State ex rel. Ackerman v. City of Carlsbad

• Court: Supreme Court of New Mexico
• Citation: 47 P.2d 865,39 N.M. 352,1935 -NMSC- 053
• Docket Number: 4097.
• Parties: STATE ex rel. ACKERMAN v. CITY OF CARLSBAD et al.
• Decision Date: 25 June 1935

47 P.2d 865

39 N.M. 352, 1935 -NMSC- 053

STATE ex rel. ACKERMAN
v.
CITY OF CARLSBAD et al.

No. 4097.

Supreme Court of New Mexico

June 25, 1935

Rehearing Denied July 29, 1935.

Appeal from District Court, Eddy County; McGhee, Judge.

Action by the State, on the relation of J. D. Ackerman, for a writ of mandamus against the City of Carlsbad and another. Judgment for defendants, and plaintiff appeals.

Affirmed, and cause remanded. [47 P.2d 866]

Caswell S. Neal and C. M. Neal, both of Carlsbad, and Reed Holloman, of Santa Fé, for appellant.

James W. Stagner and Don G. McCormick, both of Carlsbad, for defendant appellees.

Hurd & Crile, of Roswell, and Rodey & Dickason, of Albuquerque, for intervener appellees.

C. R. Brice, of Roswell, and H. A. Kiker, of Santa Fé, amici curiæ.

W. A. Keleher and Theo. E. Jones, both of Albuquerque, amici curiæ.

Myles P. Tallmadge, of Denver, Colo., amicus curiæ.

WATSON, Justice.

This litigation concerns an issue of bonds by the city of Carlsbad in the sum of $500 each, and aggregating $366,000. They all bear date July 1, 1929. Except for the reserved option of the city "to redeem this bond at any time before maturity, by paying therefor its par value and accrued interest," they all mature July 1, 1940. Annual interest at 6 per cent. payable January 1st and July 1st of each year is provided for, and is represented by 22 coupons attached to each bond.

These are not general obligation bonds. Each recites that it was issued in exchange for "a like amount" of assignable certificates "representing the cost" of certain street improvements, and that it is payable solely out of "a special fund designated the Carlsbad 1929 paving fund" to be derived from collection of the assessments for benefits, which assessments are the basis of the assignable certificates for which the bond was exchanged.

While the city assumes no general liability for the payment of these bonds, it does obligate itself to create such paving fund, to collect and enforce the special assessments, to place the proceeds in the fund, and to pay "this bond out of such receipts in the manner provided by the ordinance under which this bond is issued."

Such a bond issue is an optional part of our statutory scheme for financing municipal improvements. An assessment for benefits having been made, each assessment is carried into a certificate of lien upon the benefited property. Usually these certificates are delivered to the contractor. He assigns them to the city. The city in exchange, issues a like amount of its improvement bonds which the contractor markets as he chooses or is able. Such was the procedure in this case.

The statutory authority underlying this issue leaves much to local discretion. It authorizes the city council to "fix the terms and conditions" of the bonds, subject only to the restrictions that the amount of the issue shall not exceed "the total assessments levied," that the maturity must be "on or before a date not later than twelve months after the last deferred installment of such assessments is due," and that the interest rate shall not exceed "the rate of interest on such deferred installments." Comp. St. 1929, § 90-1701.

Pursuant to other provisions of this and other statutes, the city created a paving district, levied an assessment for benefits aggregating $366,000, and issued lien certificates representing such assessments payable in ten equal annual installments, beginning July 1, 1930. These several installments [47 P.2d 867] bear interest at the rate of 6 per cent. per annum, payable semiannually, beginning January 1, 1930. The property owner might, however, pay the whole assessment within thirty days after the certificate of lien, in which case he would be rewarded with a 5 per cent. discount. He might also pay any or all installments before maturity, in such case being charged with interest to the next succeeding interest paying date.

The lien certificates also contained the provision that failure to pay any installment of principal or interest when due should cause immediate maturity of the whole, and that the unpaid principal and accrued interest should thereafter bear interest at the rate of 1 per cent. per month. This provision, inserted in the certificates pursuant to the ordinance, we have held violative of the statute, which limits interest on assessments to 8 per cent. annually. City of Roswell v. Levers, 38 N.M. 419, 34 P.2d 865.

