Reynolds v. Lyon County

• Decision Date: 28 October 1903
• Citation: 96 N.W. 1096,121 Iowa 733
• Parties: G. M. REYNOLDS, Appellee, v. LYON COUNTY, Appellant
• Court: Iowa Supreme Court

96 N.W. 1096

121 Iowa 733

G. M. REYNOLDS, Appellee, v. LYON COUNTY, Appellant

Supreme Court of Iowa, Des Moines

October 28, 1903

Appeal from Lyon District Court.--HON. F. R. GAYNOR, Judge.

ON April 5, 1880, the board of supervisors of Lyon county ordered the bonding of the floating indebtedness of the county and on June 1st, following, the five bonds in amount of $ 500 each, bearing seven per cent interest, payable semi-annually, were issued to Chase & Taylor to take up outstanding warrants. These were transferred to the Equitable Life Insurance Company of Des Moines, and later by it to the plaintiff. Several defenses were interposed, but on hearing judgment was entered for plaintiff, and the county appeals.

Affirmed.

E. C Roach and E. Y. Greenleaf for appellant.

Parsons & Riniker for appellee.

OPINION

LADD, J.

Lyon county was organized in January, 1872, and immediately proceeded to create an indebtedness, in utter disregard of section 3, article 11, of the state Constitution, which reads: "No county, or other political or municipal corporation, shall be allowed to become indebted in any manner, or for any purpose, to an amount in the aggregate exceeding five per centum on the value of the taxable property within such county or corporation--to be ascertained by the last state and county tax lists, previous to the incurring of such indebtedness." By July 28, 1873, it had issued judgment bonds to the amount of $ 55,000. Operations were then suspended until October 19, 1874, from which time up to June 4, 1879, funding bonds to the amount of $ 55,300 were turned out. On July 1, 1879, in pursuance of a resolution of the board of supervisors of April 3d previous the county issued and sold bonds known as the "Shade Bonds," in the sum of $ 100,000, for the purpose of liquidating the outstanding bonded indebtedness of the county. Of the proceeds derived therefrom $ 53,500 was applied in satisfaction of the judgment bonds first mentioned, and the remainder to the payment of the $ 47,300 of the refunding bonds. Aside from the debts mentioned, twelve judgments were rendered against the county between July 24, 1873, and May 14, 1878, inclusive, but all these had been satisfied by the bonds referred to by cash or warrants, and no judgments were entered after the last-named date. Funding bonds were issued. January 8, 1880, for $ 600; May 12, 1880, $ 11,600; and June 1, 1880, $ 6,800. Included in the last were the bonds in controversy. On June 1, 1880, there were also outstanding $ 4,259 in county warrants. It is unnecessary to detail subsequent transactions farther than to say that on May 1, 1885, there was an issue of $ 120,000 in bonds, from the proceeds of which the bonds of July 1, 1879, were fully paid. The assessed valuation of the property of the county for each year is stipulated, and as a result of computation it appears that the maximum limit of indebtedness permissible June, 1880, was $ 49,517, and that the highest previous to that time was $ 54,067.80 in 1876. It is manifest, then, that the bonds issued from October 19, 1874, to June 4, 1879, were void, for there were then outstanding those dated prior to July 28, 1873, which alone exceeded the constitutional limit. Was the issue of July 1, 1879, also void? This, according to appellant, is the crucial question in the case, for it will be observed that, if the $ 100,000 in bonds of that date be regarded valid, there was an outstanding indebtedness of $ 131,259, when the plaintiff's bonds were issued, and hence they were in excess of the limit fixed by the Constitution. But, if such bonds were invalid, such indebtedness was but $ 31,259, and the county had authority to execute the bonds. It is well to note that the bonds of July 1, 1879, were actually disposed of before the proceeds derived therefrom were applied on the bonds outstanding. This resulted during the time intervening in an additional indebtedness of $ 100,000, or double that amount in all.

