Duane v. City of Philadelphia

Citation322 Pa. 33,185 A. 401
Decision Date25 May 1936
Docket Number4416
PartiesDuane v. Philadelphia et al
CourtUnited States State Supreme Court of Pennsylvania

Argued March 30, 1936

Bill in equity. Original jurisdiction, in equity, in case of Russell Duane v. City of Philadelphia, S. Davis Wilson mayor, et al., Miscellaneous Docket No. 6, No. 209. Bill dismissed.

Bill dismissed; costs to be paid by the City of Philadelphia.

Clarence G. Myers, of Duane, Morris & Heckscher, for plaintiff.

Joseph Sharfsin, City Solicitor, with him John P. Berry, G. Coe Farrier and Ernest Lowengrund, Assistant City Solicitors, for defendants.

Before KEPHART, C.J., MAXEY, DREW, LINN, STERN and BARNES, JJ.

OPINION

MR. CHIEF JUSTICE KEPHART:

On July 8, 1929, the City of Philadelphia enacted an ordinance providing for the creation of a loan in the sum of $50,500,000, and authorized the mayor, city controller and city solicitor, or any two of them, to borrow, for the purposes mentioned in the ordinance, at such times and in such proportions of the amount authorized as they might determine. The city now proposes to issue $5,000,000 of that authorized loan. Plaintiff's bill, here on original jurisdiction, seeks to enjoin the proposed issue on the ground that it is in violation of section 8 of article IX of the Constitution in that it exceeds the debt limitation therein set forth.

The facts are as follows: The present assessed value of taxable property in the city upon which a loan may be issued is $3,618,863,241. Ten per cent of that amount, the limit of the city's possible debt at this time, is $361,886,324. The funded debt of the city after sinking fund credits are deducted is $450,188,900, which shows a funded indebtedness exceeding the 10% debt limit by $88,302,576. Allowing all other credits and deductions authorized by law, the net funded debt of the city exceeds the 10% debt limit by an amount over $30,000,000. In 1929 when the loan of $50,500,000 was authorized, the assessed value of city property for taxable purposes was above $4,660,000,000, and the proposed issue, of which $37,800,000 has actually been issued, was then within the debt limit after deducting all credits.

Section 8 of article IX of the Constitution, which the proposed issue of $5,000,000 is supposed to violate, reads as follows "The debt of any . . . municipality . . . shall never exceed seven per centum upon the assessed value of the taxable property therein, but the debt of the City of Philadelphia may be increased in such amount that the total city debt of said city shall not exceed ten per centum upon the assessed value of the taxable property therein." The first case to construe this provision was Brooke v. Phila., 162 Pa. 123. That was a proceeding to declare invalid a proposed loan of $6,000,000 as exceeding the constitutional limitation. It was there said ". . . that the real debt of the city is the authorized debt." This was followed in 1914, some 20 years later, by the more important decision in McGuire v. Phila., 245 Pa. 287, which was heard on original jurisdiction to enjoin the city from making a loan in excess of the constitutional limitation. Therein this constitutional provision and the Act of 1874 were considered. The bill for injunction showed that 7% of the property valuation assessed was $108,000,000. The then indebtedness was $106,000,000. The city had a lawful borrowing capacity of $2,000,000. It proposed to borrow under proper procedure $8,600,000. In defending the proposed loan as constitutional it was averred, inter alia, that the city had authorized but not issued a loan of $6,750,000. This item alone, if deducted from the indebtedness, gave it ample borrowing power. The city contended that the authorized but unissued loans were not part of its debt. In its brief, the argument was made that an authorized loan which has not been acted upon cannot in any sense be said to constitute a part of the city's debt, since the money embraced in such loan is not owing until it has, in fact, been borrowed. This court held that it did constitute a part of the debt and that the loan of $8,600,000 was void under the Constitution. In the opinion of the court, Justice BROWN, afterwards Chief Justice, stated that an authorized debt must be considered as a debt within the meaning of the constitutional provision. These cases establish that bonds which have been authorized but not issued are, nevertheless, a debt, and must be so considered in municipal financing under article IX, section 8. If it is a debt at that time, it follows that it is the assessment of the taxable property at that time which must measure its validity. It would seem that whatever may be the viewpoint on the proper construction of this provision that these cases set the matter at rest in the present contest. But it is urged that a literal or strict construction inevitably forces a different conclusion, and that the question presented by the plaintiff as to whether or not a proposed bond issue valid at the time of authorization may be enjoined because the value of the city's taxable property has since declined, would then have to be answered in the affirmative.

