Yeazell v. Copins

402 P.2d 541, 98 Ariz. 109, 1965 Ariz. LEXIS 245

• Court: Arizona Supreme Court
• Decided: June 3, 1965
• Docket: 7888
• Status: Published

Opinions

STRUCKMEYER, Vice Chief Justice.

Appellant Kenneth G. Yeazell, having completed in excess of twenty years of service with the Police Department of the City of Tucson, requested retirement effective May 3, 1962. The Police Pension Board of Tucson retired appellant, fixing the amount as directed by the 1952 amendment to the Police Pension Act of 1937, A.R.S. § 9-923. Appellant brought an original action for declaratory judgment in the superior court asserting that his retirement should be computed in accordance with the 1937 act as it existed at the time he entered the service of the Police Department of the City of Tucson in 1942. From an adverse judgment, he appeals.

By the act of 1937, § 16-1808, A.C.A. 1939, appellant was entitled to be retired with a monthly pension equal to one-half of his average monthly compensation for one year immediately prior to the date of retirement. The 1952 amendment, Ch. 93, § 3, Laws of 1952, provides for retirement at the rate of one-half of the average monthly earnings for five years immediately prior to the date of retirement. The computation of appellant’s pension under the 1952 amendment gives him $7.21 a month less retirement pay than if' computed under the 1937 act. There is no claim made nor is there any suggestion from the facts presented that appellant may have waived or is estopped to claim the benefits given to him by the 1937 act.

The question of the extent of the vesting of pension rights of a public employee is not without some difficulty. The appellate courts of thirty-five states have had presented either the identical problem we have here or related problems. See annotation 52 A.L.R.2d and the four prior annotations, 137 A.L.R. 249, 112 A.L.R. 1009, 98 A.L.R. 505 and 54 A.L.R. 943. As stated by the annotator in 52 A.L.R.2d at 441:

“Development of the law on the question under annotation has been long and tortuous, reflecting the increasing pressure placed upon the judiciary by the evolution of the now generally accepted theory that pensions are a .part of the compensation of an employee to which, under ordinary circumstances, he is as much entitled as he is" to the wages paid him for the work he has actually performed.”

Twice before we have interpreted the provisions of the 1952 amendment. Robinson v. Police Pension Board, City of Tucson, 85 Ariz. 384, 339 P.2d 739; Police Pension Board for City of Tucson v. Denney, 84 Ariz. 394, 330 P.2d 1. In the former, the decision was by a majority, two judges dissenting; in the latter, four judges heard the case with one of the four concurring in the result only. We are now of the view that it is appropriate and desirable to re-examine those decisions in order to fairly settle the law in this jurisdiction.

A great majority of the states have followed the common law in holding that a pension is a gratuity to which no rights vest in the pensioner; e. g., McCarthy v. State Board of Retirement, 331 Mass. 46, 116 N.E.2d 852. But in Arizona the common law is binding only insofar as it is found •applicable, A.R.S. § 1-201. By the Constitution of Arizona, Art. 9, § 7, A.R.S., the granting of a gratuity by the legislature is forbidden:

“Neither the State, nor any county, city, town, municipality, or other subdivision of the State shall ever * * make any donation * * * to any individual, association, or corporation s}: ijs )f

It is plain that in this state pensions cannot be sustained as constitutional unless anchored to a firmer basis than that of a gift.

While a moral obligation is sufficient to support'a claim which may constitutionally be recognized, Fairfield v. Huntington, 23 Ariz. 528, 205 P. 814, 22 A.L.R. 1438, the various retirement acts for public employees in Arizona cannot be upheld unless the state or political subdivision enters into a legal obligation founded upon a valuable consideration. The state may not give away public property or funds; it must receive a quid pro quo which, simply stated, means that it can enter into contracts for goods, materials, property and services.

