City of Santa F? v. Raton

Decision Date17 February 1937
Docket NumberNo. 4204.,4204.
Citation41 N.M. 130,65 P.2d 857
CourtNew Mexico Supreme Court


Error to District Court, Colfax County; Livingston N. Taylor, Judge.

Suit by the First National Bank in Raton against the City of Santa Fé. To review a judgment on the pleadings in favor of plaintiff, defendant brings error.

Remanded, with directions.

Where none of municipal sewer certificates had preference over others of same issue, trust fund doctrine held applicable. Comp.St.1929, §§ 90-2301 to 90-2308.

C. R. McIntosh, of Santa Fé, for plaintiff in error.

Crampton & Robertson, of Raton, for defendant in error.

HUDSPETH, Chief Justice.

In this case it appears that the First National Bank of Raton sued the City of Santa Fé, a municipal corporation, and recovered judgment on nine sewer certificates of a large issue uttered by the defendant, City of Santa Fé, for the purpose of paying the cost of constructing sewer improvements in said city, under authority of Comp.St. 1929, §§ 90-2301 to 90-2308. The complaint states that by the terms of said certificates they were to be payable from money received from special assessments levied to pay for said sewer improvements, and that in addition thereto the defendant city further promised and agreed that any deficiency in said fund to pay said certificates or the interest thereon should be paid from the general revenues of the defendant. It was then alleged that the fund from the special assessment levied to pay said sewer improvements was an insufficient amount to pay the said sewer certificates and that there was and is a complete deficiency in said fund.

The defendant answered admitting all of the allegations of the complaint except that contained in paragraph 8, and the answer to that paragraph reads as follows: “That defendant admits the allegations in paragraph VIII of each count, except that defendant denies that there was or is any deficiency in said fund for the sole reason that assessments, sufficient in amount to pay said certificates, were duly and regularly made by the City Council against property sufficient in valuation to discharge the same, and that liens therefor were duly filed and recorded in the office of the County Clerk of Santa Fé County, and that, when said assessments are collected, there will be a sufficient amount in said fund to pay said certificate.”

The answer also raised a constitutional question by alleging that the debt sued upon was not contracted by an ordinance irrepealable until the indebtedness was paid, and which specified the purpose for which the funds to be raised were to be used, and which provided for a levy of a tax to pay the interest and principal thereon as required by section 12 of article 9 of the State Constitution, and further that the question of incurring such debt was not submitted at an election to a vote of the qualified electors of the city, nor had a majority of the qualified electors ever voted creating such debt as required by said section of the Constitution.

For a third and further defense it was alleged that the indebtedness was not paid and it could not be paid out of current revenues and money actually collected during the fiscal years in which said bonds were issued or during the years in which they were matured.

The plaintiff demurred to this answer upon the ground that the law under which the sewer certificates in question were issued does not require the passage of an irrepealable taxing ordinance and does not require the submission of the question of incurring such indebtedness to the electors, and further by reason of section 12 of article 9 of the New Mexico Constitution are not applicable to the character of obligation sued on in this action, and further as to the third separate defense that it was immaterial whether the indebtedness would be paid out of moneys collected during the current year. The demurrer was sustained, and the defendant having elected to stand on its answer, judgment was entered on the pleadings in favor of the plaintiff for the principal amount of the sewer certificates together with accrued interest to the date of judgment. Thereafter the City of Santa Fé sued out a writ of error in this court to review the judgment.

We are urged to pass upon the rights of the certificate holders as well as the constitutionality of the act since these questions are involved in much pending litigation.

Plaintiff in error will be referred to herein as the City and defendant in error as the Bank.

The main point argued is that the indebtedness sued upon is invalid because it was not incurred in accordance with section 12 of article 9 of the State Constitution, which provides as follows:

“Debt Contracting Power of Municipalities-Election-Limitation.