This done, the city proceeded, by Ordinance 207, to authorize the bond issue. It there specified the terms and conditions of the bonds and the manner of their payment, as the statute authorized, and set forth the exact form and tenor of the bonds which were issued. Among its important provisions, are these:

"That the Treasurer of the City of Carlsbad be and he is hereby authorized and empowered, and it shall be his duty to receive and collect all assessments levied to pay the costs of said improvements, the installments thereon and the interest thereon, at the times and in the manner heretofore specified, and to pay and disburse such payments to the person or persons lawfully entitled to receive the same, in accordance with the laws of the state of New Mexico, and all ordinances and resolutions of said City heretofore and hereby adopted. All moneys received shall be placed in a separate fund to be designated '1929 Paving Fund,' and shall be used for the purpose of paying the principal and interest on the paving bonds hereinafter mentioned, and for no other purpose whatsoever." Section 3

"The said paving bonds shall be paid and discharged in numerical order, commencing with number one, and when the City Treasurer has funds on hand in said Paving Fund sufficient to pay the principal of any of said paving bonds, he shall notify the firm of -- by written notice through the United States Mails, Postage Prepaid, designating the bonds to be paid, and thirty days after said notice is given, the interest on said paving bonds shall cease." Section 10.

Up to about the middle of 1934, this scheme had worked as follows:

There had been paid into the 1929 paving fund: Representing the principal of assessments $92,320.70 Representing Interest on Deferred payments 47,824.29 Representing Penalties for Delinquencies 2,656.40 $142,801.39 ----------------------- There had been disbursed from it: In payment of all interest coupons maturing prior to $85,159.95 Jan. 1, 1934 Retirement of Bonds numbered 1 to 76 38,000.00 $123,159.95 ----------------------- There remained in the fund: Representing principal of assessments $14,457.69 Representing Interest on Deferred payments 5,183.75 $19,641.44 ----------------------

There remained unpaid the interest coupons due January 1, and July 1, 1934, in the principal sum of $19,680.

This clearly shows a heavy delinquency on the part of property owners. Moreover, the trial judge found that values had so fallen since the assessment was made that, unless there should be a recovery in the meantime, there would be "a deficit of approximately $100,000.00 in the collections which can be made from the property in the district."

Many of the counsel refer to this as an insolvency of the fund. It at least forecasts losses to the bondholders, who have nothing but the assessment liens to look to for satisfaction. If, as among the bondholders, there are any priorities of right, they are of great importance.

The plaintiff, owning bond numbered 77 and some others immediately succeeding in numerical order, seeks by mandamus to compel the city treasurer to apply $14,000 of the sum on hand in the paving fund, as above shown, to the payment and retirement of these bonds. He advances two contentions. First, that the whole scheme necessarily implies and requires that payments into the fund in satisfaction or reduction [47 P.2d 868] of the assessments themselves be employed in retirement of bonds, and that the interest coupons be paid from the interest collected on deferred payments. Second, that the bonds are to be paid in their numerical order.

It was determined below that matured interest coupons had the first call on the whole fund. As nothing would remain of the fund after such payment, the figures in fact showing a slight insufficiency, the alternative writ was quashed.

Strictly speaking, this disposition of the case below eliminates the second of appellant's contentions from this review, unless we shall find the court in error as to the first. Some of the counsel here engaged strongly urge, however, that both questions be decided.

Ordinarily we shall do well to content ourselves with a decision of the case before us. But this case is peculiar. The two questions are very nearly related, and no one has entirely succeeded in keeping them distinct in argument. Both require close inquiry as to the meaning and effect of the contract. There being numerous counsel, the issues and contentions are less clearly defined than in the ordinary two-sided case. We cannot but feel that a conclusion as to the second, perhaps the more far-reaching contention, is essential to safe decision of the first. Indeed, we cannot say that the trial judge was not influenced in deciding the first by an unannounced opinion as to the second. Certainly the positions of counsel are thus influenced. If we should find these bonds as to their principal equally and ratably secured, either according to the original contract or as the result of a supervening insolvency of the paving fund, the first question loses most, if not all, of its practical importance.

Adding to this, that if the second question shall remain undecided, it will surely be renewed unless the fund should never again contain more than enough to pay interest, and that other municipalities are troubled by doubts as to the application of similar funds, we have concluded to reverse the order...