State v. Spring City

• Citation: 260 P.2d 527,123 Utah 471
• Decision Date: 10 August 1953
• Docket Number: No. 7942,7942
• Parties: STATE, v. SPRING CITY et al.
• Court: Supreme Court of Utah

Page 527

260 P.2d 527

123 Utah 471

STATE, v. SPRING CITY et al.

No. 7942.

Supreme Court of Utah.

Aug. 10, 1953.

Clinton D. Vernon, Atty. Gen., Allen B. Sorenson, Asst. Atty. Gen., for appellant.

Don V. Tibbs, Jr., Manti, Dilworth Woolley, Manti, John S. McAllister, Mt. Pleasant, for respondents.

McDONOUGH, Justice.

Plaintiff appeals from a decision of the trial court holding certain municipal bonds issued by defendant Spring City to be void and denying any recovery against Spring City or its city officials.

On January 15, 1948, defendant Spring City, a municipal corporation, through defendant city officials, issued a series of bonds with a total face value of $12,000. The State of Utah, plaintiff, through its Commission of Finance, purchased the entire issue for the sum of $13,498.67, representing principal, premium and accrued interest. The bonds were issued to raise funds 'for the purpose of extending and improving the power and light plant to be owned and controlled by the city.' Coupons were attached for interest payments, which were to be paid annually until maturity of the bonds. None of the bonds were to mature until the years 1961. Defendant Spring City paid all interest payments as they came due to and including January 15, 1950. On January 15, 1951, the state treasurer presented coupons for payment then payable for a total of $420. Payment was refused and no payments have since been made. Defendant Spring City maintains that the bonds and coupons are void.

Plaintiff brought this action against defendant Spring City and defendant city officials. The trial court held (1) That the bonds in question are void under Article XIV Section 3 and Article XIV Section 4 of the Constitution of the State of Utah, (2) That plaintiff is not entitled to recover on the theory of money had and received and (3) That plaintiff is not entitled to recover from the issuing authorities for negligence in authorizing the bond issue. Plaintiff appeals, contending that the trial court erred on these points.

Article XIV Section 3 of the Constitution of the State of Utah reads as follows:

'No debt in excess of the taxes for the current year shall be created by any county or subdivision thereof, or by any school district therein, or by any city, town or village, or any subdivision thereof in this State; unless the proposition of create such debt, shall have been submitted to a vote of such qualified electors as shall have paid a property tax therein, in the year preceding such election, and a majority of those voting thereon shall have voted in favor of incurring such debt.'

No election was held authorizing the issue of the bonds in question. The trial court found that in 1948 the expenditures of Spring City exceeded its revenues by $2,067.90. The court concluded therefore that the municipality had created a debt in excess of its revenues which was unconstitutional and void.

The plaintiff argues that the validity of such a contracted indebtedness should be determined as of the time when it is incurred, rather than at the end of the year. Since the bonds in question were issued January 15, they did not exceed the prospective revenues for the year. ¹ Plaintiff contends that they were therefore valid when they were issued and that their validity could not be impaired by subsequent expenditures by the city officials.

It is true that the validity of an indebtedness should be determined as of the time when it is incurred. Scott v. Salt Lake County, 58 Utah 25, 196 P. 1022; and see numerous cases collected at 159 A.L.R. 1263. Municipalities can and often do borrow or otherwise contract in anticipation of revenues to be received during the year. Dickinson v. Salt Lake City, 57 Utah 530, 195 P. 1110. It would be manifestly unfair to permit persons who entered into a valid contract with a municipality to be deprived of their rights by later acts of the officers of the municipality. Obligations incurred after the debt limit is reached are void, and their payment should not be permitted to deprive legitimate claimants. If the debt is valid when incurred, there is no objection to payment from the income of a subsequent year. Carl R. Miller Tractor Co. v. Hope, 218 Iowa 1235, 257 N.W. 312; Nelson County Fiscal Ct. v. McCrocklin, 175 Ky. 199, 194 S.W. 323.

If, therefore, the bonds in question were valid when issued, they did not become invalid because of the fact that the defendant Spring City ended the year 1948 with a deficit. We are of the opinion, however, that the bonds were void when they were issued.

