fact that at the date of such contract the city had already exceeded its bond limit. Our conclusions being reached independent of this fact we leave it out of the case, as it could not, in any event, lead to a different result.

We do not wish to be understood as intimating that a contract for public improvements providing for payment in bonds of the city to be thereafter issued and delivered, due provisions being made for interest and sinking fund on such bonds at the date of said contract, in fact everything being done necessary to a definite legal appropriation thereto of so much of the city's taxing and debt-creating power as is represented by such bonds, the mere printing, signing and delivery thereof being postponed until needed in payment of the work, would be void. In such a case the bonds when delivered would probably relate back to and be based upon the orders entered at the date of such contract, and the authorities, in estimating the amount of indebtedness of the city at any time after such date, would consider the bonds thus provided for as an incurred debt. Bassett v. City of El Paso, 88 Tex. 168. We express no opinion, however, upon the question, as it is not contended that there was any such provision made for the bonds at the date of the contract before us, and clearly there was nothing to prevent the city, if it had not reached its bond limit before the making of the contract, to thereafter issue other bonds to its full limit, thus leaving this contract, if valid, a pecuniary obligation or debt against it in excess of the amount permitted by law.

Since the payment of the money and delivery of the bonds would have been a breach of trust and unlawful, the guaranty of Allyn, which was intended to insure such payment and delivery, tended to bring about the doing of an unlawful thing, is tainted with the illegality of the original contract, and is void. "When the law imposes restrictions upon public officers, any contract which grows out of an evasion of such restrictions, or which, if enforced, would encourage such evasion, is void." Greenhood Pub. Pol. Rule, 370. We therefore answer the question above copied in the negative and deem it unnecessary to answer the others certified.