Miehls v. City of Independence, No. 49367

CourtUnited States State Supreme Court of Iowa
Writing for the CourtTHOMPSON; PETERSON; SMITH; PETERSON
Citation88 N.W.2d 50,249 Iowa 1022
PartiesD. G. MIEHLS, Appellant, v. The CITY OF INDEPENDENCE, Iowa, Appellee.
Docket NumberNo. 49367
Decision Date11 February 1958

Page 50

88 N.W.2d 50
249 Iowa 1022
D. G. MIEHLS, Appellant,
v.
The CITY OF INDEPENDENCE, Iowa, Appellee.
No. 49367.
Supreme Court of Iowa.
Feb. 11, 1958.
As Modified April 10, 1958.
Rehearing Denied May 9, 1958.

Page 51

[249 Iowa 1024] Carleton Sias, Waterloo, for appellant.

Robert J. Pattee, Independence, for appellee. Edwin B. Carpenter, Des Moines, amicus curiae.

THOMPSON, Justice.

The plaintiff is the holder of five electric revenue refunding bonds of the defendant city, each in the face amount of $1,000, bearing date of November 1, 1948. Plaintiff's bonds are due by their terms on November 1, 1963. They are a part of a total of $450,000, issued by virtue of a resolution of the city duly enacted on January 24, 1949. We shall hereafter refer to these as the 1949 bonds. These bonds were payable $30,000 on November 1 of each of the years 1950 to 1958, inclusive, $35,000 on November 1 of each of the years 1959 to 1962, inclusive, and the remaining $40,000 on November 1, 1963. All bonds and interest had been paid as due, so that at the time of the trial below in 1957, there remained not matured and unpaid $240,000, with interest as it accrues. Shortly before the issue of refunding bonds of which plaintiff's securities are a part, the city had, on November 22, 1948, authorized an issue of electric revenue bonds in the amount of $450,000, hereafter referred to as the 1948 bonds; but, because more advantageous interest rates could be obtained, these were, by agreement with the holders, taken up and the refunding issue in the same amount, of which plaintiff's bonds were a part, was authorized in their stead.

The controversy here arises from the fact that on March 18, 1957, the defendant city by resolution of its council authorized a further issue of electric revenue bonds in the total amount of $420,000, payable as follows: $30,000 on March 1 of each of the years 1958 to 1961, inclusive; $35,000 on March 1 of each of the years 1962 to 1964 inclusive; and $65,000 on each of the years 1965 to 1967, inclusive. Interest was 3 1/4 per cent per annum, payable semiannually beginning on September 1, [249 Iowa 1025] 1957. It is obvious that, although the bonds of 1957 were by their terms junior in payment to the refunding issue of which plaintiff holds a part, in fact $190,000 of the later issue would be paid before the maturity

Page 52

of plaintiff's bonds, from electric revenue funds which are the primary source of payment of both issues. It is this priority in fact if not by terms of which plaintiff complains. The trial court dismissed his petition for declaratory judgment in which he asked that his right to a real rather than a chimerical priority be established.

I. The issuance of revenue bonds for the purpose of building, extending and improving municipal electric plants, water or gas works and heating plants, or of purchasing existing once, is authorized by Chapter 397 of the Code of 1954, I.C.A. It is the so-called Simmer law. By its terms, the sole source of payment of bonds issued under it is the revenue from the operation of the plants themselves, with the right to the cities to grant also a lien upon the physical properties so purchased, built, extended or improved. Such is the language of the statutes, and such is the provision of all bonds, both issued and prospective, with which we are dealing here.

The authority to issue such bonds must be found in the statute. It must be expressly granted to municipalities or arise from necessary or fair implication from powers granted; and without it there is no power to act. And in case of uncertainty as to the powers granted, all reasonable doubts are resolved against the municipality. Van Eaton v. Town of Sidney, 211 Iowa 986, 989, 990, 991, 231 N.W. 475, 476, 477, 71 A.L.R. 820, and cases cited. This means that the power to act must be exercised in accordance with the statute and cannot be extended for reasons of convenience or other supposed advantage. For a thorough discussion for the rules set forth in this paragraph see Gritton v. City of Des Moines, 247 Iowa 326, 331, 73 N.W.2d 813, 815, 816, and cases cited.

