Denny v. City of Spokane

HAWLEY, District Judge (after stating tlie facts). Upon the foregoing facts there are but two questions to be decided: (1) Was the city of Spokane negligent in not earlier creating a fund out of which appellant’s warrants are payable? (2) Did the city of Spokane have power, at the time it entered into the contract with Massey, to make a contract, the result of which, if performed, would render the city liable for the grading of the streets? 1. If the city was negligent in failing to provide a fund out of which the warrants issued by it could be paid within a reasonable time, it is liable for any damages which the contractor or bank has suffered by reason of such neglect of duty. In Reilly v. City of Albany, 112 N. Y. 30, 41, 19 N. E. 508, in a case similar in many respects to the case under consideration, the court said: “It is not disputed but that the contract was lawful in all respects, and conformed to the provisions of the law authorizing such contracts on the part of the city, not only as to the officers by whom it was made and executed on its behalf, but as to all of its material provisions. The rights and liabilities of the parties must, therefore, be determined by the obligations of the contract. An examination of that instrument, so far as the questions involved in this ease are concerned, shows that the obligation resting upon the contractor was, concisely stated, to perform the work and furnish the materials required under his contract according to its plans and specifications. Having done this, he became entitled to demand payment for his labor when the funds for that purpose should be assessed, levied, and collected by the regular agencies of the city having authority to raise means to discharge its liabilities. In case of a performance of the contract and the filing of the commissioner’s certificate to that effect, the city's obligation was to prosecute, in good faith, the means afforded to it by its charter to obtain and pay over the sums necessary to redeem [723] its obligation. When the contractor had performed Ms work according to his contract, he had no duty remaining to discharge, and then bad a. right to rely upon the implied obligation of the city to use with due diligence its own agencies in procuring the means to satisfy his claims. It could not have been supposed that he was not only to earn his compensation, but also to set in motion ancl keep in operation the several agencies of the city government, over whom he had no control, to place in the hands of the city the funds necessary to enable it to pay its obligations. That was a power lodged in the hands of the city, and the clear intent of the contract was that it should exercise it diligently for ihe purpose of raising the funds necessaiy to pay for the improvement. For an omission to do so it would become liable to pay such damages as the contractor might suffer by reason of its neglect of duty.” See Leavenworth v. Mills, 6 Kan. 288; Leavenworth v. Stille, 13 Kan. 539; Commercial Nat. Bank v. City of Portland (Or.) 33 Pac. 532, 534; Cummings v. Brooklyn, 11 Paige, 596, 602; City of Memphis v. Brown, 20 Wall. 289, 311. Was the city negligent? It contends that it was not, and relies upon several decisions of the supreme court of Washington to sustain its contention. In Soule v. City of Seattle, 6 Wash. 315, 33 Pac. 384, 1080, the court held that, if the plaintiff “could recover at all, it must he upon the contract of his assignor or upon his warrants,” and in the course of the opinion said: “After the decision in the Wilson Case (Wilson v. City of Seattle, 2 Wash. St. 543, 27 Pac. 474), the delay arose entirely from honest doubt as to the law of the case, in which the respondent seems to have shared, inasmuch as he never moved to have a new assessment made. Under these circumstances we do not think the respondent was entitled to the judgment awarded him; but in so concluding we desire to have it understood that the controlling reasons of this decision are Ihe peculiar provisions of the charter of 1880, which left it 1o the oily to regulate special assessments, the terms of the contract with Smart, and the fact that in June, 1890, the city of Seattle was prohibited from making an open contract for such street work by reason of the debt limit of one and one-half per cent., which it had largely exceeded. We leave it an entirely open question whether municipalities may not, under different circumstances, make themselves liable by omissions of the character presented here.” In answering the petition for rehearing, the court said: “But the main point upon which the case was decided was that the respondent had mistaken his remedy by reason of the fact that Ms contract with the city was of such a character that it would not justify the charge of negligence against the city until it had been fully moved to