In 1954, the Supreme Court of Pennsylvania, in recognizing the shift from the concept of a gratuity to that of deferred compensation for services rendered, said:

“Much of the misapprehension which apparently still exists in the minds of conscientious administrators of pension funds is possibly due to the fact that there still lingers a remnant of the ancient idea that a pension is a manifestation of sovereign generosity. The concept of pensions has come down through the centuries wearing a cloak of monarchical dispensation. Kings conferred pensions on court favorites, artists and military heroes with a flourish which proclaimed that the royal treasury was as inexhaustible as the crown’s power was unlimited. However, despite ceremony aiid pronunciamento, the pensioner obtained no vested right to the proclaimed pension. In fact, he could not be any more assured of a continuation of the pension than he could he assured that his head would remain on his shoulders if he should displease his absolutist benefactor. But the pension of today is not a grant of the Republic nor in this case is it a gift of the City Fathers. It is the product of mutual promises between the pensioning authority and the pensioner; it is the result of contributions into a fund which exists for the single purpose of pensions.” Hickey v. Pittsburgh Pension Board, 378 Pa. 300, 304-305, 106 A.2d 233, 52 A.L.R.2d 430.

The California Supreme Court forty-seven years ago in O’Dea v. Cook, 176 Cal. 659, 169 P. 366, in. construing a constitutional provision of similar meaning to Arizona’s, rested the decision on the basis we find controlling here:

“A pension such as this law contemplates is not a gratuity or a gift. If it were, all of the provisions pertaining to it would he void, under the constitution of the state. Art. 4, § 31; Taylor v. Mott, 123 Cal. 497, 56 Pac. 256. A pension is a gratuity only where it is granted for services previously rendered, which at the time they were rendered gave rise to no legal obligation. United States ex rel. Burnett v. Teller, 107 U.S. 64, 2 Sup.Ct.R. 39, 27 L.Ed. 352; Mahon v. Board of Education, 171 N.Y. 263, 63 N.E. 1107, 89 Am.St. Rep. 810; State [ex rel. Haberlan] v. Love, 89 Neb. 149, 131 N.W. 196, 34 L.R.A.(N.S.) 607, Ann.Cas.1912C, 542. But where, as here, services are rendered under such a pension statute, the pension provisions become a part of the contemplated compensation for those services, and so in a sense a part of the contract of employment itself. Hammitt v. Gaynor (Sup.) 144 N.Y.Supp. 123; State [ex rel. Haberlan] v. Love, supra; People [ex rel.] v. Abbott, 274 Ill. 380, 113 N.E. 696.” 176 Cal. 659, 661-662, 169 P. 366, 367. (Emphasis supplied.)

Notwithstanding that the state can only part with its money or property by agreement and for a valuable consideration, this Court in Denney, supra, referred to the right of retirement as “in the realm of quasi-contracts” and in Robinson, supra, as a “contingent interest” and an “expectancy”, all ambivalent terms having no fixed significance. Thereby, appellant was relegated to a second-class status as if the government had a special standing to renege on the terms of employment after the contract has been entered into and part performance has taken place — a status which recognized neither moral responsibility nor legal obligation.

As a contract, certain principles of law are apparent. That the laws of the state are a part of every contract has been repeatedly decided under a variety of circumstances, American Federation of Labor v. American Sash & Door Co., 67 Ariz. 20, 189 P.2d 912, aff. 335 U.S. 538, 69 S.Ct. 258, 260, 93 L.Ed. 222, 6 A.L.R.2d 481; Lee Moor Contracting Co. v. Hardwicke, 56 Ariz. 149, 106 P.2d 332; Wise v. First Nat. Bank of Nogales, 49 Ariz. 146, 65 P.2d 1154; Commercial Credit Co. v. Phoenix Hudson-Essex, Inc., 33 Ariz. 56, 262 P. 1; Pinal County v. Hammons, 30 Ariz. 36, 243 P. 919. We unqualifiedly reject any premise for this decision which does not forthrightly accept as its controlling principle that the rights and responsibilities arising out of the contract of employment are not firm and binding. Controversies as to those rights should be settled consistent with the law applicable to contracts.

