People's Bank Liquidating Corp. v. Beashea Drainage Dist.

• Decision Date: 11 February 1946
• Docket Number: 35921.
• Parties: PEOPLE'S BANK LIQUIDATING CORPORATION et al. v. BEASHEA DRAINAGE DIST. et al.
• Court: Mississippi Supreme Court

24 So.2d 784

199 Miss. 505

PEOPLE'S BANK LIQUIDATING CORPORATION et al. v. BEASHEA DRAINAGE DIST. et al.

No. 35921.

Supreme Court of Mississippi

February 11, 1946

[Copyrighted Material Omitted]

May & Byrd, of Jackson, and Hillman &amp McGraw, of Philadelphia, for appellant Bank of Philadelphia.

W J. Evans, of Calhoun City, W. I. Stone, of Coffeeville, J. D. Guyton, of Kosciusko, and Paul M. Moore, of Calhoun City, for other appellants.

Creekmoore & Creekmoore, of Jackson, and Snow & Covington, of Meridian, for appellees.

McGEHEE, Justice.

This suit was brought during the year 1936 by the appellants, as holders of certain unpaid bonds of a first series issued by the Beashea Drainage District in Neshoba County, and the complaint is that a great portion of the funds of the district were unlawfully diverted by the Commissioners and the depository bank, which should have been applied to the payment of such bonds. A decree was asked against the district in its corporate capacity, the Commissioners thereof and the sureties on their official bonds, the Bank of Philadelphia as the de facto depository of the funds in question and the holders of the unpaid bonds of a second series whose rights were asked to be subordinated to those of the complainants in the recovery sought.

The trial court rendered a decree wherein any and all relief prayed for was denied to the complainants as against the commissioners and the sureties upon their official bonds, but which was against the district in its corporate capacity for the amount of the indebtedness sued on, and against the Bank of Philadelphia for the sum of $15,975.20, and in favor of the complainants as to the priority claimed by them in such recovery, as between themselves and the holders of the unpaid bonds of the second series. Also, the decree was in favor of the cross-complainant, Cecil Inman, against the district, on some of the bonds of the first and second series held by him, but not for the full amount actually due, and it provides that the said Inman shall share on an equal basis with the complainants in the recovery against the said bank only as to the bonds of the first series held by him. From the adverse features of this decree. the complainants, Peoples Bank Liquidating Corporation et al., and the defendant Bank of Philadelphia, and Inman, respectively, have prosecuted an appeal.

This drainage district was organized in the year 1919, under Chap 195, Laws of 1912, as amended by Chap. 269, Laws of 1914. The first series of bonds was issued on April 1, 1920, in the principal sum of $33,000, payable in annual installments over a period of thirty years, bearing interest at 6% per annum from date, and making to total indebtedness of $76,080, to be collected during the life of the said bonds, against the assessed benefits to the real property in the district of only $64,399.34. In other words, the amount agreed to be paid to the bond holders was $11,740.66 more than could ever be collected from the property owners of the district for that purpose, unless additional benefits to such real property were to be assessed, and which assessment was never made.

The proceeds of this bond issue were expended for construction work without fully completing the drainage system, and the commissioners issued certificates of indebtedness which amounted to nearly $8,000, to raise additional funds for that purpose.

When these certificates of indebtedness became due, and were remaining unpaid, the Commissioners obtained the passage of a special act by the Legislature, Chap. 607, Local and Private Laws of 1924, authorizing them to issue additional bonds, 'in an amount the principal of which, together with the principal of the outstanding bonds of the said district, shall not exceed the sum of the benefits assessed against the lands in the district.' Of course, the Legislature could not logally authorize the issuance of additional bonds except to the extent of the assessment of additional benefits that might be made against the lands of the district, for the payment of both the principal of all the bonds and the interest to accrue during the life thereof, since the assessment of such benefits would constitute the sole security for the payment of both the bonds and the accrued interest, the benefits theretofore assessed having been exceeded by the principal and interest of the first bond issue, as heretofore stated. That is to say, the second bond issue would constitute no lien upon the lands unless additional benefits had been assessed; and there is no personal liability on the part of the property owners for the payment of drainage district bonds.

