Hazel Park Nonpartisan Taxpayers Ass'n v. Royal Oak Tp.

• Decision Date: 17 April 1947
• Docket Number: No. 1.,1.
• Parties: HAZEL PARK NONPARTISAN TAXPAYERS ASS'N et al. v. ROYAL OAK TP. (MUNICIPAL FINANCE COMMISSION et al. Interveners).
• Court: Michigan Supreme Court

317 Mich. 607

27 N.W.2d 249

HAZEL PARK NONPARTISAN TAXPAYERS ASS'N et al.

v.ROYAL OAK TP. (MUNICIPAL FINANCE COMMISSION et al. Interveners).

No. 1.

Supreme Court of Michigan.

April 17, 1947.

Appeal from Circuit Court, Oakland County, in Chancery; Frank L. doty, judge.

Suit by Hazel Park Nonpartisan Taxpayers Association and John G. Campbell against the Township of Royal Oak to enjoin the defendant from collecting any taxes on property in the township lying outside of certain special assessment districts, for purpose of paying installments on certain refunding bonds, wherein the Municipal Finance Commission (formerly Public Debt Commission) and others intervened, and wherein the Township of Royal Oak filed a cross-bill against the City of Ferndale, City of Pleasant Ridge, City of Huntington Woods, City of Royal Oak, City of Clawson, City of Berkley, and the City of Hazel Park. From the decree, the City of Frendale appeals, and the cities of Pleasant Ridge and Huntington Woods join together in a cross-appeal, and the City of Royal Oak takes a separate cross-appeal.

Decree affirmed in part and reversed in part.

Before the Entire Bench.

Glenn C. Gillespie, of Pontiac, and Bernard Girard, of Detroit, for Royal Oak Tp.

Joslyn, Joslyn & Josyln, of Detroit, for Edgar B. Whitcomb and Anna S. Whitcomb.

Dickinson, Wright, Davis, McKean & Cudlip, of Detroit, for City of Highland Park.

Orph C. Holmes, of Ferndale (Claude H. Stevens, of Detroit, of counsel), for City of Ferndale.

William C. Hudson, of Royal Oak, for City of Royal Oak.

Arthur E. Moore, of Royal Oak, for City of Pleasant Ridge and City of Huntington Woods.

BOYLES, Justice.

In 1940 plaintiffs Hazel Park Nonpartisan Taxpayers Association and Joh G. Campbell filed a bill of complaint in the circuit court for Oakland county in chancery to enjoin the township of Royal Oak from collecting any taxes on property in said township lying outside of certain specialassessment districts, for the purpose of paying instalments on certain refunding bonds issued by the township in 1938 to retire certain defaulted special assessment bonds issued in 1926, 1927 and 1928. The then Michigan public debt commission, now the municipal finance commission, which had authorized the issuance of the refunding bonds, the city of Highland Park and Edgar B. Whitcomb and Anna S. Whitcomb as owners of some of the refunding bonds, and the village of Oak Park which had been organized from a portion of said township, were granted leave to intervene, and filed answers to the bill of complaint.

The township of Royal Oak as the original defendant subsequently filed an amended answer and cross bill, setting forth that after the issuance of some of the special assessment bonds as refunding bonds, the following seven municipalities: city of Royal Oak, city of Ferndale, city of Huntington Woods, city of Pleasant Ridge, city of Clawson, city of Berkley and city of Hazel Park had annexed portions of the township's territory or incorporated portions of it within their respective cities, and were consequently chargeable with their pro rata shares of any indebtedness on such bonds which might be decreed against the township. These seven municipalities were named as cross-defendants, and appeared and filed answers.

The parties in the trial court represented four general interests: The township of Royal Oak, individual taxpayers who might be assessed for taxes to pay the refunding bonds, bondholders who accepted refunding bonds in exchange for special assessment bonds, and municipalities which might be proportionately liable to pay a pro rata share of the bonds because of acquisition of portions of the township territory through annexation or incorporation.

The special assessment bonds were originally issued to pay for sewer and water mains under Act No. 116, Pub. Acts 1923, as amended by Act No. 263, Pub.Acts 1925, and in the case of some of the bonds by Act No. 58, Pub. Acts 1927 (for present provisions, see Comp.Laws Supp. 1940, § 2385 et seq., Stat.Ann. and Stat.Ann.1946 Cum.Supp. §§ 5.2411-5.2414).¹

The refunding took place under authority of an order of the public debt commission, dated January 14, 1938, pursuant to Act No. 13, Pub.Acts 1932, 1st Ex.Sess., as amended by Act No. 143, Pub.Acts 1933, and Act No. 42, Pub.Acts 1935, Stat.Ann. §§ 5.3201-5.3219. This legislation was repealed by Act No. 202, Pub.Acts 1943, which contains a saving clause Stat.Ann. §§ 5.3188[1]-5.3188[50]. Series A and B bonds refunded special assessment bonds issued on special assessment rolls 5 to 11, inclusive, prior to the effective date of Act No. 58, Pub.Acts 1927. Series C bonds refunded those issues subsequent to that date.

