Court Opinion

ID: 3997860
Source: CourtListenerOpinion
Date Created: 2016-07-06 10:55:36.786267+00
Date Added: 2024-06-11T14:18:47.798142
License: Public Domain

SUPPLEMENTAL DECISION.                   [En Banc. April 28, 1934.]
Upon further consideration, we have concluded to amplify the opinion in this case.
[5] The evidence is undisputed, the appellant concedes, and the trial court expressly found — that finding is quoted as follows (ante p. 364) that:
"This refunding was accomplished by the actual payment and retirement of the old bonds of $400,000 and by the issuance, immediately thereafter, as such old bonds were retired and cancelled, of the new refunding bonds, which were so issued, so that said old bonds of $400,000 which had been authorized by a vote of the electorate in 1907 were in fact paid and retired immediately before the issuance of the refunding bonds authorized by said Ordinance C5165, . . ."
Counsel for respondents cited and discussed State ex rel.Atkinson v. Ross, 43 Wash. 290, 86 P. 575, and State ex rel.Jones v. McGraw, 12 Wash. 541, 41 P. 893. We agree with counsel for respondents that those cases were founded upon the assumption that the old bonds were not repaid or retired until after the refunding bonds were issued, and on that basis we held that the new bonds constituted an increase of indebtedness. In the case at bar, the old bonds were in fact retired before the refunding bonds were issued. Clearly, the cases cited are inapplicable; they are distinguishable on the facts from the case at bar. Nor is *Page 376 
the case of Doon Township v. Cummins, 142 U.S. 366,12 S. Ct. 220, in point.
"It is the universal rule that where a municipality issues new securities and exchanges them directly for old ones, or in the payment of a valid existing indebtedness, the transaction is not an increase within the meaning of constitutional and statutory provisions, since the new securities as soon as issued extinguish the old debt, and therefore the aggregate outstanding indebtedness is the same at all times. Maish v. Arizona,164 U.S. 599, 41 L. Ed. 567, 17 Sup. Ct. Rep. 193; Mitchell v.Smith, 12 S.D. 241, 80 N.W. 1077; Los Angeles v. Teed,112 Cal. 319, 44 P. 580; Butler v. Lewiston, 11 Idaho 393,83 P. 234.
"When, however, the scheme is for the issuance and sale of new securities in the market, and the proceeds thereof are to be used to pay outstanding indebtedness at a later date, there are two distinct and contradictory rules. The first rule and the reasoning in support thereof is best set forth in the case ofDoon Township v. Cummins, 142 U.S. 366, 35 L. Ed. 1044,12 Sup. Ct. Rep. 222. We quote as follows:
"`There is a wide difference in the two alternatives which this statute undertakes to authorize. The second alternative, of exchanging bonds issued under the statute for outstanding bonds, by which the new bonds, as soon as issued to the holders of the old ones, would be a substitute for and an extinguishment of them so that the aggregate outstanding indebtedness of the corporation would not be increased, might be consistent with the Constitution. But under the first alternative, by which the treasurer is authorized to sell the new bonds and to apply the proceeds of the sale to the payment of the outstanding ones, it is evident that if (as in the case at bar), new bonds are issued without a cancellation or surrender of the old ones, the aggregate debt outstanding, and on which the corporation is liable to be sued, is at once and necessarily increased, and, if new bonds equal in amount to the old ones are so issued at one time, is doubled; and that it will remain at the increased amount until the proceeds of *Page 377 
the new bonds are applied to the payment of the old ones, or until some of the obligations are otherwise discharged.
"`It is true that if the proceeds of the sale are used by the municipal officers, as directed by the statute, in paying off the old debt, the aggregate indebtedness will ultimately be reduced to the former limit. But it is none the less true, that it has been increased in the interval; and that unless those officers do their duty, the increase will be permanent. It would be inconsistent alike with the words, and with the object, of the constitutional provision, framed to protect municipal corporations from being loaded with debt beyond a certain limit, to make their liability to be charged with debts contracted beyond that limit depend solely upon the discretion or the honesty of their officers.'" Citrus Growers' Development Ass'nv. Salt River Valley Water Users' Ass'n, 34 Ariz. 105,268 P. 773 (780).