State Highway Com'n of Kentucky v. King

• Citation: 82 S.W.2d 443,259 Ky. 414
• Parties: STATE HIGHWAY COMMISSION OF KENTUCKY v. KING et al.
• Decision Date: 14 May 1935
• Court: Kentucky Court of Appeals

82 S.W.2d 443

259 Ky. 414

STATE HIGHWAY COMMISSION OF KENTUCKY v. KING et al.

Court of Appeals of Kentucky

May 14, 1935

Appeal from Circuit Court, Franklin County.

Suit for declaratory judgment by J. J. King against the State Highway Commission, in which the Louisville Courier Journal Company and another intervened. From the judgment, the Highway Commission appeals, and J. J. King and the intervening petitioners cross-appeal.

Affirmed in part, and reversed in part.

Bailey P. Wootton, Atty. Gen., and Francis M. Burke, Asst. Atty Gen., for appellant.

Coleman Taylor, of Russellville, and Joseph S. Laurent and J. Verser Conner, both of Louisville, for appellant Liter Donaldson.

Leslie W. Morris, of Frankfort, for appellee J. J. King.

Wilson W. Wyatt, William H. Crutcher, Jr., and Peter, Heyburn Marshall & Wyatt, all of Louisville, and D. L. Hazelrigg, of Frankfort, for appellees Louisville Courier Journal Co. and the Louisville Times Co.

Cary Miller & Kirk, of Owensboro, amici curiæ.

REES Justice.

The General Assembly of Kentucky at its regular 1928 session passed an act known as the Murphy Toll Bridge Act which authorized and empowered the state highway commission as agent of the commonwealth of Kentucky to build, acquire, and own interstate and intrastate bridges on the state primary system of highways. Acts of 1928, c. 172, Ky. St. §§ 4356s-1 to 4356s-15, inclusive.

Section 4 of the Act (Ky. St. § 4356s-4), after authorizing the highway commission to issue bonds for the purpose of obtaining funds with which to build or acquire bridges in such amounts and bearing such rate of interest, not exceeding 6 per centum per annum, as might be deemed best by the commission, contained this provision: "The payment of said bonds, together with the interest thereon, shall be secured by a first lien on all tolls collected on said bridge or bridges, and also by a first lien on such bridge or bridges, its approaches and all real estate appurtenant thereto. The payment of no bond or interest thereon authorized by this act shall be an obligation of the Commonwealth of Kentucky; nor shall any bond be payable out of any fund except such as may be derived from toll bridges."

Section 6 of the act (Ky. St. § 4356s-6) empowered the commission to charge and collect tolls and fix the rates thereof for such length of time as in its opinion would be sufficient to pay off such bonds and interest thereon.

Section 7 (Ky. St. § 4356s-7) provided that if any bonded indebtedness or lien should have been fully paid or discharged on account of any bridge or bridges built or acquired under the provisions of the act, only such toll as might be deemed necessary by the commission to pay the cost of some extraordinary casualty or calamity should be charged or collected.

Section 10 (Ky. St. § 4356s-10) provided that the bonds should be sold to the highest and best bidder.

The 1928 act was held to be constitutional in Bloxton v State Highway Commission, 225 Ky. 324, 8 S.W.2d 392.

The General Assembly at its 1930 session passed an act which abolished the lien created by the 1928 act on the bridges themselves, and made certain other changes in respect of the authority and power of the state highway commission in issuing bridge revenue bonds, which will be noted later in this opinion. Acts of 1930, c. 157, Ky. St. Supp. 1933, §§ 4356s-16 to 4356s-38, inclusive. The 1930 act was held to be constitutional in Estes v. State Highway Commission, 235 Ky. 86, 29 S.W.2d 583, 585.

Pursuant to the provisions of these two acts, the state highway commission issued and sold $9,692,000 of bridge revenue bonds. The bonds were dated July 1, 1930, and bear interest at the rate of 4 1/2 per centum per annum. The bonds were issued under four indentures known as projects 1, 2, 3, and 8. The bonds under projects 1, 2, and 3 mature July 1, 1950, and those under project 8 mature July 1, 1945. Bonds of the par value of $1,744,000 have been retired leaving outstanding bridge revenue bonds in the sum of $7,948,000. Sufficient funds will be available on July 1, 1935, to reduce the principal amount of the outstanding bonds to $7,722,000.

