Court Opinion

ID: 5002668
Source: CourtListenerOpinion
Date Created: 2021-10-01 01:34:13.421991+00
Date Added: 2024-06-11T08:17:09.497829
License: Public Domain

CRITZ, J.
As shown by our original opinion, 36 S.W. (2d) 470, this is an original mandamus proceeding filed by the city of Fort Worth, ,a city duly and legally incorporated .under and by virtue of the Constitution and laws of this state, with a population of more than 5,000, and operating under a special charter as a home rule city, against the Attorney General of Texas. As originally filed, the petition sought a Mandamus to compel the Attorney General to approve certain “special improvement bonds or certificates,” issued by the city under the provisions of chapter 43, p. 82, General Laws, 4th Called Session, 41st Legislature, 1930. The Attorney General declined to approve such bonds, contending that the act above mentioned was unconstitutional and void in several particulars.
In our original opinion, we sustained the contentions' of the Attorney General to the effect that the above act was unconstitutional and void because in contravention of section 56 of article 3 of our State Constitution; in that said original act sought to regulate the affairs of a city by a local law. This holding settled the case in . its then status, and we did not pass on the other constitutional objections made by the Attorney General.
After the original opinion herein was adopted by the Supreme Court, and after the judgment therein recommended was entered, and prior to the filing of the instant motion for rehearing, the Legislature of Texas, convened in its 42d Regular Session, passed a new law which is H. B. No. 882, and which became effective March 27, 1931 (Sp. Laws 1931, c. 74 [Vernon’s Ann. Civ. St. art. 835d]). The provisions of the new law are substantially identical with those of the old law in so far as the issuance of “special improvement bonds or certificates are concerned.” The new law, however, is made applicable to “Cities in the State of Texas, having a population of more than 100,000 inhabitants according to the last preceding United States census.”
It is admitted that Fort Worth has a population of more than 100,000, as shown by the 1930 census. .
From the statement we'have made, it is evident that the new law is not subject to the objection that it is a local or special law in violation of section 56, of article 3 of our State Constitution, as was the old law.
Also, the new law contains the following-validating provision: “Sec. 9. All proceedings heretofore had by any city acting under the provisions of Chapter 43, passed by the 4th Called Session of the 41st Legislature, are hereby expressly validated. All ordinances and resolutions passed by the governing boards of said cities in reference to accepting the powers and assuming the duties permitted and prescribed under said law, and all resolutions and ordinances pledging and impounding special assessment certificates thereunder, authorizing the issuance of special improvement bonds and assuming the statutory duties imposed under said law, and all actions of said city officials in executing special improvement bonds thereunder and in performing all other acts under said law, are hereby legalized and validated.” (Vernon’s Ann. Civ. St. art. 835d, § 9).
For the purpose of this opinion, we shall assume that the above validating provision has effect to validate the bonds issued under the old law, if such bonds would be valid had they been issued .under the new law.
After the passage of the new law, the Attorney General again refused to approve the bonds in question here, contending that the new law is unconstitutional and void because in contravention of sections 5 and 7 of article 11 of our State Constitution. This same *230objection was originally made by tlie Attorney General while approval was sought under the old law, but was not passed on by us, for the reason that the matter we did pass on settled the cause as it then stood.
' The matter to be first considered is one of procedure. The Supreme Court granted permission to file petition for mandamus under the old law. The city is now seeking relief under the new law by way of a motion for rehearing. Ordinarily under such circumstances the commission would be inclined to the view that a new petition for mandamus and a new permission to file should be required; but inasmuch as the same constitutional objections to the new law were involved while the application was pending under the old law, and inasmuch as the same relief is sought under the now law that was sought under the old law, we shall proceed to determine the validity of the new law.
As above stated, the Attorney General refuses to approve the bonds in question, under the new law, and contends that the new law is unconstitutional and void as was the old law, because in violation of sections 5 and 7 of article 11 of our State Constitution. These sections read as follows:
“See. 5. Cities having more than five thousand (5000) inhabitants may, by a majority vote of the qualified voters of said city, at an election held for that purpose, adopt or amend their charters, subject to such limitations as may be prescribed by the Legislature, and providing that no charter or any ordinance passed under said charter shall contain any provision inconsistent with the •Constitution of the State, or of the general, laws enacted by the Legislature of this State; said cities may levy, assess and collect such taxes as may be authorized by law or by their charters; but no tax for any purpose shall ever be lawful for any one year, which shall exceed two and one-half per cent, of the taxable property of such city, and no debt shall ever be created by any city, unless at the same time provision be made to assess and collect annually a sufficient sum to pay the interest thereon and creating a sinking fund of at least two per cent, thereon; and providing further, that no city charter shall be altered, amended or repealed oftener than every two years.”