If the words of this provision, "the debt . . . shall never exceed" or "shall not exceed" a fixed percentage of the assessment, be given a literal interpretation, we are compelled to say that though municipal bonds are validly issued and outstanding they become void in the hands of innocent purchasers at any time the decrease in assessed value brings the total outstanding municipal indebtedness beyond the figure arrived at by applying the percentage fixed in the Constitution to the assessments. As the present debt of the City of Philadelphia exceeds that limitation by over $30,000,000 because of a decline in the assessed value of taxable property, the bonds representing this excess would be void. If this is true as to the city, over the entire State many more millions of dollars of municipal bonds would be placed in jeopardy, and the whole structure of municipal financing would be endangered.

Heretofore, validly authorized bonds have been considered binding obligations in the hands of their holders without suspicion of a possibility that a subsequent decline in assessed value might render them invalid under our Constitution. This understanding we encouraged by our decisions in the Brooke and McGuire cases and, based upon these decisions, statutes were passed which fostered such conception. Administrative officers of municipalities strengthened it by honoring outstanding bonds without reference to a decline in assessments during the period between the authorization and the maturity of the issues. If we are now to adopt this new and needlessly strict interpretation, we would strike down a universal conception of the factors which determine the validity of municipal obligations. The bondholders, whose rights have been impinged, would probably take steps to ascertain whether there had not been an impairment of a contract and whether the operation of our constitutional provision did not collide with relevant provisions of the Federal Constitution. Contracts between an individual and a municipal corporation are impaired whenever the right to enforce them by legal process is taken away or essentially lessened. All governmental bodies are as much bound by their contracts as are individuals, and if they deprive their obligees of the right to enforce obligations it is repudiation with all the wrong and reproach which that term implies whether the repudiator be the State, a municipality or an individual. It is not difficult to imagine what might happen if the Federal Constitution was held violated to the detriment of this provision of our Constitution.

It might be urged, however, it would not be necessary to go so far since we have previous cases which decide that when a debt has validly taken form in its inception, subsequent changes cannot impair or nullify the debt when in existence: see Addyston Pipe, etc., v. City of Corry, 197 Pa. 41, 49; Gable v. Altoona, 200 Pa. 15, 21; Scranton Elec. Co. v. Old Forge Boro., 309 Pa. 73, 78. Although we do not hesitate to reaffirm everything that was decided in those cases, clearly they would not avail as a check since the principles enunciated therein could be readily distinguished when sought to be applied to the instant problem. We point out, however, that if the constitutional provision be taken in a literal, absolute and realistic sense, such meaning leads to dangerous possibilities which we cannot escape.

Since it is impossible to apply a literal meaning to this constitutional provision then an interpretation of the provision is inevitable. Under such circumstances the court is at liberty to take the most feasible view; one which is in harmony with the rules of construction applicable under the conditions such as here presented and one which works the least harm, for it is doubtful if any other municipality in the State is in a similar situation. We thought we had, by adherence to these rules, settled this interpretation in the McGuire case, but plaintiff would now have us add to the words "never exceed seven per centum upon the assessed value of the taxable property therein . . . [and] . . . not exceed ten per centum upon the assessed value of the taxable property therein" the further clause "at the time the bonds are actually sold." The Constitution does not so read and plaintiff's interpretation does not conform to the rules of construction applicable where great hardship results. These rules prohibit the impracticable and unreasonable conclusion contended for by plaintiff and demand that it be practical and expedient: Cooper Manufacturing Co. v. Ferguson, 113 U.S. 137; U.S. v. Kirby, 74 U.S. 482, 486; In re Griffon, Fed. Cas. No. 5815 ...

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  • Duane v. City of Philadelphia
    • United States
    • United States State Supreme Court of Pennsylvania
    • May 25, 1936
    ... 185 A. 401322 Pa. 33 DUANE v. CITY OF PHILADELPHIA et al. Supreme Court of Pennsylvania. May 25, 1936. 185 A. 401 DREW and LINN, JJ., dissenting. Original suit by Russell Duane against the City of Philadelphia and others to enjoin the proposed issue of municipal bonds to the amount of $5,0......

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