Heins v. Lincoln

• Decision Date: 11 May 1897
• Citation: 102 Iowa 69,71 N.W. 189
• Parties: HEINS v. LINCOLN, MAYOR, ET AL.
• Court: Iowa Supreme Court

102 Iowa 69

71 N.W. 189

HEINS

v.LINCOLN, MAYOR, ET AL.

Supreme Court of Iowa.

May 11, 1897.

Appeal from district court, Linn county; William P. Wolf, Judge.

This is an action in equity to restrain the issuance of bonds by the city of Cedar Rapids. The defendants are the mayor, the finance committee of the city council, the city council, the city treasurer, and the city itself. The city proposed to issue two series of bonds, each bond to be for $1,000, and to draw 4 1/2 per cent. interest, payable semiannually. All of the bonds were to mature in 20 years. The first issue was of $20,000 of refunding bonds, to refund refunding bonds outstanding. The second issue was of $68,000 of warrant bonds, for funding outstanding general warrants of said city. The constitutional limit of indebtedness of said city is $197,317.10, and the city is already indebted in excess of said limit. The pleadings are voluminous, but the contentions of the parties may be briefly stated as follows: First. Appellant claims both bond issues are void, in that they create an indebtedness in excess of the constitutional limit. Second. That the law was violated, because the bonds were not sold to the highest bidder. Third. That the resolution under which the bonds were sold is void, it not having been signed by the mayor. As to the issue of $20,000 in bonds it is also claimed that the resolution authorizing their sale was contrary to, and in violation of, an ordinance of the city, and that there is no authority to issue refunding bonds to take up or pay off refunding bonds. The $68,000 issue of bonds is also claimed to be void because not authorized by the city charter. The defendants claim that the refunding bonds will not create any additional debt; that they simply take the place of outstanding bonds. They deny that the bonds were to be sold to Roberts & Co., or that they are invalid; aver that the warrant bonds were issued under and by virtue of power given by an ordinance of the city, and a favorable vote of the people; that they are to be exchanged for outstanding city warrants, and the debt will not be increased. The court, at the conclusion of the trial, found that the bonds were in all respects legal, denied an injunction, and dismissed the plaintiff's bill at his costs. Plaintiff appeals. Reversed.Lewis Heins, for appellant.

Warren Harman and J. J. Powell, for appellees.

KINNE, C. J.

1. It conclusively appears from the record in this case that the city of Cedar Rapids was, when the bonds in controversy were proposed to be issued, as well as when this case was tried below, indebted far in excess of the limit fixed by the constitution of the state. If, therefore, the bonds created an additional indebtedness, they were void. We first turn our attention to the contention of appellant that refunding bonds cannot be issued to take up refunding bonds. It is conceded that the bonds to be taken up by the $20,000 issue were refunding bonds previously issued to refund other bonds. It is to be remembered that the city of Cedar Rapids is acting under a special charter. Chapter 19 of the Acts of the 22d General Assembly provides: “Section 1. That all cities in this state having a population of more than 2,000 organized and existing under special charters are hereby authorized and empowered if, by a vote of two thirds of the city council it be deemed for the public interests to refund the indebtedness of any such city evidenced by the bonds thereof, heretofore issued, and outstanding at the time of the passage of this act and to issue the coupon bonds of such city in denominations of not less than one hundred dollars and not more than one thousand dollars and having not more than twenty years to run, redeemable in lawful money of the United States at maturity and bearing interest payable semi-annually at a rate not exceeding six per cent. per annum.” Section 2 provides the form of such bonds. Section 3 provides how the bonds shall be sold, and that they may be exchanged for “outstanding bonds, par for par.” Section 7 provides that nothing in the act shall impair or interfere with the powers conferred by chapter 58 of the Laws of the 17th General Assembly, as amended by chapter 140 of the Laws of the 18th General Assembly. Chapter 140, Acts of the 18th General Assembly, made chapter 58, Acts of the 17th General Assembly, applicable to cities acting under special charters. The latter chapter provided for refunding the bonded debt of cities, and provided that the city council should assess and levy each year on the taxable property of the city a sum sufficient to pay the interest on such bonds and a certain portion of the principal, and that the fund arising from such levies should be used only for the purpose of paying the bonds and interest. It was under that law that the bonds of the city of Cedar Rapids were refunded which it is now proposed to refund by this $20,000 issue of bonds. It will be noticed that the provisions of the Acts of the 22d General Assembly, heretofore quoted, do not, in terms, undertake to limit the right to refund to bonds which have never been refunded. No case is cited which would justify us in holding that a statute which expressly empowers a city to fund its debt or bonds, and which does not undertake to limit such right or power, applies only to bonds which have not already once been refunded. We discover nothing in the Acts of the 22d General Assembly which warrants such a construction. It appears that the city council never complied with the Acts of the 17th General Assembly in levying a tax, and keeping it solely for the purpose of paying the principal and interest on the bonds. It had a general sinking fund, which has been exhausted except a few thousand dollars. We do not think that because the city council violated the law in failing to levy and collect the tax provided for to pay the interest and principal of the bonds that the city is now precluded from refunding these bonds. We conclude, therefore, that the power to issue refunding bonds under the Acts of the 22d General Assembly is not limited to bonds which have not before been refunded.

2. Were the bonds void as creating a debt in excess of the constitutional limit? Without now discussing the question of the power of the council to issue bonds to take up city warrants, but assuming that such power exists, we cannot see how it can be said that either issue of bonds increased the debt of the city. The council passed ordinances providing for the issuance and sale of the bonds. The bonds were to be sold, and the proceeds paid into the city treasury. After this was done, the treasurer was to publish a notice to the holders of the bonds to be redeemed to present the same for payment. Now, if the bonds had been in fact issued under these ordinances, they would have been clearly void, because, after they had been sold, and before the old bonds had been called in, the indebtedness of the city would have been increased in the amount of the new bonds issued. Doon Dist. Tp. v. Cummins, 12 Sup. Ct. 220. But these bonds in controversy were not issued under said ordinances. The provisions of the ordinances as to selling the bonds, putting the cash in the treasury, and thereafter redeeming the old bonds, could not be carried out without increasing the city debt beyond the constitutional limit, and were, therefore, void. Thereafter the city council adopted a resolution providing for the exchange of the new bonds for the old bonds, and of the warrant bonds for the outstanding warrants; and to effectuate said exchange the council appointed the First National Bank of Norwich, Conn., as the agent of the city, and placed all of said bonds, duly executed, in the hands of its said agent, in trust, with power to deliver new bonds when the old bonds had been delivered to it and canceled, and to deliver warrant bonds when the warrants had been delivered to it. This trust was duly accepted by said bank. Under this arrangement the new bonds created no obligation against the city until the same were delivered by the trustee, which delivery was not to take place until the old bonds or warrants were received by it and...