Upon plaintiffs' petition we have had a reargument.
The bases for recovery are stated. They are as follows:
(1) "Plaintiffs are entitled to recover on the warrants, that is, in accordance with the City's expressed promise to repay the money borrowed from plaintiffs and their predecessors in interest."
(2) "If plaintiffs are not entitled to recover on their first theory, they are entitled to judgment against the defendant for its breaches of those duties which are necessarily implied from the basis on which appellants' first theory is denied."
5. Discussing these in their order plaintiffs say:
"The basic, fundamental, and never-to-be-forgotten fact in this case, the one to which all others are ancillary, is this: The defendant City borrowed $287,800 of actual money from the plaintiffs or their predecessors in interest, and promised to repay it, but has failed and refused to do so." They concede however "that sound judicial authority exists for the proposition that persons dealing with public corporations are bound to know the law under which the corporation operates and the limitations which the law imposes on the powers of the corporation and its representatives. An application of this rule is found in the statement that applicable charter and statutory provisions are deemed a part of a municipal bond, warrant, or other promise to pay money." Also that: "It is not unreasonable to expect all persons dealing with a city to know that it is a corporation and to know that corporations are created for certain purposes and have limited powers and liabilities and that those limitations will be found in its charter and applicable statutes as construed by the courts."
We concur in these views. The authorities generally so hold. Since the filing of our former opinion we now have the advantage of the recent decision in Schieber v. City of Mohall,66 N.D. 593, 610, 268 N.W. 445, 454. Amongst other things the court there says: *Page 612
"It cannot be too often reiterated that those dealing with the city in the matter of public improvements are conclusively presumed to know the extent of the power and the authority of the city council to incur obligations for the city. * * * The constitution and the legislature have seen fit to place upon * * * the holders of the warrants the burden of assumption of risk of payment. All the holders can do is to require the city to live up to its contract and here the city has done all that it can do in the way of ascertaining the cost and providing for the payment. If there is an error, or financial and economic conditions become such that loss must fall upon some party to the contract, the loss falls upon the holders of the assessment warrants."
In that case, as here, the determinative question was whether the involved warrants were general obligations of the city or payable only out of proceeds of special assessments on benefited property.
6. It is claimed that our former opinion overrules the rule announced in Woodbridge v. Duluth City, 57 Minn. 256,59 N.W. 296; Van Pelt v. Bertilrud, 117 Minn. 50, 134 N.W. 226; and State ex rel. Oliver I. Min. Co. v. City of Ely, 129 Minn. 40,151 N.W. 545, Ann. Cas. 1916B, 189. The opinion does not so say. On the contrary, the liability here sought to be imposed was interpreted in the light of the language construed in Leslie v. City of White Bear Lake, 186 Minn. 543,243 N.W. 786. In our former opinion in this case we said: "A reading of that act when laid side by side with the city charter upon which defendant relies makes it quite clear that the language of the charter is in substance and effect the same as the general law interpreted in that case."
The obligations involved are contractual. The issue is one of law. Do the facts put the instant case within the doctrine of the White Bear Lake case or are they such as to bring it within the others relied upon by plaintiffs? We said in our former opinion that "Unless we are to overrule that decision [White Bear Lake case], it is clear that plaintiffs' cause must fail" as to imposition of general liability. The reasons for the result there reached are adequately stated. However, additional reasons appear for reaching the same result. *Page 613
It is well to note that the general obligations of the city are provided for under c. XI, §§ 132 to 147, inclusive, of the charter. The title heading of that chapter is "Bonds." The obligations therein referred to are "bonds of the city" and "indebtedness of the city." That chapter limits the purposes for which such obligations may be issued. No provision is made for the issue of bonds to defray costs of sewer mains or for the establishment of a general revolving fund to finance local improvements. "Local Improvements and Special Assessments" are governed by c. XII, §§ 148 to 198, inclusive. Section 178 has been quoted in the original opinion. It controlled the issue and limited the obligation of the warrants in suit.
