Court Opinion

ID: 6685583
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:32:21.934955+00
Date Added: 2024-06-11T16:00:57.501404
License: Public Domain

Corson, J.
This is an action by the plaintiff to recover from the defendant the amount due upon a number of coupons detached from certain bonds of a series of 120 bonds, for 1500 each, issued by the defendant, bearing date October 4, 1890, payable 15 years after date, and which are in the usual form. To each of these bonds were attached 30 coupons, for the payment of the interest semiannually, which are in the usual form. Each bond contained the following recital: “And it is hereby certified and recited that all acts, conditions, and things required to be done precedent to and in the issue of said bonds have duly happened and been performed in regular and due, form as required by law, and that the total amount of this 'issue of bonds, together with all other outstanding indebted*541ness of said board of education, does not exceed the statutory or constitutional limitation.’’ To the complaint on the part of the plaintiff, setting out a copy of the bond and coupon, and alleging that the plaintiff was the owner and holder of the same, the defendant, by its answer, set up four defenses: (1) That the defendant was not a corporation, and was a department of the city of Huron, and was therefore not authorized to issue bonds; (2) that, the amount of bonds issued was in excess of the amount limited by law; (3) that the money received on the sale of said bonds was not used for the purposes specified upon the face of said bonds, but was paid over to the city of Huton to be expended for the purposes of a capital campaign; (4) that the defendant did not make provision before or at the time of issuing said bonds for the payment of an annual tax sufficient to pay the interest and principal of said bonds as the same became due, as required by t.he provisions of Article 13, § 5, of the constitution of this state. To this answer a demurrer was interposed on the part of the plaintiff on the ground that the answer did not state facts sufficient to constitute a defense to the action. This demurrer was overruled by the-trial court, and, the plaintiff electing to stand upon his demurrer, judgment was rendered in favor of the defendant, and from that judgment the plaintiff appeals to this court.
It was alleged in the answ'er of the defendant that it was organized under and by virtue of Chapter 47 of the Session Laws of 1887, being Sections 1808 to 1839 of the Compiled Laws. By Section 1811, Comp Laws, it is declared that each public school organization effected in pursuance of the act should be a “body corporate,” and should possess the usual powers of a corporation for public pur*542poses, and be capable of contracting and being contracted with, and of holding and conveying such real and personal estate as might come into its possession by will or otherwise, or as is authorized to be purchased by the provisions of the act. It is also provided by said act that the respective boards of education might require the city or town in which they were organized to convey to them all school property within the limits of such city or town. The act also provides for the election of members of the board; that such board may elect its own offiers, except the treasurer, who is elected in the same manner as members of theboard, and tomakeits own rules and regulations. The only direct connection that said board seems to have with the city is that by which it is provided that its tax levy is required to be approved by the council of the city to which the boai'd appertains, when there is one. Without calling attention to all of the various sections of the act,it is sufficient to say that in our opinion it was the evident intention of the legislature to make the boards of education, in the cities therein designated,separate and independent corporations. This view leads to the conclusion that the amount of indebtedness of the city of Huron cannot be included in the amount of indebt edness the defendant corporation was authorized to incur. It is not necessary, therefore, to take into consideration the indebtedness of the city of Huron, in determining the indebtedness the defendant was authorized to incur.
It is further alleged in the answer that the indebtedness of the defendant prior to the issue of bonds now under consideration was $32,000. That amount added to $60,000, the amount of the bonds of said issue, makes a total of §92,000. It is further alleged in the answer that the assessed valuation of the *543property within the limits of the city of Huron, as eqalized for the year 1889,was $1,575,000, and for the year 1890 was $3,014,-764. The property within the limits of the defendant school district was at least co-ext.onsive with that within the limits of the city of Huron, and it may be assumed that the value of the property within the limits of the said board of education was the same. It.is contended on the part of the respondent that the value of the property assessed in 1889 should be the amount taken into consideration in fixing the limit of indebtedness which the defendant could incur. But we are of the opinion that the value fixed in 1890 must be taken as the true value for the purpose of fixing that limit. Taking this view of the assessable; value of the property as fixing the limitation of the indebtedness which the defendant could incur, it is clear that the indebtedness of the defendant did not exceed the amount of indebtedness it was authorized to incur. It is claimed on the part of the respondent that by Sections 1 and 2 of Chapter 16 of the Session Laws of 1887 (being Sections 1149 and 1150 of the Compiled Laws) the general law was amended by providing that the assessed valuation as shown by the returns of the assessor for the year next preceding the time at which said indebtedness should be incurred should be taken as the valuation upon which the amount of such indebtedness could be incurred. But it is clear from an examination of those sections that the amendment only applied to city or other municipal corporations having a common council or board of trustees, and is limited to such corporations only, and has no application to school boards organized under the provisions of the sections we have referred to. As the bonds in this case were issued in October, 1890, suosequent to the assessment and eqalization of *544the property of the city of Huron for the year 1890, that valuation must be regarded as the true valuation in fixing the amount of indebtedness that the defendant might incur.
