Citizens' Bank v. City of Terrell

• Decision Date: 05 December 1890
• Citation: 14 S.W. 1003
• Parties: CITIZENS' BANK v. CITY OF TERRELL.
• Court: Texas Supreme Court

14 S.W. 1003

CITIZENS' BANK v. CITY OF TERRELL.

Supreme Court of Texas.

December 5, 1890.

Appeal from district court, Kaufman county; ANSON RAINEY, Judge.

John Vesey and Wm. H. Allen, for appellant. J. O. Terrell and Word & Charlton, for appellee.

HENRY, J.

Appellant instituted this suit in the county court, from which it was transferred to the district court, to recover upon six coupon notes for $70 each, charged to have been executed by appellee, a municipal corporation, under the general laws of this state, having a population of less than 10,000 inhabitants. The defendant pleaded its want of authority, under the constitution and laws of this state, to execute the obligation. The cause was tried by the court, without a jury, and judgment was rendered for the defendant. The facts, as found by the court, are as follows: The city, through its council, on the 12th day of December, 1883, authorized the issuance of its bonds for the sum of $28,000, in sums of $1,000 each, to run 50 years, and bearing interest at the rate of 7 per cent. per annum, to provide for the payment of the cost of constructing a system of water-works for the city. It, at the same time, passed an ordinance levying a tax of one-fourth of 1 per cent. upon the taxable property within the city, and appropriating one-tenth of the tax (one-fourth of 1 per cent.) annually levied to defray the current expenses of the city, and also appropriated the net revenues arising from the water-works, to be constructed, after paying all expenses for the necessary repairs and the operation thereof, for the purpose of creating a fund for the payment of the interest upon the bonds, and providing a sinking fund of 2 per cent. upon the principal of the debt, Afterwards, on the 25th day of June, 1884, the city council passed another ordinance, directing the city secretary to erase the words "twenty-eight" in the ordinance of the 12th of December, and insert in the ordinance, in lieu of the erased words, the words "thirty-five," which was never done. The taxable values of the city, at the date of the issuance of the bonds, did not exceed the sum of $909,000. In pursuance of the two ordinances, there were issued 35 water-works bonds, dated the 1st day of May, 1884, all of the denomination of $1,000, running for 50 years, bearing 7 per cent. interest per annum, payable annually. These bonds were registered in the office of the state comptroller on the 7th day of July, 1884, and were all negotiated by the city, and are still outstanding. The coupons now sued upon are payable to bearer, and represent bonds numbered 1, 7, 13, 19, 25, and 31. It was agreed that the assessed value of taxable property within the city was $749,363, for the year 1883, and was $908,976 for the year 1884. The court concluded that the ordinance of the 25th day of June was a nullity, and that the coupon representing the interest on bond No. 31 was therefore void. Also that the city had no power, under its charter, to issue the 35 bonds, without providing a sufficient fund to pay the annual interest, and provide a 2 per cent. sinking fund on the principal, and that, on account of its failure to so provide, all of the coupons sued upon are void. Judgment was rendered for the defendant.

The constitutional provisions in force when the ordinance of the 12th day of December, 1883, was adopted, are as follows: "No county, city, or town shall levy more than twenty-five cents for city or county purposes, and not to exceed fifteen cents for roads and bridges, on the one hundred dollars valuation, except for the payment of debts incurred prior to the adoption of this amendment, and for the erection of public buildings, street, sewer, and other permanent improvements, not to exceed twenty-five cents on the hundred dollars valuation in any one year, and except as is in this constitution otherwise provided." Article 8, § 9. "Cities and towns having a population of ten thousand inhabitants, or less, may be chartered alone by general law. They may levy, assess, and collect an annual tax to defray the current expenses of their local government, but such tax shall never exceed, for any one year, one-fourth of one per cent., and shall be collectible only in current money." Article 11, § 4. "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 create a sinking fund of at least two per cent. thereon." Id. § 5. And again: "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." Id. § 7. A city cannot create a debt, unless the power to do so is either expressly or impliedly conferred upon it by law. If the law prohibits the creation of a debt for any purpose, then no attempt to create one would have any force. If the law permits the creation of debts for specified purposes only, an attempt to create one, for a purpose not specified, would be without validity. If the law authorizes the creation of debt for a specified purpose, but limits the amount and prescribes the manner of creating such debt, any attempt to create one greater than the amount specified, or without substantially observing the regulations prescribed, would be equally without force. When the law makes the existence of the power to issue bonds depend upon the existence of a given state of facts, which depend for proof of their existence upon parol evidence, and appoints a tribunal to ascertain the facts and to create the debt and issue negotiable bonds, if it finds that the required facts exist, and the bonds are issued and contain recitals that the facts existed that conferred authority to issue them, and such negotiable bonds go into the hands of bona fide holders, they are collectible, notwithstanding the non-existence of the facts required to confer the authority to issue them. In such cases, the validity of the bonds does not exist in disregard or violation of the law, but because the ascertainment of the facts that confer the power has been delegated to the body that issues them, and its ascertainment of the facts is held to be conclusive in favor of the innocent holders of the negotiable securities, against which no evidence will be heard. But when the authority to create a debt at all, or beyond a given amount, is made to depend upon evidence furnished by official records, the same rule, with regard to recitals contained in bonds given for the debt, should not be applied. Every holder of such bonds is charged with knowledge of all provisions of law relating to their issuance, and, if the law points to records as evidence of the existence of the facts required to authorize their issuance, or to limit the amount of the debt that the city may create, such records, and not the recitals in the bonds, must be looked to by everybody who proposes to deal in the bonds. While our constitution authorizes the creation of a debt, and the issuance of its negotiable bonds, by the defendant city, to provide for constructing water-works, its mandate is imperative that no such debt shall be created without making provision, at the time of its creation, to assess and collect annually a sufficient sum to pay the interest thereon, and create a sinking fund of at least 2 per cent. on the principal. Until that is done, the debt is...