Harbold v. Reading

Opinion by Mr. Justice Horace Stern, This action represents an attempt to impose an absolute liability on the City of Reading for the payment of bonds which expressly provided that no such liability should exist, such payment being directed, however, by a validating Act of May 26,1943, P. L. 660. In 1932 the city enacted an ordinance authorizing the paving and curbing of Kenhorst Boulevard and Old Wyomissing Road. The ordinance provided that the work should be paid for and assessments levied on the abutting properties should be collected in the manner provided by an ordinance of 1925. According to the latter the contractor was to be paid from amounts collected by the City Treasurer from the abutting property owners, and “the City of Reading shall under no circumstances be held responsible for the payment of any part of the cost of said improvement, except as to the cost of paving intersections of streets, the paving and curbing in front of properties exempt by law from the payment of the cost of such improvements, and the amounts actually received from the assessments by the City Treasurer”. It was provided by section 1908 of the Third Class City Law of June 23, 1931, P. L. 932, that, where the whole or any part of the cost of an improvement was to be paid by assessments upon the properties abutting or benefited and the agreement with the contractor called for his payment from such assessments, the city should not be otherwise liable “whether said assessments are collectible or not”. A contract having been entered into in accordance with these provisions; the work was completed on June 5, 1933, at a cost of $68,551.93. For the portion for which it was responsible there was paid by the city $20,054.06; the remainder (less the sum of $497.87, which .was given to the contractor in cash) was paid by the issuance on June 21, 1933 of 48 “Improvement *256 Bonds”, each in the sum of $1000, and each containing the following provision: “This bond, principal and interest, is based solely and rests alone for its security and is payable only out of the assessments made and levied upon the properties benefited by the local improvement (street improvement) for which this bond is issued and from no other fund. It is expressly understood that the City of Reading is to be liable only for the amount collected on the said assessments . . Most of these bonds were ultimately redeemed out of the moneys collected on the assessments, but 9 of them, of which 7 are held by plaintiff, remain unpaid, together with interest thereon from June 22, 1943. As it appeared extremely doubtful whether sufficient funds could be realized out of the liens which were filed on the abutting properties, plaintiff brought the present suit in assumpsit against the city, basing his claim partly upon the Act of May 26, 1943, P. L. 660, and partly upon a contention that the city was negligent in failing to effect collections from the property owners. The Act of May 26, 1943, P. L. 660, provides that whenever, prior to January 1, 1942 “any municipal corporation has, in good faith, issued bonds or other obligations for the payment of the cost of a public improvement on the assumption that such bonds were not debts of the municipality within the meaning and intent of article nine, section eight of the Constitution, for the reason that such bonds or obligations were secured or to be secured by assessments against property benefited by such improvement, and were to rest alone for their security and payment upon such assessments, such bonds and obligations are hereby ratified, confirmed and made valid and binding obligations and debts of the municipality . . .”. The court below, one of the judges dissenting, held that this act was constitutional, — a decision which we are now called upon to review. *257 It is important at the outset to realize the exact change that was effected by this “validating” statute. Under the terms of the bonds as originally issued the City of Reading was practically nothing more than an agent or trustee to make the assessments and to collect from the abutting property owners and pay over to the contractor or to the assignees of the bonds the funds due under the contract; it could itself become liable for the payment of the bonds only if guilty of negligence in the performance of its duties as such quasi agent or trustee; the source of payment was limited strictly to the assessments, and the credit of the municipality was in nowise involved. By virtue of the statute, however, the city became an absolute debtor on the bonds and the credit of the municipality and its complete taxing power were placed at the disposal of the bondholders as the source from which to effect payment. The latter were thus granted a pure gratuity, a windfall, by which money was legislated out of the pockets of the taxpayers of the city for the private benefit of the contractor or the assignees of the bonds as to none of whom was there any obligation whatever, legal, equitable, or moral, to justify such a grant. The city ordinances^ the Third Class City Law, the contract, and the bonds themselves, all plainly specified that the city’s obligation was limited; the bonds were accepted with full realization of that fact, and the contractor received exactly what the contract provided that he should receive. Indeed it is obvious that if the parties had contemplated an unlimited municipal liability it is not likely that the bonds would have borne