Pulaski County v. Ben Hur Life Ass'n
| Decision Date | 21 January 1941 |
| Parties | Pulaski County et al. v. Ben Hur Life Ass'n of Crawfordsville, Ind., et al. |
| Court | United States State Supreme Court — District of Kentucky |
2. Municipal Corporations. — If county bonds were negotiable, and buyers thereof innocent holders for value, or bona fide holders in due course, the county was liable to the buyers of the bonds from an insolvent brokerage company and could not avail itself of the defense of fraud and lack of consideration available against the company (Ky. Stats., sec. 3720b-1 et seq.).
3. Municipal Corporations. — The Negotiable Instruments Act applies to municipal bonds and must be looked to in determining whether a bond is negotiable so as to prevent the maker from relying on the defective title of the predecessor of an innocent purchaser for value (Ky. Stats., sec. 3720b-1 et seq.).
4. Municipal Corporations. — Municipal bonds are "negotiable," in so far as an unconditional promise to pay is concerned, where reference to the source of revenue is only collateral, but are not negotiable if made payable on a contingency which may never occur, or payable exclusively from a particular fund derived from designated sources which may prove insufficient (Ky. Stats., secs. 3720b-1, 3720b-3).
5. Municipal Corporations. — If any condition limiting the source of payment is injected, specifically or by operation of law, into the promise to pay a municipal bond, it destroys the unconditional character of the promise, and therefore the negotiability of the bond (Ky. Stats., sec. 3720b-3).
6. Municipal Corporations. — A transferee of county bonds reciting that they were issued pursuant to specific sections of the Constitution and statutes and all other pertinent laws is chargeable with knowledge of the law as to the power of the county and the resources for payment.
7. Counties. — The pledge of the county's full faith, credit, and resources for payment of bonds reciting that they were issued pursuant to specific sections of the Constitution and statutes must be read in connection with such sections, as construed by the courts, and when so read can mean only a pledge of faith and credit to the extent of the resources to be found in the law (Ky. Stats., sec. 4307 et seq.; Constitution, sec. 157a).
8. Counties. — The statute relating to county road and bridge bonds, in so far as it purports to authorize a tax not exceeding 30 cents on $100 of assessed valuation, is unconstitutional as to the amount in excess of the 20-cent levy fixed by the Constitution (Ky. Stats., sec. 4308; Constitution, sec. 157a).
9. Counties. — The constitutional amendment and the statutes making it operative, authorizing additional county road bonds and a tax for payment thereof, establish an independent system for financing road construction and improvement, and the indebtedness may be in addition to the aggregate county indebtedness limited by other sections of the Constitution (Ky. Stats., secs. 4307, 4308; Constitution, secs. 157-158).
10. Counties. — The statutes authorizing county road and bridge bonds and a tax for payment thereof restrict the amount of bonds to that which can be liquidated within the time specified for their maturity by revenue from the 20-cent tax levy authorized by the Constitution, and the limitation being mandatory, no bond in excess of that amount is valid (Ky. Stats., secs. 4307, 4308; Constitution, sec. 157a).
11. Municipal Corporations. — Road and bridge bonds are not "negotiable" if obligating the county only to levy and collect the special 20-cent tax and disburse the proceeds to bondholders, but are negotiable if the county may be required to exercise its general taxing power, or to extend the time of the special levy and perform the concomitant duties until the bonds are paid (Ky. Stats., secs. 4307, 4308; Constitution, secs. 157, 157a).
12. Municipal Corporations. — The constitutional amendment authorizing counties to incur an additional indebtedness for road purposes permits but does not require a special 20-cent tax levy, and contemplates a general obligation rather than a conditional indebtedness payable exclusively out of the special tax, as regards negotiability of road bonds (Constitution, sec. 157a).
13. Counties; Municipal Corporations. — Generally, the power to incur an indebtedness, such as the constitutional power of counties to incur an additional indebtedness for road purposes, implies the power to assume personal liability and to issue negotiable securities as evidence thereof, and it is personal liability of the obligor which is the test of negotiability (Ky. Stats., sec. 3720b-1 et seq.; sec. 4307; Constitution, sec. 157a).