II. We have pointed out above that while the proposed bond issue of 1957 in terms was subject to the prior payment of the outstanding 1949 bonds, in fact some $190,000 of the principal of the later issue will mature and will be paid from the electric revenues first. The bonds provide that they are a contract between the city and the holders; and it goes without [249 Iowa 1026] elaborating that ordinarily the first issued, to payment of which the electric revenues are pledged, could not be jeopardized by or made subject to payment of later issues. The holders of the first issue would generally have the first lien upon the revenues pledged for their payment.

But the city justifies its action by referring to the terms of the issue of 1948 and the refunding issue of 1949, and the resolutions authorizing them. It should be said that, upon the trial of the case, there was expert evidence, not contradicted, that the projected revenues of the electric plant of the city will be more than sufficient to meet all payments, both of principal and interest, on both bond issues, together with the payments on a $60,000 issue of 1950 which is not directly involved here. We turn then to the provisions of the resolutions and bonds of 1948, and of 1949 which refunded and retired the 1948 issue. The provisions of the 1948 bonds and their authorizing resolution of November 22, 1948, are not important here, because the 1949 bonds and their authorizing resolution of January 24, 1949, while referring to and in terms adopting the provisions of the 1948 bonds, contain substantially the same language.

The bonds of 1949, after stating that they are not a general obligation of the city, provide that a sufficient amount of the net earnings of the electric plant after payment of operating expenses and maintenance, shall be set aside in a sinking fund and pledged for the payment of the principal and interest of the bonds. The bonds also contain a certification that they are issued in full compliance with the Constitution and Statutes of the State of Iowa, and 'in conformity with a resolution of the Council of said City duly passed on the 24th day of January, 1949.'

Page 53

The sinking fund is set up by the resolution. It is provided that during the twelve months preceding November 1 of each year there shall be paid into the fund as follows: 'A sum equal to 100% of the principal of all bonds maturing on or prior to November 1 next succeeding, plus a sum equal to 100% of the interest becoming due on and prior to November 1 next succeeding on all of said outstanding bonds; provided, that until there has been accumulated in such Sinking Fund as a reserve an amount equal to interest for two (2) years on the bonds then [249 Iowa 1027] outstanding, the amounts to be so set apart and paid shall be 110% of said principal and interest instead of 100%; and provided also, that no further payments need be made into said Sinking Fund when and so long as the amount therein is sufficient to retire all of said bonds then outstanding and pay all interest to become due thereon prior to such retirement.' It is also stipulated in the same section of the resolution: '* * * If at any time there be a failure to pay into said Sinking Fund the full amount above stipulated, then an amount equivalent to the deficiency shall be paid into said Sinking Fund from the net earnings of said plant and system as soon as available and in addition to the amount otherwise required to be so set apart and paid into said Sinking Fund.'

Further in the same section of the resolution is the provision which the city feels authorizes the issuance of the 1957 bonds: 'Any balance of the net earnings in excess of the payments hereinbefore specified to be made into said Sinking Fund shall be available to the City as the Council may from time to time direct, and whenever and so long as the amount in said Sinking Fund is equal to the entire amount of the interest and principal that will become due on all of the bonds outstanding, then no further payments need be made into said Sinking Fund.' The argument is that the purchasers of the bonds are given notice of the resolution by reference to it in the bonds themselves; and that the resolution in turn permits the city to use surplus revenue as the council may determine. Expert opinion being shown to be that there will be surplus revenue, the city thinks it follows that it can be used to pay principal and interest on later issued bonds. In argument, the city also refers to Sections 397.38 to 397.40, inclusive. We grant that these statutes are of great importance; but they destroy rather than support the defendant's position.