“Sec. 7. All counties and cities bordering on the coast of the Gulf of Mexico are hereby authorized upon a vote of t\Vo-thirds of the taxpayers therein (to be ascertained as may be provided by law), to levy and collect such tax for construction of seawalls, breakwaters or sanitary purposes, as may be authorized by law, and may create a debt for such works and issue bonds in evidence thereof. But no debt 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; and the condemnation of the right of way for the erection of such works shall be fully provided for.”
A reading of the entire act under investigation, discloses the following:
(a) By the provisions of section 2, the city, when it desires to improve its streets in such a way that a part of the costs shall be paid by the owners of benefited property, and in such a way that assessment certificate or mechanic lien agreements are authorized or required, is given the right to acquire such certificates and mechanic liens. The city is then given the right to impound such certificates and liens in the hands of the city treasurer or a trustee, and based upon such impounded certificates or liens the city may issue “special improvement bonds or certificates” in an amount not exceeding 90 per cent, of the aggregate amount of the certificates or liens impounded, such “special improvement bonds or certificates” to mature serially or otherwise within 15 years from their date. This section contains other provisions not necessary to mention here.
(b) By the provisions of section 3 of the act, the city is given the right to use any funds of the city which may lawfully be devoted to the purpose in acquiring the certificates and liens in question, and it is provided that the proceeds from the sale of the special improvement bonds may be'used to reimburse 'the city for the funds used in purchasing the certificates and liens, and the city is authorized to use the proceeds of the sale of such bonds in acquiring the certificates and liens in the first instance.
(e) By the provisions of section 4 of the act it is stipulated that the improvement bonds issued under the provisions of the act shall never be reckoned in determining charter, constitutional, or statutory limitations imposed upon such city restricting its power to issue bonds for any purpose. It is also provided in this section that the issuance of such bonds shall not constitute the incurring or creating of any indebtedness as contemplated by sections 5 and 7 of article 11 of the Constitution of Texas. This section contains other provisions not necessary to mention here.
(d) By the provisions of section 5 of the act certain duties are imposed upon the city. We deem it expedient to copy in full subdivisions (a) and (b) of such section. These subdivisions read as follows:
“(a) In event there shall not be funds on. hand, realized from the collection of said assessment certificates and interest thereon, sufficient to pay the principal and/or interest of said special improvement bonds, or any of them, as and when the principal and/or interest of said special improvement bonds ma*231tures and accrues, it shall then be the duty of such city to deposit in said pledged or impounded fund an amount sufficient to make good the .deficit, said deposit to be made out of any money then under control of the city, which may lawfully be used at that time for said purpose; and
“(b) In event such city does not in such eventuality have money on hand or under its control available for said purpose, it shall then be the duty of such city at the timé of the occurrence of the deficit to make provision for obtaining the money to make good the deficit. It shall be lawful for the city to be reimbursed to the extent of any such monies which it may have been compelled to advance under the provisions of this Section. Reimbursement may be made out of the revenues from the pledged or impounded assessment certificates, provided that no reimbursement shall ever be made unless and until moneys are on hand in the pledged or impounded fund sufficient to pay the next twelve months’ principal and interest maturing on said bonds.”
(e) Section 6 of the act provides the way and manner in which the bonds and interest coupons shall be signed and registered by the various city officers.
(f) Section 7 provides for the approval of the bonds by the Attorney General, and their registration by the comptroller.
The balance of the act relates to matters not germane to this portion of the opinion.
We think a careful reading of the above act, and especially subdivisions (a) and (b) of section 5 above quoted, will disclose that it is in direct conflict with the constitutional provisions above quoted, in that it creates a debt against the city which may run for 15 years without, at the time of the creation thereof, making provision to assess and collect annually a sufficient sum in taxes to pay such bonds at maturity.
By the plain and simple provisions, of subdivision (a), supra, it is made the absolute duty and obligation of the city to deposit in the pledged fund any deficit that may exist in any future year when the bonds or any interest payment may mature; and, by the plain and simple provisions of subdivision (b), supra, it is made the absolute duty and obligation of the city, in the event it does not have the money on hand to meet the deficit, to make provisions for obtaining the money. Certainly the effect of these provisions is to have the city absolutely guarantee the payment of these bonds, and make them a general debt against the city. The statutory provisions above quoted are just as effective to bind the city to pay these bonds, in the event the impounded fund is insufficient, or for any reason fails, as if the guaranty were directly written into the statute and into the bonds. We think the effect is therefore to create a debt against the city within the meaning of sections 5 and 7 of article 11 of our State Constitution. McNeal v. City of Waco, 89 Tex. 83, 33 S. W. 322, 324; City of Terrell v. Dessaint, 71 Tex. 770, 9 S. W. 593.