The third defense, that the money was not used for the purposes for which the indebtednes was declared to be incurred on-the face of the’bonds, cannot be considered as a defense to the action. The defendant, being authorized to issue bonds for the purpose declared on their face, is estopped from showing that the money was misapplied, and not used for the purposes for which the bonds were issued. It is declared in the bonds that they are “issued in accordance with the provisions of Sections 1830, 1831, and 1832 of the Compiled Laws of 1887 of Dakota Territory, and in force in the State of South Dakota, authorizing boards of education to issue bonds to raise funds to purchase school sites and erect school buildings, or to fund bonded indebtedness.” It will be observed that the declared purpose for which the bonds were issued was in strict conformity with the provisions of Section 1830, Comp. Laws. The defenses we have been considering have been passed upon by the United States court of appeals for the eighth circuit, since this appeal wars taken and the brief’s in this case filed, in a case in which the board of education of the city of Huron, in the State of South Dakota, was plaintiff in error, and the National Life Insurance Company of Montpelier, Vt., was the defendant in error, and in two other cases in which said board of education was the plaintiff in error, wherein were involved a number of the bonds of the same series that are before us on this appeal; and that learned court reached the same conclusions to which this court has arrived in regard to the questions discussed. Board of Education of City of Huron v. National Life Insurance *545Co., same board against Peaslee, assignee, and same board against Monadnock Sav Bank. 36 C. C. A. 278, 94 Fed. 324.
The fourth defense, namely, that the defendant did not make provision before or at the time of issuing said bonds for the payment of an annual tax sufficient to pay the interest and principal of said bonds as the same became due. as required by the provisions of Article 13, § 5. of the constitution of this state, will now be considered. Said section reads as follows: “Any city, county, town, school district or any other subdivision incurring indebtedness shall, at or before the time of so doing, provide for the collection of an annual tax sufficient to pay the interest'and also the principal thereof when due, and all laws or ordinances providing for the payment of the interest or principal of any debt- shall be irrepealable until such debt shall be paid.” In the case of National Life Ins. Co. v. Board of Education of City of Huron, 10 C. C. A. 637, 62 Fed. 778, in which a portion of the bonds now under consideration were involved, the United States court of appeals for the eighth circuit held that the defendant was estopped from setting up this defense, by virtue of the recital contained in the bonds. In that case the court, after reviewing at length the authorities upon that question, says: “In view of the rule that these authorities establish and illustrate, there is no longer any difficulty in disposing of the question we have, been considering. Full power to perform the conditions precedent that were not fulfilled in the case before us, and to make a lawful issue of bonds, was vested in the board of education. * * * This board, by the act of issuing the bonds, decided that this and all other conditions precedent to their issue had been performed. It certified that fact on the face of the bonds it issued, and *546bona fide purchasers have bought them. The defendant corporation cannot now be heard to deny the truth of this certificate, to their prejudice. The case falls far within the rule adopted by the supreme court. This rule commends itself to our judgment as just and equitable, aud the long line of decisions in that court affirming it has. foreclosed all discussion of the rule itself in the national courts.” We are inclined to adopt the views expressed by that court upon this subject. But, while arriving at the same result, we prefer to place our opinion upon another ground.
