Newberry v. City of Andalusia

• Citation: 257 Ala. 49,57 So.2d 629
• Decision Date: 10 March 1952
• Docket Number: 4 Div. 686
• Parties: NEWBERRY v. CITY OF ANDALUSIA et al.
• Court: Supreme Court of Alabama

Page 629

57 So.2d 629

257 Ala. 49

NEWBERRY v. CITY OF ANDALUSIA et al.

4 Div. 686.

Supreme Court of Alabama.

March 10, 1952.

Brogden & Brogden and Edw. H. Brogden, all of Andalusia, for appellant.

Jas. M. Prestwood, Andalusia, for City of Andalusia.

Lawrence Dumas, Jr., Birmingham, for Thornton, Mohr & Co.

Robt. B. Albritton, Andalusia, for Gulf Naval Stores Co.

Lawrence K. Andrews, Union Springs, for Alabama League of Municipalities, amicus curiae.

GOODWYN, Justice.

This is a declaratory judgment proceeding questioning the validity of Act No. 756, approved September 6, 1951, Acts of Alabama 1951, page 1307, and certain action taken pursuant thereto by the City of Andalusia.

The decree of the lower court, which contains both a finding of facts and declaration with respect to the issues involved, is as follows:

'The Court Hereby Finds the Following Facts:

'The Respondent the City of Andalusia, has authorized the issuance of $1,300,000 of its First Mortgage Industrial Development Revenue Bonds to be dated February 1, 1952, and maturing over a period of ten years (herein called the 'Bonds') under and pursuant to Act No. 756, General Acts of Alabama, approved September 6, 1951; and said City has contracted to sell the Bonds to the Respondent, Thornton, Mohr & Company. The Bonds are to be issued under and pursuant to a Mortgage and Indenture of Trust by and between the City of Andalusia and The First National Bank of Montgomery, as Trustee.

'A copy of said Mortgage and Indenture of Trust is attached to the bill of complaint as Exhibit 'A', and it is herein referred to as the 'Mortgage'. The Bonds and the Mortgage were authorized by a duly adopted resolution of the City Council of the City of Andalusia which fully identified the Mortgage and the Bonds but failed to set them forth therein in full. Said resolution was published in a newspaper published and of general circulation in the City of Andalusia.

'The proceeds of the Bonds are required to be deposited in the Industrial Development Construction Fund, a trust fund, under the Mortgage, and to be used to pay a part of the cost of constructing for the City of Andalusia a plant to extract naval stores from pine stumps (herein called the 'Project'). The Respondent Gulf Naval Stores Company has entered into a contract with the City of Andalusia entitled 'Contract to Sell and Convey Land, to Construct thereon and Lease a Plant', dated January ----, 1952, a copy of which is attached to the Application for Declaratory Judgment as Exhibit 'B' and which is hereinafter referred to as the 'Contract'. By the terms of the Contract the Gulf Naval Stores Company agrees to sell to the City of Andalusia 39 acres of land located in Covington County, within 15 miles of the City, for a cash consideration of $6,000 to be paid from the proceeds of the Bonds. Gulf Naval Stores Company is also obligated by the Contract to build upon said land for the City of Andalusia the Project. The Project is to be fully completed with all necessary furnishings and machinery, ready to operate and capable of performing its intended function of extracting naval stores from pine stumps. The Project, when completed, is required to have a going concern value of at least $1,800,000 and the Gulf Naval Stores Company is obligated by the Contract to pay all costs of construction in excess of the proceeds of the Bonds available therefor.

'The Gulf Naval Stores Company is also obligated by the Contract to lease the Project from the City when the Project is completed and conditioned upon the completion thereof, for a term of ten years at a stipulated monthly fixed rent. The fixed rent is required to be paid to The First National Bank of Montgomery, as Trustee, deposited in the Industrial Development Bond and Interest Fund, a trust fund under the Mortgage, and used to pay the principal of and interest on the Bonds. The fixed rent is sufficient to pay the principal of and interest on the Bonds as they come due.

'The Gulf Naval Stores Company is also obligated by the Contract to pay as additional advance rent one-third of its annual net earnings from the Project or one-fourth of the combined annual net earnings from the Project and its other plants and operations, whichever is greater. This advance rent is required to be used first to build up and maintain a Reserve Account in the Industrial Development Bond and Interest Fund of $50,000 to assure the payment of the principal of and interest on the Bonds, and all advance rent in excess of such amount is required to be used to redeem the Bonds in the inverse order of maturities.