In McNeal v. Waco, supra, our Supreme Court, speaking through Judge Denman, defined “debt,” as used in the above constitutional provision, to mean: “We conclude that the word ‘debt,’ as used in the constitutional provisions above quoted, means any pecuniary obligation imposed by contract, except such as were, at the date of the contract, within the lawful and reasonable contemplation of the parties, to be satisfied out of the current revenues for the year, or out of some fund then within the immediate control of the corporation. Corpus Christi v. Woessner, 58 Tex. 465; Terrell v. Dessaint, 71 Tex. 770, 9 S. W. 593; Appeal of City of Erie, 91 Pa. 398; Prince v. City of Quincy, 105 Ill. 138 [44 Am. Rep. 785].”
In the City of Terrell v. Dessaint, supra, the facts as shown by the opinion are as follows: “This suit was brought by appellee as indorsee of a promissory note, of which the following is a copy: ‘$1,000. Two years after date, the city of Terrell promises to pay to P. H. Layne, or order, one thousand dollars, for value received, with interest at 7 per cent, from date. This note is given in payment for material for water-works supplies, and is payable out of the tax of ¼ of one per cent, collected annually for general purposes.’ It is dated May 13, 1885, and is signed by the mayor and secretary pro tern, of the city. At the time of the execution of the note the city had ‘leased or sold’ its water-works to the Texas Gas & Water Company, and the latter had control of the property for a considerable time. The management of the company not being satisfactory, it was agreed that its contract with the city should be rescinded, and that the city should resume the possession and management of the works. As a part of the contract of rescission, the city agreed to purchase of the company certain materials on hand for the extension of the works, and to pay therefor the sum of $2,000. For this sum the city issued warrants or drafts on its treasurer for about $500, and executed two promissory notes; one, that in controversy, and the other for $500, payable 12 months from date.”
The court then proceeds to define the term “debt,” as used in the Constitution, and the powers and limitations of a city in regard thereto, in the following language:
“But it is contended that the promissory note sued upon in this case is not a debt within the meaning of the provisions of the constitution which limit the power of cities to create indebtedness, and of the statutes which regulate,the manner in which such debts shall be evidenced and secured. To state appellee’s* position more specifically, it is claimed that *232the debt in this case was for current expenses, and, being chargeable upon the current expense fund, it does not come within the purview of the provisions of the constitution and statutes to which we have 'referred. It is held in the case previously cited (Corpus Ohristi v. Woessner, supra), that ‘the issue of-warrants on current expenses of a city, which do not exceed the current revenue derived from taxation,’ is not the creation of a debt prohibited by the constitution. We do not doubt the correctness of that ruling. We freely concede that debts for the ordinary running expenses of a city, payable within a year out of the incoming revenues of the year, and with other indebtedness not clearly in excess of the yearly income for general purposes, can be created by a city. But we think that a debt for current expenses, in order to be valid without a compliance with the constitutional and statutory requirements to which we have referred, must run concurrently with the current revenues for such purposes, and that such a debt cannot be created without such compliance, which matures at such a .time as would make it a charge upon the future revenues of the city. It may not be easy to define accurately wbat are the current expenses of a municipality. But we may ask, if a city can create a debt for $1,500 for materials to extend its water-works, and make it payable, with interest, one and two years after date, why may it not create an indebtedness for a larger sum for any public improvement which it has the power to construct, and make it payable at a longer period? It is clear to us that, if this were permitted, the provisions of our constitution and statutes, which limit the power and regulate the manner of the creation of municipal indebtedness, would be entirely nugatory.
■ “It was shown upon the trial that the city had exhausted its powers of creating debts chargeable upon funds to be raised by special taxation when the note sued on was given. It was also shown that at the time, and ever since, the current expenses proper of the city exceeded its revenues for general purposes. We state these facts, not because we -think their statement necessary to a decision of this cause, but because they serve to illustrate the doctrine we assert. If an indebtedness of this character is to be permitted to be created in this manner, of wha-t avail are the provisions of our fundamental and statutory laws, which are intended to protect out cities against the evils of a bankrupt treasury? ”
Certainly the bonds here sought to -be issued are debts, or pecuniary Obligations of the city within the above definitions.