interest, as they did, at the high rate of 5% per annum. No consideration or benefit of any kind was received by the city in return for the liability imposed upon it, nor was any public purpose thereby subserved, — not even, as it might be claimed, to establish a better credit with contractors in general, because by the Municipal Borrowing Law of June 25,1941, P. L. 159, section 214, the future issuance of such “improve *258 ment bonds” by municipalities had been forbidden, and only bonds pledging the full faith and credit of the municipality were thereafter to be issued. In view of its provisions as thus analyzed, was this act constitutional? Admittedly the original contract for paving and curbing the streets might have provided for the payment of the entire cost by the city (Third Class City Law of June 23, 1931, P. L. 932, section 2931), but since, in fact, the contractor was to receive payment only from the abutting property owners, could the legislature, by its mere fiat, subsequently impose upon the city an absolute liability purely for the private benefit of the contractor or those to whom the bonds originally issued to the contractor had been assigned? Article III, section 11 of the Constitution provides: “No bill shall be passed giving any extra compensation to any . . . contractor, after services shall have been rendered or contract made . . .”. Article IX, section 7, provides: “The General Assembly shall not authorize any . . . city ... to obtain or appropriate money for, or to loan its credit to, any corporation ... or individual”. It is important to note that we are not dealing in the present case with a statute which provides for the payment of a claim not legally recoverable merely because of some technical defect in the legislation which authorized it or because it was incurred without the previous authority of law, but supportable as an equitable or moral obligation. Such an obligation might exist where a contractor did not, for some legalistic reason, receive what the parties had agreed in the contract he should receive. A moral obligation has been defined as one “which cannot be enforced by action but which is binding on the party who incurs it, in conscience and according to natural justice,” or as “a duty which would be enforceable by law, were it not for some positive rule, which, with a view to general benefit, exempts the party in that particular instance from legal liability”: Bailey *259 v. Philadelphia, 167 Pa. 569, 573, 31 A. 925, 926, 927; Justice v. Philadelphia, 37 Pa. Superior Ct. 267, 272. Notwithstanding the constitutional provisions above quoted, it is well established in our own State, as well as generally elsewhere, that a claim supported by such a moral obligation and founded in equity and justice, even though not legally enforceable, may be recognized by the legislature and made collectible either from the State itself or any of its political divisions; the legislature may compel municipalities to adopt and discharge such obligations and to exercise the power of taxation for that purpose. Illustrations of the application of this principle abound in our reports. 1 But while it is thus *260 “competent for the legislature to compel municipal corporations to recognize and pay debts or claims not binding in strict law, and which, for technical reasons, could not be enforced in equity, but which, nevertheless, are just and equitable in their character and involve a moral obligation” (Dillon, Municipal Corporations, (5th ed.) vol. 1, p. 222, §123), power has never been judicially conceded in this State to a legislature to appropriate money or loan the public credit, or compel a municipality to make such a loan or appropriation, merely for the benefit of private corporations or individuals, where no such equitable or moral obligation exists and no public purpose is thereby advanced. In Tyson v. School Directors of Halifax Township, 51 Pa. 9, the question was whether an act could properly authorize the school directors of a township to levy a tax to reimburse a “Bounty Association” for money expended by it to procure volunteers to fill the quota of the township. The court said (p. 22) that the decision depended upon whether the Association had paid its money to free its own members from the draft or whether the reimbursement was for advances made for the benefit of the township and with an understanding that it was to be returned to those contributing; in the former event “Such an enactment would not be legislation at all. ... it would much more resemble an imperial re-script than constitutional legislation; first, in declaring an obligation where none was created or previously existed; and next in decreeing payment by directing the money or property of the people to be sequestered to make the payment. The legislature can exercise no such despotic functions . . .” In Faas v. Warner, 96 Pa. 215, an act of assembly required a county to pay the debt of a sheriff which *261 he had contracted for the purpose of supplying prisoners in jail with bread. It was held that the act was unconstitutional and void, as the debt was the personal debt of the sheriff. The court said (pp. 217, 218): “. . . It thus appears that the petitioner’s claim was purely a personal one by himself against Woods, and further that there was not even a shade of obligation, legal or moral, on the part of the county to pay this debt. In such circumstances an act of the legislature directing the county to pay it is