Oppenheim v. City of Florence

• Citation: 229 Ala. 50,155 So. 859
• Decision Date: 14 June 1934
• Docket Number: 8 Div. 593.
• Parties: OPPENHEIM v. CITY OF FLORENCE et al.
• Court: Supreme Court of Alabama

155 So. 859

229 Ala. 50

OPPENHEIM v. CITY OF FLORENCE et al.

8 Div. 593.

Supreme Court of Alabama

June 14, 1934

Appeal from Circuit Court, Lauderdale County; J. Fred Johnson, Jr. Judge.

Bill for injunction by T. E. Oppenheim against the City of Florence and the municipal officials thereof. From a decree sustaining a demurrer to the bill and dismissing it complainant appeals.

Affirmed.

L. A May, of Florence, for appellant.

Bradley, Baldwin, All & White and Wm. B. White, all of Birmingham, and Rushton, Crenshaw & Rushton, of Montgomery, amici curiæ.

W. H. Mitchell, of Florence, Patrick B. Harris, of Sheffield, and J. E. Deloney, Jr., of Tuscumbia, for appellees.

Charlie C. McCall, Chief Counsel, Public Bodies Section, Legal Division, Federal Emergency Administration of Public Works, of Washington, D. C., Samuel Becker, Counsel, Federal Emergency Administration of Public Works, Wm. A. Sutherland, General Solicitor, TVA, and Joseph C. Swidler, Power Atty., TVA, amici curiæ.

FOSTER Justice.

This suit is intended to test the right of the city of Florence to put into effect its proposal to acquire and operate an electric distribution system, including the purchase of electricity from TVA and its resale to the public.

There are three features of the proceedings involved in the proposal: (1) A contract with the United States through PWA for the acquisition of necessary funds, (2) a bond ordinance, containing certain covenants, and a form of the proposed bonds; and (3) a contract with TVA which also has certain covenants.

Authority for the program is affected by the validity and interpretation of the Carmichael Act (Acts 1933, Ex. Sess., p. 100) in connection with section 2001, Code.

An effort is made to have us modify and enlarge upon or to clarify the opinions of the justices of this court reported in 152 So. 901, and 226 Ala. 570, 148 So. 111. We do not feel that we could add to what we held in them in so far as sections 45, 63, 64, and 76 of the Constitution are concerned. Our views there fully stated in respect to those features of the Constitution are now approved.

But we think it proper to elaborate and clarify the matters there discussed in respect to sections 225 and 222 of the Constitution, as applicable to the facts shown on this appeal. We then dealt with abstract questions, always unsatisfactory. We have now a concrete situation.

In that situation an outstanding feature is that in the proposed contracts and bonds it is expressly provided that the city does not obligate itself to pay the principal or interest of the bonds or any other sum except from revenues derived from a sale of the bonds and the operation of the proposed distribution system, and that the bonds do not, and shall never, constitute an indebtedness, and that the covenants, agreements, representations and warranties do not, and shall never, impose a pecuniary liability upon the city or a charge against its general credit.

We adhere to the opinions expressed by the justices, as above cited, that such bonds, contracts, and covenants so expressed are not debts, either presently created or in the future obligated as contemplated by section 225 of the Constitution, and are not bonds contemplated by section 222 of the Constitution. We cite as additional authorities for reference: 6 McQuillin on Municipal Corporations, § 2389 (2230); 1 Dillon on Municipal Corporations, § 199; note 72 A. L. R. 688 et seq.; Kentucky Utilities Co. v. City of Paris, 248 Ky. 252, 58 S.W.2d 361; Bowling Green v. Kirby, 220 Ky. 839, 295 S.W. 1004; McCutchen v. City of Siloam Springs, 185 Ark. 846, 49 S.W.2d 1037.

We take particular note of the fact that the project does not include the pledge of an existing system or the income from it, nor of other property or its income, except that which is to be acquired, and which is to be paid for solely out of the income of the new property.

In the opinion reported in 152 So. 901, there is shown a difference among us in one respect. Some of the justices thought that section 4 of the Carmichael Act, on account of its unrestricted terms, could not be available to cities which had reached their debt limit; others thought that it was restricted by other features of the act all read together. But none of us thought that the Legislature had the power to confer on such cities the right to enter into any sort of undertaking which would thereby increase its indebtedness, directly, indirectly, or contingently, as contemplated by section 225 of the Constitution, when the city at the time the debt accrued had reached its constitutional limit. Brown v. Gay-Padgett Hardware Co., 188 Ala. 423, 66 So. 161; Gunter v. Hackworth, 182 Ala. 205, 62 So. 101; Hagan v. Commissioners, 160 Ala. 544, 49 So. 417, 37 L. R. A. (N. S.) 1027.