By § 134, the interest upon the city's general obligations is limited to five per cent, while § 178, the one here controlling, permits interest not exceeding eight per cent. Under § 135, before a bond issue may be floated, an affirmative vote of five-eighths of the electors is required (except where the bond is a refunding bond or issued to pay a judgment). The electors have no voice and are not consulted respecting liabilities of the kind here involved. Under § 113, provision is made for the establishment and maintenance of the various funds of the city. Subdivision 15 thereof provides for a permanent improvement fund "for the purpose of paying the cost of all real property" to be acquired by the city "and also forthe purpose of paying such portions of the expenses of localimprovements as shall devolve upon" the city. By subdivision 17 there is established "A permanent improvement revolving fund for the purpose of providing moneys for paying for that portion of local improvements, under the provisions of this Charter, for which assessments may be levied, but it shall not besupported by taxation." (Italics supplied.) Plaintiffs refer to this as "one of the 'apparent ambiguities' which accounts for the case being here." By § 123 the treasurer is required to keep a "complete, accurate and separate account" of each of the separate funds embraced in subdivisions 1 to 17 under § 113. In this account he must show the source and amount of all receipts and the amount, purpose, and name of payee as to all sums disbursed for each local improvement for which an *Page 614 assessment is made. When warrants are sold upon this fund the proceeds must be "used for paying for the said improvement." During the more than a quarter of a century since the charter was adopted, the city has kept a separate account for each improvement so that anyone desiring the information would know exactly what the status of any improvement account was.
Furthermore, the charter provides for a sinking fund for bonds but none for permanent improvement revolving fund warrants. By § 124 the city is authorized to issue and sell tax anticipation certificates, under which such obligations are secured by the "faith and credit" of the city. It is significant that no such authority exists respecting warrants of the type here involved. Under § 150, the commission, when establishing an improvement to be paid by special assessments, may determine what portion of the cost the city as such is to share. Section 185 provides that in the event the first assessment to pay for a local improvement "shall prove insufficient to fully pay for the same, * * * the Commission may assess and re-assess the same upon the property benefited until a sufficient amount is realized to pay the same. If toolarge an amount shall at any time be raised the excess shall berefunded ratably to those by whom it was paid, if the Commission shall so order, it being the true intent and meaningof this act to assess and re-assess the property benefited tothe extent of such benefits for any deficiency over and abovethe first assessment which said improvement may cost, whether the said improvement has heretofore been made or may hereafter be made. And no error or omission or irregularity, whether jurisdictional or otherwise, shall prevent a re-assessment to the extent of the benefits conferred by such improvement." (Italics supplied.) But by § 156 it is specifically provided that "No assessment shall exceed the actual benefit to the tract or parcel of property upon which the same shall be assessed."
The resolutions recite in great detail the nature of the improvement for which warrants are to be issued, location thereof, and the number of the improvement itself. There can be no room for reasonable doubt that anyone desiring to investigate the facts had ample notice of where the same could be found. *Page 615
7. Plaintiffs reiterate that "St. Cloud borrowed $287,800 from appellants or their predecessors in interest which it agreed [generally] to repay on October 1, 1929," but their claim is unsupported by either facts or law. If their suit were upon a loan of money, as the word "loan" is used in a commercial sense, the situation would be wholly different. Plaintiffs cannot prove an outright loan for the simple reason that the city officers with whom they dealt had no authority to obligate the city in that fashion. It is plain that the warrant holders could acquire no more than such officers were by law authorized to sell or grant. The latter were not authorized to "borrow" the money outright. Even if so disposed, those officers could not transgress their charter authority. (There is no issue of apparent as distinguished from actual authority.) Furthermore, the court found that neither the city nor its officers had made "any statements or representations as to the nature and extent of the liability of the City under said warrants, and did not state or represent in substance or effect that said warrants were general obligations" or that the city "was back of said warrants."
The city's obligations under these warrants were not, and, under its charter, could not be, its general obligation. The wishes and requirements of the public, the general taxpayers of the city, were not consulted respecting these improvements or the means or manner of meeting their payment. If plaintiffs' contentions were to be sustained, the general taxpayers would be "saddled with the cost of improvements in the making of which they had no voice," (66 N.D. 609, 268 N.W. 454) and for which specially benefited property was assessed in adequate amount to meet them. Plaintiffs as matter of fact "contracted for a lien and payment out of a particular fund, and cannot claim a general liability unless the city wrongfully diverts this fund." Vallelly v. Board of Park Commissioners, 16 N.D. 25,29, 111 N.W. 615, 616, 15 L.R.A.(N.S.) 61.
