Billeter & Wiley v. State Highway Commission

• Decision Date: 06 May 1924
• Citation: 203 Ky. 15,261 S.W. 855
• Parties: BILLETER & WILEY v. STATE HIGHWAY COMMISSION ET AL.
• Court: Kentucky Court of Appeals

261 S.W. 855

203 Ky. 15

BILLETER & WILEY v. STATE HIGHWAY COMMISSION ET AL.

Court of Appeals of Kentucky.

May 6, 1924

Appeal from Circuit Court, Franklin County.

Action by Billeter & Wiley against the State Highway Commission, in which numerous parties intervened. Judgment for defendants and plaintiffs appeal. Reversed and remanded.

Sampson C.J., dissenting.

Blakey Davis & Lewis, of Louisville, for appellants.

Frank E. Daugherty, Atty. Gen., Overton S. Hogan, Asst. Atty. Gen., Woodward, Warfield & Dawson, of Louisville, John D. Carroll and Leslie W. Morris, both of Frankfort, G. W. Gourley, of Beattyville, and J. G. Vallandingham, of Owenton, for appellees.

McCANDLESS J.

On the 10th day of December, 1923, the state highway commission let a number of contracts for the construction of state highways, at an estimated cost of $2,994,618.35. At that time there existed prior contracts for such construction; the estimated cost of completing these being the sum of $8,395,234.23. In addition there were outstanding state warrants and claims against the department for sums expended for road construction between June 30, 1923, and December 1, 1923, amounting to $2,266,788.66.

Asserting that these items in the aggregate constituted an indebtedness far in excess of the gross amount of all the revenue and resources of the department for the fiscal year 1923-24, one of the contracting firms filed this suit to test the validity of the December contracts.

The commission virtually admits this situation, but insists, first, that it may let contracts aggregating in ultimate cost more than the revenues of the current fiscal year, but provided it does not let contracts which will require an expenditure thereunder in any one fiscal year in excess of the available funds for that year, due allowance having been made for other fixed charges required to be paid out of that year's revenue, and that it has kept within this rule; second, that the amount of its resources for the present fiscal year is equal to the amount the state will have to pay on these contracts and all other legal charges against the road fund for the current fiscal year; third, that road construction is a governmental expense, the highway commission an arm of the government, and not prohibited from making such expenditures.

Certain interested counties have intervened, seeking to uphold the validity of the contracts, and a brief to the contrary has been filed on behalf of the people by an amicus curiæ.

The personnel of the commission has changed since December 10, but no criticism is offered as to the manner in which the contracts were awarded or as to the necessity existing therefor, and it appears that the present commission as represented by the learned Attorney General desires the approval of the contracts.

The evidence of the chief engineer and auditor of the commission is to the effect that of the contracts executed December 10, 1923, the federal government and counties were obligated to pay $986,387.23, leaving a balance for the state's part of $1,908,230.42; that of the contracts theretofore executed, the federal government and counties were obligated to pay $7,043,260.30, leaving a balance of $1,351,973.93 as the state's obligation.

The contracts call for payments to be made as the work progresses, and not exceeding 60 per cent. of the work to be performed under contracts let prior to December 10, nor more than 30 per cent. of that to be performed under contracts of that date, can be performed before June 30, 1924, and figures are produced to show that the available revenue for the current fiscal year will cover those amounts, and pay all obligations maturing during that period.

As to the second proposition, the engineer estimates the revenue, legal charges, and contracts let during the present fiscal year at:

Revenue.
Three cent ad valorem tax ..................................	$ 800,000 00
Automobile license tax .....................................	3,000,000 00
Gasoline tax .................................................	700,000 00
Surplus on hand at beginning of fiscal year ..................	516,118 14
	-------------
Total .................................................	$5,016,118 14

Expenditures.
State's part of contracts let prior to December 10, 1923 ..	$1,351,973 93
State's part of contracts let December 10, 1923 ............	1,908,230 42
Office expenses ...............................................	50,000 00
Field expenses ...............................................	200,000 00
Installment on old state aid debt ............................	185,148 50
Already expended for maintenance .............................	841,000 00
Necessary to expend for maintenance to June 30, 1924 .........	100,000 00
	-------------
	$4,636,352 85

Recapitulation.
Total available revenue ...................................	$5,016,118 14
Total expenses .............................................	4,636,352 85
	-------------
	$ 379,765 29

In view of the outstanding contracts at the beginning of the fiscal year, and of the work thereon, resulting in the warrants and claims for $2,366,786.66 alluded to above, we doubt if the $516,118.14 surplus in the above table should have been credited. If we omit this, a comfortable surplus would be changed to a small deficit, even if the correctness and validity of every item of resource is conceded. Some of these are questioned, and will be referred to later, but we do not think this question of controlling force.

It is admitted that the warrants and claims mentioned are valid obligations, and, considering them, the excess of obligations over the revenues of the present fiscal year will reach approximately $2,000,000. This will be due and payable during the fiscal year, beginning June 30, 1924, and we shall presently see that no levy or appropriation had been made for it at the time the contracts were executed, so that the real question to be determined is, as to the power of the commission to contract as claimed in the first proposition, supra. In other words, does this future obligation create a present indebtedness that is prohibited by the Constitution or by the statute?

The commission was created by an act approved March 16, 1920 (Laws 1920, c. 17), which in part provides:

"Sec. 3. In addition to the foregoing enumerated powers and duties, it shall be the duty of the state highway commission to perform any and all other duties imposed upon them by this or any other act and particularly shall it be their duty to cause to be done all things necessary to construct and maintain the system of primary roads hereinafter designated, and where there is no provision of the law covering any necessary thing to be done in the construction and maintenance of said roads, they shall do such necessary things in the way and manner best calculated, in their judgment, to accomplish the necessary object, and it is intended that the provisions contained in this act shall be treated as restrictions on their powers and not a delegation of power, that is, but for the act they could have plenary powers, and they may do all things necessary in the construction and maintenance of said roads except where the power to act is denied or restricted by law. * * *

Sec. 9. * * * The state highway commission shall begin the construction of the system of state highways from these cities and towns as nearly simultaneously as possible, and shall prosecute the work on any or all projects radiating out from these centers as rapidly as finances are available for that purpose. * * *"

The Legislature meets biennially. Under the budget system it makes a separate appropriation for each year, two such acts being passed each session, though if it fails to act the old appropriation continues. Clearly under that act funds are not available for use prior to the fiscal year for which the appropriation is made, and section 9 of the Highway Act, supra, does not contemplate the prosecution of road construction, until such "finances are available."

Under this act the commission may contract for road work for the entire biennial period by providing for work to be performed and payment to be made each fiscal year, not exceeding in amount the revenues for that year. But this cannot be extended beyond that period, as the act contemplates a new budget at each legislative session.

True, if at any session no action is taken, the old appropriation continues for two years, but the Legislature reserves the option to exercise its discretion, and in its wisdom may change the appropriation, or alter, amend, or repeal the act creating the commission itself.

A state cannot pass a law impairing the obligation of a contract, and, if the commission may make a valid contract for revenues accruing beyond the 30th of June of the second fiscal year of the biennial period, as no act could be passed impairing such contract, the commission might thus defy the Legislature and nullify its power. Indeed, if it possesses power to contract at all beyond the limit suggested, then it may make such contracts for any period of time it desires, and may by present contract exercise entire control over all highway revenues and expenditures for years to come.

The act quoted above rightfully gives to the commission broad and plenary power in its sphere of action, but it is not to be assumed that the General Assembly thereby intended to surrender its power of future legislation upon the subject and we do not think the act susceptible of that construction, as it must be construed with...