III. It is well settled that a municipal bond is a contract between the corporate body issuing it and the owner; and that the statutes authorizing the issuance of the bond are themselves a part of the contract. Bennett v. Greenwalt, 226 Iowa 1113, 1135, 286 N.W. 722, 733. Section 397.10 authorizes cities or towns to issue 'negotiable,...

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5 practice notes
  • Bormann v. Board of Sup'rs In and For Kossuth County, No. 96-2276
    • United States
    • United States State Supreme Court of Iowa
    • 23 Septiembre 1998
    ...is or could be claimed." The purpose of a declaratory judgment is to determine rights in advance. Miehls v. City of Independence, 249 Iowa 1022, 1030, 88 N.W.2d 50, 55 (1958). The Page 313 essential difference between such an action and the usual action is that no actual wrong need hav......
  • State v. Proulx, No. 56835
    • United States
    • United States State Supreme Court of Iowa
    • 20 Abril 1977
    ...719, 720 (Iowa 1972); re Condemnation of Land (Carroll County), 255 Iowa 711, 724, 124 N.W.2d 141, 149; Miehls v. City of Independence, 249 Iowa 1022, 1029, 88 N.W.2d 50, 54. The 1970 census report shows Clinton to be a city with a population of 34,719. Statutes of this state are likewise s......
  • Sampson v. City of Cedar Falls, No. 2--57753
    • United States
    • United States State Supreme Court of Iowa
    • 31 Julio 1975
    ...bonds and to the resolutions authorizing them. See Summey v. City of Ames, 251 Iowa 1199, 104 N.W.2d 617; Miehls v. City of Independence, 249 Iowa 1022, 88 N.W.2d Section 384.88 of the 1975 Code restricts the remedies of bondholders to receivership and to mandamus to obtain specific perform......
  • Summey v. City of Ames, No. 50092
    • United States
    • United States State Supreme Court of Iowa
    • 2 Agosto 1960
    ...the 1953 class. I. The plaintiff contends and the trial court agreed, that the situation here is ruled by Miehls v. City of Independence, 249 Iowa 1022, 88 N.W.2d 50. But we think there is a material difference in the situation which requires a different holding. There was no provision in t......
  • Request a trial to view additional results
5 cases
  • Bormann v. Board of Sup'rs In and For Kossuth County, No. 96-2276
    • United States
    • United States State Supreme Court of Iowa
    • 23 Septiembre 1998
    ...is or could be claimed." The purpose of a declaratory judgment is to determine rights in advance. Miehls v. City of Independence, 249 Iowa 1022, 1030, 88 N.W.2d 50, 55 (1958). The Page 313 essential difference between such an action and the usual action is that no actual wrong need hav......
  • State v. Proulx, No. 56835
    • United States
    • United States State Supreme Court of Iowa
    • 20 Abril 1977
    ...719, 720 (Iowa 1972); re Condemnation of Land (Carroll County), 255 Iowa 711, 724, 124 N.W.2d 141, 149; Miehls v. City of Independence, 249 Iowa 1022, 1029, 88 N.W.2d 50, 54. The 1970 census report shows Clinton to be a city with a population of 34,719. Statutes of this state are likewise s......
  • Sampson v. City of Cedar Falls, No. 2--57753
    • United States
    • United States State Supreme Court of Iowa
    • 31 Julio 1975
    ...bonds and to the resolutions authorizing them. See Summey v. City of Ames, 251 Iowa 1199, 104 N.W.2d 617; Miehls v. City of Independence, 249 Iowa 1022, 88 N.W.2d Section 384.88 of the 1975 Code restricts the remedies of bondholders to receivership and to mandamus to obtain specific perform......
  • Summey v. City of Ames, No. 50092
    • United States
    • United States State Supreme Court of Iowa
    • 2 Agosto 1960
    ...the 1953 class. I. The plaintiff contends and the trial court agreed, that the situation here is ruled by Miehls v. City of Independence, 249 Iowa 1022, 88 N.W.2d 50. But we think there is a material difference in the situation which requires a different holding. There was no provision in t......
  • Request a trial to view additional results

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