Clark v. Pearman et al., 126 Miss. 327, 88 So. 716, and Anderson v. McKee, 182 Miss. 156, 179 So. 858.

The Legislature may have assumed, when it passed this special act, that the Commissioners would assess additional benefits it, in their judgment, such benefits had accrued or would accrue, and such assessment was necessary in order to provide for the payment of both of the said bond issues, and the interest accruing thereon. Nevertheless, the Legislature was without authority to authorize the issuance of additional bonds, 'in an amount, the principal of which, together with the principal of the outstanding bonds of the district, shall not exceed the sum of the benefits assessed against the lands,' because to do so would impair the contractual rights of the bondholders of the first series to collect both the principal and their interest against the benefits theretofore assessed, except to the extent that the debt exceeded such benefits and was uncollectible.

In other words, in order for the special act in question to have constituted the proper exercise of legislative power, it should have required that the additional bonds to be issued thereunder should be in an amount, the principal and interest of which, together with the principal and interest of the outstanding bonds, should not exceed the sum of the benefits theretofore assessed, or to be assessed, against the lands.

In the case of Clark v. Pearman, supra, [126 Miss. 327, 88 So. 717], the Court, when discussing the meaning of the statute here involved, said that: 'It simply provides that for the payment of both principal and interest of the bonds of the district as well as other evidences of debt issued under the statute the entire revenues of the district are pledged 'in an amount not to exceed the amount of betterments assessed against said lands and railroads.'' And in that case the Court stated, further: 'As it appears to the court, there is no escape from the conclusion that under this statute no indebtedness of any character can be incurred, the principal and interest of which will amount to more than the assessed benefits of the district. The plain purpose of the Legislature appears to have been to set aside and pledge alone the assessed benefits for the payment of any and all obligations of the district, including principal and interest, beyond which assessed benefits there was to be no liability whatever of either the district or the landowners thereof.' This case was decided in 1921, and by an analogy it is an adjudication of which the rights of these appellants then were under the series of bonds issued herein on April 1, 1920, and which rights were in full force when the Legislature passed the said special act of 1924.

Pursuant to the special act of 1924, the commissioners issued and sold the bonds of the district in the further sum of $9,000, with which to pay the outstanding certificates of indebtedness of approximately $8,000, hereinbefore mentioned, and the expense in connection with tne issuance and sale of such bonds, and for the payment of which $9,000, and accrued interest, no additional assessment of benefits has ever been made. The validity of these bonds was approved by the attorneys for the purchaser, and by the state bond attorney, and were thereafter validated by decree of the Chancery Court of Neshoba County on the 16th day of July, 1924, in which decree it was recited, among other things, that 'the issuance of said bonds was in strict conformity with law,' and that 'the amount thereof do not violate any legal limitation.'

Moreover, each of the said bonds contains a recital that, 'this bond and the others of the series are issued under Chap. 195 of the Laws of Mississippi of 1912, and the amendments to that chapter, and in strict conformity to said laws and in pursuance of the orders of the Board of Commissioners of the said district, * * *, as authorized by the said laws, and upon special assessments and levies of taxes made and to be made'; and that, 'It is hereby certified and recited that all acts, conditions and things required by the laws and Constitution of the State of Mississippi to be done precedent to and in the organization of the said district and in the levying of special assessments upon the lands of the said district and in the issuance of this bond, have been properly done, happened and performed, and in due and proper form and time, and that this bond is within the limits prescribed by law.'

Then too, Sec. 25(a) of Chap. 269, Laws 1914, provides: 'That the validity of any bonds heretofore or hereafter sold under the provisions of this act shall not be questioned in any court; provided, said bonds are sold as provided in this act, for their face value and the proceeds of such sale were paid to the county treasurer, or the depository selected by the board of commissioners, to the credit of the district.' Moreover, Chap. 280, Laws of 1926, has the effect of validating both series of the bonds here involved, at least to the extent of making them legal obligations of the district in its corporate capacity, as to those issued in excess...