levy and collect a local assessment to pay for the work. This ground alone, in our judgment, authorized the dismissal of the ease.” In Cloud v. Town of Sumas, 9 Wash. 399, 37 Pac. 305, the court held that an action could not be maintained upon a warrant issued by a municipal corporation evidencing its indebtedness to the holder; that the proper remedy was by mandamus to compel the treasurer of the city to pay the same. In Stephens v. City of Spokane (Wash.) 39 Pac. 266, which was an action brought on certain street-grade warrants, and came before the supreme court from a judgment sustaining a demurrer to the complaint, the court said: “The allegation [of the complaint] is that the city of Spokane has wholly failed, neglected, and refused to take any steps for the purpose of creating a fund to be known and designated as the ‘Malón Street Fund’; that it has failed, [724] neglected, and refused, and still fails, neglects, and refuses, to carry out said contract on its part by tbe payment to this plaintiff, or to any other person for him, of the amount of said warrants. * * * It seems to us that under the former rulings of this, court and the well-settled law, if the allegations of the complaint are true that a contract was duly made, and that no steps had been taken for five years on the part of the city to collect the necessary funds for the payment of these warrants, the plaintiff has a legal grievance against the city, and that the complaint in every respect states a cause of action.” In Stephens v. City of Spokane (Wash.) 44 Pac. 541, when the case came before the court upon its merits, the court held that under the charter of the city of Spokane, giving the city power to improve streets, and defray the expense thereof by special tax assessed against the property benefited thereby, the general fund of the city is not liable for the payment of warrants drawn against the special fund created by the assessment unless it appears that the city has failed to take steps to provide such special fund, or has been so negligent in its attempts to create the fund that the right thereto has been lost. These cases, while modifying the rule as stated in Reilly v. City of Albany, supra, to the extent that the city would be relieved from liability until the proceedings instituted by it had been carried to a conclusion, “and had failed to produce the necessary funds for the payment of the warrants,” fall far short of answering the question whether or not the facts of this casé do not, in the light of all the authorities, clearly show that the city has been so negligent as to render it liable in this action. We are of opinion that the case of McEwan v. City of Spokane (recently decided by the supreme court of Wash ington) 47 Pac. 433, virtually decides this question adverse to the views contended for by appellee. That case seems to be directly ik point. In passing upon the questions there involved, which are directly applicable to this case, the court said: “Under the special contract in this case and under the law it was not the duty of the contractors to look after the assessment. That was a duty which not only the law imposed upon the city, but which the special conditions of its contract imposed upon it; and, if the city was mistaken in regard to its construction of the law, the city'must be responsible for such mistake, and not the contractors, who were not authorized to construe or enforce the law. Eidemiller v. City of Tacoma (Wash.) 44 Pac. 877. The record shows that the statute of limitations, under the rulé laid down by this court in City of Spokane v. Stevens (Wash.) 42 Pac. 123, has run against a portion of these grade taxes, and the city, having failed to collect the said taxes until after the statute .has run, would, of course, be powerless to collect them now; hence it must necessarily follow that the city is liable to the plaintiff for its failure to collect them within a reasonable time, as a reasonable time must necessarily be a time prior to the time when the statute of limitations runs.” 2. From tbe facts stipulated in this case it appears that at the time of entering into the contract and at the time of the passage of the ordinances for the grading of the several streets the city was indebted in an amount exceeding the sum of $25,000, excluding its indebtedness for waterworks and assessments for improving the streets, under the provisions of section 7 of chapter 2 of the act of the legislature of the territory of Washington approved January 29, 1886. Does the contract in question, by virtue of which the warrants were issued upon which this suit was brought, come within the prohibition of the charter in limiting the amount of indebtedness which the city was [725] authorized to incur? See sections 3 and 19 of tlie charier (Laws Wash. 1885-86, pp. 301, 307). Section 19 provides that: “The city of Spokane