Palmer v. City of Albuquerque

OPINION. HANNA, J. Nine assignments of error are presented which resolve themselves into two, or at most three, questions of law. The first may be stated as a lack of power in the City, and its officials, to convey and dispose of its real property; in connection with which may be considered a possible collateral question, assuming a conditional right to con.vey, of whether the conveyance proposed, in the case,, would amount to an act of waste. We do not think it necessary to consider the first phase of this question from the standpoint of the contention that property held for public uses cannot be subjected to the payment of the debts,of the City. The , contact might ultimately so result and in that respect prove objectionable, but as this case, in our opinion, turns.ppon other grounds, we will pass .to a consideration of the other contentions. The more .direct attack upon the present question is based upon the theory that property devoted to a public use cannot be sold or leased without special statutory authority. The charter, or other legislative acts, is the source of power in respect to the property rights of municipal corporations, and when silent the implied power exists to acquire and alienate property. Dillon Mun. Corp. (5th Ed.) Sec. 977. The general rule, just stated, is subject to the qualification, which is so well stated by the same author, that we quote it with approval: “Municipal corporations possess the incidental or implied right to alienate or dispose of the property, real or personal, of the corporation of a private nature, unless restrained .by charter or statute; they cannot, of course, dispose of property of a public nature, in violation of the trusts upon which it is held. * * * * Dillon Mun. Corp. (5th Ed.) Sec. 991. Dy property of a private nature is meant property which the corporation may own in the same manner that a natural person may own property as contradistinguished from the property of the municipality which- has become impressed -by a public trust by having been dedicated to a public use .and is referred to as property of a .public ^nature. 1 Oúr statutory. provisions affecting municipal corporations contain no restriction .as prohibition upon their power of alienation, and it, therefore, only remains to inquire whether the property in question has been so impressed with a public trust as to destroy the power of alienation, in the city or its officials, with respect thereto. 2 Generally speaking, property devoted to a public use cannot be sold or leased without special statutory authority, although property which has ceased' to be used, or is not used, by the' public, may be sold or leased as the public welfare may demand. McQuillen Mun. Corporations, Sec. 1141; Fort Wayne vs. Lake Shore & M. S. Ry. Co., 132 Ind. 558. It is thus to be seen, as pointed out. by the Supreme Court of Indiana, in the case last cited, that while municipal corporations cannot dispose of property of a public nature in violation of the trusts upon which it is held, there is a distinction between property purchased for a public use and not yet dedicated, and property which is purchased for that purpose and actually dedicated to that use. 3 We use the term “dedicated” in the sense, defined by Webster, devoted to a use; appropriated, given wholly to. In this sense of the word, municipal property is not impressed with a public trust until it has been given over, appropriated, or devoted to a public irse. As pointed out in the brief of appellees, the building in its present condition is of no more use as a city hall than were the vacant lots before the erection of the building was commenced. Neither the lots nor the building have in any way been opened or devoted to any particular use and cannot be until the building is completed and ready for use. We, therefore, do not consider - that this property has been so impressed with a public trust as to defeat the right of alienation. The question of waste is more difficult. If it clearly appeared from the contract under consideration that the property of the city is placed in jeopardy, then undoubtedly this contract is an improvident one, calculated to result in an act of waste. It has been strongly urged, on the other hand, that the chance of loss is of'a negligible quantity and the benefit's to be derived of such a character as to demand that the slight risk of loss be undertaken. Therefore the alleged act of waste is not of cuch a character as to' be plain or undisputed, for which reason we do not desire to rest our opinion of the case upon this ground. The principle contention of appellant, and upon which he bases the larger portion of his argument, is that the plan set forth in the contract between the city and the American Trust & Savings Bank, amounts to a contract of indebtedness by the defendant city in violation of Section 13 of Article IX of the Constitution, limiting indebtedness of municipalities to four per cent of the assessed valuation as shown by the last preceding assessment for state and county taxes. It is admitted that the existing indebtedness of the City of Albuquerque is now in excess of the four per cent limit of the Constitution. We are confronted with the argument that the contract and deed to be executed by the city in carrjdng out its terms is a bona fide contract of sale and an unconditional sale, to which is opposed the objection of appellant that the transaction will create a debt in violation of the constitutional limitation of tire debt creating power of municipalities already exceeded by the City! of Albuquerque. It clearly appears from the contract that the purpose to be- accomplished is the completion of the City Hall, the city finding itself without necessary funds to do so and unable to negotiate a loan for the purpose by reason of the constitutional limitation upon its debt contracting power. There is no intention to part permanently with the title to the property, but is apparent an intention to secure the defendant bank and those whom the bank may associate with it in the future, for moneys to be advanced by the bank for the completion of the building and subsequent furnishing thereof. It is evident that the moneys, to be advanced by the bank, are to be expended under the direction of tlie city and in conformity with, plans previously procured-by the city. The payment of rent under the so-called lease is no more than the quarterly payment of interest upon the money to be advanced together with any reimbursement .for payments made by the bank on account of taxes or insurance upon the building. The contract plainly shows that the amount to be advanced was to be repaid by the city as speedily as possible and the answer asserts that “the defendant city will be able to repay to the defendant bank the money provided to be expended by it in the completion of said city hall, in much less time than the ten years’ lease and option provided in said contract,” all of which tends to show that the transaction is not a bona fide sale of property, but an attempt to mortgage property