of no more validity than would be an act directing the county to pay the debt of any private citizen. Such legislation is void for want of constitutional power to enact it.” In Supervisors of Sadsbury Township v. Dennis, 96 Pa. 400, it was declared that, while an act of assembly could provide a remedy for the enforcement of a preexisting liability, it could not impose upon a county a liability which had no previous existence. In Strock v. Cumberland County, 176 Pa. 59, 34 A. 352, it was held that where an order of court had fixed the compensation to the sheriff for boarding vagrants, and board had been furnished under that order, the court could not subsequently increase the compensation so as to cover the board furnished during the continuance of the previous order. The court said (pp. 62, 63, A. pp. 352, 353) : “There was certainly no obligation, legal or moral, to give him [the sheriff] more than was due him, and if the legislature could not do it in the one case [referring to the decision in Faas v. Warner, 96 Pa. 215] the court cannot do it in the other. . . . While it is competent for the court to fix the compensation for the future, . . . and while it is true that an order may embrace past services if there has been no previous order made, or if exceptional circumstances raise a moral obligation, we cannot agree that where the compensation has been fixed by a previous order under which the service has been rendered, it can be increased for the same services by a subsequent order.” *262 In O’Rourke v. Philadelphia, 211 Pa. 79, 60 A. 499, where a contractor under a municipal contract did the work specified therein and received the stipulated price, it was held that he could not recover additional compensation for work included in the contract although a city ordinance was passed appropriating money for the payment of such work. In Cunningham v. Dunlap, 242 Pa. 341, 89 A. 129, it was held that an ordinance of council to compensate contractors for work done was invalid so far as it included any items which the contractors were obligated to furnish for the consideration provided in their contract. The court said (p. 345, A.p. 130) that the Act of May 23, 1874, P. L. 230, which permitted an ordinance, if passed by a two-thirds vote of both councils, to give extra compensation to a contractor after services had been rendered or contract made, was intended only to permit a city to pay for benefits actually received but not embraced or provided for in the contract. “In other words, it enables a city to pay an honest debt to a contractor under a written contract if two-thirds of the membership of councils, with the approval of the mayor, feel that it ought to be paid as a moral obligation, though, as a legal one, it has no existence. But while this is true, it is equally true that there is no authority in councils to direct extra payment for any work or materials which are included in a written contract with the city. For what is done under such contract the contractor can receive from the municipal treasury only what the contract stipulates is to be paid to him, and councils cannot give him more.” In Longstreth v. City of Philadelphia, 245 Pa. 233, 91 A. 667, it was held that a city has no power to appropriate by ordinance sums of money claimed by a contractor to be due him for extra work where there is no moral obligation to make such payment; accordingly the city authorities, at the suit of taxpayers, were enjoined by a court of equity from making the payment *263 directed by the ordinance. The court affirmed the opinion of the court below in the course of which the latter .said (p. 236, A. p. 667) : “If the city was under any legal or moral obligation to pay this claim, the ordinance is valid. If there is no obligation, legal or moral, upon the city, then the ordinance is an attempt to make a gift of the city’s money, and is void, as being beyond the power of councils.” In Edwards v. McLean, 23 Pa. Superior Ct. 43, it was held that an act which granted compensation to constables for services rendered prior to its enactment and for which the compensation previously authorized had been paid, was unconstitutional and void. The decisions in other jurisdictions are in accord with the views thus expressed by our own courts. 2 *264 The Act of May 26, 1943, P. L. 660, is unconstitutional because it violates tbe clauses of the Constitution *265 above referred to, — Article III, section 11, which forbids the passage of a bill giving any extra compensation to a contractor after the making of the contract, and Article IX, section 7, which forbids the General Assembly from authorizing any city to appropriate money for, or to lend its credit to, any corporation or individual Although the act did not grant a greater amount of compensation than that provided for in the original contract, it did in reality assure to the contractor or to the assignee bondholders the actual receipt of more money than would have been forthcoming from the limited source from which the contractor had agreed to accept payment, 3 and, as the legislature could not constitutionally authorize the city to appropriate money or loan its credit to this contractor or to the plaintiff bondholder, a fortiori it could not compel the city to make such a loan or appropriation. Even apart from express constitutional restrictions, while legislative authority over municipal corporations is extremely great, there are, nevertheless, some inherent limits to its