Bankers Life Co. v. City of Emmetsburg
| Decision Date | 15 March 1938 |
| Docket Number | 44005. |
| Citation | 278 N.W. 311,224 Iowa 1287 |
| Parties | BANKERS LIFE CO. v. CITY OF EMMETSBURG. |
| Court | Iowa Supreme Court |
Appeal from District Court, Palo Alto County; George A. Heald Judge.
Suit in equity to recover from defendant city upon refunding street improvement bonds and refunding sewer bonds. From a judgment in favor of plaintiff for the full amount of the bonds, the defendant city has appealed.
Reversed with instruction.
Stipp, Perry, Bannister & Starzinger, of Des Moines, and G. L. Carmichael, Dwight G. McCarty, and E. F. Nefstead, all of Emmetsburg, for appellant.
Carr, Cox, Evans & Riley and W. L. Hassett, all of Des Moines, for appellee.
During the years 1915 to 1920, defendant city issued $378,752.61 of street improvement bonds, and $62,552.16 of sewer bonds. Of all these issues there remained outstanding on October 10, 1925, bonds in the principal sum of $115,500. During February and March of 1925, House File 73, being chapter 115 of the Acts of the 41st General Assembly, prescribing a method for the refunding of bonds of the character of those above mentioned, was enacted and published. The provisions of this act as now found in chapter 311 of Code of 1935, are sections 6126-al to 6126-a6, inclusive.
In the summer of 1925, one W. H. Bailey, an attorney residing in Iowa City, journeyed to Emmetsburg to interview the mayor and city council of defendant city. In the interview he informed these officials of the enactment of House File 73, and suggested that the $115,500 of outstanding bonds be refunded. He made proposals that he, Bailey, be employed to furnish the legal services and to serve as the city's legal adviser, and to do certain other things in connection with such refunding, for a compensation to be paid Bailey in an amount equal to 1 1/2 per cent of the refunding bonds that might be issued. A written contract with the city embodying these proposals was procured by Bailey. It is also in the record that before he appeared in Emmetsburg there had been negotiations between Bailey and a bonding house, known as Becktel & Co., with reference to the possible issuance of refunding bonds by defendant to pay off and take up the outstanding bonds. All that we find in the record respecting these negotiations is Bailey's testimony that Becktel & Co. undertook to have these outstanding bonds on hand for surrender upon issuance of the refunding bonds. Pursuant to the contract between the city and Bailey, the latter gathered data and prepared forms of resolutions and of the refunding bonds to be issued. Following these preparations, and on October 10, 1925, there were issued by the city $90,000 of refunding bonds to pay off and take up bonds issued in payment for street improvements, and $10,000 of refunding bonds to pay off and take up bonds issued in payment for sewers. From the Carlton D. Beh Company there was received for these refunding bonds the sum of $100,000 and a small amount of accumulated interest. Also, as a part of this refunding operation the city contributed $15,445.98 toward paying off the $115,500 of old bonds. This contributed sum was not derived from any assessments for the costs of the street improvements or sewers but from funds that were not available for payment of the original or the refunding bonds excepting as the city voluntarily made them so. There was also in the hands of the county treasurer at the time of the refunding the sum of $6,247.57 which had been collected upon special assessments supporting the original bond issue, and this money came into the fund for liquidating old bonds at about the time of the refunding. An auditing of the books of the county treasurer resulted in an additional sum of $6,527.93 being paid into the fund in 1927. From these various sources the outstanding bonds of $115,500 were fully paid. With respect to the original bonds there was no shortage in the refunding operation.
