#### CITY OF HOUSTON v. ALLRED, Atty. Gen.

No. 1515-1783-6642.

Commission of Appeals of Texas, Sections A and B.

Jan. 18, 1934.

R. R. Lewis, George D. Neal, and William M. Holland, all of Houston, for relator.

James V. Allred, Atty. Gen., and Pat Dough-erty, Asst Atty. Gen., for respondent.

T. D. Cobbs, Jr., W. C. Davis, and Jack H. Davis, all of San Antonio, amici curiae.

ORITZ, Judge.

This is an original mandamus proceeding instituted by the city of Houston, Tex., hei-e-inafter called relator, against James V. All: red, Attorney General of Texas, hereinafter called respondent, to compel his approval of certain waterworks revenue bonds issued by relator.

Relator is a home rule city of more than 290,000 population duly organized as. such under the Constitution and laws of this state. Relator also operates under a charter duly ratified and approved by its qualified voters. As authorized by the statutes of this state and by its charter, relator owns and operates its own waterworks system.

On November 8, 1933, relator’s city council determined by ordinance duly enacted and approved that the amount of money on hand at such time for the purpose of making neces-sa;ry extensions, improvements, and better-ments of its waterworks system was not sufficient to make and complete such improvements and betterments for such system, and decided that it would be necessary to borrow money for such purposes. Relator also decided by such ordinance to borrow money, for the above-named purposes, to issue bonds for the purposes of repaying the money so borrowed, and to pledge and mortgage the future income of the waterworks system for the purpose of paying such bonds. In this connection we call particular attention to the fact that relator is making no attempt to mortgage or give a lien on the physical properties of the system; but merely *to*mortgage the net income thereof.

It is further shown that by the terms of the above ordinance relator authorized the issuance ■ of $2,502,000 worth of waterworks revenue bonds for the purpose of securing money with which to make permanent better-ments, additions, improvements, and extensions to its waterworks system. The ordinance designated the method and manner of the issuance of such bonds, and provided for a water revenue fund derived solely from the income of the plant to create a fund to pay the principal and interest of these bonds.

It appears from the record that relator has complied with its charter and pertinent statutes in the enactment of the above ordinance, and that such ordinance is legal if it is not subject to the objection made thereto by respondents.

It appears that, after the happening of the above events, and on November 29, 1933, relator duly prepared a record or transcript of all proceedings pertaining to the issuance of these bonds, and submitted same to the respondent for his approval as required by law. After an examination of the above transcript, respondent has refused to approve the same for the following reasons given by him:

> “1. That the proposed bonds constitute a debt of the City of Houston within the provisions of sections 5 and 7 of article 11 of the Constitution, and that under the act or acts authorizing such bonds no provision has been or can be made for the levy of a tax to pay them, as is required by such sections of the constitution.

> “2. That under the provisions of articles 1111,1112,1113 and 1114 of the Revised Civil Statutes, 1925, as amended by S. B. No. 334, chapter 122 of 1983 [Vemon’s Ann. Civ. St. arts, mi-1114], and other applicable statutes, the City has no power to borrow money .payable solely out of income except as incidental to the making of a mortgage to secure such loan and that under article 1112 it cannot make any such loan without an election except for the purposes named in such Articla >

> *656“3. That H. B. No. 212, passed at the First Called Session of the 43rd Legislature and approved October 16, 1933 [Vernon’s Ann. Civ. St. art 1109a], under which also authority is claimed for the issuance of such bonds, is a special or local law passed in violation of section 56 of article 3 of the Constitution.

> “4. That said H. B. 212, involves a subject that was not presented to the Legislature by the Governor and was passed at such called session in violation of section 40 of article 3 of the Constitution.

> “5. That the City of Houston has outstanding $1,080,000.00 bonds, dated June 15, 1926, and maturing serially to and including the year 1951, which bonds were issued under chapter 33 of the Laws of 1925 (Vernon’s Ann. Civ. St. 1925, art. 1109a) and that under section 2 of such act (article 1109a, subd. 2) the City cannot pledge or use any part of the income of its existing waterworks system, or •the system as proposed to be improved for the payment of the proposed bonds or of any new bonds until all of such outstanding bonds are finally paid.

> “6. That in so far as H. B. No. 212 permits the pledge or use of any part of the income of the waterworks system for the payment of new bonds in violation of subdivision 2 of article 1109a, as it existed at the time of the issuance of the outstanding bonds, it impairs the obligation of the contract rights of holders of such outstanding bonds and is unconstitutional.

> “7. That the proposed bonds are to be issued to a Federal agency and have not been authorized by an election as required by S. B. No. 70, approved Nov. 1, 1933 (Vernon’s Ann. Civ. St. art 1644c), with respect to a city located in a county in which there has been damage to public and private property from a tropical hurricane during the year 1933. That it is impossible in the nature of things for the Attorney General to satisfy himself, or to establish conclusively as a fact for the protection of such bonds, that no such damage has occurred in Harris County during the year 1933.

> “8. That the provisions of chapter 163, Acts of the Regular Session of the 42nd Legislature as amended (Vernon’s Ann. Civ. St. art. 2368a), including particularly section 11 thereof are applicable and the city has not complied with the requirements thereof in reference to giving notice.”

> Respondent takes the position that, by virtue of the above objections, these bonds are illegal and void, and for such reasons refuses to approve the same. The mandamus proceeding followed.

It is shown by the record that the city of Houston now has outstanding and unpaid $1,080,000 of waterworks bonds dated June! 15, 1926, and maturing serially to and in-eluding 1951. These 1926 bonds were issued under chapter 33 of the Legislative Act of 1925 (Vernon’s Annotated Civil Statutes 1925, article 1109a). This 1926 bond issue is secured by a lien or mortgage on the physical properties of this waterworks plant, as well as a mortgage on the net income thereof. They do not constitute a debt against the city; only a claim against the system and its income.

From the statement we have made it appears that the relator is here attempting to .create another lien or mortgage on the income of its waterworks plant

By his objection No. 5 above quoted the Attorney General contends thát, by virtue of the provisions of subdivision 2 of article 1109a, supra, all of the holders of all 1926 bonds have a lien or mortgage on all of the net income of this waterworks system for each and every year up to and including the year 1951.

As we understand it, the relator contends that the holders of the 1926 bonds only have a lien on each year’s net income for the bonds and interest maturing that year, and that, when it has paid all matured bonds and interest up to and including a particular year, it can use any surplus revenue for the purpose of paying the bonds here sought to be issued.

From the above it appears that the holders of the 1926 bonds are vitally interested in the decision and determination of objection No. 5, supra, and, though so vitally interested, they are in no manner made parties to this proceeding.

LI, 2] It is the settled law of this state that persons whose rights would be injuriously affected by the issuance of a mandamus by this court are necessary parties to the proceeding, and all known parties, in interest, should be summoned to come in and defend such interests. Also third parties claiming an adverse interest in the subject-matter of the suit which may be affected by the judgment must be bound as respondents, without regard to the validity of their claims. 23 Tex. jur. pp. 629, 630, par. 63, and authorities there cited.

Because the holders of the 1926 bonds above described are not made parties hereto in any manner, we recommend that this petition for mandamus be dismissed, without any expression by this court of its opinion on the merits of any question raised by any of the parties, and without prejudice to the right of relator to file a new petition making the necessary parties.

OURETON, Chief Justice.

The opinion of the Commission of Appeals is adopted, and: the petition for mandamus is dismissed.