The provisions of Article XIV Section 3 were placed in the Constitution to protect the taxpayers against an abuse of their credit. The evident purpose is that municipalities be required to operate each year within their revenues for that year; they must 'pay-as-they-go' unless the voters enlarge that limit. Wadsworth v. Santaquin City, 83 Utah 321, 28 P.2d 161; Dickinson v. Salt Lake City, supra; Fritsch v. Board of Commissioners of Salt Lake City, 15 Utah 83, 47 P. 1026. In this instance, the city officials of Spring City apparently decided that the city needed an electric plant pipeline which it could not well afford out of revenues for the current year. They nevertheless decided to purchase the facilities and to pay for them in future years. This was an attempt by the municipality to live beyond its income for the current year, which violates the purpose of Article XIV Section 3. The city did not 'pay-as-it-went.' Whether the revenues of Spring City for 1948 exceeded or were less than the amount of the bonds at the time they were issued should not determine the validity of the indebtedness. It would be unreasonable to suppose that bonds issued in 1948 with principal payable in 1961 were to be paid out of 1948 revenues merely because on January 15, when they were issued, prospective revenues for the year exceeded their amount. On the contrary, the bonds were never intended to be paid out of revenues for 1948; they represent an indebtedness incurred in anticipation of the income of future years. Article XIV Section 3 requires that a city keep its expenses for a given year within the income and revenue provided for that year; it cannot incur debts to be met by revenues arising in years to come. Fritsch v. Board of Commissioners of Salt Lake County, supra; Trump Mfg. Co. v. Buchanan, 116 Mich. 113, 74 N.W. 466; Trask v. Livingston County, 210 Mo. 582, 109 S.W. 656, 37 L.R.A.,N.S., 1045.

Plaintiff relies in his argument on Muir v. Murray City, 55 Utah 368, 186 P. 433. This was a suit to recover payment from Murray City of money borrowed to build a power line, payable in four annual installments. The court stated that Article XIV Section 3 was not a defense to the action because no evidence showed that the debt was in excess of potential revenues for the current year. It is conceivable that the decision is not inconsistent with the views expressed above since there was no evidence to show that the moneys that could be reached to pay the indebtedness in question, were not from the revenues of the year in which the obligation was incurred. To the extent, however, that the Muir case can be viewed as holding that a municipality can incur indebtedness, absent an election authorizing it, in anticipation of the income of future years, it is overruled.

The trial court also held that the bonds are invalid under Article XIV Section 4 of the Constitution. In view of our holding as to the invalidity of the bonds under Section 3, discussion of this point is not necessary to disposition of the appeal. Nevertheless, since counsel have requested that we review the ruling, we elect to do so. Article XIV Section 4 provides that, when authorized to create indebtedness under Section 3, a city may incur an original aggregate indebtedness of four per cent of the value of taxable property within the corporate limits of the municipality. An additional eight per cent is permitted 'for supplying such city or town with water, artificial lights or sewers.' Since Spring City supplied the city with artificial lights, it qualified to indebt the city to the extend of 12 per cent.

The value of the taxable property is 'to be ascertained by the last assessment for State and County purposes, previous to the incurring of such indebtedness.' The County Assessor's figure for the valuation of the taxable property in Spring City for 1947 was $179,407. If this figure is used to compute the debt limit, Article XIV Section 4 would limit the power to obligate the city to the sum of $21,528.84, including existing indebtedness. At the time plaintiff purchased the bonds in question, plaintiff already held unpaid bonds issued by defendant city in the sum of $14,500. Thus the issue of the additional bonds in the value of $12,000 would exceed a debt limit of $21,528.84. Plaintiff argues, however, that the limitation refers to the actual value of the property and not the assessor's figure. As an original proposition, the standard referred to in the Constitution appears to be the assessor's figure and some states with similar provisions so hold. City of Chicago v. Fishburn, 189 Ill. 367, 59 N.E. 791.

Prior to 1947, statutes of Utah provided for assessment of all taxable property at its full cash value. See Section 80-5-1, Utah Code Annotated 1943. Section 59-5-1, Utah Code Annotated 1953 as amended by Chapter 102, Laws of Utah, 1947, provides, however:

'All taxable property must be assessed at forty...