Plaintiff, being owner of $64,000 of the $90,000 of street improvement refunding bonds and of $2,500 of the $10,000 of sewer refunding bonds, brought this suit in equity, alleging that its bonds were due and unpaid, and that defendant city by issuance of the refunding bonds became a trustee charged with certain duties for the benefit of the bondholders. The petition sets out various alleged derelictions of such alleged duties, and prays that defendant be required to account as trustee for its acts and doings in the assessment and collection of the special taxes levied for the purpose of paying the costs of construction of the respective improvements in the street improvement and sewer districts, and for all its acts and doings in the preserving of the liens of the respective assessments, and for all its acts with regard to the collection, distribution and disposition of all assessment funds, and that upon such accounting plaintiff have judgment against defendant city for full amount of plaintiff's bonds, with interest, and such further relief as may be just and equitable. Defendant filed answer, denying that the city had failed in performing any duty in respect to the bonds. The answer also contained a detailed accounting of the collection and disbursement of the special assessment that supported the refunding bonds. The case was tried on its merits. The district court found that defendant either made an excessive assessment, or was grossly negligent in permitting the assessed property to be sold at a very small percentage of the assessments levied against various lots, and entered judgment against the city for $74,993.75, being the entire amount due at the time of the judgment upon plaintiff's bonds. Therefrom defendant city has appealed.
The refunding bonds were not general obligations of defendant city. On the contrary, the statutes at all times provided that these bonds were payable out of the funds derived from the special taxes and interest thereon collected upon the special assessments pledged to their payment, section 6121, Code 1924. Section 6126-a5, Code 1935. Such bonds did not make the city liable in any way, except for the proper application of said special taxes. Section 6123, Code 1924, section 6126-a6, Code 1935. Nor does plaintiff claim that it was within the powers of defendant city to issue these refunding bonds as its general obligations. What plaintiff does point out is that section 6126-a2, Code 1935, provides that refunding bonds shall substantially conform to the provisions of chapter 311 of the Code, and that section 6114, found in that chapter, provides that: " Said bonds * * * shall be substantially in the following form, but subject to changes that will conform them to the resolution of the council." The " following form" referred to in foregoing quotation is set out in section 6114. Plaintiff further points out that in this form the Legislature has included a paragraph which, when appearing in a bond, amounts to a certificate and recital by the city issuing the bond with respect to certain matters. In each bond held by plaintiff is found what appears to be a substantial compliance with the certificate and recital contemplated in section 6114; the following being the language used: " And it is Hereby Certified: That all the acts, conditions and things required to be done precedent to and in the issuing of this series of bonds, have been done, happened and been performed in regular and due form as required by law and resolution; and for the assessment, collection and payment hereon of said special tax, the full faith and diligence of the City of Emmetsburg, Iowa, are hereby irrevocably pledged."
It is because matters stated in such certificates in plaintiff's bonds were allegedly not true and correct in fact, and because the city allegedly failed to exercise the full faith and diligence that was pledged in such certificates, that the plaintiff now makes claim that it is entitled to a judgment against the city for the full amount of its bonds. The defendant's alleged delinquencies with respect to the contents of the certificates we proceed to consider.
The certificates in the bonds state in substance that all the acts and things required to be done precedent to and in the issuing of the bonds had been done in regular and due form as required by law and resolution. Section 6126-a2, Code 1935, provides that the face amount of the refunding bonds shall be limited to the amount of the unpaid special assessments with the interest thereof of the particular issue of bonds sought to be refunded. At the time of issuance of plaintiff's bonds the unpaid special assessments with the interest thereon of the issues of bonds that were being refunded amounted to $104,131.72. Thus the record apparently shows that the amount of the refunding bonds was within the limit fixed by section 6126-a2. But plaintiff says the amount of the bonds did in fact exceed the limitation, because, approximately $28,000 of the unpaid assessments having become delinquent, the county treasurer had failed to enter the amounts of such delinquent special assessments upon the tax lists coming into his hands in the succeeding year or years, as required by section 7193, Code 1924. Plaintiff says that such failure on part of the county treasurer resulted in the lien of these delinquent assessments being lost at the time of the issuance of the refunding bonds, and that consequently the approximate $28,000 of delinquent assessments were not unpaid special assessments within the meaning of section 6126-a2, and that consequently the amount of refunding bonds was in excess of the limitation.
Plaintiff rests its foregoing proposition on the naked fact that the county treasurer failed to bring forward on the tax lists the...
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