It is contended by the city that no debt is created against the city because the obligation on the part of the city to make good any deficit in the bond fund is only a contingent one. In this connection, it is argued by the city that, since only 90 per cent, of the paving certificates and liens are issued in bonds, the event of the city having tp make good any deficit is very remote. This contention must be overruled. The effect of the law is to obligate the city to provide all-funds necessary to pay the -bonds, and this obligation is absolute and unqualified when the bonds are delivered and the money received therefor.
It is the settled law of this state that a debt created by a city, in order to be valid without compliance with the constitutional requirements to which we have referred, must run concurrently with the current revenues. City of Terrell v. Dessaint, 71 Tex. 770, 9 S. W. 593.
The city contends that under the rule announced in Dallas Electric Co. v. City of Dallas, 23 Tex. Civ. App. 323, 58 S. W. 153 (Writ Ref.), the obligation on the part of the city to make good any deficit which may occur in the fund created by the instant law does not create a debt against the city at the time the bonds are issued, but only amounts to' a contract for a future indebtedness to be incurred if there should exist a deficit in the fund during some subsequent year. We cannot sustain this contention.
In Dallas Electric Co. v. City of Dallas, supra, the Court of Civil Appeals had before it a contract between the city and the electric company, by the terms of which the electric company agreed to furnish the city, for the term of three years, a given number of lights at a stated annual rental not exceeding the amount the city was authorized to collect and appropriate for such purposes each year, and under which contract payment was to be made only on the performance of the services provided for. The Court of Civil Appeals, speaking through Judge Rainey, upheld the validity of this contract on the ground that it did not create a debt within the meaning of the constitutional provisions here under consideration, but was merely a contract to create a future indebtedness. This opinion then cites in its support the opinion of the Supreme Court of the United States in the case of City of Walla Walla v. Walla Walla Water Co., 172 U. S. 19, 19 S. Ct. 85, 43 L. Ed. 349. It must be admitted that the distinction drawn in the above case is somewhat technical and rather close, but, be this as it may, we have no intention of calling it in question.
Clearly the instant law cannot be sustained by the rule in Dallas Electric Co. v. City of Dallas, supra. The debt created by the instant law is evidenced and created by the bonds, and it undoubtedly eojnes into complete existence at the instant the bonds are issued and sold. The effect of the law is to make the bonds an absolute and binding obligation against the city, and to put the general credit of the city behind them. It is true that a fund is created out of which the bonds may possibly be paid, and it may be *233even admitted that the fund will probably pay such bonds, but the effect of the statute is to absolutely bind the city to pay in the event the fund, for any reason, fails. The city receives the full consideration when the contract is made, and the obligation and debt of the city is then complete. There is nothing to be received by the city in the future to be paid for when received, as in the Dallas Electric Co. Case, supra. In such a case, it cannot be said that the bonds merely evidence an obligation to create a debt in the future. The debt is already created, and nothing is to be done in the’future but provide the funds, and pay it.
It seems to be contended by the city that the provisions of section 4 of the act which, in substance, stipulated that the bonds shall not constitute the incurring or creating of an indebtedness against the city within the meaning of sections 5 and 7 of article 11, of our Constitution, render the act free from the criticism that it is in violation of such constitutional provisions. We overrule this contention. It is not within the power of the Legislature to enact a law which, in legal effect, violates the constitutional provisions under discussion, and then avoid the effect of so doing by writing into the law a statement that the law does not do that which, in legal effect, it does do. In other words, the law does actually make the bonds a general debt against the city, and a statement in the law which is absolutely antagonistic to its legal result can have 'no force.
The city contends that the statute here under consideration, and the bonds here sought to be approved, are valid and constitutional under the rule announced in City of Corpus Christi v. Woessner, 58 Tex. 462. We think that case can give no comfort to the relator here. In the Corpus Christi Case the warrants were issued in payment of debts of the city, which were legal and valid when incurred, and which debts were payable out of the revenues of the city for the current year, but the city wrongfully diverted part of its current year’s funds and left these lawful obligations unpaid. Of course this court held that the city could be compelled to pay such debt, lawful when created, out of the revenues of subsequent years, and could make a valid contract to do so.
The city contends that under the rule announced in Sowell v. Griffith (Tex. Com. App.) 294 S. W. 521, and City of Laredo v. Frishmuth (Tex. Civ. App.) 196 S. W. 190, these bonds should be approved. We think neither of these cases is authority to sustain these bonds or this law.
