Court Opinion

ID: 3572245
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:25:26.072659+00
Date Added: 2024-06-11T07:41:01.308503
License: Public Domain

With the majority view that the bonds here involved are payable in numerical order, notwithstanding an assumed insolvency of the fund securing them, I do not agree. The conclusion that they are so payable rests upon the premise that "it was within the original discretion of the city council either to give these bonds equal and ratable security, or to prefer some over others according to this or some other agreed and specified priority."
I consider the premise an assumption beyond the implications fairly arising from a construction of the statute as a whole. Equal and ratable security is strongly suggested, even if not expressly enjoined, in the very plan exposed by Laws 1923, c. 133 (1929 Comp. § 90-1701). Under this statute, bonds may be issued "in an amount not exceeding the total assessments levied." While it is true the governing body of a town or city is given authority to "fix *Page 367 
the terms and conditions of such bonds," its sphere of action, of course, is circumscribed by implied as well as express restraints in the act. One restraint added by way of a proviso as part of the very sentence conferring authority to fix terms and conditions, reads: "Providing, however, such bonds shall be made payable out of the moneys collected from said assessments."
A special fund is thus created for retirement of the bonds. "Such bonds," meaning each and every one of them, the first as well as the last in numerical order, "shall be made payable out of the moneys collected from said assessments," etc. That the statute fairly reflects this meaning is disclosed by the plan of financing which it authorizes. Assignable certificates of lien in irregular amounts are to be "pooled" or "funded" to support any bond issue authorized. The bonds, in amount, may equal, but cannot exceed, the total assessments levied. If we stop here, can there be any doubt of legislative intent that the bonds so issued shall succeed to the lien of the certificates securing them in equal and ratable proportion? The question, in my opinion, furnishes its own answer. "The bonds succeed to the lien of the original assessment, and the assessments thereafter levied and collected is (are) a `trust fund pledged by law for the payment of the bonds.' Jewell v. City of Superior (C.C.A.) 135 F. 19." Meyers v. City of Idaho Falls, 52 Idaho, 81, 11 P.2d 626, 628.
But the statute furnishes further proof that equal and ratable security was the legislative intent. It provides: "In case the governing body of such municipality shall fail or refuse to cause any lot or parcel of land to be sold for any delinquent assessment or installment thereof or interest thereon, then the holder or holders of any bond or bonds secured by such assessment may foreclose the assessment lien on such delinquent property in the method now provided by statute for the foreclosure of mortgages (on) real estate." 1929 Comp. § 90-1701.
The financial condition of the district, as disclosed by the record before us, ordinarily should furnish a complete defense to an attempt at foreclosure by the holder of the last-numbered bond. Any stranger, if interest be the test of an enforceable right, could as well qualify as a plaintiff in foreclosure. And yet, the statute carries the right of foreclosure, even in a case such as the instant one, to the holder of the very last-numbered bond. In so doing, the Legislature must have considered the holder of every bond, the first as well as the last in numerical order, possessed of such an interest in each and every lien, whether before or after insolvency, that it might profit him to foreclose. Thus the statute again reflects an idea of equal and ratable security. *Page 368 
The opinion of the Supreme Court of Alabama in Howard v. State,226 Ala. 215, 146 So. 414, 419, to my mind, gives a perfect concept of the relationship which the Legislature intended should subsist between the bonds authorized by it and the liens set up as their security. It said: "When the improvements, in respect of which these bonds were issued, were completed, and the assessments made final against all of the benefited property, each holder of one of the 124 bonds issued to pay the cost of such improvements had vested in him a 1/124th interest in the liens given by the statute upon each of the many pieces ofproperty, against which the assessments were levied. * * * Each holder of one bond has a 1/124th vested interest in each, and all of the assessments, and that security cannot be impaired by any statute subsequently enacted impairing that lien." See, also, In re Cranberry Creek Drainage District, 202 Wis. 64, 231 N.W. 588, 85 A.L.R. 242.
In State v. Mills, 133 Wash. 681, 234 P. 1042, 238 P. 581; Johnson v. McGraw, 139 Wash. 139, 245 P. 915; and State v. Walters, 156 Wash. 664, 665, 287 P. 874, the Supreme Court of Washington had before it cases under a statute which itself directed payment of the bonds in numerical order. The same is true of Straus v. Ketchen (Idaho) 28 P.2d 824, and O'Donnell v. Cullen (10th C.C.A., April 10, 1935) 76 F.2d 955. I do not for a moment question the power of the Legislature either itself to direct payment in numerical order, or to empower the governing body of a municipality so to do. What I do question is our right by construction to read such authorization into the language empowering the governing body to fix terms and conditions of the bonds in the face of strong implications of the statute that equal and ratable security was intended.