Commencing with the creation of each special assessment district the township began to levy special assessment taxes against the taxable property in each district, and continued such levies through the full 5-year period covered by the special assessment bonds. Instalments of principal and interest were paid for a time from collections of special assessment taxes, and from time to time thereafter with money from the general fund of the township when there was insufficient money in the special assessment funds to meet payments. On or before April 1, 1930, default was made in some of the issues, and by April 1, 1933, all of the issues were in default on interest and principal outstanding. The totals of the special assessment rolls were extremely high as compared with the assessed valuation of all taxable property in the districts. The percentage of special assessments to assessed valuation ran from a low of 6 per cent in one district to a high of 24 per cent in another, with an average of 13 to 14 per cent in all districts. Because of defaults in paying general taxes and special assessments, a large amount of property in the special assessment districts has gone through ‘scavenger’ sale.²

At the time of the refunding, the townshiphad only some $12,000 in its general fund, which was barely sufficient to pay outstanding orders already issued on that account. As of October 1, 1936, there was a total of $316,553.43 principal due on the special assessment bonds in question, and delinquent interest of $100,135.43.

Except as may be hereinafter noted, additional factual background underlying the questions raised on the instant appeal may be found in Whitman v. Township of Royal Oak, 269 Mich. 146, 256 N.W. 835;Township of Royal Oak v. City of Pleasant Ridge, 295 Mich. 284, 294 N.W. 682;Township of Royal Oak v. City of Pleasant Ridge, 307 Mich. 714, 12 N.W.2d 393;Township of Royal Oak v. City of Berkley, 309 Mich. 572, 16 N.W.2d 83.

In the circuit court the judge stated the claims of the parties as follows: The contention of the township of Royal Oak, defendant and cross-plaintiff, is that in view of the decision of this court in the Whitman Case, supra, its contingent liability on the special assessment bonds became fixed prior to the issuing of the refunding bonds, that the refunding bonds supplanted the special assessment bonds and are now the general obligation of the township in the same manner as the special assessment bonds, and that the intervening defendants and cross-defendants, which since the issuing of the special assessment bonds have annexed portions of the township territory, are each liable for a proportionate share of the refunding bonds.

It is the contention of the city of Royal Oak, cross-defendant, that (1) in no event did the city incur any liability as the result of the first annexation which took effect October 4, 1926, because the bonds had not been issued: (2) having fully settled all obligations incurred by the city as the result of the annexations of 1927 and 1929 the city is not liable by reason of those annexations; (3) Act No. 13, Pub. Acts 1932, 1st Ex.Sess., as amended, see Comp.Laws Supp.1940, § 2705-1 et seq., Stat.Ann. § 5.3204, is unconstitutional in so far as it attempts to make refunded special assessment bonds general obligations, and therefore the city's liability, if any, applies only to the annexation of 1942 and only to that portion of the refunded bonds that may be paid from recoverable special assessments.

It is the contention of the city of Ferndale, cross-defendant, that (1) the city of Ferndale did not assume any liability by reason of the detachment of territory from the township of Royal Oak when it became incorporated as a city on January 31, 1927, because there was no general obligation liability against the township of Royal Oak on that date in respect to any matters involved in this litigation. The only outstanding bonds were those issued in respect to districts 5 to 11, inclusive, and those bonds were strictly special assessment bonds; (2) the legislature by the passage of Act No. 58, Pub Acts 1927, could not constitutionally impose any general obligation liability upon the township as to bonds issued prior to the effective date of that act; and that therefore bonds in respect to districts 5 to 11, dated October 1, 1926, should be eliminated from any and all consideration in determining the liability of incorporating or annexing cities, except possibly in those cases where the decision in Whitman v. Township of Royal Oak, supra, whether right or wrong, would of general obligation (3) the issuance of general obligation bonds to refund strictly special assessment bonds is not constitutionally permissible.

It is the contention of the city of Pleasant Ridge and the city of Huntington Woods, cross-defendants, that (1) inasmuch as no possibility exists for reimbursements of a general fund through subsequent collections of special assessments, the 1927 amendment imposing a liability on the township to pay out of its general fund is unconstitutional, both as to bonds theretofore and thereafter issued; (2) the township of Royal Oak must reassess the deficiency in collections of special assessments in order to provide funds to discharge the...