Falls has power to borrow money on the credit of the city for any purpose within the authority of the corporation, including the payment of any existing debt, and for such purpose may issue its warrants on the city treasurer, payable at a specified time, with a rate of interest therein named", not exceeding the rate of 8 per cent, per annum, and has further power to levy and collect a tax sufficient to pay the principal and interest on such sum borrowed and for the existing indebtedness and interest thereon: provided, the entire indebtedness of said city must not at any one time exceed the sum of $25,000.00, excluding its indebtedness for water-works and assessments for improving streets under the provisions of section 7 of this chapter.” Does the limitation therein expressed apply to the indebtedness created by the contract in this case? In Hitchcock v. City of Galveston, 96 U. S. 341, 349, it was argued that the contract entered into by the city for the improvement of its streets and construction of sidewalks would impose upon the city a liability exceeding $50,000, and that it was, therefore, in violation of the provision in the charter of the city which prohibited the council from borrowing for general purposes more than that sum. The court held that this provision in the charter did not limit the debt of the city, nor prohibit the council from entering into a contract involving an expenditure exceeding that amount for special improvements, such as grading and paving of streets and the construction of sidewalks, which were authorized hv the charter. In Seymour v. City of Spokane, 6 Wash. 362, 33 Pac. 832, the court held that section 19 of the charter, limiting the interest on the city warrants to 8 per cent, per annum, applied only to warrants given for money borrowed on the credit of the city. In Winston v. City of Spokane, 32 Wash. 524, 527, 41 Pac. 888, where the contract under consideration was in relation to the construction -of a system of waterworks, the question presented was whether the obligations provided for in the contract would create an indebtedness of the city within the meaning of the provisions of the constitution (article 8, § 6) in relation thereto. The court, in passing upon this question, said: “The general credit of the city Is in no manner pledged except for the per» formanee of its duty in the creation of such special fund. The transaction, 1 here fore, is no more the incurring of an indebtedness on the part of tlie city than is the issue of warrants payable out of a special fund created by an assessment upon property to be benefited by a local improvement. Hence the question is upon principle within the one decided by this court in Baker v. City of Seattle, 2 Wash. St. 576, 27 Pac. 462, in which it was held that warrants issued to a contractor for a street improvement, and payable out of a special fund, to be created by an assessment therefor, were not an indebtedness of the city within the meaning of our constitution. In that case it was not decided whether or not the city would be liable for negligence in failing to take the necessary steps for the creation of the special fund out of which the warrants were to be paid; but from what was decided it is clear that in the opinion of tlie court the fact of such contingent liability, if it existed, was not sufficient to make the obligations issued against the fund a part of tlie indebtedness of the city. The case at bar is, in our opinion, within the principle decided in that one, and, as we are satisfied with what was therein held, It is not necessary to further pursue the subject. We would, however, call attention to the case of City of Valparaiso v. Gardner, 97 Ind. 1, which seems to fully [726] sustain the contention of the appellants. A large number of other cases to the same effect might be cited.” The decision in McEwan v. City of Spokane seems to be as con-elusive upon this question as the one just disposed of. The averments in the answer in that case were substantially the same as the agreed facts in this case as to the indebtedness of the city. The court said: “There is an attempt to plead an indebtedness by the city beyond its charter limit, but we think that no such indebtedness was pleaded under the rule announced in Baker v. City of Seattle, 2 Wash. St. 576, 27 Pac. 462, and Winston v. City of Spokane, 12 Wash. 524, 41 Pac. 888.” Under the decisions of the supreme court of Washington construing the statutes of that state applicable to this case, it follows that the circuit court erred in instructing the jury to find a verdict for defendant. It is proper to add that the opinion in McEwan v. City of Spokane was rendered after the decision of the circuit court in this case. The judgment of the circuit court is reversed, and cause re-, manded for a new trial in accordance with the views expressed in this opinion.