State ex rel. City of Sedalia & Guaranty Trust Company of Kansas City v. Weinrich, Treasure of City of Sedalia

• Decision Date: 21 January 1922
• Citation: 236 S.W. 872,291 Mo. 461
• Parties: THE STATE ex rel. CITY OF SEDALIA and GUARANTY TRUST COMPANY OF KANSAS CITY v. E. H. WEINRICH, Treasure of City of Sedalia
• Court: Missouri Supreme Court

236 S.W. 872

291 Mo. 461

THE STATE ex rel. CITY OF SEDALIA and GUARANTY TRUST COMPANY OF KANSAS CITY v. E. H. WEINRICH, Treasure of City of Sedalia

Supreme Court of Missouri

January 21, 1922

Writ granted.

Montgomery & Rucker and Wilkerson & Barnett for petitioners.

(1) Where the statute provides that bonds issued shall be exchanged for an outstanding indebtedness, an issue of bonds under the provisions of such statute does not create a new indebtedness, nor increase the old, but merely changes the form of an existing indebtedness. State ex rel. v Hackmann, 280 Mo. 704; Huron v. Savings Bank, 30 C. C. A. 38; Fairfield v. School District, 54 C C. A. 342; Hamilton County v. Savings Bank & Trust Co., 84 C. C. A. 523; Butler v. Lewistown, 11 Id. 393; Cedar Rapids v. Bechtrel, 110 Iowa 196; Farson v. Sinking Fund Commrs., 97 Ky. 119; Hotchkiss v. Marion, 12 Mont. 218; Re Menefee, 22 Okla. 365; Hirt v. Erie, 200 Pa. 223; National Life Ins. Co. v. Mead, 13 S.D. 37; Miller v. School District, 5 Wyo. 217; Blanton v. McDowell County, 101 N.C. 532; McCreight v. Camven, 49 S.C. 78; Los Angeles v. Teed, 112 Cal. 319; Re State Bonds, 81 Me. 602; Lake County v. Keene Savings Bank, 47 C. C. A. 464; Etna Life Ins. Co. v. Lyon County, 44 F. 329. (2) Section 8312, Laws 1921, does not limit the power of the city to make a levy to discharge a judgment debt which was liquidated prior to the enactment of the law. Sec. 10, Art. I, U. S. Constitution; Sec. 2, Art XV, Mo. Constitution; Sec. 15, Art. II, Mo. Constitution; Ins. Co. v. Flynn, 38 Mo. 483; Barton County v Walser, 47 Mo. 189; Koch v. Trust Co., 181 S.W. 44.

Leonard W. Rodekohr for respondent.

(1) The proposed bond issue is unconstitutional. The bonds are to be sold and the proceeds applied in payment of a judgment indebtedness. This plan is to be distinguished from cases where bonds are issued to be exchanged for another form of indebtedness, where, the prior indebtedness being cancelled or the bonds representing such indebtedness surrendered simultaneously with the delivery of the funding bonds, there is no increase in the indebtedness. But under the plan in this case it is apparent that after the bonds are sold and until the proceeds are applied as directed, there is bound to be an increase in the indebtedness while the exchange is made, and whether or not it is permanently so depends on the application that is made of the money received from the sale of the bonds. But even a temporary increase, however brief, will not be allowed. Jones v. McGraw, 41 P. 893; State, ex rel. v. Atkinson, 86 P. 575; Birkholz v. Dinnie, 72 N.W. 931; Reynolds v. Lyon County, 96 N.W. 1096; Litchfield v. Ballou, 114 U.S. 190; Doon Township v. Cummins, 142 U.S. 366; State ex rel. Clark County v. Hackmann, 218 S.W. 318. (2) In determining the constitutionality of a statute, it is not necessary to show that the action in question actually does violate the Constitution, but it is only necessary to show that the statute permits a violation of the Constitution. In other words, the question of constitutional power depends not upon what was done in a particular case, but upon what was authorized to be done. People v. Marquiss, 291 Ill. 121; Security Trs. Co. v. Lexington, 203 U.S. 323. And when the constitutional defense is pleaded the burden of proof is upon the plaintiff to show that the indebtedness is within constitutional limit. Thornbury v. School Dist., 175 Mo. 12; City Water Co. v. Sedalia, 288 Mo. 411. (3) The proposed bond issue contravenes the provisions of Section 8312 of Laws of 1921. It is affirmatively alleged in the answer that in June, 1921, the city council of Sedalia passed a general tax levy ordinance which is calculated to produce mathematically a full ten per cent in excess of the tax levy for the previous year. This tax levy was already in full force and effect when the ordinance was passed providing for the proposed bond issue and providing a tax levy of three-fourths of one cent on the one hundred dollars' valuation to pay such bonds and interest. Therefore, the ordinance providing for the bonds in question proposes to increase the tax levy for this year so that it will produce mathematically more than ten per cent in excess of the revenue provided by the previous tax levy. That is exactly the thing that is prohibited by the Laws of 1921. (4) Since the actual effect of the Law of 1921 is to permit the city to collect more money, the change of the law is a mere change in a mode of prodecure. The City Water Company has no vested right in the manner in which money shall be collected by the city for the payment of its debts, but only has a vested right to demand that the city shall be permitted to collect at least as much money as it could collect when the indebtedness was created. There is no vested right in a mode of procedure. Ill. Cent. Ry. Co. v. Wenona, 163 Ill. 288; Benshoof v. Iowa Falls, 156 N.W. 898; 12 C. J. 968; Natl. Surety Co. v. Decorating Co., 226 U.S. 276.