Sec. 12. No city, town or village shall contract any debt except by an ordinance, which shall be irrepealable until the indebtedness therein provided for shall have been fully paid or discharged, and which shall specify the purposes to which the funds to be raised shall be applied, and which shall provide for the levy of a tax, not exceeding twelve mills on the dollar upon all taxable property within such city, town or village, sufficient to pay the interest on, and to extinguish the principal of, such debt within fifty years. The proceeds of such tax shall be applied only to the payment of such interest and principal. No such debt shall be created unless the question of incurring the same shall, at a regular election for councilmen, aldermen or other officers of such city, town or village, have been submitted to a vote of such qualified electors thereof as have paid a property tax therein during the preceding year, and a majority of those voting on the question, by ballot deposited in a separate ballot box, shall have voted in favor of creating such debt.”

The certificates sued upon are all on the same form, the material parts of which are as follows:

“The City of Santa Fé, *** for value received, hereby promises to pay to the bearer hereof the sum of Five Hundred Dollars, ***

“This certificate shall be payable from money received from special assessments levied to pay for sewer improvements, but any deficiency in the fund to pay this certificate or the interest thereon shall be paid from the general revenues of said municipality.

“This certificate is issued for the purpose of paying the cost of constructing sewer improvements in the said City under and by virtue of Sections 3705 to 3712 inclusive, of the New Mexico Statutes, Codification of 1915, and all other laws of the State of New Mexico thereunto enabling, and it is hereby certified and recited that all requirements of law have been fully complied with by the officers of said City in the issuance of said certificates, and that all proceedings and things with reference to making said improvements, to the fixing of the assessment lien against the property improved, and the issuance of this certificate, have been lawfully taken and performed, and the said City has agreed to collect and enforce the payment of said special assessments, and in the event it becomes necessary to foreclose the lien of such certificates to do so at the expense of said City.

“For the collection and enforcement of said assessments and the foreclosure of the lien thereof the City of Santa Fé hereby pledges the exercise of all lawful corporate powers.”

The Bank points out that this case falls within what it terms the contingent liability doctrine and maintains that the statute under which the certificates were issued is constitutional, notwithstanding it does not provide for an election, and that the word “debt” as used in section 12, article 9 of the Constitution, does not embrace the kind of obligation sued on in this action. The Bank cites American Company v. City of Lakeport, 220 Cal. 548, 32 P.(2d) 622; 17 C.J. (debt) 1377, § 2; Corey v. City of Ft. Dodge, 133 Iowa, 666, 111 N.W. 6; Lillard v. Melton, 103 S.C. 10, 87 S.E. 421; Brownlee v. Brock, 107 S.C. 230, 92 S.E. 477; McIntyre v. Rogers, 123 S.C. 334, 116 S.E. 277; Comfort v. City of Tacoma, 142 Wash. 249, 252 P. 929; Kelly v. City of Sunnyside, 168 Wash. 95, 11 P.(2d) 230; Wicks v. Salt Lake City, 60 Utah, 265, 208 P. 538; and the dissenting opinion in City of Aurora v. Krauss (Colo.) 59 P.(2d) 79, and other cases.

Several of the cases cited by the Bank involve the validity of statutes creating general guaranty funds to meet deficiencies in special funds authorized for the purpose of discharging city improvement bonds. California has such a statute, and the cited case of American Company v. City of Lakeport, supra, discusses sections of that statute.

In the late case of Kerr Glass Mfg. Corp. v. City of San Buenaventura, 62 P.(2d) 583, 585, the Supreme Court of California comments upon the statute and the Lakeport Case, as follows:

“The respondents aver that the sole reason for the inadequacy of the bond redemption fund is the failure of the landowners in said special assessment district to pay the installments of the assessment levied to discharge the cost of such improvement; that approximately 85 per cent. of the lands in the district are delinquent; that the value of the lands so delinquent is less than the total amount of delinquencies, penalties, and charges accrued against them; that there have been no sales or redemptions of such lands, and there are not likely to be any in the near future; and that the bond redemption fund is therefore insolvent. In its answer the respondent city admits its willingness and offer to pay the petitioner on a pro rata basis, computed on the ratio which the amount due to the petitioner bears to the total amount still unpaid on all outstanding bonds of series E, including also those which have not yet matured.

“The principal question for determination is whether the petitioner is entitled to payment in full from the bond redemption fund, there being sufficient funds for...

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