Recurring to the article of the Constitution quoted, we observe that the county is prohibited from becoming indebted in any manner or for any purpose beyond the limit. It may not then, incur any pecuniary liability by bonds, notes, or by express or implied promises. No purpose, however urgent or useful will suffice. The existing indebtedness, if equal to the amount limited, is an insurmountable obstacle to the creation of further debt in any manner or for any purpose. Litchfield v. Ballou, 114 U.S. 190 (5 S.Ct. 820, 29 L.Ed. 132). In District Tp. of Doon v. Cummins, 142 U.S. 366 (12 S.Ct. 220, 35 L.Ed. 1044), a statute of this state authorizing a school treasurer to sell bonds and "apply the proceeds thereof to the payment of the outstanding bonded indebtedness of the district, " or exchange such bonds for outstanding bonds, was under consideration, and the court, in declaring the portion quoted contrary to the prohibition of the Constitution, said: "There is a wide difference in the two alternatives which this statute undertakes to authorize. The second alternative of exchanging bonds issued under the statute for outstanding bonds, by which the new bonds, as soon as issued to the holders of the old ones, would be a substitute for and an extinguishment of them, so that the aggregate outstanding indebtedness of the corporation would not be increased, might be consistent with the Constitution. But under the first alternative, by which the treasurer is authorized to sell the new bonds, and to apply the proceeds of the sale to the payment of the outstanding ones, it is evident that if [as in the case at bar] new bonds are issued without a cancellation or surrender of the old ones, the aggregate debt outstanding, and on which the corporation is liable to be sued, is at once and necessarily increased, and, if new bonds equal in amount to the old ones are so issued at one time, is doubled; and that it will remain at the increased amount until the proceeds of the new bonds are applied to the payment of the old ones, or until some of the obligations are otherwise discharged. It is true that, if the proceeds of the sale are used by the municipal officers, as directed by the statute, in paying off the old debt, the aggregate indebtedness will ultimately be reduced to the former limit. But it is none the less true that it has been increased in the interval, and that, unless those officers do their duty, the increase will be permanent. It would be inconsistent alike with the words and with the object of the constitutional provision, framed to protect municipal corporations from being loaded with debt beyond a certain limit, to make their liability to be charged with debts contracted beyond that limit depend solely upon the discretion or the honesty of their officers."

In the dissenting opinion this construction was denounced as purely technical, as the object of the statute was, not to create a new or increase the old indebtedness, but merely to change its form, and reduce the interest rate. The difficulty in this suggestion is that a new debt is for the time-being created, and one day's continuation of it in addition to that evidenced by the old bonds is as much within the condemnation of the letter and spirit of the Constitution as that of a year. It won't do to say that officers may be relied upon to use the proceeds derived from the sale of bonds to wipe out existing obligations. In that case these were not so applied. The very object of this article of the Constitution is to protect the interests of the people against their own improvidence and extravagance. If such bonds are not within the prohibition, it would be within the power of dishonest officials by indirection to circumvent the fundamental law, and through diversion of the proceeds of new bonds saddle both them and the outstanding debts as burdens on the people. Said Corliss, C. J., in Birkholz v. Dinnie, 6 N.D. 511 (72 N.W. 931), in reaching a like conclusion: "Aware of the ingenuity with which restrictions on power are circumvented in great exigencies, the framers of our organic law employed the most sweeping language to prevent such devices being successful. The instrument declares that never shall the debt exceed the specified percentage of the assessed value. No matter for what purpose created, or under what circumstances, or how pressing the emergency, or how short the indebtedness is to continue, if it will in fact increase the obligations of the municipality beyond the constitutional limit, it falls within the letter and the spirit of the constitution. To give to section 183 so lax a construction that the debt limit may be passed by the sale of refunding bonds is both dangerous and unwarrantable." To the same effect, see, also, State v. McGraw, 12 Wash. 541 (41 P. 893); Bannock Co. v. Bunting & Co., (Idaho) 4 Idaho 156, 37 P. 277. Apparently opposed to these views will be found several decisions. Thus, in City of Los Angeles v. Teed, 112 Cal. 319 (44 P. 580), in construing an article of the Constitution like that in the last case cited, the court said: "Merely to fund or refund an existing debt is not to incur an indebtedness or liability. A bond is not an indebtedness or liability. It is only an evidence of representation of an indebtedness. And a mere change in the form of the evidence of the indebtedness is not the creation of a new indebtedness within the meaning of the Constitution." That was an action to compel the signing of bonds by the proper officials. The language quoted is not inconsistent with the conceded power to exchange such new bonds for outstanding obligations. Heins v. Lincoln, 102 Iowa 69, 71 N.W. 189. That was the conclusion in the Opinion of the Justices, 81 Me. 602, (18 A. 291), and the other authorities cited. See, also, Powell v....