City of Oxnard v. Dale

• Decision Date: 09 December 1955
• Parties: CITY OF OXNARD, a municipal corporation, Petitioner, v. Ethel DALE, as City Clerk of the City of Oxnard, California, and Wm. H. Groff, as City Treasurer of the City Oxnard, California, Respondents. L. A. 23700. . In Bank
• Court: California Supreme Court

Page 859

290 P.2d 859

45 Cal.2d 729

CITY OF OXNARD, a municipal corporation, Petitioner, v. Ethel DALE, as City Clerk of the City of Oxnard, California, and Wm. H. Groff, as City Treasurer of the City Oxnard, California, Respondents.

L. A. 23700.

Supreme Court of California.

In Bank.

Dec. 9, 1955.

Joseph W. Goss, City Atty., Oxnard, O'Melveny & Myers, James L. Beebe and James W. Beebe, Los Angeles, for petitioner.

William A. Reppy and F. Gile Tiffany, Jr., Oxnard, for respondents.

GIBSON, Chief Justice.

Petitioner, a municipal corporation of the sixth class, seeks a writ of mandate requiring respondent city treasurer to sign, and respondent city clerk to countersign, certain revenue bonds which the city proposes to issue pursuant to the Revenue Bond Law of 1941. Gov.Code, § 54300 et seq. Mondamus is, of course, an appropriate remedy to compel respondents to sign the bonds, if the proposed issue meets the requirements of the law, since the acts demanded are ministerial duties. Cf. City of Fairfield v. Hutcheon, 33 Cal.2d 475, 202 P.2d 745; California Toll Bridge Authority v. Kelly, 218 Cal. 7, 21 P.2d 425.

The sole question presented is whether the proposed bonds, and the statute under which they were authorized by the voters and the city council, are contrary to section 18 of article XI of the California Constitution, which provides, insofar as pertinent here: 'No county, city, town, township, board of education, or school district, shall incur any indebtedness or liability in any manner or for any purpose exceeding in any year the income and revenue provided for such year, without the assent of two-thirds of the qualified electors thereof, voting at an election to be held for that purpose, nor unless before or at the time of incurring such indebtedness provision shall be made for the collection of an annual tax sufficient to pay the interest on such indebtedness as it falls due, and also provision to constitute a sinking fund for the payment of the principal thereof * * *.'

The city has owned a sanitary sewer system since 1905. The system and its additions and improvements were financed largely by the issuance of general obligation bonds, of which a total amounting to $795,200 remains outstanding and unpaid. Charges for use of the sewer system were first imposed in 1946, and since that time all expenses of operation and maintenance have been paid from sewer revenues. The revenues have been used, further, to pay part of the interest and principal on general obligation sewer bonds issued in 1949, but the city does not presently intend to continue to apply sewer revenues toward the retirement of these bonds.

A treatment plant, financed by a portion of the general obligation bonds referred to above, is now being constructed, and the city proposes to construct interceptor sewers to transport sewage to the treatment plant. Pursuant to the Revenue Bond Law of 1941 the city council, in March 1954, called a special election to submit to the voters the issuance of sewer revenue bonds in the amount of $450,000 to finance the construction of the interceptor sewers. It was specified that the bonds were to be payable exclusively from the revenues of the entire sewer system of the city, together with all additions and improvements thereafter made, and that the bonds were not to be secured by the taxing power of the city. The Revenue Bond Law of 1941 requires authorization of such bonds by a majority vote, Gov.Code, § 54386, and, since the election was called pursuant to that statute, it may be inferred that the bond measure was submitted to the voters upon the theory that only a majority vote was required. The bonds were approved at the ensuing election.

Subsequently the city council adopted a resolution authorizing the proposed bonds in accordance with the measure submitted to the voters. The resolution recites that issuance of the bonds was approved by more than a majority of the voters; that they are to be issued pursuant to the Revenue Bond Law of 1941 and are to be secured by a pledge and lien upon, and payable solely from, the gross revenues of the entire sewer system, including extensions later constructed; that the bonds are not a debt of the city; and that the bondholders cannot compel the exercise of the taxing power of the city or the forfeiture of any of its property.

The resolution further provides that the city is to covenant, among other things, that it will operate the system in an efficient manner and will prescribe sufficient charges for the services of the system to pay interest and principal on the bonds and the expenses of operation. Revenues are to be used, first, for payment of principal and interest on the bonds and then for current expenses of the system. Surplus funds can be invested or used to redeem the proposed bonds and, under some circumstances, may be used for other sewer purposes, including payment of principal and interest of general obligation bonds of the city issued for sewer purposes. No claim is made that the proposed bonds will in any way vary from the requirements of the Revenue Bond Law of 1941. Although it is not specifically alleged that the issuance of the proposed bonds, if considered as a debt of the city, will create an indebtedness in any year in excess of the income of the city for such year within the meaning of section 18 of article XI, this appears to be conceded and, further, may be inferred from the recital in the resolution authorizing the bonds that funds must be provided for the purpose of constructing the interceptor sewers.

It is settled in California and recognized in almost all of the other states that, as a general rule, a constitutional provision such as section 18 of article XI is not violated by revenue bonds or other obligations which are payable solely from a special fund, provided the governmental body is not liable to maintain the special fund out of its general funds, or by tax levies, should the special fund prove insufficient. Department of Water and Power of City of Los Angeles v. Vorman, 218 Car. 206, 216 et seq., 22 P.2d 698; California Toll Bridge Authority v. Kelly, 218 Cal. 7, 10 et seq., 21 P.2d 425; California Toll Bridge Authority v. Wentworth, 212 Cal. 298, 302 et seq., 298 P. 485 (discussing many cases from other jurisdictions); Shelton v. City of Los Angeles, 206 Cal. 544, 548 et seq., 275 P. 421; see Garrett v. Swanton, 216 Cal. 220, 227 et seq., 13 P.2d 725; 38 Am.Jur. 150 et seq. As pointed out in the case of California Toll Bridge Authority v. Wentworth, supra, 212 Cal. at page 302, 298 P. at page 486, such an obligation is not considered to be an indebtedness or liability of the political subdivision or agency issuing the bonds, within the meaning of the constitutional limitation.

The cases in California are not entirely clear as to the extent of the operation of the special fund doctrine, and there is a conflict of authority on the subject in other states. Some of the courts in other jurisdictions have held that revenue bonds payable solely from a special fund will not be free from the constitutional limitation unless the fund is restricted to the revenues from the particular improvement which is to be constructed out of the proceeds of the bonds in question, but under the prevailing view the doctrine may be applicable where the revenues of the entire existing system, as well as those of the proposed improvement, are pledged. See Joint Report of Committee of the American Society of Civil Engineers, the Section of Municipal Law of the American Bar Association and others (1951), 12 Ohio State L.J. 147, 182 et seq.; 38 Am.Jur. 155-156.

The first case in California discussing this problem is Garrett v. Swanton, 216 Cal. 220, 13 P.2d 725, where a city agreed to purchase a pumping plant on a conditional sales plan, with payments to be in installments over a period of years out of a special fund maintained by profits from the entire water system. There, as here, the city had previously issued general obligation bonds to finance the system, and, by ordinance, water revenues were being used for the payments on the bonds. It was held that the special fund doctrine was inapplicable under the facts of the case and that the contract...