Meredith v. City of Winter Haven

• Decision Date: 22 April 1944
• Docket Number: No. 10402.,10402.
• Parties: MEREDITH et al. v. CITY OF WINTER HAVEN et al.
• Court: U.S. Court of Appeals — Fifth Circuit

141 F.2d 348 (1944)

MEREDITH et al. v. CITY OF WINTER HAVEN et al.

No. 10402.

Circuit Court of Appeals, Fifth Circuit.

March 10, 1944.

Rehearing Denied April 22, 1944.

D. C. Hull, Erskine W. Landis, John L. Graham, and J. Compton French, all of DeLand, Fla., for appellants.

Giles J. Patterson, of Jacksonville, Fla., and Harry E. King, of Winter Haven, Fla., for appellees.

Before SIBLEY, HUTCHESON, and McCORD, Circuit Judges.

Rehearing Denied April 22, 1944. See 141 F.2d 1019.

SIBLEY, Circuit Judge.

The petition, seeking a declaratory judgment and injunction touching the call for payment before maturity of refunding bonds of City of Winter Haven issued in 1933, in which call no provision is made for paying one-half of deferred interest as promised in the bonds, was dismissed because stating no claim on which relief can be granted. On appeal to this Court the questions involved were found to be purely of State law, on which the Florida decisions were confused, and it was held that the petitioners should seek relief in the State courts. Meredith et al. v. City of Winter Haven, 5 Cir., 134 F.2d 202. The Supreme Court held we should decide the questions. 320 U.S. 228, 64 S.Ct. 7. We now undertake to do so.

The original bonds drew 5½ and 6% interest and were not callable. There were in 1933 large defaults in interest and principal, but some bonds still had many years to run. The bonds now in controversy were issued and validated without a popular election and exchanged for the former obligations par for par, but with maturities varying from 1948 to 1963, and with reduced rates of annual interest for ten years, but the aggregate difference was put into a final coupon for "deferred interest", to be paid at maturity of the bond, if the bond were not earlier called and paid. The holder of a new bond was thus to get at last principal and interest at the old rate, unless the bond was called. But there was provision for calling them for payment on any interest date, interest to be paid to that date at the coupon rate, plus one-half the deferred interest for ten years represented by the deferred interest coupon if the call was on or prior to April 1, 1943, or plus three-fourths the deferred interest if the call was between April 1, 1943, and April 1, 1953, or plus the full deferred interest if the call was between April 1, 1953, and April 1, 1963. The call here involved was for Oct. 1, 1941, and it is proposed to pay only the reduced coupon interest, without paying one-half the deferred interest as promised. The City contends that the promise to pay deferred interest is contrary to the Florida Constitution, Art. IX, Sect. 6, because no election was held to authorize the promise, but that it is severable, not affecting the validity of the bonds otherwise. The bondholders contend that the promise is a part of the call provision and not severable, and entirely valid, because the bonds are refunding bonds in that they put no additional burden on the City, and thus need no election. This is the first question.

The second question arises on the resolution of the City Commission made July 24, 1933, which authorized the refunding bonds and is referred to in them, and which provided in Section 20: "That if any clause, section, paragraph or provision of this resolution or of the General Refunding Bonds hereby authorized be declared unenforceable by any court of final jurisdiction, it shall not affect or invalidate the remainder thereof; and if any of the bonds hereby authorized be adjudged illegal or unenforceable in whole or in part, the holders shall be entitled to assume the position of holders of a like amount of the indebtedness hereby provided to be refunded and as such enforce their claims for payment." The bondholders say that if the promise to pay one-half the deferred interest on this call is illegal or unenforceable, they may collect that much interest under the old bonds, by virtue of the quoted resolution.

Prior to Nov. 4, 1930, municipal bonds in Florida required only to be authorized by the Legislature. On that date Art. IX, Sect. 6, of the Constitution was so amended as to require an election, but the provision was not to "apply to the refunding of bonds issued exclusively for the purpose of refunding of the bonds or the interest thereon of such Counties, Districts or Municipalities." The question as to what bonds required no election at once arose. In State of Florida v. City of Miami, 100 Fla. 1388, 131 So. 143, it was held that the bonds meant were not only refunds of refunding bonds, but all refunding bonds "when * * * issued * * * merely to extend the time for the payment". In Sullivan v. Tampa, 101 Fla. 298, 299, 134 So. 211, the court held that the bonds proposed to be issued were constitutional refunding bonds though bearing a higher rate of interest than the old bonds and though authorized to be sold at 95. Both these things of course would increase the burden on the municipality. The following year 1931, the Legislature passed the general refunding Act which authorized interest up to 6% and sale at not less than 95. Chapter 15772, Acts of 1931, F.S.A. § 132.01 et seq. This Act has not been held unconstitutional, and under it the bonds in controversy were issued. The Sullivan case said the new bonds must be "exclusively for * * * refunding the bonds or interest thereon" in order to be refunding bonds. This was reiterated in State v. Dade County, 107 Fla. 93, 98, 144 So. 356. In Bay County v. State, 116 Fla. 656, 157 So. 1, it was said there could be no enlargement of the debt and that additional security for the bonds could not be added without a vote. In State v. Sarasota County, 118 Fla. 629, 159 So. 797, old bonds bearing 5½ and 6% were refunded with lessened interest, but with a provision that if they were not called or redeemed by a certain date, the full former interest was to be paid. This was held good, as the aggregate over the term did not exceed the original interest. The introduction of provisions for call before maturity were recognized as favorable to the municipality and not objectionable. These decisions are consistent and understandable, and would seem generally favorable to refunding operations.

In 1939 was decided Outman v. Cone, 141 Fla. 196, 192 So. 611, in which the issue of bonds with lowered interest, but with a promise as here to pay deferred interest if called before maturity, was enjoined. No authority was cited, and no previous decision overruled, but because the resolution authorizing the bonds was ambiguous and might be construed as...