Sovereign Camp, WOW v. Gillespie

• Decision Date: 12 March 1937
• Docket Number: No. 10630,10634.,10630
• Parties: SOVEREIGN CAMP, W. O. W., v. GILLESPIE et al. YELL COUNTY, ARK., et al. v. SAME.
• Court: U.S. Court of Appeals — Eighth Circuit

87 F.2d 944 (1937)

SOVEREIGN CAMP, W. O. W., v. GILLESPIE et al.

YELL COUNTY, ARK., et al. v. SAME.

Nos. 10630, 10634.

Circuit Court of Appeals, Eighth Circuit.

February 11, 1937.

Rehearing Denied March 12, 1937.

Henry Donham, of Little Rock, Ark. (Sam Rorex and Martin K. Fulk, both of Little Rock, Ark., on the brief), for appellant Woodmen of the World.

Thomas Boyers, Lewis Robinson, and F. D. Majors, all of Dardanelle, Ark., for appellants Yell County, Ark., and others.

Wallace Townsend, of Little Rock, Ark. (James G. Martin, Thomas E. Elcock, and Allen A. Schaefer, all of Wichita, Kan., on the brief), for appellees.

Before GARDNER, WOODROUGH, and THOMAS, Circuit Judges.

WOODROUGH, Circuit Judge.

The Sovereign Camp, Woodmen of the World, is the owner of funding bonds issued by Yell County, Ark., in 1925, payable out of a general property tax levy of not to exceed three mills. It has appealed to reverse a decree in equity which held other bonds issued by the county three years later to be valid, put them on a parity with the Woodmen's bonds and required the proceeds of the three-mill tax to be apportioned between the holders of the different bond issues; the part allotted to the Woodmen being insufficient to service its bonds. Yell County claims the later issued bonds are invalid and also appeals from the decree. The two appeals have been heard together.

The amendment to the Constitution of Arkansas now known as amendment No. 10 adopted by vote December 7, 1924, authorized counties in the state to issue bonds to secure funds to pay the county indebtedness outstanding on the date of the adoption of the amendment and to levy a tax on all property in the county not exceeding three mills per annum to pay the bonds and interest. Procedure for such bond issue was prescribed by the Act of March 23, 1925 (pp. 608 to 612) as follows:

Section 1. "The county court of any county or the city or town council of any city or incorporated town may issue bonds for the purpose of funding the indebtedness of such county, city or town outstanding at the time of the adoption of Amendment No. 11 to the Constitution of the State of Arkansas, appearing on pages 797 to 799, inclusive, of the General Acts of the General Assembly of the State of Arkansas of the year 1923. Before the issue of any county or city bonds under this act, the county court shall by order entered upon its records, declare the total amount of such indebtedness or the city or town council shall by ordinance, declare the total amount of such indebtedness. Such order of the county court shall be published immediately for one insertion in some newspaper published in the county, and such ordinances of the city or town council shall be immediately published in some newspaper issued in such city or town, if there be one, and if not, in some newspaper published in the county; and any property owner who is dissatisfied may, by suit in the chancery court of the county brought within thirty days after the publication of such order or ordinance have a review of the correctness of the finding made in such order or ordinance; but if no such suit is brought within thirty days, such finding shall be conclusive of the total amount of such indebtedness, and not open to further attack, and if said suit is brought the adjudication shall settle the question and appeal therefrom must be taken and perfected within thirty days. If any officer of such county, city or town shall wilfully make any false statement as to the amount of its indebtedness, he shall forfeit his office and be ineligible to hold any other office of profit or trust in this State."

"Section 4. Before or after the issue of said bonds the quorum court of such county or the city or town council of such city or town shall levy a tax, which, on the existing assessed value of the property of such county, city or town, will suffice to retire said bonds as they mature, with five percent added for unforeseen contingencies; provided that said tax shall not exceed three mills on the dollar of such assessed value. If said tax proves insufficient to meet the maturities of the bonds with interest, it shall be the duty of the quorum court of such county or the city or town council to increase such levy of taxes, but not beyond three mills upon the dollar of the then assessed valuation; and if by reason of the increase in the assessed value of the property of such county, city or town a lower rate of tax will prove sufficient to meet the bonds and coupons as they mature, the amount of the tax may be lowered accordingly; but no tax shall be levied which will produce less than the sum required to meet the maturities of the bonds with five percent added for unforeseen contingencies, nor shall any tax in excess of three mills on the assessed value existing at the time of such levy ever be levied in any year. The money derived from such taxes shall be preserved as a separate fund for the redemption of such bonds and any officer of such county, city or town or any other person who uses any of such money for any other purpose shall be deemed guilty of a felony and imprisoned for a period not less than one year."