Conceiving that the present was an opportune time to refund this indebtedness at a lower interest rate on account of the favorable condition of the bond market, the state highway commission on March 12, 1935, declared its intention to refinance all outstanding bridge revenue bonds by issuing and selling bridge revenue refunding bonds at a lower rate of interest. A "Notice of Sale" dated March 14, 1935, was approved by the commission. This notice reads in part: "The State Highway Commission of Kentucky at a public meeting of the Commission to be held in its office at Frankfort, Kentucky on the 9th day of April, 1935 at 11 o'clock A. M. Will receive and open sealed competitive proposals for the purchase of bonds to be issued and sold by said Commission to provide funds for redeeming in whole or in part bridge revenue 4 1/2% bonds of the Commonwealth of Kentucky which were issued for bridge projects numbers 1, 2, 3, and 8. *** Each bidder must set forth in his proposal the terms and conditions under which the refunding bonds bid for are to be issued and the proposal will be accepted which the Commission in its prudence may deem for the best interests of the Commonwealth."

On April 9, 1935, two bids were submitted, one by a syndicate of bond dealers headed by C. W. McNear & Co., and the other, by a syndicate headed by Blythe & Co. The syndicate headed by Blythe & Co. proposed to buy approximately 75 per cent. of the bonds at an interest rate of 4 per cent., and the remainder at an interest rate of 3 1/4 per cent. Under this bid the refunding of the bonds would result in a saving of $422,000. The syndicate headed by McNear & Co. proposed to pay par for the refunding bonds approximately 70 per cent. of which were to bear interest at the rate of 3 1/4 per cent. and the remainder at 3 3/4 per cent. The refunding of the bonds under this bid would result in a saving of $1,031,000. The proposal submitted by the syndicate headed by McNear & Co. contained these provisions: "All of said bonds are to be dated July 1, 1935, bearing interest at rates as hereinbefore specified, payable semi-annually on January 1, and July 1 of each year, both principal and interest to be payable in lawful money of the United States of America at the office of the State Treasurer in the City of Frankfort, Kentucky, or, at the option of the holder of the bonds, at a bank in the City of New York, as may be selected by the Commission. All of said bonds are to be secured in the same manner and with the same covenants as the bonds which are to be retired except to the extent same are not pertinent to the refinancing program. It is agreed that the Attorney General of Kentucky representing the Commission and our counsel, Chapman and Cutler, of Chicago, Illinois, are to determine the pertinency or nonpertinency of any covenant to support the refunding bonds, and all proceedings for the issuance of the refunding bonds are to be carried out under their joint supervision. It is further conditioned that such proceedings shall contain provisions that in the event there should at any time be a deficiency in bridge revenues for the payment of the interest on or principal of said refunding bonds as the same become due there shall be advanced from any other available funds under the control of Kentucky State Highway Commission such amounts as may be necessary to cover any such deficiency and that there shall be reimbursements of the amount of any such advancements whenever the bridge revenues from the project shall have accumulated sufficiently so to do and leave a balance of not less than the amount of principal and interest coming due within the next succeeding twelve months on the bonds then outstanding. In the event such other funds are not available to make such advancements for such purposes, the Kentucky State Highway Commission shall include, in its next biennial budget of the State Road Fund, such appropriations as may be necessary to cover such deficiency and in addition thereto to set up a contingent fund which shall be maintained and from which such further advancement shall be made as may from time to time be necessary for the payment of the interest on or principal of said refunding bonds as the same become due. Such contingent fund to be reimbursed in the amount equal to any such advancements as hereinbefore provided."

The commission accepted the bid submitted by the syndicate headed by McNear & Co.

On April 16, 1935, J. J. King, a taxpayer, filed this suit in the Franklin circuit court under the Declaratory Judgment Act (§§ 639a--1 to 639a--12, Civil Code of Practice) against the state highway commission seeking a declaration of rights with respect to the authority of the state highway commission (1) to issue and sell bridge revenue refunding bonds for the purpose of retiring all outstanding bridge revenue bonds; (2) in the event there should at any time be a deficiency in bridge revenues for the payment of the interest on or principal of the refunding bonds as the same become due, to advance from any other available funds under the control of the highway commission such amounts as may be necessary to cover such deficiencies, and in the event such other funds are not available to set up and maintain a contingent fund to meet future deficiencies; (3) to issue temporary bridge revenue refunding bonds dated July 1, 1935. The plaintiff also sought to have the McNear contract declared invalid.

The Louisville Courier Journal Company and the Louisville Times Company filed an intervening petition as taxpayers on their own behalf and on behalf of all other taxpayers of...