City of Georgetown v. Elliott

Decision Date05 April 1938
Docket NumberNo. 4267.,4267.
Citation95 F.2d 774
PartiesCITY OF GEORGETOWN v. ELLIOTT et al.
CourtU.S. Court of Appeals — Fourth Circuit

Capers G. Barr, of Georgetown, S. C., and Robert McC. Figg, Jr., of Charleston, S. C., for appellant.

E. W. Mullins, of Columbia, S. C. (Nelson, Mullins & Grier, of Columbia, S. C., on the brief), for appellees.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

PARKER, Circuit Judge.

This is an appeal from a judgment for plaintiffs on a note for $8,000 issued by the City of Georgetown, S. C. The complaint alleges that the note was duly issued by the city and that the bank of which plaintiffs are receivers purchased it for value and in good faith before maturity and became a holder thereof in due course. The note, which is set forth in full in the complaint and contains a general promise to pay on the part of the city, is dated September 15, 1931, and recites that it was issued for money borrowed for corporate purposes in anticipation of municipal taxes for the current year, pursuant to section 7 of article 8 of the Constitution of South Carolina and section 4554 of the Code of Laws of South Carolina of 1922 (Civil Code). There is no allegation of collection of taxes for 1931 by the city or of their availability for the payment of the note; and both by demurrer and answer the point was made that it was not a general obligation of the city, but was payable only out of taxes for that year. Only one question is presented by the appeal, viz., whether such a note creates a valid indebtedness on the part of the city for which a general judgment may be rendered, in the absence of allegation and proof that taxes available for its payment have been collected from the levy of the year in which it was issued. We think that this question must be answered in the affirmative.

If the statute under which the note was issued be considered without reference to constitutional restrictions, there can be no question but that it authorizes the creation of a general obligation on the part of the city by the issuance of tax anticipation notes. The pertinent part of that statute, Civ.Code S.C. 1922, § 4554, is as follows: "That in the anticipation of the collection of taxes in any fiscal year said City or Town Council, whether such city or town be chartered by special Act of the General Assembly or under the general law, may from time to time, as occasion may require, borrow money for corporate purposes on its note or notes, and pledge the taxes levied, or to be levied, in said year for corporate purposes, for the payment of such note or notes and the discount or interest thereon, and such note or notes it is hereby authorized to discount generally, if desired, without responsibility to the person or corporation advancing money on said security, to see to the application of the funds realized thereon."

And we do not think that any different conclusion is required when the limitations of the State Constitution are taken into account. Article 8, § 7, of that instrument, which is the one relied on, after limiting the bonded debt of municipalities to 8 per cent. of the assessed value of their taxable property and requiring an election as a prerequisite to the creation of such debt, contains the following proviso: "Provided, That this Section shall not be construed to prevent the issuing of certificates of indebtedness in anticipation of the collection of taxes for amounts actually contained or to be contained in the taxes for the year when such certificates are issued and payable out of such taxes."

The city would have us construe this proviso as forbidding the issuance of any sort of obligation in anticipation of taxes except nonnegotiable certificates payable only out of tax collections for the year. This would be to read into the proviso language which it does not contain and to establish a limitation on municipal borrowing in anticipation of tax collections which, in our opinion, would be utterly unreasonable and which would result in making it practically impossible for municipalities in South Carolina to borrow money for carrying on the most necessary municipal activities pending the collection of their taxes. As was well said by the late Judge Ernest F. Cochran in Citizens & Southern National Bank of Savannah v. The City of Florence (an unreported decision of the District Court for the Eastern District of South Carolina): "It is argued, however, that tax anticipation notes must be payable out of the taxes pledged, and if for any reason these taxes fail or are dissipated, the holder of the note can collect nothing from the city. I cannot accede to this proposition. The framers of the Constitution, when they permitted tax anticipation notes, must be deemed to have known something of the practical effect that such a construction of the law would have upon the credit of the city. The holders of these notes are not responsible for the action of the city authorities in taking the taxes which were pledged for the notes and using them for other corporate purposes. This the holders of the notes could not prevent, nor were they required to stand guard over the collections and insist as each collection came in on its being applied to their notes. That would be utterly impracticable. The city authorities are not their agents, but the agents of the people of Florence. They had a right to assume that the city officials would not unlawfully divert these pledged taxes. To hold that because the city officials have taken the pledged taxes and used them for other corporate purposes, the city thereby escapes liability, would render these tax anticipation notes unsalable. No business man would lend money on such notes."

Article 8, § 7, of the Constitution was intended as a limitation upon the power of the municipality to create a debt by the issuance of bonds, not as a limitation upon the power to borrow money for short periods in anticipation of the collection of taxes; and it has been expressly held by the Supreme Court of South Carolina that obligations "secured by the pledge of a fund which might reasonably be expected to be sufficient to meet the obligations without...

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3 cases
  • City of Florence v. Anderson
    • United States
    • U.S. Court of Appeals — Fourth Circuit
    • April 5, 1938
    ...year. This is the same question which we have just decided contrary to the contention of the city in the case of City of Georgetown v. Elliott et al., 4 Cir., 95 F. 2d 774; and in accordance with our decision there we hold that the notes, which are in form negotiable municipal obligations, ......
  • Wakem v. Inhabitants of Town of van Buren
    • United States
    • Maine Supreme Court
    • October 24, 1940
    ...temporary loans will become invalid if not so paid, and we cannot read such a provision into the constitution. See City of Georgetown v. Elliott et al, 4 Cir., 95 F.2d 774. Moreover, to do so would be to seriously impair, if not utterly defeat the purpose of the proviso. A right to borrow m......
  • Davenport v. City of Rock Hill, 23868
    • United States
    • South Carolina Supreme Court
    • May 3, 1993
    ...specifically not to constitute debt within the meaning of the constitutional limitation provisions then relevant in City of Georgetown v. Elliott, 95 F.2d 774 (4th Cir.1938), and Haddon v. Cheatham, 161 S.C. 384, 159 S.E. 843 (1931). See also S.C.Att'y Gen.Op. of Dec. 18 1992, O.S.-5017. In......

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