"The transaction was purely contractual and the city, having done all that it contracted to do without fault or neglect on its part, cannot now be held liable." Bankers Trust Savings Bank v. Village of Anamoose, 51 N.D. 596, 601, 200 N.W. 103,105. "Even bona fide purchasers for value are chargeable with notice of *Page 616 the contents of an ordinance referred to in the recitals of a municipal obligation as the authority under which such obligation is issued." Bolton v. Wharton, 163 S.C. 242,161 S.E. 454, 86 A.L.R. 1101, 1103. "Bonds issued without authority are void even in the hands of bona fide purchasers. Purchasers of municipal bonds are chargeable with notice of the authority of the municipal officers issuing them." 4 Dunnell, Minn. Dig. (2 ed. Supp. 1932) § 6736, and cases cited under note 42. And the same is true where bonds are "issued in excess of the limit prescribed by statute." They are void "even as to a bona fide holder." Id., § 6734. In Town of Plainview v. W. St. P. R. Co. 36 Minn. 505, 512, 32 N.W. 745, 746, the court held that certain recitals in the bonds were sufficient to put the purchasers upon inquiry respecting the authority under which they were issued, "and the manner in which they were in fact issued." The recitals in these bonds are found at p. 508, 36 Minn. A reading thereof establishes that what is stated on the face of the involved warrants is even more patent as notice than the language referred to in the cited case.
8. Nor are we favorably impressed by plaintiffs' claim that they may resort generally to the revolving fund for recoupment. In view of the established fact that there is nothing therein from the benefited property assessed and to which these warrants relate, it is clear that anything taken therefrom must come out of assessments made against other improvements. Such procedure would inevitably result in robbing, Peter to pay Paul.
Plaintiffs have asserted with much vigor that as to them defendant occupies the position of a trustee. If that be so, where is the justification for taking property from one beneficiary to whom it belongs and giving it to another whose interest in the fund has been exhausted? Any trustee so acting would be guilty of plain breach of trust and liable to the one suffering injury therefrom.
9. The foundation for authority to levy special assessments is the benefit which the object of the assessments confers upon the owner of the benefited property. The theory is that the owner does not in fact pay anything in excess of what he received by reason of the improvement. Hence, when special assessment warrants are *Page 617 issued, as here, payable out of a special fund, the municipality only pledges its good faith to make the necessary assessments and attempt collection thereof, to the end that the funds collected may be used in payment of warrants so issued. If it complies with these requirements, any deficiency, absent negligence, must be borne by the warrant holder. Schieber v. City of Mohall, 66 N.D. 593, 268 N.W. 445, and see cases cited pp. 606, 607. And in State ex rel. Oliver I. Min. Co. v. City of Ely, 129 Minn. 40, 45, 151 N.W. [2] 547, Ann. Cas. 1916B, 189, this court said:
"Special assessments for local improvements rest upon the theory that the property so assessed is specially benefited by the improvement, and a special assessment which exceeds the amount of such special benefit is, as to such excess, a taking of private property for public use without just compensation." (Citing authorities.)
10. The warrants held by plaintiffs were clearly intended to be in renewal or in lieu of the original warrants. There was but a mere substitution of one creditor for another. The applicable resolutions and records of the city clearly so state. The authority so to issue the warrants cannot be enlarged by plaintiffs, as they were charged with notice of charter limitations, under which they could acquire no greater rights than the city officers were authorized to grant. The court in the Schieber case [66 N.D. 614, 268 N.W. 456] recognizes that this is a matter lying wholly within legislative authority.
"To substitute new improvement warrants and thus give the property owners who have not paid additional time to pay the indebtedness is a matter wholly within the power of the legislature to determine and of the city to act. Authorization of this procedure does not thus subject the property holder who has already paid his full assessment to additional payments, nor does it determine whether his property has in fact paid the full amount of the benefit received."
11. Cases bearing upon the subject of rights of creditors of a public body to full or prorata payment when the fund out of which an obligation is payable is insufficient to pay all like obligations *Page 618 of equal dignity are annotated in 90 A.L.R. 717, et seq. That question is not before us now, and we of course express no opinion regarding same.
We adhere to the result reached in our former opinion.
MR. CHIEF JUSTICE GALLAGHER took no part in the consideration or decision of this case. *Page 619