'The Gulf Naval Stores Company is obligated by the Contract to pay the cost of maintenance and insurance of the Project. No reserve fund in connection with the payment of the cost of maintenance and insurance of the Project has been set up or established by the City of Andalusia.

'The Contract grants to Gulf Naval Stores Company the option to extend the original term of the lease for eight additional periods of five years at a nominal rent of not exceeding $1,000 per year.

'The Bonds are limited obligations of the City of Andalusia, payable solely from the rent, revenues and income to be derived from the leasing of the Project. It is specifically provided in the proceedings authorizing the issuance of the Bonds, in the Mortgage and in the face of the Bonds, that they 'shall never constitute an indebtedness of the City of Andalusia within the meaning of any state constitutional provision or statutory limitation, and shall never constitute or give rise to a pecuniary liability of the City of Andalusia or a charge against its general credit or taxing powers.' The Project will, upon the basis of the foregoing facts, be self-liquidating.

'The City has covenanted in the Bonds and the Mortgage that the Bonds and interest thereon and also the Project and any revenues derived from any leasing thereof, shall be exempt from all taxation under the laws of the State of Alabama.

'The Mortgage requires the City of Andalusia to keep the Project leased at all times at a rent sufficient to pay the principal of and interest on the Bonds and to keep the Project in good maintenance and repair and to maintain adequate insurance thereon. It requires the City to make such renewals, replacements, extensions and improvements as are necessary to keep the Project leased. The Mortgage permits the City of Andalusia, and the Contract permits the Gulf Naval Stores Company, to elect to apply insurance proceeds paid on account of damage or destruction to the Project to the repair or reconstruction of the Project.

'The Mortgage provides that so long as the Bonds are outstanding the City of Andalusia will not construct or finance or cause to be constructed or financed any enterprise competitive with the Project.

'The issuance of the Bonds and the construction and leasing of the Project are for the purpose of acquiring for the City of Andalusia a new industry, which will provide for the owners of property in Covington and the surrounding Counties a market for hitherto useless and detrimental pine stumps and which will provide employment for the citizens of the City of Andalusia and a pay roll to improve business and commerce in the City of Andalusia and the surrounding territory.

'Now, Therefore, It Is Hereby Ordered, Adjudged, Decreed and Declared as follows:

'1. That Act No. 756, General Acts of Alabama, approved September 6, 1951, under and pursuant to which the Bonds have been authorized and are to be issued, contains but one subject, which is clearly expressed in the title to said Act and said Act complies in every respect with Section 45 of the Constitution.

'2. That the Bonds are limited obligation revenue bonds and are not an indebtedness of the City of Andalusia within the meaning of Section 225 of the Constitution.

'3. That the Bonds are not 'bonds' of the City of Andalusia within the meaning of Section 222 of the Constitution; and it is therefore not required by law that an election be held on the question of whether or not said bonds should be issued.

'4. That neither the issuance of the Bonds nor the leasing of the Project to the Respondent Gulf Naval Stores Company under the Contract nor the exercise by the City of Andalusia of the power and authority granted by said Act No. 756, is a violation of Section 94 of the Constitution.

'5. That the issuance of the Bonds and the leasing of the Project are for a lawful and proper public purpose, to the benefit and welfare of the citizens of Andalusia and the surrounding territory, and accordingly all powers and authority granted to the City of Andalusia by said Act No. 756 were within the power of the Legislature of Alabama to grant and were properly granted to and exercised by the City of Andalusia.

'6. That the covenant of the City of Andalusia in the Bonds and the Mortgage that the Bonds and the income therefrom and the Project and any revenue derived from the lease thereof, shall be exempt from all taxation in the State of Alabama, is a valid covenant made pursuant to Section 11 of said Act No. 756 and will constitute a binding contract by and between the City of Andalusia and the holders of the Bonds, so long as the Bonds are outstanding, and will not be subject to impairment by future legislation.

'7. That said Act No. 756 contemplates the completion of a manufacturing plant in such condition that it will be suitable for use, rental and the production of revenues. The City of Andalusia is therefore empowered and authorized by said Act to purchase, construct and install, pipe, water fixtures and connections, furnaces, heating pipe fixtures, and connections, electric wiring, transformers, outlets, fixtures and connections, hardware and floor finishing, and all machinery and equipment necessary to complete the Project into a plant suitable for and capable of extracting naval stores from pine stumps.

'8. The obligation of the City...