It will be observed that Article 13, § 5, of our constitution provides that “any city, * * . * school district or any other subdivision incurring indebtedness shall at or before the time of so doing provide for the collection of an annul tax sufficient to pay the interest and also the principal thereof when due.” This provision is mandatory and self-executing. “It supplies a sufficient rule by means of which * * * the duty may be enforced.” Cooley, Const. Lim. (5th Ed.) 100; City of East St. Louis v. People, 124 Ill. 655, 17 N. E 447. No supplement al legislation is necessary in order to make it effectual. Every debt legally authorized, therefore, thereafter incurred by any of the public corporations mentioned in the section, carries with it the obligation of the corporation to levy and collect the necessary taxes required for its payment. This section of our constitution is substantially a copy of a portion of Article 9, 12, of the constitution of the State of Illinois, adopted in 1870. The portion of that section referred to reads as follows: “Any county, city, school district or other municipal corporation incurring any indebtedness as aforesaid shall, before or at the time of doing so, provide for the collection of a direct annual *547Lax sufficient to pay the interest on such debt as it falls due and also to pay and discharge the principal thereof within twenty years from the time of contracting the same.” The supreme court of the United States, in East St. Louis v. Amy, 120 U. S. 600, 7 Sup. Ct. 739, 30 L. Ed. 798, in construing that portion of the section, uses the following language: “In this case the constitution limited the power of the legislature of Illinois in respect to the grant of authority to municipal corporations to incur debts, but it declared in express terms that, if a debt was incurred under such authority, the corporation should provide for its payment by the levy and collection of a direct annual tax sufficient for that purpose. Under this provision of the constitution, no municipal corporation could incur a debt without legislative authority, express or implied; but the grant of authority carried with it the constitutional obligation to levy and collect a sufficient annual tax to pay the interest as it matured, and the principal within twenty years. This provision for the tax was written by the constitution into every law passed thereafter by the legislature allowing a debt to be incurred, and, in our opinion, it took the place in existing laws of all provisions for taxation to pay debts thereafter incurred under old authority which were inconsistent with its requirements. It was made by the people a part of the fundamental law of Ihe state that every debt incurred thereafter by a municipal corporation under the authority of law should carry with it the constitutional obligation of the municipality to levy and collect all the necessary taxes required for its pay merit.” It may be remarked, in passing, that this view met the approval of the entire court. The supreme court of the State of Illinois also had the same section of the constitution *548under consideration in City of East, St. Louis v. People, supra. That learned court held that the provision of the constitution now under consideration was self-executing, and quoted frpm the opinion of, and fully approved the construction given that section by the supreme court of the United States. The failure, therefore, of the defendant to provide, before or at the time of issuing the bonds in controversy, for the collection of an annual tax sufficient to pay the interest and principal of the bonds so issued, did not and does not relieve the defendant from the obligation to make the provision provided for in the constitution. At the time the bonds were issued the constitution imposed upon the defendant the obligation to provide for the collection of a tax sufficient to pay the interest and principal when due, and it could not escape that obligation by the failure on its part to make the necessary provision. The constitutional provision we are considering confers no new power upon the corporation to contract debts, but only provides that, when the debt is incurred under the authority of law and a vote of the people, it carries with it the constitutional obligation. The form of the constitutional provision indicates that both the framers of the organic law, and the people who adopted it, intended that a corporation incurring an indebtedness authorized by law should at once assume the obligation to provide for its payment as therein specified. The provisions of our constitution are different from those of many of the states. The state constitution of Texas provides that “no debt shall ever be created by any city unless at the same time provision is made to assess and collect annually a sufficient sum to pay the interest thereon anci create a sinking fund of at least two per cent,” Article 11, § 5, Const. Tex. And again: “But no *549debt for any purpose shall ever be incurred in any manner by any city or county unless provision is made at the time of creating the same for levying and collecting a sufficient tax to pay the interest thereon and provide at least two per cent, as a sinking fund.” Id. § 7. In construing these sections the supreme court of Texas has held, in effect, that these provisions constitute a condition precedent to the creation of the debt, and that the corporation has no authority to create the debt unless this condition is complied with. Citizens’ Bank v. City of Terrell, 14 S. W. 1003. This construction of the pro-’ visions of the constitution in that form is undoubtedly correct, but the cases decided under constitutions having those or similar provisions have no application to the provisions of our constitution, which are mandatory and self-executing. The defendant in this case failed to comply as it should have done with the mandate of the constitution, but its lailure so to do does not have the effect to relieve it from its obligations, and constitutes no defense to an action upon its bonds issued under the authority of law. It is within the power of a court of competent jurisdiction to enforce the obligation, and compel the defendant to collect sufficient taxes to pay the interest and principal when due, regardless of the failure of the defendant to make the provision required by the constitution. City of East St. Louis v. Amy, supra; City of East St. Louis v. People, supra. In this view of the constitutional provisions, the failure of the deiendant to perform the duty imposed upon it by the constitution constitutes no defense. Such a failure on the part of the corporation would, no doubt, detract from the salability of its bonds or other obligations, as the purchaser of such obligations might be required to resort to the courts to *550enforce the constitutional obligation, but that cannot affect the legality of the bonds issued. The views herein expressed lead to the conclusion that the circuit court was clearly in error in overruling the demurrer of the plaintiff to the answer and entering judgment thereon. The judgment of the court below is reversed, and the circuit court is directed to vacate and set aside the order overruling the demurrer, and to enter an order sustaining the same.