The contract and proceedings here make it plain that the undertakings, such as are mentioned in section 4 of the act, do not now, and shall never, impose a pecuniary liability upon the city or a charge against its general credit. It is that liability which is a debt prohibited by section 225 of the Constitution. Alabama State Bridge Corporation v. Smith, 217 Ala. 311, 116 So. 695; 19 R. C. L. 979, § 276.

The right to stipulate as in section 4, with such limitation thereby excluding the creation of a debt then or thereafter under section 225, is not prohibited, but is incidental to the acquisition and operation of the plant authorized by the Carmichael Act and section 2001, Code. So that the difference of opinion expressed in 152 So. 901 is not material to the contracts we have here under consideration.

The covenants and warranties so limited have effect to bind only the proceeds of the bonds to be sold and the income from the operation of the new property, and to subject the city to such in rem proceeding or mandatory writs as are available on general principles to secure their observance. Florida v. Miami (Fla.) 152 So. 6; Conway v. Chicago, 237 Ill. 128, 86 N.E. 619.

The situation is somewhat similar in this respect to the contracts of the state docks commission and state highway commission, which impose no liability except to mandatory proceedings in rem, in nature, to require their enforcement. State Docks Comm. v. Barnes, 225 Ala. 403, 143 So. 581; State Board of Administration v. Roquemore, 218 Ala. 120, 117 So. 757.

In the opinion reported in 152 So. 901, we referred to our cases of Steiner v. Capitol Heights, 213 Ala. 539, 105 So. 682; Id., 211 Ala. 640, 101 So. 451, 38 A. L. R. 1264, as holding that a city having reached its debt limit cannot make an obligation, in respect to street improvements, so as to fix a pecuniary liability for the diversion of the pledged funds. (That is a contractual pecuniary liability.) The implication was that the same principle would apply to an undertaking not to divert funds derived from a sale of the proposed bonds here under consideration and those derived from the operation of the plant. It was not at all there intended to hold that such an undertaking would not subject the city to the ordinary mandatory proceedings to require their observance when applicable, as well as to prevent a threatened violation.

Undoubtedly such a city would also be subject to applicable equity proceedings to trace trust funds. Litchfield v. Ballou, 114 U.S. 190, 5 S.Ct. 820, 29 L.Ed. 132. The remedy in this respect would be available upon the same principles applicable when a bank diverts or commingles trust funds. Our cases have fully defined the remedy in this respect, and the extent to which it is available. St. Louis Brewing Co. v. Austin, 100 Ala. 313, 13 So. 908; Bank of Florence v. U.S. S. & L. Co., 104 Ala. 297, 16 So. 110; Nixon State Bank v. First State Bank, 180 Ala. 291, 60 So. 868; Lummus Cotton Gin Co. v. Walker, 195 Ala. 552, 70 So. 754; Hanover National Bank v. Thomas, 217 Ala. 494, 117 So. 42; Kennedy v. Carter, 217 Ala. 573, 117 So. 182.

And likewise in a proper case the bondholder may be permitted to invoke the equitable doctrine of subrogation.

It is also contended that the rule should apply that, when the city obtains or uses the funds of another, it should be held to account in an action for money had and received or in tort for a conversion, and a recovery had to the extent that the assets of the city were thereby augmented, and that the Steiner Case, supra, was predicated upon an express statutory prohibition, not here pertinent.

We have noted that all the proposed undertakings separately stipulate that the covenants and agreements as well as the bonds themselves shall never impose a pecuniary liability upon the city.

If the contract not to convert the funds or divert them otherwise shall in the future be broken, its breach would not be a debt when the covenant is made. It is made to be performed and not broken. It is not a debt in the sense of a duty to pay money until it is broken. A promise to pay money is a present debt. A promise to render a service or do an act is not a pecuniary debt until it is breached. But, when the promise to render the service is made, and as a part of it there is expressed an agreement that the promisor shall not be pecuniarily liable if it is broken, there is a conclusive agreement that a debt, as contemplated by section 225, Constitution, will never thereby accrue. The debt there contemplated means an obligation to pay money, not to render a service when its breach imposes no duty to pay money. The limitation is in the extent of the indebtedness of the city, not its obligations to perform acts which do not create a liability to pay money. It is not a limitation on the creation of "liabilities" as in some constitutions. So that, if the covenants shall be broken under circumstances when such breach would subject the...