to secure moneys to be loaned or advanced. Finally, it is provided that the bank may associate with itself others who might contribute to the fund to be advanced for the completion of the building. There is not a hint of any past consideration to support the contract or deed of conveyance, and the real intent of the parties is to be found in the allegation of the answer, in which both parties to the contract joins as defendants, where it is set up that the city after diligent effort has been unable to: find other ways or means whereby it can ■complete the city hall, and that the constitution precludes the city from entering into any binding contract for the completion of the city hall. The intention of the parties was, therefore, to procure the necessary funds for the completion of the city building without violating the constitutional limitation as to ■debt, and secure the person, or persons, advancing the moneys until repajnnent thereof which it was thought •could be accomplished within a ten-year period. These being the facts tending to show the intent of the parties, we cannot agree that a bona fide sale of the property is contemplated, but are firmly of the opinion that the transaction assumes the character of an equitable mortgage. 4 A deed of conveyance of land, absolute and unconditional on its face, but intended and understood by the parties to be merely a security for the payment of a debt or the performance of some other condition, will be regarded and treated in equity as a mortgage, giving to the parties the relative rights and remedies of mortgagor and mortgagee and nothing more. 29 Cyc. 991. This rule has received the approval of the great majority of our sister states, and is, in our opinion, applicable to the ease before us. 5 In this connection it has been held that where land is conveyed by warranty deed, and as 'a part of the same transaction the grantee leases the premises to the grantor, with the privilege of redeeming or of purchasing the same during the term for an amount equal to a sum loaned by the grantee to the grantor, the transaction is regarded as a mortgage, especially when it appears that the rent was to be applied in reduction of the-debt or to keep down the interest. Hammett vs. White, (Ala.) 29 So. 547; Grand United Order of Odd Fellows’’ Joint Stock Assn. of Baltimore City vs. Merkin and others (Md.), 5 Atl. 544; Vliet vs. Young, 34 N. J. Eq. 15; Sowles vs. Butler (Vt.), 44 Atl. 355; Ragan vs. Simpson, 27 Wis. 355. A mortgage, generally speaking, is a conveyance of real estate, or some interest therein, defeasible upon the payment of money or the performance of some other condition. Bayley vs. Bailey, 71 Mass. (5 Gray) 505-509. It may be urged, as to the case under ■consideration,, that there is no debt by reason of the fact that there is no obligation to pay a sum of money, but'simply an option or privilege to purchase without a binding undertaking-to p>ay, necessary to constitute a debt within the meaning-of our constitution. A debt either pre-existing or created at the time, or contracted to be created, is an essential requisite of a ■mortgage. 1 Jones on Mortgages (6th Ed.) Sec. 265. As stated by tbe same author, in the same section: “The debt may not be evidenced by any bond or note, or covenant to pay it; so that the facts and circumstances of the transaction must be inquired into i,n order to ascertain whether the consideration of the deed was really a debt or a loan; if not one or the other, the deed can hardly be a mortgage.” Mr. Dillon in his work on Municipal Corporations (5th Ed.), at Sec. 199, has, in our opinion, correctly stated the rule applicable to the facts in this case and we quote at length, with approval: “Attempts have been made to avoid the effect of the constitutional limitations by borrowing money on the security of property already belonging to the municipality, without giving the lender any recourse against the body corporate, or its property other than the ■ particular property pledged to secure the money advanced. But the courts have held that such transactions create indebtedness within the prohibition of the Constitution, because, although the city is not bound in personam to pay the debt, its property may be taken therefor. The reasoning on which the cases proceed is that the personal obligation of the debtor is not essential to the creation of the debt; the borrowing of the money and its reception contemplate that it shall be repaid, and the mortgaging or pledging of the existing property of the city necessarily implies an indebtedness for which the property of the city pledged or mortgaged is bound, even if the creditor have no general recourse against the city and its funds. If the city purchases water works or other valuable property subject to a mortgage, the amount secured by the mortgagee is indebtedness of the city, even if it do not assume it, or become liable for it in any way. In order to keep the property purchased the city will have to pay the mortgage, and, if the amount due thereon exceeds the limit of the debt which the city is authorized to incur, the purchase is beyond its power and void.” See also, Mayor etc. of Baltimore vs. Gill, 31 Md. 375; Joliet vs. Alexander, 194 Ills. 457; East Moline vs. Pope, 224 Ills. 386; Lobdell vs. Chicago, 227 Ills. 218; Reynolds vs. Waterville, 92 Me. 292. There is no other conclusion to be arrived at, in considering the facts of the present case, but that property 'of the City of Albuquerque of the approximate value of thirty-five thousand dollars is pledged, or mortgaged, to secure the repayment of twenty-five thousand dollars to -be advanced by the defendant bank for the completion and furnishing of the city hall. Unless the latter sum with interest is repaid the city would lose its property, •and, as stated by Mr. Dillon, the borrowing of the money and its reception contemplate that it shall be repaid, and the pledging of the existing properly of the city necessarily implies an indebtedness for which the property pledged is bound, even if the creditor have no general recourse against the city and its funds. 6 It is, therefore, our opinion that the borrowing of money •on the security of property already belonging to the municipality, without giving the lender any recourse against the body corporate or its property other than the particular property pledged to secure the money advanced, if the constitutional limitation of municipal indebtedness be thereby exceeded, is the creation of in•debtedness within the prohibition of the Constitution. In so holding we desire to be understood as construing the present case as one not coming under the principle applicable to those cases where current expense of municipal administration is involved, and no payment or liability to -be assumed or required until the services or ■supplies be furnished and then met by annual appropriation and levy of taxes. For the reasons given, the judgment of the District Court is reversed, and the cause remanded with instructions to proceed in accordance with this opinion, and, it is so ordered.