A.R.S. § 9-925 provides a member of the police department whose membership began prior to July 1, 1952, and who serves the department twenty years in the aggregate may, upon application, be retired. It is, therefore, one of the conditions of appellant’s contract of employment that if he completes twenty years of service Tucson promises certain deferred payments as retirement. This is a condition precedent to liability by the municipality for retirement benefits. A condition is a fact which “must exist or occur before a duty of immediate performance of a promise arises, in which case the condition is a ‘condition precedent.’” Restatement of the Law of Contracts, § 250(a). Under paragraph d. of § 250 may be found this comment:

“The ‘fact’ which according to the definition constitutes a condition most commonly' is the occurrence of an event after the formation of a contract, as where an insurance policy is conditional on a specified kind of future loss * *

That an applicant for retirement may not earn the right to benefits because he does not perform the condition does not mean that from the moment of entrance into the service of Tucson as a police officer there is not a firm, binding contract.

It should, at this point, be recognized that public employment seldom pays on the same scale as private enterprise for the same services. The consideration of promised retirement is in private industry a major inducement both for the entrance into by superior personnel and their continuation in employment and avoidance of the expense of labor turnover. See Psutka v. Michigan Alkali Co., 274 Mich. 318, 264 N.W. 385. Government, with its various public agencies, enters into areas on a scale so vast and to such an extent as to have scarcely been conceived fifty years ago. To the end that the public service may be improved, the legislature has authorized the state and its various subdivisions to establish retirement and pension plans. These plans are not dependent upon the benevolence of the employing agency- but are prescribed by the legislature and the conditions of the employment, as related to retirement from public service, are provided by general law. Retirement is, as in private industry, a valuable part of the consideration for the entrance into and continuation in public employment.

Other states, and we believe those having the better rationale, have reached the same conclusion that the right to a pension becomes vested upon acceptance of employment.

“The deceased was a member of the police department for approximately fourteen years before his death, during the entire period of which he paid his required 4 per cent, of each salary check received. A pension based upon such facts is not a gratuity. It is a periodical allowance of money granted by the city in consideration of services rendered or of loss or injury sustained, and payments actually made for that purpose.

“It has been clearly held that the pension provisions of the city charter are an integral portion of the contemplated compensation set forth in the contract of employment between the city and a member of the police department, and are an indispensable part of that contract, and that the right to a pension becomes a vested one upon acceptance of employment by an applicant. O’Dea v. Cook, 176 Cal. 659, 169 P. 366; Aitken v. Roche, 48 Cal. App. 753, 192 P. 464; French v. Cook, 173 Cal. 126, 160 P. 411; article 17, § 183, Charter of the City of Los Angeles.” Dryden v. Board of Pension Com’rs. of City of Los Angeles, 6 Cal. 2d 575, 578-579, 59 P.2d 104, 106.

(Emphasis in original.)

And see the cases and authorities cited in both the majority and dissenting opinions in Robinson v. Police Pension Board, supra.

The holdings of Robinson and Denney that an employee does not have the right to any fixed or definite retirement benefits but only to a substantial or reasonable pension is incompatible with the concepts we have expressed. A contract cannot be unilaterally modified nor can one party to a contract alter its terms without the assent of the other party, see e. g. Newhall Land and Farming Co. v. Hogue-Kellogg Co., 56 Cal.App. 90, 204 P. 562; Trowbridge v. Jefferson Auto. Co., 92 Conn. 569, 103 A. 843; York v. Central Illinois Mutual Relief Association, 340 Ill. 595, 173 N.E. 80; Becker v. Faber, 280 N.Y. 146, 19 N.E.2d 997, 121 A.L.R. 1010; Friday v. Regent Improvement Co., 330 Pa. 481, 199 A. 914; Nelsen v. Farmers Mutual Auto Ins. Co., 4 Wis.2d 36, 90 N.W.2d 123. As the Illinois Supreme Court stated in York v. Central Illinois Mutual Relief Association, supra:

“There is no doubt that the parties to a contract may by their mutual agreement accept the substitution of a new contract for the old one with the intent to extinguish the obligation of the old contract, but one party to a contract cannot by his own acts release or alter its obligations. The intention must be mutual.” 340 Ill. 595, 602. 173 N.E. 80, 83.