JAMES T. BLAIR, C. J. David E. Blair, J., concurs in the result.

OPINION

In Banc.

Mandamus.

JAMES T. BLAIR, C. J.

-- The city water company of Sedalia obtained judgment against the city of Sedalia for $ 14,816.52 on account of unpaid water rentals. The judgment was affirmed in this court (City Water Co. v. City of Sedalia, 288 Mo. 411, 231 S.W. 942,) in June, 1921. There was no money in the city treasury available to pay the judgment. Acting under Section 8317, et seq., Revised Statutes 1919, the city council passed and the mayor signed an ordinance providing for payment by an issue of judgment-funding coupon bonds for $ 14,500. Bids therefor were duly received and the relator Guaranty Trust Company was the highest bidder. Respondent was and is the city treasurer. He refused to countersign the bonds as required by the statute, and this proceeding was begun to compel him to do so. Respondent concedes that the tax levy for the year is materially less than the constitutional limit. This remains true when the three-fourths of one cent on each $ 100 of the city assessment, the levy for the payment of the bonds in question, is included.

I. Respondent's first contention is that the bonds in question will constitute a new indebtedness and therefore cannot lawfully be issued without the consent of the voters at an election held for that purpose. [Sec. 12, Art. X, Constitution.] The judgment against the city is conclusive of the validity of the indebtedness upon which it is founded. Relators insist the bonds proposed to be issued will constitute a mere refunding of an existing valid indebtedness, and that their issuance will result simply in changing the form thereof, and will neither change nor add to the city's indebtedness in a manner obnoxious to the Constitution. In State ex rel. Clark County v. Hackmann, 280 Mo. 686, 218 S.W. 318, it was held that the issuance and sale of county bonds for the purpose of raising money which was subsequently to be used to discharge an existing indebtedness created a new debt. This, upon the theory that a liability on the bonds came into existence upon their sale and delivery, and that the liability upon the old debt continued to exist until the proceeds from the bonds were thereafter actually applied to extinguish it. It is made clear in that opinion that it was not intended to decide that a refunding of a debt by a process which extinguished it at the time or before the refunding bonds became actual obligations of a municipality, would create a new debt in any sense. That a city might make a new contract in renewal of a prior valid obligation had already been decided by this court. [State ex rel. v. Neosho, 203 Mo. 96, 101 S.W. 99.] In the briefs in this case and those which accompany the opinion in the Clark County Case, as well as in the majority and dissenting opinions in that case, may be found collections of the decisions which show that the great weight of authority is to the effect that the refunding of a valid debt in such manner that the payment and extinguishment precedes or is simultaneous with the coming into existence of the refunded debt as an obligation, does not create a new indebtedness or add to the previous one, but merely changes its form. This is true whether the refunding bonds are exchanged for the evidences of the old debt or are sold and the proceeds actually used to extinguish the old at the time and in the manner stated. It seems to us that sound reason also supports this view.

II. The authority of the city to refund is given by the following sections of the statute: (Secs. 8317, 8318, 8319, 8320, R. S. 1919):

"The mayor and council of any city of the third class, for the purpose of paying any sum of money which it may now or hereafter be required to pay by the judgment or decree of any court of record, may issue coupon bonds of the city, payable in such lawful money of the United States as they may provide, which shall run for a period not exceeding twenty years, may carry interest payable annually or semi-annually, at a rate not exceeding six per centum per annum, shall be signed by the mayor, countersigned by the city treasurer, attested by the city clerk, and shall bear the seal of the city.

"No such bonds shall be issued in such manner as to increase the indebtedness of the said city, but such bonds shall be delivered in payment and discharge of sums which it shall be required to pay by the judgment or decree of any court, at least equal to the principal sum of the bonds so delivered; or such bonds shall be sold as directed by the council of the city, or, in the absence of such directions, by the city treasurer, and the proceeds thereof shall be applied only to the payment of the sums aforesaid; but all such bonds so sold shall be delivered at the...