City of Sterling v. Commercial Sav. Bank of Sterling, 15424

• Decision Date: 19 May 1947
• Docket Number: 15425.,15424
• Parties: CITY OF STERLING et al. v. COMMERCIAL SAV. BANK OF STERLING. SAME v. BRINKER.
• Court: Colorado Supreme Court

181 P.2d 361

116 Colo. 369

CITY OF STERLING et al. v. COMMERCIAL SAV. BANK OF STERLING.

SAME v. BRINKER.

Nos. 15424, 15425.

Supreme Court of Colorado, En Banc.

May 19, 1947

Error to District Court, Logan County; H. E. Munson, Judge.

Suits on paving district bonds by the Commercial Savings Bank of Sterling, Sterling, Colorado, a corporation, and by Waller C Brinker, substituted plaintiff in the place and stead of the J. K. Mullen Investment Company, a Colorado corporation against the City of Sterling, a municipal corporation, and others. To review the judgments, the defendants bring error.

Reversed and remanded.

JACKSON and STONE, JJ., dissenting.

Raymond M. Sandhouse, of Sterling, and Thomas Keely, of Denver, for plaintiffs in error.

T. E Munson, of Sterling, for defendant in error Commercial Sav. Bank of Sterling.

Bartels, Blood and Bancroft and Myles P. Tallmadge, all of Denver, for defendant in error Brinker.

HAYS Justice.

On June 14, 1920, pursuant to the provisions of chapter 151, S.L. 1899, Sections 9464-9513, inclusive, C.L. 1921, the City of Sterling, Colorado, by resolution of its City Council created a paving district known as 'Sterling Central Paving District,' and authorized the execution of a contract for the construction of said improvements in the business district of the city.

Thereafter in June, 1920, bids were duly called for, and on August 17, 1920, the bid of Strange-McGuire Paving Company was accepted and a formal contract entered into between the city and said paving company for the construction of the improvements. March 21, 1921, the city council adopted Ordinance No. 1, Series of 1921, authorizing the issuance of public improvement district bonds in payment of the cost and expenses for constructing said improvements, said bonds to be dated April 15, 1921, to bear interest at six per cent per annum, and to mature April 15, 1941. Thereafter, pursuant to said ordinance, bonds in the sum of $347,000, and in denominations of $1,000 and $500, respectively, were duly issued and delivered to, and accepted by, the contractor and the engineer, in lieu of cash, in payment for the cost of said improvements.

During the twenty-year period between the issuance of said bonds and the date of maturity thereof, and as money became available from the collection of assessments, bonds were discharged in the sum of $292,000, together with interest on the total issue, to date of maturity, at which time there was a balance in the bond redemption fund of $1,242.79. There remained outstanding unpaid bonds on April 15, 1941, in the sum of $54,500 with practically all of the assessments in the district paid.

The Commercial Savings Bank of Sterling owned outright, or had in its hands for collection, a portion of the above-mentioned defaulted bonds in the sum of $16,000, and the J. K. Mullen Investment Company owned $27,500 of said bonds. Demand was made by both the bank and the investment company for payment of the bonds held by them, which was refused because there were no funds available with which to pay same. As a result, the Bank brought suit February 5, 1942, against the City of Sterling, its treasurer, mayor, and members of the city council to recover a money judgment in the amount of the bonds held by it, plus interest, from April 15, 1941, alleging that the shortage or deficit in the district funds was wholly due to the careless and negligent manner in which the financial affairs of the district were conducted. January 14, 1942, the J. K. Mullen Investment Compamy filed similar complaint against the same parties, and asked for a money judgment in the sum of $27,500, plus interest. Later Waller C. Brinker was substituted for the investment company as plaintiff.

While the two complaints were not identical, they were so similar in every respect that all the litigating parties stipulated that the cases should be consolidated for trial in the district court. The trial, finally concluded February 2, 1943, resulted in money judgments against the city, and in favor of the respective plaintiffs in the amounts above stated.

In order to avoid confusion we shall hereafter refer in this opinion to the parties as they appeared below; that is, as plaintiffs and defendants, unless otherwise designated.

Plaintiffs in error ask reversal of the judgments, contending, inter alia, that the same are contrary to law. We think this contention should be sustained.

