Phillips v. Reed

Waterman, J. Plaintiff alleges that lie is the owner and holder of a warrant for the sum of six dollars and twenty-four cents' drawn against -the general' fund of the city of Council Bluffs; that it was issued for supplies furnished said city during the year 1898; that refusal to pay said warrant was made by defendant, who is the treasurer of said city, although the current revenues of the year 1898 were amply sufficient to satisfy the same, the reason for said refusal being that there were outstanding warrants unpaid which bore earlier dates than the one in suR, and which had been duly presented for payment, and so indorsed. In an amendment to the petition it is alleged “that during the years 1895, 1896, and 18 9 Y, and particularly during the time the several contracts of indebtedness of said city for which the outstanding warrants issued prior to April 1, 189$, were made, said city of Council Bluffs was indebted to its full constitutional limit, and the outstanding warrants, for the payment of which defendant claims to hold the funds in his hands derived from the revenue of the city for the fiscal year commencing with April, 1898 were warrants issued to pay the necessary running expenses of the city for the fiscal years in which they were severally executed, and were drawn upon and in anticipation of the revenues of the said several years, and are not payable out of the revenues of the fiscal year beginning with April, 1898, until after the appropriations for the fiscal year of 1898 have been met.” To this petition as amended a demurrer was interposed, upon the following grounds: (1) That defendant has no option, but must use the money received by him from city taxes for the payment of warrants heretofore presented, and indorsed by him “Not paid for want of funds.” (2) Because warrants that have been so presented and so indorsed are thereby made preferred claims against the city. (3) That all money received into the city treasury for the respective funds must be paid out on warrants drawn on such funds in the order of the presentation of such warrants. (4) Because any other manner' or method of paying warrants would be unconstitutional. (5) Because $104,- [334] 250.04 in warrants were issued by tbe city of Council Bluffs for labor and material furnished said city, and the holders . thereof presented the same to the treasurer of said city, and such warrants were by him indorsed “Not paid for want of funds” prior to the adoption of the Code of 1897. 1 2 3 [334] II. If it appeared that the indebtedness, to the payment of which the satisfaction of plaintiff’s warrant is sought to be postponed, was incurred in excess of the prescribed limit, and in violation of the inhibition of section 3 of article 11 of the constitution, the decision of this case would be a matter of no difficulty. It is true, the petition alleges that at the times when this indebtedness was contracted the city was in debt to the limit of the amount allowed. But it does not follow from this that the indebtedness as represented by these warrants was necessarily invalid. If the city had on hand or in prospect, at the time these warrants were issued, funds with which to meet them without trenching upon the rights of creditors for current expenses of the city, then the warrants were valid, although such funds may have been thereafter wrongfully applied to other purposes. This possible state of facts is not negatived by any allegation of the petition. On the contrary, the plaintiff not only does not charge that the indebtedness which is sought to be preferred to his claim is invalid, but in the amendment to his petition he distinctly recognizes its validity, and claims only that its payment should be deferred to the payment of the warrant sued upon. We have, then, this question to determine: Must a city pay current expenses from the revenues of the year in which they were incurred, to the exclusion of other valid prior indebtedness, for which warrants have issued, and been presented for payment, and indorsed as unpaid for want of funds ? It seems to- be conceded that, under the law as it existed prior to the last codification, the warrants were payable in the order of their presentment. But it is claimed by plaintiff that under the Code of 1897 a different rule prevails, and that now the current expenses of a municipality must first be [335] paid out of its current income, before any part of said income can be devoted to tbe cancellation of prior indebtedness. Our attention is called to certain provisions of the statute. Subdivision 16, section 668, Code 1897, is as follows: “In cities of the first class the council shall make the appropriation for all the different expenditures of the city government for each fiscal year at or before the beginning thereof, and it shall be unlawful for it or any officer, agent or employe.of the city to issue any warrant, enter into any contract or appropriate any money in excess of the amount thus appropriated, for the different expenses of the city during the year for which said appropriation shall be made. Any such city shall not appropriate in the aggregate, an amount in excess of its annual legally authorized revenue; but nothing herein shall prevent such cities from anticipating their revenues for the year for which such appropriation is made or 'from bonding or refunding their outstanding indebtedness. * * *” Section 898 is in these words: “Loans may be negotiated or warrants issued by any municipal corporation in anticipation of its revenues for the fiscal year in which such loans