City of Prestonsburg v. People's State Bank of Frankfort

— 253 — OPINION op the Court by Judge Dietzman Reversing. This action was instituted by tbe appellee, People’s State Bank of Frankfort, Ky., against tbe city of Pres-tonsburg, to recover tbe principal and interest on certain street improvement bonds; tbe cost of sucb improvements having been assessed against tbe abutting property owners. Tbe petition alleged, in substance, that on July 19, 1920, and on February 18, 1923, tbe city of Prestons-burg, at that time a city of tbe fifth class, by its board of council adopted ordinances by which it ordered tbe improvement of certain described streets and parts of streets by paving same and tbe construction of sewers. Pursuant to each of tbe ordinances, contracts were awarded and tbe improvements made and completed as required by tbe contract and accepted by tbe city. Under each ordinance and contract tbe cost of tbe improvements was apportioned and assessed against tbe owners of tbe property abutting tbe improved streets under what is known as tbe ten-year bond plan as authorized by section 3643-3,. Carroll’s Kentucky Statutes, 1915 Edition. To pay tbe cost of said improvements under each ordinance and contract, tbe city issued street paving bonds as authorized by section 3643-5, of tbe Statutes. All of tbe bonds so issued under tbe first contract were in denominations of $500 each, aggregating tbe total sum of $69,500, of which tbe appellee became tbe purchaser in tbe principal sum of $19;000. Under tbe second ordinance and contract bonds were issued in the sum of $19,000, of which tbe appellee became tbe purchaser in tbe principal sum of $4,000. Tbe series of bonds issued under each contract, though maturing at different dates, bad all become due and payable, with tbe exception of five bonds of tbe first series, at tbe time this action was filed, October 24, 1930. Since that date, and on August 1, 1931, these five bonds have matured. Subsequent to tbe filing of tbe petition herein, and before tbe judgment was rendered, one bond under the first issue bad been taken up by the city by a payment of $725.60, and two bonds under tbe second issue were paid off in tbe sum of $1,293.83. With these exceptions there has been no other payment of either principal or interest. A demurrer to tbe petition was overruled, whereupon appellant filed its answer, to which a demurrer — 254 — was sustained, and tlie court rendered a judgment for appellee for the principal sum of $32,623.70 with interest from October 1, 1930, subject to the aforesaid credits. Prom that judgment the city prosecutes this appeal. It is insisted for appellant that the demurrer should have been sustained to the petition. Kentucky Statutes, section 3643-7, in part, reads: “* * * And in any such action an allegation in substances that the improvement has been made and the work accepted pursuant to and by ordinances of the city council duly passed in accordance with law, shall be a sufficient pleading of the ordinances and proceedings under which the work was done and accepted, without setting out same in full. * * *” The allegations of the petition are substantially in compliance with the Statute. It is further alleged, however, that the city failed to comply with the obligations assumed by it under the expressed terms of the bonds, in that it negligently failed to collect the assessments assessed against the abutting property and to apply the proceeds thereof to the discharge or payment of its bonds. It is argued for appellant that the city is not personally liable to the bondholders because of its failure to collect the assessments, and that the bondholders had the right to sue and enforce the payment of such assessments. We find no authority in charters of cities of the fifth class authorizing the bondholders to maintain such actions. Kentucky Statutes, section 3643-7, in part, reads: “The assessments may be collected like other cuy taxes, or the city may at any time after any installment remains delinquent for thirty days, by suit in equity enforce the lien for all unpaid installments, both those so delinquent and the remaining unpaid installments assessed against the delinquent property, with interest at said rate thereon to date of satisfaction thereof. * * # Any such action shall be prosecuted in the name of the city, for the benefit of any and all bondholders whose bonds or interest thereon are so in default, and in any such action such lien shall be enforced for the payment of all unpaid installments assessed against such property, with all interest thereon, and for such added penalty, and the costs of the action.” However, we find in charters of cities of the fourth — 255 — class (section 3575, Kentucky Statutes), and perhaps other classes, a provision to the effect that failure on the part of the city to collect such local improvement taxes or installments thereof when due shall create no liability against the city, but the person entitled to such taxes, or the owner of any such bonds, shall have the right to proceed in any court of competent jurisdiction to collect such unpaid assessments. But, no such provisions appearing in charters of cities of the fifth class, obviously the bondholders have no right to maintain such action. It therefore became the duty of the city, appellant herein, to collect such assessments or installments when due, and its failure to do so renders it liable to the bondholders for such loss as they may have sustained by its failure to make such collections. City of Catlettsburg v. Citizens’ National Bank, 234 Ky. 120, 27 S. W. (2d) 662; Cohen v. City of Henderson, 182 Ky. 658, 207 S. W. 4; City of Covington v. McKenna, 242 Ky. 452, 46 S. W. (2d) 760. Omitting immaterial parts, each of these bonds provides : “That the City of Prestonsburg, State of Kentucky, subject to the conditions hereinafter contained, promises.to pay to the Bearer hereof the sum of Five Hundred Dollars ($500.00) on the 1st day of August, 1927, (or date provided in each bond), at the Bank of Josephine, Prestonsburg, Kentucky, with interest thereon at the rate of six per centum (6%) per annum from the date hereof until the payment of said principal sum, upon presentation and surrender of the proper coupon hereto annexed at said The Bank of- Josephine, Prestonsburg, for