power in that regard springing from the very nature of our government and from our general conception of governmental power. It would be intolerable if any legislative body, municipal, state or national, were to be allowed to make a grant to individuals of public funds in the absence of any legal, equitable or moral right thereto. Nor can the legislature, under the guise of a moral obligation, enact such legislation if it is abundantly clear that no such obligation exists; whether or not there is any ground for claiming its existence is a question which, though in the first instance, for the legislature, is, on final analysis, a judicial one. In the present case, as already stated, there is not the slightest basis for a *266 claim that the municipality was under obligation of any kind to the contractor or to the bondholders to whom the bonds have been assigned. While, therefore, it should be clear that liability cannot be imposed in this action on the City of Reading merely because of the Act of May 26, 1943, P. L. 660, plaintiff did not rely wholly upon that statute but alleged — and offered testimony to support the claim— that the city had been negligent in the performance of its duty to make the collections from the abutting property owners necessary to liquidate the bonds. The evidence indicated that there was no failure on the part of the city to make valid assessments, to file liens within the proper times, or to issue the necessary writs of scire facias to revive the liens, but that does not necessarily mean that the city was thereby relieved of its liability under the covenant implied in the bonds that it would pursue all reasonable measures to effect collection. It was the additional duty of the city to press the liens to fruition within a reasonable time, and, for that purpose, to enter judgments thereon, to issue writs of execution, and to expose the properties to sheriff’s sales: Dale v. City of Scranton, 231 Pa. 604, 80 A. 1110; Price v. Scranton, 321 Pa. 504, 184 A. 253; Palmer v. Erie, 337 Pa. 5, 9 A. 2d 378; Nagle Engine & Boiler Works v. Erie, 350 Pa. 158, 161, 38 A. 2d 225, 226. Here ten years had gone by from the original filing of the liens, during which time delinquent taxes may have accrued to wipe out any realizable value from the properties, and the only defense which the city could properly offer to its failure to proceed would be that the amounts likely to have been obtained from sales on execution would have been less than the costs involved: First Catholic Slovak Union v. Scranton, 311 Pa. 500, 167 A. 34; Bessemer Investment Co. v. City of Chester, 113 P. 2d 571, 576, 577. Nor did the city institute any actions of assumpsit against the owners of the abutting properties within three years after the completion of the improvement, as *267 it was authorized to do by section 4601 of the Third Class City Law of June 23, 1931, P. L. 932; such failure also might constitute negligence on the part of the city (Palmer v. Erie, 337 Pa. 5, 12, 9 A. 2d 378, 381, 382; Nagle Engine & Boiler Works v. Erie, 350 Pa. 158, 161, 38 A. 2d 225, 226) unless it were shown that because of the financial condition of the non-paying property owners such actions would probably have been futile. There was no legal requirement upon plaintiff to offer to indemnify the city against costs, for it was the duty of the city itself to issue executions and institute proper actions unless it were fairly obvious that the costs, even though a prior claim upon the funds realized, would not be salvaged. The jury should have been allowed to pass upon the question • whether the failure of the city to exhaust all possible measures to effect collections from the property owners, was, under the circumstances, negligence on its part, thereby making itself liable for the payment of the principal and interest of the bonds. The record must now be remanded in order that that question may be properly determined. Judgment reversed and new trial awarded. Footnotes [1] Illustrations: Lycoming v. Union, 15 Pa. 166 (act providing for reimbursement to a county by other counties of expenses incurred by it in trying cases removed from such other counties) ; Weister v. Hade, 52 Pa. 474 (act reimbursing citizens who had advanced money to pay bounties to volunteers) ; Hilbish v. Catherman, 64 Pa. 154 (act repaying subscriptions made by citizens to pay for recruits) ; Commonwealth to use v. Marshall, 69 Pa. 328 (act validating a street improvement contract made under an ordinance which was defective because unrecorded) ; Melick v. Williamsport, 162 Pa. 408, 29 A. 917 (act validating an ordinance under which services had been rendered by a tax assessor); Bailey v. Philadelphia, 167 Pa. 569, 31 A. 925 (act providing for the payment of a school teacher for services rendered under an unauthorized appointment) ; Commonwealth ex rel. v. Walton, 236 Pa. 220, 84 A. 766 (act providing for payment for work done by a contractor under a municipal contract suspended by reason of equity proceedings and lack of appropriations) ; Vare v. Walton, 236 Pa. 467, 84 A. 962 (ordinance for the payment of a municipal contractor lor work done under an allegedly illegal contract) ; Kennedy v. Meyer, 259 Pa. 306, 103 A. 44 (act providing for payment for work done in constructing a highway tunnel for a county under an act which had been held unconstitutional) ; Sambor v. Hadley, 291 Pa. 395, 140 A. 347 (act authorizing the City of Philadelphia to pay debts contracted by