German Nat. Bank of Covington v. City of Covington

Decision Date23 April 1915
Citation164 Ky. 292,175 S.W. 330
PartiesGERMAN NAT. BANK OF COVINGTON v. CITY OF COVINGTON.
CourtKentucky Court of Appeals

Appeal from Circuit Court, Kenton County, Common Law and Equity Division.

Action by the German National Bank of Covington against the City of Covington. From a judgment granting insufficient relief plaintiff appeals. Affirmed.

S.D Rouse and R. C. Simmons, both of Covington, and H. B. Mackoy of Cincinnati, Ohio, for appellant.

Frederick W. Schmitz, of Covington, for appellee.

SETTLE J.

Cities of the fourth class are authorized to improve streets at the cost of the abutting property, and to issue street improvement bonds (section 3572-7, Kentucky Statutes), but have no authority to assess the abutting property in excess of one-half the value thereof after the improvements are made (section 3578, Kentucky Statutes). Cities of the second class are also authorized to improve streets on the 10-year bond plan, and to issue the bonds of the city, secured by lines on the abutting property, and also to pledge the faith and credit of the city for the payment of the bonds. Section 3101, Kentucky Statutes. Prior to July 29, 1909, Latonia was a city of the fourth class. During the period immediately preceding that date, it ordered the improvement of a number of its streets on what is known as the 10-year bond plan. On the above date, the city of Latonia was annexed to the city of Covington, a city of the second class. Some of the streets under course of construction at the time of the annexation were subsequently completed, and the cost provided for by the city of Covington. Among the streets so improved is Randall avenue. The cost of the improvement was $2,962.48, which sum was assessed on eight lots of the Green subdivision. After the street was so improved, it developed that these lots were worth only $2,338.94, and could be put in lien for only one-half that amount, or $1,169.47. The cost of the improvement, therefore, exceeded 50 per cent of the value of the property to the extent of $1,793.01. The city of Covington issued bonds for the cost of the work, and pledged for the payment thereof, not only the special fund accruing from the collection of the assessment of the abutting property, but also the faith and credit of the city. The issue of bonds was taken over by the contractor, and subsequently a number of these bonds were sold to various parties, including the German National Bank. This action was brought by the German National Bank to recover on three of these bonds. A personal judgment was sought against the city. The city defended on the ground that no vote of the people authorizing the indebtedness was ever had, and that the indebtedness exceeded the revenue and income for the year for which it was incurred, and was therefore void under section 157 of the Constitution. On final hearing the trial judge gave judgment for plaintiff for the amount collected, and to be collected, from assessments on the abutting property, but declined to give any personal judgment against the city for that portion of the bonds not secured by liens on the abutting property. From that judgment the bank appeals.

Section 157 of the Constitution provides in part as follows:

"No county, city, town, taxing district, or other municipality shall be authorized or permitted to become indebted, in any manner or for any purpose, to an amount exceeding, in any year, the income and revenue provided for such year, without the assent of two-thirds of the votes thereof, voting at an election to be held for that purpose; and any indebtedness contracted in violation of this section shall be void. Nor shall such contract be enforceable by the person with whom made; nor shall such municipality ever be authorized to assume the same."

It is admitted in this case that the indebtedness was not authorized by a vote of the people, and that it exceeds the revenue and income provided, or that could be provided, for the year in which it was incurred.

We have frequently held that contracts for local improvements, the cost of which is to be borne wholly by the property benefited, form no part of the indebtness of the municipality within the meaning of section 157 of the Constitution. The reason for the rule is that the contractor or holder of the bond must look alone to the fund created by the collection of the assessment on the abutting property, and the city is a mere agency for collecting the assessments, and custodian of the fund when the assessments are collected. City of Catlettsburg v. Self, 115 Ky. 669, 74 S.W. 1064, 25 Ky. Law Rep. 163; Adams v. Ashland, 80 S.W. 1105, 26 Ky. Law Rep. 184; Guilfoyle v. Maysville, 129 Ky. 532, 112 S.W. 666; Quill v. City of Indianoplis, 124 Ind. 292, 23 N.E. 788, 7 L.R.A. 681.

On the other hand, the fact that local improvement bonds are to be paid out of assessments which are made a lien upon the property benefited does not render them legal on the theory that they do not create an indebtedness against the city where the bonds provide for the pledging of the faith of the city for the payment of the principal and interest thereon. City of Covington v. McKenna, 99 Ky. 508, 36 S.W. 518, 18 Ky. Law Rep. 288; City of Covington v. Nadaud, 103 Ky. 455, 45 S.W. 498, 20 Ky. Law Rep. 151; Gedge v. City of Covington, 80 S.W. 1160, 26 Ky. Law Rep. 273. Here the improvement bonds are not payable wholly out of a special fund derived from the assessment on the property benefited. The faith and credit of the city are pledged for their payment. They are therefore a personal obligation of the city, and since they represent an indebtedness in excess of the revenue and income for the year in which the indebtedness was incurred without a vote of the people, they come within the inhibition of the Construction and are null and void.

The above propositions are conceded, but counsel for the bank insists that the city is liable for the deficiency on an entirely different theory. Briefly stated, their position is this: Where the city has the power to make the improvement but none to charge it upon the abutting property, the city itself becomes liable. City of Louisville v. Bitzer, 115 Ky. 359, 73 S.W. 1115, 24 Ky. Law Rep. 2263, 61 L.R.A. 434; Caldwell v. Rupert, 10 Bush, 179; Louisville v. Nevin, 10 Bush, 549, 19 Am.Rep. 78; Craycraft v. Selvage, 10 Bush, 696. The constitutional provision applies only to a contractual indebtedness. O'Bryan v. City of Owensboro, 113 Ky. 680, 68 S.W. 858, 24 Ky. Law Rep. 469; Id., 113 Ky. 680, 69 S.W. 800, 24 Ky. Law Rep. 645; Overall v. City of Madisonville, 125 Ky. 684, 102 S.W. 278, 31 Ky. Law Rep. 278, 12 L.R.A. (N. S.) 433; Fowler v. City of Oakdale, 158 Ky. 603, 166 S.W. 195. It does not apply to an obligation imposed by law. 28 Cyc. 1541. Here the city had the power to make the improvement, but no power to assess the cost thereof against the abutting property in excess of 50 per cent. of...

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12 cases
  • City of Frankfort v. Fuss
    • United States
    • Kentucky Court of Appeals
    • 20 Junio 1930
    ... ... Covington v. O. F. Moore Co., ... 218 Ky. 102, 290 S.W. 1066; ... without right. German Bank v. Covington, 164 Ky ... 295, 175 S.W. 330, Ann ... ...
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    ...indebtedness.” Vallelly et al. v. Board of Park Commissioners, 16 N.D. 25, 111 N.W. 615, 15 L.R.A.(N.S.) 61;German Nat. Bank v. City of Covington, 164 Ky. 292, 175 S.W. 330, Ann.Cas.1917B, 189; and Gadd v. McGuire, 69 Cal.App. 347, 231 P. 754, 760. [3] In determining the amount of indebtedn......
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