In Sowell v. Griffith, supra, it is shown that the contract was between the board of water commissioners of the city of Cleburne, Tex., on the one hand, and A. M. Lockett & Co., a private corporation, on the other. The action was to restrain the execution and per-formalice of a contract between such parties. In its final form, the contract amounted to an agreement between the parties, by the terms of which Lockett & Co. sold to the iboard of water commissioners certain machinery at an agreed price. The board agreed' to pay for this machinery in installments,some of which matured subsequent to the current year. No tax was levied to meet the in-: stallments falling due for subsequent years. The board pledged the net receipts of the water plant as security for the debt. Also Lock-' ett & Co. retained a lien on the machinery' which was registered as chattel mortgage/ Under the charter of the city, the manage-' ment of the water plant was placed in the' board of water commissioners and both the statute and the charter of the city provided for the pledging of the receipts and revenues of the waterworks for debts incurred for bet-terments and extensions. Also the contract in question made no attempt to bind the city, except as to the lien on the machinery purchased and the net receipts of the waterworks. This section of the commission, speaking through Judge Bishop, upheld the above contract, purely on the theory that it created no obligation or debt on the part of the city which had to be paid out of the revenues derived from taxation, but only an obligation to apply the pledged fund derived from the revenues of the waterworks. The opinion clearly holds that the contract could not create a debt against the city, other than the duty to apply the net income of the water works to the payment thereof.
In the case at bar, we have a very different condition from that in Sowell v. Griffith, because here the statute under consideration-makes the city the absolute guarantor of the instant bonds. Had the contract in Sowell v. Griffith attempted to bind the city beyond the current year for any sum owing on the contract beyond the amount the net receipts of the waterworks would pay, such contract would have been invalid without a tax levy as provided by the Constitution. The holding in the Sowell Case was correct, and meets our approval.
City of Laredo v. Frishmuth, supra, is no authority to sustain these bonds. In that case, the city of Laredo issued $75,000 in bonds by a vote of the people. The bonds were secured by a tax levy of one per cent, on the $100 valuation of taxable property in the city, and by setting apart the money arising from the sale of certain lots owned by the city, the rents and revenues arising from the city hall and market house, and the fines 'ancl forfeitures to be collected by the city. It is further shown that these securities amounted in value to several times the amount of the bonds, and that the city did actually derive such amount therefrom. In such a case, the Court of Civil Appeals upheld the contract, and the liability of the city thereon. Certain*234ly tlie city, haying bound itself no further than the pledged fund, was legally liable to apply such funds to the purposes it had contracted to apply them to, and, having failed to do so, was liable for default in payment, of the bonds. Also in the Uaredo Case a tax was levied, which, together with the pledged funds, was more than sufficient to pay the bonds.
Finally we come to consider whether there is a tax levy to pay these bonds within the meaning of the constitutional provision under consideration. After a careful study of the act itself and the constitutional provisions under investigation, we have reached the conclusion that there is no tax, within the meaning of the constitutional provision under consideration levied to pay these bonds. In the first place, the act itself provides for impounding both paving certificates and mechanic lien agreements. In other words, the bonds issued under the statute may, according to its express provisions, be entirely based on mechanic lien agreements which do not represent, in any sense of the word, a property tax, but merely a private contract lien and obligation.
However, if the law only provided for impounding paving certificates which are only secured by paving assessments and liens created strictly under the paving laws, an assessment of costs against an abutting property owner, which assessment is a tax in a certain sense of the word, would not be a tax within the meaning of sections 5 and 7 of article 11 of our State Constitution, because the tax levy made to pay the paving assessment is by its very nature, and as a matter of law, only a tax lien and charge against each particular piece of abutting property and its owner to pay the costs assessed against that particular piece of property. 44 C. J. p. 1131, § 4064.
We quote the rule as announced in 44 C. J.:
“Except in some jurisdictions, the fact that a municipality has passed beyond its debt limit does not prevent it from contracting a debt payable expressly out of a special fund. The rule is applicable to a debt payable out of a fund derived from the income and revenue of a light or waterworks plant or other .public utility constructed or purchased by the municipality, unless in addition to the revenue, the property itself is mortgaged to secure payment of the indebtedness. A municipality may, without increasing its indebtedness within the meaning of constitutional limitations, contract an indebtedness payable out of the proceeds of a special assessment, provided, at the time of the making of the contract, no liability on the part of the city, other than to pay over the assessment when collected, is created.
“Where an assessment to pay for an improvement is made against the municipality for benefits received, the question whether the liability of the city for the amount of such assessment comes within a constitution-’ al debt limitation depends upon whether the assessment is to be paid by general taxation, including taxation of personal property, or whether the assessment is made only upon abutting real property owned by the municipality, the limitation being applicable in the former case, but not in the latter.”
We recommend that the mandamus be in all things refused.