the Sesqui Centennial Association for a celebration' for which the city had pledged its honor, faith and credit) ; Palmer's Appeal, 307 Pa. 426, 161 A. 543 (act validating defective proceedings to increase a municipal debt, and the bonds issued in pursuance thereof) ; Justice v. Philadelphia, 37 Pa. Superior Ct. 267 (ordinance for the payment of a municipal *260 clerk for services rendered under a defective appointment) ; Walthour v. McDowell, 109 Pa. Superior Ct. 118, 165 A. 746 (resolution of the salary board of a county paying a tax assessor for services rendered under an illegal appointment). [2] Illustrations: Boagland v. Sacramento, 52 Cal. 142,150 (“While the legislative power may, as it frequently does, interpose to furnish a remedy or remove an impediment which prevents the enforcement of a legal or equitable right or duty already existing, it cannot, even against a municipal corporation, create a claim without the consent of those who are to be taxed with its payment. Such a procedure, while taking on the form of a statutory enactment, would amount to mere spoliation.”) Conlin v. Board of Supervisors, 114 Cal. 404, 46 P. 279; Oregon Short Line R.R. Co. v. Berg, 52 Ida. 499, 16 P. 2d 373; City of Chicago v. Brede, 218 Ill. 528, 75 N.E. 1044; Midland Lumber Co. v. Dallas City, 276 Ill. 172, 114 N.E. 580; Berman v. Board of Education of Chicago, 360 Ill. 535, 542, 196 N.E. 464, 467, 468 (“. . . it seems clear that tax anticipation warrants are not debts and do not represent direct legal obligations of the municipality issuing them. It follows that an appropriation and levy for their payment must fail, since not for a corporate purpose. Where the money is not due as a result of any promise, contract or debt of the municipality, little justification can be found for an appropriation to pay private holders of tax anticipation warrants the moneys which they have failed to collect from the sources to which such collections are. exclusively confined. An appropriation for such a purpose certainly could not be deemed an appropriation for a corporate purpose. Another constitutional limitation upon the power of the General Assembly to vest the proposed taxing power in the corporate authorities here is found in the due process clause. . . . This section is violated if a citizen’s money is taken from him under *264 the guise of a tax for any other than a public purpose”.) ; Craft v. Lofinck, 34 Kan. 365, 374, 375, 376, 8 P. 359, 365, 366 (“But the question still remains to be decided: May not the legislature impose a legal obligation or liability upon the people of the detached territory to assist in paying said bonds, although they may not be under any moral obligation to do so? This question must be answered in the negative; and it certainly requires no argument and no citation of authorities to support such a decision ... If the detached territory is under no moral obligation to assist in paying the bonds, we think the courts may say so; . . . The question is in its nature Judicial, although in the first instance it may also be legislative; and the courts must determine it whenever it is fairly presented to them. . . . The legislature cannot, by the mere forms of legislation, create a legal demand where no demand, legal, moral or equitable, existed before. Such is not legislation. It is not the passing of laws. It is not the legitimate action of any tribunal; and it is utterly beyond the power of the legislature.”) ; Forman v. Sewerage and Water Board of New Orleans, 135 La. 1031, 66 So. 351; Board of Supervisors v. Cowan, 60 Miss. 876, 884 (“It is not a legitimate exercise of legislative power to impose the burden of taxation on a county to pay what it does not owe in any Just sense. A. cannot be required to contribute of his means to B, for services rendered to private individuals, and a legislative declaration that such services constitute a Just demand against a county is not conclusive, but must be finally passed on by the courts, for this is in its nature a Judicial question.”) ; Stanley v. Jeffries, 86 Mont. 114, 284 P. 134; Bush v. Board of Supervisors, 159 N. Y. 212, 216, 217, 53 N.E. 1121, 1122 (“The legislature cannot authorize taxation for the purpose of making gifts, or paying gratuities to private individuals. It is quite clear that this was the purpose of the act in question. The individuals for whose benefit the tax was to be levied under the act had no claim, legal or equitable, against the town or county where the money was to be raised by taxation. . . . The statute in question provides for the imposition of the tax upon the town to raise money for the payment of claims which there was no legal or moral obligation on the part of the town to pay, and hence it is in conflict with the provision of the Constitution above referred to which forbids the town from giving any money to or in aid of an individual.”) ; Stemmler v. Mayor of New York, 179 N.Y. 473, 483, 72 N.E. 581, 584 (“The statute in question clearly falls within the inhibition of the Constitution ... as it required the city of New York to pay an amount for which it was not liable, legally nor in equity or Justice.”). [3] A somewhat analogous situation would be if a contract provided for the payment of a certain sum in Confederate or other depreciated money, and this was later changed to the payment of the same sum in American currency. The amount receivable would be the same, but the amount actually received would be much greater.