the payment of which said sum and interest the faith and credit of the City of Prestonsburg is hereby held and firmly bound to make out of the sums realised from the apportionments against the property and lots abutting, fronting and bordering upon the following streets and public ways of said city, vis. # * *” (Italics ours.) This form of bond is authorized by the Statutes and the ordinance providing for the improvement. Thus it will be seen that the city obligated itself to make the sums to be realized from the apportionments against the property, and the bond should be read in connection .with section 3643-7 of the Statutes, supra. Appellant filed its answer in which it averred in the — 256 — traverse that it did not have sufficient knowledge or information npon which to base a belief that the plaintiff had become or was the owner of the bonds sued on or that said bonds were past dne or that it had refused to pay said sums, and therefore denied snch allegations of the petition. It further denied that there was not a substantial amount of said street improvement funds then in the city treasury with which to discharge the bonds sued on. There are many other similar denials contained in the traverse, all of which, when read in light of the whole pleading, presents no legal issue. It contains denials of facts which are matters presumably of its own record without denying the existence of the record. A pleader may deny the existence of a record pleaded, but a denial based upon lack of information or knowledge of such record is not allowed by our Civil Code of Practice, sec. 113, subsecs. 7 and 8. Flimin v. Flimin’s Adm’x, 250 Ky. 827, 64 S. W. (2d) 165; Preston v. Roberts, 75 Ky. (12 Bush) 570. In paragraph 2. of the answer it is denied that the city of Prestonsburg undertook or agreed that the said bonds should be payable out of or secured by lien on the assessments which were made or apportioned against the abutting property, or undertook, as agent or trustee for the owners or holders of said bonds, to exercise due diligence in the collection of such assessments, e+c., and denied other allegations, which are matters of law and contrary to the provisions of the bond. It is our view that such allegations presented no defense nor made any issue requiring evidence. In paragraph 3 of the answer it is affirmatively alleged that the defendant, city of Prestonsburg, had never declined or refused to collect the assessments or to pay the bonds or any of them, but is willing, ready, and anxious to collect the assessments, and will collect same if possible. These allegations are contradictory of the city’s records, which disclose that said assessments have not been collected nor said bonds paid. It also pleads affirmatively other matters which it denied in the traverse portion of the answer. It is further alleged in the answer that certain sums were assessed against the property of the graded common school district of Prestonsburg and the United States government, and it is admitted that the city was without any right or authority to assess the property or $he public agency (City of Mt. Sterling v. Montgomery — 257 — County, 152 Ky. 637, 153 S. W. 952, 44 L. R. A. [N. S.] 57), and that tbe city should pay for tbe improvements abutting tbe property of these public agencies and tbe street intersections, and, tbis being a direct obligation of tbe city, it is a debt of the city in excess of tbe constitutional limitation. Section 157 of tbe Kentucky Constitution. But tbe assessed value of tbe property of tbe city is not shown nor other facts pleaded in support of tbe conclusions of tbe pleader that such indebtedness, if any, on tbe part of tbe city, contravened section 157 of tbe Constitution. It is argued for the city that a demurrer to tbe answer admitted its allegations. This is true. A demurrer admits allegations of facts but does not admit conclusions of tbe pleader. Arnold & Son Transfer & Storage Co. v. Weisiger, 224 Ky. 659, 6 S. W. (2d) 1084; Goodman v. Board of Drainage Commissioners, 229 Ky. 189, 16 S. W. (2d) 1036. Lastly, it is argued that tbe bonds are an obligation of tbe city and create an indebtedness of tbe municipality within tbe meaning of sections 157 and 158 of tbe Constitution without a vote of tbe electorate of tbe city to create such indebtedness. To tbis argument we are unable to agree. It is a well-settled rule that contracts for local improvements, tbe cost of which is to be borne by tbe property benefited, does not create an indebtedness of tbe municipality such as prohibited by tbe Constitution. Castle v. City of Louisa, 187 Ky. 397, 219 S. W. 439; Wickliffe v. City of Greenville, 170 Ky. 528, 186 S. W. 476; Williams v. Wedding, 165 Ky. 373, 176 S. W. 1176. Later by amended answer tbe city pleaded that it bad instituted suits against various abutting property owners to enforce tbe collection of tbe assessments and setting out a long list of such suits filed. Tbe court properly sustained tbe demurrer to tbe answer as amended. Tbe court decreed that the appellee was entitled to recover from tbe city personally the amount sued for. The appellee was not entitled to such judgment at tbis time, from which it follows that at tbis time tbe city cannot be compelled to levy a general tax to pay such personal judgment. For these reasons the judgment is reversed. On a return of tbe case, tbe court will ascertain and fix tbe amount of tbe unpaid bonds, of tbe appellee and direct and require tbe city to proceed immediately to prosecute the suits heretofore instituted against tbe property owners and to file suits against any and all other property owners whose prop — 258 — erty is liable under the lien of the bondholders, and to collect from the property owners the amounts respectively unpaid and secured by a lien on their property, and, when collected, pay. same immediately to the ap-pellee. And, after these amounts are collected from the property owners and paid to the appellee, if any bonds of the appellee remain unpaid, then the court will render a personal judgment against the city for the unpaid balance, with proper orders for levying and collecting general taxes for the payment thereof. Wherefore the judgment is reversed for proceedings consistent with this opinion. The whole court sitting.