are negotiated or warrants issued, but the aggregate amount of such loans and warrants shall not exceed the estimated revenue of such corporations for the fund or purpose for which the taxes are to be collected for such fiscal year.” The manifest object of these provisions is to place municipal corporations upon a cash basis, and prevent the accumulation of such a floating indebtedness as appears in this case. In order to facilitate this return to a cash-paying system, of cities that were burdened with a floating debt at the time of the adoption of the Code, it is provided by section 905 that cities and towns may fund such indebtedness, and issue bonds therefor. Such action, it is true, is not made obligatory upon municipalities, but the power is given to so do. In thus seeking to compel the payment by municipalities of current expenses from current funds, the general assembly seemed to follow the action of other states in this respect. See statutes construed in [336] Putman v. City of Grand Rapids, 58 Mich. 416 (25 N. W. Rep. 330); State v. Martin, 27 Neb. 441 (43 N. W. Rep. 244). Section 18 of article 11 of the constitution of the state of California provides that “no county, city, town, township, board of education or school district shall incur any indebtedness or liability in any manner or for any purpose, exceeding in any year the income provided for it for such year, without the assent of two-thirds of the qualified electors.” It was held in Shaw v. Statler, 74 Cal. 258 (15 Pac. Rep. 833), that, while this provision does not in express terms require that the income and revenue of each year be applied to the payment of the indebtedness of such year, yet by necessary implication it must be construed so to do*. The statute of our state on this subject, which we have quoted, is more explicit in its terms than the provision of the California constitution; and we have no doubt of the legislative intent, by its enactment, to compel municipalities to pay the debts of each year from the income of that year. 5 III. We do not understand that counsel seriously question this construction, but it is asserted on behalf of appellee that section 660 of the Code was in force when the older warrants for which a preference is claimed were issued, and that its provisions form part of the contract with the warrant holders. This latter section relates to the duties of treasurers of municipal corporations. By its terms it is provided that warrants, when presented to the treasurer, if not paid for want of funds, shall be indorsed by that officer with the date of presentation, that he shall keep a record thereof, and that “all such warrants shall be paid in the order of their presentation.” Section 660 of the Code, and what is now subdivision 16 of section 668, were enacted originally by the same general assembly. The first forms part of chapter 3, and the other of chapter 4, of the Laws of the Twenty-second General Assembly. Both were in force when the warrants were issued for which defendant claims a [337] preference of payment. We may for present purposes concede that section 660 makes the warrant holder a preferred creditor. People v. Austin (Colo. Sup.), 17 Pac. Rep. 485; Taylor v. Brooks, 5 Cal. 332. But it seems clear that the provisions of section 668 also entered into the contract with the creditor, or perhaps it might better be said that he assumed’ such relation, subject to its terms. To give force and effect ,as we undoubtedly should, to both of these statutes, we must hold that the preference given to» warrant holders by section 660 applies only as between warrants issued in any given year. This interpretation, we think, is supported by the reasoning in Shaw v. Stabler, supra. In that ease a warrant holder sought to compel a county treasurer to cash his warrant. We have quoted the constitutional provision which was under consideration in that case, and which corresponds in its terms to subdivision 16 of section 668 of our Code. At the time Shaw received his warrant, there was also in force in California a statute (section 77 of the county government act) similar to our section 660. It provided, in substance, that warrants should be paid “according to priority of time in which they were presented.” The holding in the case was that, giving force and effect to boto provisions, toe statute awarding preference of payment to warrants earliest presented must be held to “apply primarily as between the warrants of any given year.” We do not perceive that any constitutional question is involved in the case at bar, though counsel devoted no little attention to the discussion of the power of the general assembly to impair the obligations of the contracts of the earlier warrant holders. The case is presented here as though subdivision 16 of section 668 was enacted after the creditors’ rights had accrued under section 660. This, we have seen, is not the case. All of toe warrants for payment of which defendant seeks to retain the. funds in his hands were issued prior to 1898, and it is manifest from what we have said that the holders thereof have no claim upon the revenues of that year, — at least, until after [338] ■current debts have been paid. The question as to what the rights and remedies of these older warrant holders may be is not before us. It is not out of place, however, for us to say that, if these claims are valid, they can doubtless be put in judgment, and collected by proper process. Plaintiff was entitled to the writ of mandamus for which he prays. The judgment of the district court is therefore reversed.