City of Newport v. McLane

• Decision Date: 25 September 1934
• Citation: 256 Ky. 803,77 S.W.2d 27
• Parties: CITY OF NEWPORT v. McLANE et al.
• Court: Kentucky Court of Appeals

77 S.W.2d 27

256 Ky. 803

CITY OF NEWPORT v. McLANE et al.

Court of Appeals of Kentucky

September 25, 1934

As Modified on Denial of Rehearing December 18, 1934.

Appeal from Circuit Court, Campbell County.

Action by the City of Newport against Fred L. McLane and others. From a judgment sustaining a demurrer and dismissing the petition, the plaintiff appeals.

Motion to dismiss appeal as to National Surety Company overruled and the judgment reversed for proceedings in accordance with opinion.

L. W Scott and Carl H. Ebert, both of Newport, for appellant.

Benton Benton, Smith & Luedeke, Barbour & Bassmann, and L. J Crawford, all of Newport, for appellees.

RICHARDSON Justice.

This appeal requires the differentiation of the legislative and administrative functions of a board of commissioners of a city of the second class, and the determination of their personal liability to the city for a diversion of a portion of its sinking fund. We shall hereafter use the term "divert," or "diversion," in the sense of turning money belonging to one fund, permanently, from its purpose or the final appropriation of it, to some other use of the city. Gates v. Sweitzer, 347 Ill. 353, 179 N.E. 837, 79 A.L.R. 1151.

The city of Newport is a city of the second class. Originally it operated under an aldermanic and a councilmanic form of government.

Section 3235c-1 et seq., Kentucky Statutes, authorized it to adopt a commission form of government, which it did. Jones et al. v. Cassidy, Mayor, et al., 154 Ky. 748, 159 S.W. 562; Bryan v. Voss, 143 Ky. 422, 136 S.W. 884; City of Paducah v. Gibson et al., 249 Ky. 434, 61 S.W.2d 11. Section 3235c-2 provides that after it avails itself of the act of which section 3235c-2 is a part, then all laws applicable to the government of cities of the second class acting under the aldermanic and councilmanic form of government not inconsistent therewith shall continue to apply to a city availing itself of section 3235c-1 et seq.

Section 3190, which was in force at the time of the enactment of sections 3235c-1 to 3235d-2, inclusive, provides: "The mayor and president of the board of aldermen, and president of the board of councilmen, shall constitute the commissioners of the sinking fund. It shall be their duty to see that at all times the proper amount of money to pay the principal and interest of the bonded indebtedness of the city, as such may mature, is provided in due time and preserved exclusively for the payment of said liabilities."

Sections 3235c-10 and 3235c-11 provide for the election and qualification for designated terms, a mayor and four commissioners; section 3235c-12 provides the mayor and four commissioners shall constitute a board of commissioners in which shall be vested all legislative, executive, and administrative power of the city, save as otherwise provided in the act of which it is a part. Section 3235c-16 divides the administrative departments into five classes: Department of Public Affairs, Department of Public Finance, Department of Public Safety, Department of Public Works, and Department of Public Property. Section 3235c-17 empowers the commissioners to determine the functions of each department and prescribe the duties of its commissioner. Section 3235c-18 confers the duty of the commissioner of the Department of Public Affairs upon the mayor with the power of general advisory supervision over the affairs of all the departments. It also confers upon the commissioners of public finance, public safety, public works, and public property general superintendency of the Departments of Public Finance, Public Safety, Public Works, and Public Property, respectively. Section 3235c-27 mandatorily requires the mayor and each commissioner to execute a bond to the city in the penal sum of $10,000 each, conditioned on the faithful performance of his duties upon which an action may be maintained by any person or persons interested in the keeping of the covenants therein contained.

Section 3175 requires ordinances or resolutions levying a tax to specify distinctly the purpose for which the tax is levied. Section 3194 imposes the duty on the board of commissioners, when required, to set up, invest, and carry a sinking fund for the redemption of the bonds of the city as therein provided.

With these and other provisions of the statutes and section 180 of our Constitution in mind, the duty devolves upon us to review the facts alleged in the petition, and determine whether they are sufficient to constitute a cause of action in favor of the city against the members of the board of commissioners and their sureties.

