Hovenden v. City of Bristow, Okl.

• Decision Date: 27 August 1940
• Docket Number: No. 340.,340.
• Citation: 34 F. Supp. 674
• Parties: HOVENDEN v. CITY OF BRISTOW, OKL.
• Court: U.S. District Court — Northern District of Oklahoma

34 F. Supp. 674

HOVENDEN v. CITY OF BRISTOW, OKL.

No. 340.

District Court, N. D. Oklahoma.

August 27, 1940.

Arnold T. Fleig, of Oklahoma City, Okl., for plaintiff.

Paul M. Cameron, of Bristow, Okl., for defendant.

FRANKLIN E. KENNAMER, District Judge.

Complainant, a non-resident of the State of Oklahoma, instituted this suit, as the owner of Special Improvement Bonds, numbered 30 to 37 inclusive, in the denominations of Five Hundred Dollars ($500) each, and alleged that the defendant, City of Bristow, Oklahoma, in accordance with Chapter 173 of the Session Laws of the State of Oklahoma of 1923, 11 Okl.St.Ann. § 81 et seq., created Street Improvement District No. 30, and issued bonds aggregating Thirty-Four Thousand Five Hundred Five and 79/100 Dollars ($34,505.79), consisting of sixty-nine (69) bonds. It is further alleged that the defendant, since the creation of the particular Street Improvement District, owned six (6) separate tracts of land, specifically described in the petition, as a park, which said tracts of land were located within the Street Improvement District. It is further alleged that there are delinquent installments upon the bonds, in the approximate total sum of Two Thousand Three Hundred Eighty Dollars ($2,380), as well as interest thereon at seven per cent. (7%), as provided in the bonds, totaling approximately Four Hundred Eighty Dollars ($480), and penalty, or, as it is designated in the Statute, interest, at the rate of twelve per cent. (12%) per annum, in the total approximate sum of One Thousand Five Hundred Fifty Dollars ($1,550). It is alleged that defendant has failed to pay the installments and has failed to make the necessary annual levies, as required by law, for the payment of the installments, and that the action is brought for the benefit of complainant and other bondholders in the District who are similarly situated and entitled to pay from the trust fund created by the levy of said assessment on the six (6) tracts of land within the Improvement District. A copy of one of the bonds is attached to the petition. It provides for interest at the rate of six per cent. (6%) per annum, and interest at the rate of ten per cent. (10%) per annum after maturity. The defendant has interposed its motion to dismiss the action, upon the following grounds: That the court lacks jurisdiction of the subject of the action, because the amount actually in controversy is less than Three Thousand Dollars ($3,000), exclusive of interest and costs; that there is a defect of parties plaintiff, in that the owner or owners of bounds numbered 39 to 69, inclusive, have not been made parties plaintiff or defendant; and, finally, that the complaint fails to state a claim against the defendant upon which relief can be granted.

Defendant contends that the twelve per cent. (12%) charge is an interest item, and is not a penalty, and may not be considered in arriving at the jurisdictional amount. If the twelve per cent. (12%) charge is in fact interest, it probably may not be considered in arriving at the amount, for jurisdictional purposes. On the other hand, if it is penalty or a charge which is distinct from the obligation of the bond, it may constitute a proper sum in determining the jurisdictional amount.

Defendant contends, with respect to the second ground relied upon for the dismissal of the action, that the holders of the other bonds should be joined as parties, and as a basis for objection upon the third ground for the motion to dismiss, that no personal judgment can be rendered against a municipality upon Special Improvement Bonds.

In considering the first reason urged for dismissal of the action, it becomes necessary to consider the nature of the twelve per cent. (12%) charge. The statute under which the twelve per cent. (12%) is imposed, refers to the same as interest, Sec. 25, Ch. 173, Oklahoma Session Laws 1923, 11 Okl.St.Ann. § 105, is set forth in the sub-joined note. The Oklahoma Supreme Court has passed upon questions involving penalty interest under similar circumstances.

In Shultz v. Ritterbusch, 38 Okl. 478, 134 P. 961, where an injunction was sought against the Treasurer from selling lots which had been levied on to pay special assessments, the Oklahoma Supreme Court considered the 1909 Legislative Act, which authorized the collection of seven per cent. (7%) per annum upon assessments prior to maturity, and eighteen per cent. (18%) per annum after maturity and until paid, and held that such a provision was not in violation of the Constitution which prohibits the general assembly to pass any local or special law fixing the rate of interest, upon the ground that the eighteen per cent. (18%) was not interest as such, but a penalty prescribed for failure to discharge a duty imposed by law. It was held that the Legislature, having the right to impose penalty for the non-payment of general taxes, by the same power had the right to impose eighteen per cent. (18%) as a penalty for non-payment of special assessments when due.

In Whitehead v. Mackey, 62 Okl. 188, 163 P. 124, it was contended that the eighteen per cent. (18%) penalty violated the constitutional provision against ten per cent. (10%) usury, and the court held that the eighteen per cent. (18%) was not interest, and for that reason the Constitution and Statutes upon the subjects of usury did not apply. The latter case involved the 1910 Act, providing eighteen per cent. (18%) per annum upon paving assessments not paid when due. Defendant's only comment on this case is that the twelve per cent. (12%) involved in the instant case is under the 1923 Act, and that the cited case involved earlier Legislative Acts.

The Supreme Court of Oklahoma, in construing the penalty on ad valorem taxes, held in the case of City of McAlester v. Jones, 181 Okl. 77, 72 P.2d 371, that ad valorem penalties could be waived without contravening the Constitutional provisions prohibiting the passage of any law releasing or extinguishing indebtedness due the State or municipal subdivision thereof, upon the ground that the penalty upon delinquent taxes is not a part of the tax, but the penalty is an additional charge or penalty for delinquency, that the penalty is not created by levy of the tax, and that the Legislature has a right to dispose of such funds as they may dispose of other funds of the State. This case is referred to as showing the manner in which the Supreme Court of Oklahoma has considered and treated penalties. The rule announced in the cited case is not applicable to waiving or cancelling penalties or charges upon Special Improvement Bonds, for the reason, as announced by the Oklahoma Supreme Court, that the cancelling and releasing of such penalties is violative of the Constitution of Oklahoma as impairing the obligation of a contract. Okl.St.Ann. Const. art. 2, § 15. See, Straughn v. Berry, 179 Okl. 364, 65 P.2d 1203.

No case has been drawn to my attention which involves the question presented herein. However, the case of Kansas City Southern R. Co. v. Ogden Levee Dist., 8 Cir., 15 F.2d 637, 644, decides a question similar to...