In Meyers v. City of Idaho Falls, supra, the Supreme Court of Idaho construed two statutes which governed the bond issue involved. One carried the equality clause, the other the provision for payment in numerical order. All of the bonds were issued and matured on the same date. The court was of opinion that under such circumstances the equality clause would be implied in the absence of an express prohibition in the act. It said:
"Under the acts which we are considering, the bonds are all issued on the same date and they mature on the same date. Theequality clause would under such circumstances apply in theabsence of an express prohibition, and, being expressly enacted in the same act, it would be a broad assumption to say that by mere numbering this claim is rendered entirely nugatory." (Italics mine).
So here, the same conditions prevailing, the statute certainly not expressly *Page 369 
prohibiting equality, but on the contrary rather strongly suggesting it, I must find clearer manifestation of legislative intent that a governing body has power to deny it than the mere bestowal of a general power to fix terms and conditions of the bonds. The power in a subordinate governing body to displace an equality of security otherwise obviously arising as plain implications of the statute under which it derives its authority to act at all, is a broad one. It should not rest on doubtful inference, and, on the contrary, should have the support of implications so strong as to render any other deduction almost inescapable.
Of course, we all agree that the governing body is restrained in its power to fix terms and conditions, not alone by express limitations in the act, but as well by those plainly to be implied. And any purchaser is charged with knowledge of such limitations on its power.
Then what is the effect of the ordinance provision for payment in numerical order? Possibly the city council intended it to be mandatory and to affect the equality of security otherwise obtaining. But so to construe it renders it void as going beyond the statute under the view entertained by me. On the other hand, if considered no more than provision for an orderly method for retirement of the bonds, effective and operative until recognized insolvency appears, it takes on a directory character, and is not ultra vires the powers conferred by the act under which the governing body moved.
Whatever the actual intent present in the minds of members of the governing body in writing section 10 of the ordinance in question, I believe it should be given effect only within the limits of express or implied statutory restrictions. So construed, I consider it directory only. We then have a situation almost identical with that disclosed in Meyers v. City of Idaho Falls, supra, and calling for a like conclusion.
State v. Little River Drainage District, 334 Mo. 753,68 S.W.2d 671, 674, involved drainage district bonds. There was no inexhaustible fund, since the tax could not exceed the benefit assessments, and the act was held clearly to contemplate that as bonds and interest coupons matured they should be paid in full out of moneys collected. Among other things, the court said:
"* * * The bonds are payable solely out of special taxes levied against benefit assessments initially charged on the various tracts of land in the district, and as to each tract the tax cannot exceed the benefit assessment standing thereagainst. If the tax returns within these limits are and will be insufficient to pay all bonds and interest in full, the district is in legal effect insolvent. *Page 370 
"Second, though the limitations imposed by the article on the taxing power of the district are such as may reduce it to a state of insolvency, nevertheless the statute makes no provision for preference or priority between bonds or bondholders, but, on the contrary, pledges the taxes collected to the payment of all the bonds sold, with interest."
So in the case at bar does the statute pledge the taxes to the payment of all the bonds. Nor does our statute, any more than does the Missouri statute, make "provision for preference or priority between bonds or bondholders." The decisive question is: Does it authorize the governing body to do so? In my opinion, it does not. In the case just quoted from, the court further said:
"Considering together the three groups of provisions reviewed in the preceding paragraphs, we are clearly of the opinion that performance of the requirements of section 10788 [Mo. St. Ann. § 10788, p. 3515] with reference to the payment in full of bonds and coupons as they mature is contingent on whether the drainage district is solvent — or, in other words, on whether there are and will be, so far as appears, sufficient tax revenues to pay all bonds and coupons in full. The section assumes the solvency of the district and on that basis provides for disbursements from time to time out of the bond fund to pay matured bonds and interest; and the fund is replenished by successive subsequent tax installments paid in. To that extent matured and next maturing bonds and interest have a prior claim on the fund at any given time. But that does not mean the fund is not held in trust for the benefit of all the bonds. The matured bonds are entitled to be paid in full because those of later maturity in their turn will be. * * *
"The very reasons which require the payment in full of bonds and coupons of the drainage district as they come due, so long as the district is solvent, would require that they be paid only ratably if the district becomes insolvent. By no other means can all the provisions of the article be harmonized and the parity of claim of all the bonds enforced."
Again, in State v. Duncan, 334 Mo. 733, 68 S.W.2d 679, 683, the same court, dealing with the Missouri drainage acts, said:
"* * * All matured bonds should share ratably in the fund as it stands and likewise in replenishments thereof. In that way all will be paid in full without discrimination or chance of miscarriage, receiving interest to the date of payment if the bonds so provide.
"The statute gives them no rights beyond that. It contemplates, of course, that all bonds, and therefore each particular bond, shall be paid in full, but above that it requires equality." *Page 371 
Although entertaining a different view from the majority upon the effect to be given the provision for payment of the bonds in numerical order, as a part of the contract, this divergence of opinion does not affect my conclusion that the judgment of the trial court is correct. I therefore concur in its affirmance.