It has long since been settled and thoroughly established by a long line of decisions that actions for money judgments will not lie against municipal corporations on bonds or warrants, under the circumstances present in this case. Board of Com'rs of Grand County v. People ex rel., 16 Colo.App. 215, 64 P. 675; Forbes v. Board of County Com'rs, 23 Colo. 344, 47 P. 388; Board of Com'rs of Gunnison County v. Sims, 31 Colo. 483, 74 P. 457; City & County of Denver v. Bottom, 44 Colo. 308, 98 P. 13; Berkey, Adm'r v. Board of Com'rs, 48 Colo. 104, 110 P. 197, 20 Ann.Cas. 1109; Rio Grande Junction R. Co. v. Orchard Mesa Irr. Dist., 64 Colo. 334, 171 P. 367; Henrylyn Irr. Dist. v. Thomas, 64 Colo. 413, 173 P. 541; Alpha Corp. v. Denver-Greeley Dist., 110 Colo. 179, 186, 132 P.2d 448; Kiles et al. v. Trinchera Irr. Dist., 10 Cir., 136 F.2d 894, 897.

An exception to the rule announced in the above cases has been recognized where the city, as trustee, diverts, misuses, or misappropriates money which has been collected for payment of its bonds. Employers Mut. Ins. Co. v. Board of County Com'rs, 102 Colo. 177, 78 P.2d 380; Wangnild v. Town of Haxtun, 106 Colo. 180, 103 P.2d 474; Town of Haxtun v. Wangnild, 109 Colo. 518, 127 P.2d 328.

A discussion of the underlying principles of the rule and exception mentioned above will be found in the following decisions: State ex rel. v. City of Indianapolis, 188 Ind. 685, 123 N.E. 405; Moore v. City of Nampa, 9 Cir., 18 F.2d 860; Smith v. Boise City, 9 Cir., 104 F.2d 933; Blackford v. City of Libby, 103 Mont. 272, 62 P.2d 216, 107 A.L.R. 1348; Gagnon v. City of Butte, 75 Mont. 279, 243 P. 1085, 51 A.L.R. 966; Potter v. City of New Whatcom, 20 Wash. 589, 56 394, 72 Am.St.Rep. 135; Brown-Crummer Inv. Co. v. City of Burbank, D.C., 17 F.Supp. 469; Board of Com'rs of Montgomery County v. Fullen, 111 Ind. 410, 12 N.E. 298, 13 N.E. 574.

Our court in Sanborn v. City of Boulder, 74 Colo. 358, 373, 221 P. 1077, 1083, said: 'In Board of Com'rs of Montgomery County v. Fullen, 111 Ind. 410, 12 N.E. 298, 13 N.E. 574, the court states that the city authorities, in issuing and negotiating local improvements bonds, act merely as an agency; not of the city, but as special agents of the improvement districts, to accomplish a public end'.

In the complaints in the instant cases there were slight variations in the allegations as to the particular alleged wrongful acts committed by the defendants, which, it is contended, caused the shortage or deficit in the district funds, but the trial court considering all the evidence submitted in both cases found that the alleged wrongful acts were as follows: 'The city council was negligent and careless in the manner in which it handled the funds of the Central Paving District; [1] that it made unlawful abatements of assessments levied for the purpose of paying the bonds against the said district; [2] that the manner in which it handled the cash paid within the first thirty days after the passage of the assessing ordinance was illegal; [3] that the city has, by its wrongful endeavor to charge the district as though the district had a contract with the defendant city, unlawfully increased the bonded indebtedness of the district more than $80,000.00; [4] and that in passing the assessment which is insufficient by approximately $56,000.00 to take care of the bonds issued by the said city.' (Numbers 1, 2, 3, 4, inserted.)

Under the above authorities plaintiffs were not entitled to recover a money judgment against the City of Sterling for either one or all of the above alleged wrongful acts, except as hereinafter provided, because the city was acting in its governmental capacity performing functions imposed upon it by law for the benefit of the improvement district, and not for its corporate benefit. In addition the record shows, with respect to the alleged unlawful abatements of assessments that the property involved consisted of a few small lots which had already been sold for general taxes, and a certificate of purchase issued to the purchaser. No doubt the council was justified in considering the assessments uncollectible. With respect to the second alleged wrongful act of the defendants above mentioned, the record discloses that there was sufficient money in the bond redemption fund to warrant a call of a few bonds for payment. However, defendants, by reason of the condition of the banks at that time, permitted said money to remain in the bank for a short period rather than make a call of the bonds. It is conceded that there was a resulting loss to the bond fund, occasioned by the above...