14. Constitutional Law. — The constitutional amendment authorizing additional county road bonds and a special tax for payment does not conflict with the section of the Constitution requiring counties or municipalities contracting an indebtedness to provide a tax for payment thereof within 40 years, nor with the section relating to renewal bonds (Constitution, secs. 157a-159).
15. Counties; Municipal Corporations. — The section of the Constitution requiring counties or municipalities contracting an indebtedness to provide a tax sufficient for payment thereof within 40 years is self-executing and is designed to protect bondholders (Constitution, sec. 159).
16. Constitutional Law. — The section of the Constitution requiring counties or municipalities contracting an indebtedness to provide a tax sufficient for payment thereof within 40 years is to be read with the preceding section permitting the renewal of bonds (Constitution, secs. 158, 159).
17. Municipal Corporations. — County road and bridge bonds reciting that they were issued pursuant to sections of the Constitution and statutes which authorized additional road bonds and a special tax levy were "negotiable instruments," since payment was not confined to a particular fund, inasmuch as the county could use other available resources at its option, and, under the Constitution, could renew the bonds, and could be required to continue the special levy beyond the life of the bonds (Ky. Stats., sec. 3720b-1 et seq.; sec. 3720b-3; sec. 4307 et seq.; Constitution, secs. 157a-159).
18. Municipal Corporations. — Municipal bonds issued in excess of constitutional and statutory limitations of indebtedness are void as to such excess, whether the holder is a bona fide holder or not, and where only part of the issue is excessive, each bond is to be treated as only partly valid and its due proportion to the whole debt attempted to be incurred may be recovered.
19. Counties. — Under the constitutional amendment authorizing counties to incur an additional indebtedness for road purposes and to levy a tax not exceeding 20 cents on $100 of assessed valuation, a county cannot legally assume a debt beyond the amount which the 20-cent levy will take care of, if that is the sole source of revenue pledged for payment (Constitution, sec. 157a).
20. Counties. — The fact that the voters, authorizing an issue of county road and bridge bonds, approved only the special constitutional tax levy of 20 cents on $100 of assessed valuation for payment of the bonds, which bore interest at 4 3/4 per cent., and which were required under the Constitution to mature within 40 years, supplied the elements of the formula for measuring the county's indebtedness in determining whether the bond issue exceeded constitutional debt limits, and if measurement by that formula showed that the debt which could be liquidated was less than 5 per cent. of the assessed valuation of the taxable property, such smaller sum was the limit of a valid debt (Ky. Stats., sec. 4307; Constitution, secs. 157-159).
21. Counties. — Payment of interest on county bonds does not have the effect of ratifying bonds issued beyond the lawful debt limit, since a ratification can have no greater force than a previous authority, and the county cannot ratify what it could not have authorized.
Appeal from Pulaski Circuit Court.
R.C. Tartar, W.R. Jones and Lawrence S. Hail for appellants.
Woodward, Dawson & Hobson, B.J. Bethurum, S.S. Willis, S.D. Rouse, Harvey & McIntyre, George W. Meuth, Robert H. Winn, W.H. Crutcher, Jr., Grafton & Grafton, Stites & Stites and Carroll, McElwain & Ballantine for appellees.
Before J.S. Sandusky, Judge.
Reversing.
Two important questions are presented by the appeal. One is whether bonds issued by a county for the construction of roads and bridges under the authority of Section 157a of the Constitution of Kentucky and Section 4307 of the Statutes are negotiable instruments so as to divest the maker of the right to rely on the defective title of the predecessor of a purchaser for value. The other question is the criterion to be used for determining whether an issue of bonds exceeded the county's authority, and, if so, the effect of an over-issue. This is a consolidated suit by owners of seven matured bonds and of interest coupons on others to recover judgment against Pulaski County and to enforce its payment. The circuit court granted the relief asked.
The county contends: (1) The contract by which the bonds were sold by the county to plaintiffs' predecessor in title was procured by fraud and deceit and the sale was without consideration; that the bonds are non-negotiable, hence the plaintiffs are not holders in due course and the remedy against the original purchaser is available; and (2) the bonds are invalid because issued in excess of constitutional limitations.
By a referendum election held under the provisions of Section 157a of the Constitution of Kentucky and Section 4307 of the Statutes,...
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