The facts alleged therein substantially are: Fred L. McLane was elected at the November election, 1927, and on the first Monday in January, 1928, qualified as mayor of the city by taking the oath of office and executing bond in the penal sum of $10,000 for the faithful performance of the duties of his office, with the National Surety Company of New York as surety; at the November election, 1929, Arthur C. Hindman, Myles A. McIntyre, J. Gil Davis, and James Fuller, respectively, were elected commissioners of the city, and on the 1st day of January, 1930, each executed and delivered a bond in the penal sum of $10,000 for the faithful performance of the duties of his office as commissioner of the city; for Hindman, the Fidelity & Casualty Company of New York; for McIntyre and J. Gil Davis, the Detroit Fidelity & Surety Company, and for James Fuller, the United States Fidelity & Guaranty Company, as surety; their respective bonds were approved by the judge of the county court and filed of record. The sureties on the bonds, in effect, covenanted with the city of Newport in the penal sum of $10,000 that the principal therein would faithfully perform and discharge the duties of his office, and if he should fail so to do, the surety would pay the damages thereby sustained by any person or persons, not exceeding the sum stated in the bond.

On December 15, 1931, the board of commissioners acting in its legislative capacity, by unanimous vote, adopted a resolution which reads: "Be it resolved by the Board of Commissioners of the City of Newport, Kentucky, that a sufficient fund of money be transferred temporarily from the sinking fund to the various sub-funds of the General Fund that are deficient by reason of the fact that the June and October, 1931 taxes are not fully collected, said sinking fund to be reimbursed in the apportionment of 1932. Adopted by the Board of Commissioners, December 15th, 1931. Reading rules suspended, adopted by second reading, on suspension, yeas: Messrs. Davis, Fuller, Hindman, McIntyre and Mayor McLane. On adoption: Yeas: Messrs. Davis, Fuller, Hindman, McIntyre and Mayor McLane."

On the day of the adoption of this resolution there was on deposit in the designated depository of the city the sum of $346,602.74 belonging to the sinking fund, which had been levied and collected under ordinances specifying distinctly the purpose for which the tax was levied and which had been collected thereunder solely for the purpose of paying the bonded indebtedness of the city as and when same matured and "for no other purpose whatsoever." After the adoption of the resolution, the board of commissioners misappropriated $79,067.70 of the $346,602.74, by causing the same to be placed to the credit of the accounts of the different departments of the city, and thereafter expended the same for these departments; no part of the $79,067.70 was applied to the payment of either interest or principal of the bonded indebtedness for which it had been levied and collected.

At the time of the expiration of their several terms of office, no part of the $79,067.70 had been restored to the fund from which it was taken.

This action was instituted to recover of them the $79,067.70 with interest, and of their sureties the several amounts of their respective bonds. A general demurrer was sustained, and the petition dismissed.

The members of the board and their respective sureties are here insisting the board of commissioners, as a legislative body possessed the power to pass the resolution of December 15, 1931 authorizing the transfer, temporarily, of the $79,067.70 belonging to the sinking fund, to the credit of the various subfunds of the general fund and to authorize its appropriation for governmental purposes other than that for which it had been levied, collected, and deposited, and since there is no allegation in the petition that the commissioners appropriated any of the money to their own use, no cause of action is stated and none exists in favor of the city against the members of the board or their respective sureties. Their argument is thus summarized in their brief: "The Board of Commissioners in passing the resolution complained of were acting as a legislative body and it is a general rule that the members of legislative bodies cannot be held personally liable or responsible in civil actions based upon their voting, cast in the exercise of the discretion vested in them in virtue of their office either for or against any particular legislation." This principle is deducible from the authorities they cite to sustain their argument. See Commonwealth v. Kenneday, 118 Ky. 618, 82 S.W. 237, 26 Ky. Law Rep. 504, 4 Ann.Cas. 940; Russell v. Bell et al., 224 Ky. 298, 6 S.W.2d 236; Duncan v. Combs et al., 131 Ky. 330, 115 S.W. 222; Village of Hicksville v. Blakeslee et al., 103 Ohio St. 508, 134 N.E. 445, 22 A.L.R. 119; Lough v. Estherville, 122 Iowa 479, 98 N.W. 308; Amperse v. Winslow, 75 Mich. 234, 42 N.W. 823; annotation 22 A.L.R. 125 et seq. Its soundness and universality are not debatable. The statement of the principle upon which they rely must be regarded in the connection...