In 1925 Yell County availed itself of the authority granted by the amendment (No. 10), and the county court of the county ascertained and duly entered its order of record that the amount of the outstanding indebtedness of the county as of October 7, 1924, was $139,442.61, and after publication of the order, the funding bonds of the county in the amount of the indebtedness ($139,000) were issued and a tax levy of one and three-quarters mills was made to meet them. They were duly sold and the appellant Woodmen of the World is the owner of a portion of them aggregating $89,000. At the time of the issue of the bonds the assessed value of the property in the county was over $6,000,000 and there was a liberal margin between the one and three-quarters mills then required to service the bond issue and the maximum of three mills which the constitution authorized and the statute required to be levied for them "if said tax proves insufficient to meet the maturities of the bonds with interest." Section 4. But the assessed value of property in the county declined so that in 1932 it was one-half of what it was in 1925 and, although it has since increased, the one and three-quarters mills levy is insufficient to service the Woodmen's bonds. The whole three mills would suffice if available for the purpose.

But in April, 1928, about three years after the funding bond issue had been made, the county court of Yell County undertook to make a new adjudication of the outstanding indebtedness of the county as of the date of the adoption of the constitutional amendment December 7, 1924, and determined that such indebtedness was $210,880.96 instead of $139,442.61 found to be outstanding and funded in 1925, and that there was a balance of $71,880.96 which the county was entitled to fund but which had not been funded. The new order of the court was entered of record and was published and, no suit being brought against it, additional 4½ per cent. funding bonds were issued in the sum of $83,000 (that amount "being equivalent to bonds in the principal sum of $71,587.50 at the rate of 6 per cent. over the same period"). A tax of one and one-quarter mills was levied by the quorum court to service the new bonds, and that levy, together with the one and three-quarters mills levy for the original bonds, took the whole three mills authorized by the constitutional amendment. The supplemental bonds were in like form as the original issue and came into the hands of purchasers for value. The proceeds derived from the sale of the new bonds were not applied to any outstanding indebtedness of the county but were placed in the general fund and used for the construction of roads and bridges and purchase of rights of way. The principal of six of the new bonds matured in 1930, 1931, and 1932, and as the county had no funds to pay them, it made an order in 1931 that twelve other bonds of $500 each be issued to refund the matured bonds and the refunding bonds are also outstanding.

In 1934 default had been made in the payment of principal and interest of the first bond issue, and the Woodmen of the World, as owner of bonds of that issue in the amount of $89,000, brought a suit in the chancery court of Yell County to have the later bond issues declared void and to require the entire three mills tax levy to be applied to the payment of its bonds of the first issue. A taxpayer intervened and aligned himself with the plaintiff, and the chancery court found and decreed as prayed in the petition of the Woodmen of the World. But none of the holders of the later bond issues of 1928 and 1931 was made a party to the suit in the chancery court, and it does not appear to be seriously contended that the adjudication became binding upon them. Fetzer v. Johnson (C.C.A.8) 15 F.(2d) 145; Board of Education et al. v. James (C.C.A.10) 49 F.(2d) 91. Some of such holders of the bonds of the later issues brought this present suit on their own behalf and on behalf of all similarly situated in the United States District Court for the Eastern District of Arkansas, and a contrary decree to that of the chancery court was arrived at upholding the later bond issues as valid and requiring the proceeds of the three-mill tax to be ratably apportioned between the holders of the several bond issues.

It is contended for the Woodmen of the World under appropriate assignments of error that the provisions of the constitutional amendment, and the statute under which its bonds were issued, entered into and conditioned the contract between it as a bondholder and the county, and that the subsequent action of the county court and the quorum court in attempting to divert a part of the three-mill tax levy to the holders of the later bond issues impaired the obligation of the contract and deprived it as a...