In passing upon the precise point here made, the Supreme Court of Washington in Bakenhus v. City of Seattle, 48 Wash.2d 695, 296 P.2d 536, approved this language from Baker v. Retirement Board of Allegheny County, 374 Pa. 165, 97 A.2d 231, 233:

“ ‘As of the time he joined the fund, his right to continued membership therein, under the same rules and regulations existing at the time of his employment, was complete and vested. The legislature could not thereafter constitutionally alter the provisions of his already existing contract of membership. His rights in the fund could only be changed by mutual consent. * 4= * >» 48 Wash.2d 695, 699-700, 296 P.2d 536, 539.

Nor may the legislature reduce the amount of the contributions to the fund if thereby the soundness of the fund is jeopardized.

The legislature amended the 1937 statute which was a part of appellant’s contract of employment with the City of Tucson. Tucson now attempts to apply the changes retroactively to vary the terms of its contract with appellant. We hold the changes, if applied to appellant without his assent, would constitute an alteration, a modification of his contract. This Tucson may not do.

In the instant case, appellant attempted to establish in the trial court that the Pension Plan of 1937 as it was placed in operation by Tucson was actuarially sound. This is not appellant’s burden. If the pension plan was actuarially unsound when it was amended in 1952, the law governing mutual mistakes of fact is applicable in that both Tucson and appellant labored under the mistaken assumption that there was a fund sufficient to afford appellant and the other beneficiaries of the fund the amount provided by the act. A mutual mistake of fact may apply to the existence of the subject matter of the contract, see Corbin on Contracts, § 600, “Mistake as to Existence of Subject Matter Necessary to Performance.”

It is not appellant’s burden to show the lack of grounds for a recission or a modification of the contract. The party who asserts a fact has the burden to establish the fact. Durazo v. Ayers, 21 Ariz. 373, 188 P. 868. He who asserts the modification of a contract has the burden of proof. -Taran Distributing, Inc. v. Ami, Inc., 7 Cir., 237 F.2d 488. If Tucson were to assert a modification of the contract, then it is its burden to establish appropriate grounds therefor. We do not, however, mean to imply what rights or remedies might be available to either party in a situation where it is established that a retirement plan is actuarially unsound. This is a matter beyond the issues of the present litigation.

It is evidence from what we have said that appellant had the right to rely on the terms of the legislative enactment of the Police Pension Act of 1937 as it existed at the time he entered the service of the City of Tucson and that the subsequent legislation may not be arbitrarily applied retroactively to impair the contract. Appellant’s right to be retired under the Police Pension 'Act of 1937 existed until he evidenced an intention to be bound by or assented to the modifications provided in the amendment of 1952. The presumption would, of course, be that until appellant exercised his right of election the 1952 amendment was acceptable to him, but once having made an election both he and his widow are forever bound thereby.

We do not consider that appellant can be compelled to a choice between the 1937 act or the 1952 amendment by legislative coercion. His acquiescence in the application of the 1952 amendment during his employment is not alone sufficient to establish a waiver or an estoppel of rights under the 1937 act although he is obviously estopped from being reimbursed or from withdrawing any additional contributions above the two per cent required of the 1937 act

Tucson has not contended in this Court that appellant consented to the modification embodied within the 1952 amendment nor has it claimed that there are facts from which a waiver or estoppel may be derived. We cannot, however, in the light of our formqr' decisions, assume that such facts do not, exist. Any statement in both Robinson and Denney, contrary to what has been here sáid, can no longer be regarded as law. The judgment of the court below is .reversed with directions to permit appellees to amend their pleadings to set up facts to establish either a specific intention to accept the 1952 modifications on the part of appellant or waiver or estoppel from which assent can be implied. In the light of this decision, appellant may now file with the Police Pension Board and the court below his written election as to whether he will take under the benefits of the 1952 act. Otherwise judgment shall be entered in favpr of-appellant.

Reversed with directions.

LOCKWOOD, C. J.,, and. BERNSTEIN- and McFARLAND, JJ., concur.