Troy Nat. Bank v. Russell County

• Decision Date: 22 June 1923
• Citation: 291 F. 185
• Parties: TROY NAT. BANK v. RUSSELL COUNTY et al.
• Court: U.S. District Court — Middle District of Alabama

291 F. 185

TROY NAT. BANK v. RUSSELL COUNTY et al.

United States District Court, M.D. Alabama, Northern Division.

June 22, 1923

G. W L. Smith, of Brewton, Ala., and Steiner, Crum & Weil, of Montgomery, Ala., for plaintiff.

John S Stone, of Birmingham, Ala., Frank M. de Graffenried, of Seale, Ala., and Bernard Lobman, of Montgomery, Ala., for interveners and claimants.

W. H Merrill, of Eufaula, Ala., and Farmer, Merrill & Farmer, of Dothan, Ala., for defendants.

CLAYTON District Judge.

Professing to act by authority of law, and within its jurisdiction, the court of county commissioners of Russell county caused to be issued, pursuant to the provisions of article 8, chapter 11 of the Code of Alabama of 1907, 30-year bonds of the county, bearing date March 1, 1911, in various denominations and aggregating $120,000, of which $100,000 were for public road purposes, with 5 per cent. coupons attached, maturing semiannually. Subsequently, and from time to time during the year 1915, the county caused to be issued interest-bearing obligations of the county, designated 'road and bridge warrants,' for public road purposes, in various denominations. Likewise, in August, 1917, such or similar road warrants were issued in various denominations and maturing on various dates, aggregating some twenty odd thousand dollars; in April, 1919, another series of road warrants of similar import, aggregating the sum of $22,000, were issued; and in 1919 the county issued or caused to be issued under Acts 1915, p. 105, and a local act for Russell county, interest-bearing 'certificates of indebtedness' for temporary loans, in anticipation of taxes for the year 1919, payable to bearer, and aggregating the sum of $50,000. The revenues of that year were in excess of $61,000.

One or more installments of interest on some or all of these various obligations, and some part of the principal of some of them, was or were paid by the county; but, new officials having succeeded to office, the county sought to repudiate those obligations as having been created in excess of the debt limit prescribed by section 224 of the Constitution of Alabama, and therefore void. Thereupon the Troy National Bank, of Troy, Ohio, having acquired certain of these temporary loan certificates of indebtedness, issued in 1919, filed its bill in this cause, seeking to enjoin the county from diverting or otherwise appropriating the revenues of the county which had been pledged for the payment of the certificates, to establish the validity of the certificates, and enforce the payment of the principal and accrued interest thereon. Subsequently various other holders of these or some of these several obligations intervened and became parties plaintiff to the proceeding.

The county of Russell answered the original bill, and subsequently made its answer a cross-bill, invoking the jurisdiction of the court, and seeking the cancellation of these various obligations, chiefly for the reason stated, and offering to abide by and perform such orders and decrees as the court might deem proper, and meantime that the revenues of the county be administered under the supervision of the court. At the suggestion of the parties to the cause, other creditors and claimants were, by order of the court, directed to propound their claims, and the matter was thereupon referred to a special master, to take the testimony and report his findings of fact and conclusions to the court for its further consideration and decree. The master accordingly, after a prolonged and extensive investigation and consideration of voluminous testimony, has made an elaborate and careful report, finding as matter of fact that the county had not exceeded its debt limit, and that the various claims now in controversy were legal and valid obligations of the county. To this report the county of Russell has filed numerous exceptions, and the cause is now submitted upon those exceptions and upon the pleadings and proof for final decree.

The bonds mentioned, some of which are held by parties to this cause, as also the coupons thereto attached, are admittedly negotiable.

The bonds, upon their face, recite (omitting the formal promise to pay, the purpose for which they were issued, etc.):

'It is hereby certified that said bond is issued, and all of the proceedings relating thereto have been done in strict compliance with the aforesaid article 8 of chapter 11 of the Code of Alabama of 1907, and the laws and Constitution of the state of Alabama, and for the payment of said bond and coupons, according to the tenor thereof, the full faith and credit of Russell county, Alabama, are irrevocably pledged, and that this bond and the debt thereby created are within every debt and other limit prescribed by the Constitution or laws of the state of Alabama.'

The 'certificates of indebtedness' are all of similar tenor and purport, payable with interest to bearer, and upon their face (omitting the formal acknowledgment of indebtedness, etc.), recite:

'This certificate of indebtedness is one of a series of certificates of indebtedness of like date, tenor, and effect, aggregating $25,000, numbered consecutively from 1 to 25, inclusive, issued for the purpose of securing and in evidence of a temporary loan made by the court of county commissioners of said county in anticipation of the collection of taxes for the year 1919, under authority of an act entitled 'An act to authorize the courts of county commissioners, boards of revenue, or other governing bodies of counties in this state, to make temporary loans in anticipation of the collection of taxes,' approved March 1, 1915 (Acts 1915, p. 105), and a resolution duly adopted by the court of county commissioners of said county on the 22d day of January, 1919, and there is hereby pledged and appropriated a sufficient amount of the uncollected taxes of the year 1919 to secure the repayments of said loan and the interest thereon at maturity.

'It is hereby certified, recited, and declared that the loan evidenced by the series of certificates of indebtedness of which this is one is not for a greater sum than one-half of the income of said county for the preceding year; that these certificates of indebtedness are entitled to priority of payment out of the proceeds of the taxes pledged to pay the same, and that all acts, conditions, and things required to be done precedent to and in the issuance of said certificates of indebtedness have been properly done, have happened, and have been performed, in regular and due form and manner, as required by the Constitution and laws of the state of Alabama, and that the total indebtedness of said county, including said series of certificates of indebtedness, does not exceed any constitutional or statutory limitation. ' (Italics supplied.)

Likewise the road warrants are payable to bearer and carry the recital:

'That all conditions and things required by the Constitution and laws of the state of Alabama to be done precedent to and in the issuance of said warrants have properly happened and have been done in regular and due form, as required by law, and that the issuance of said warrants contravene no constitutional or statutory limitations, and are issued under the terms of the contract and the lawful orders of the court of county commissioners as said county that sufficient and proper provisions have been and will be made by the levy of a special road tax of one-fourth of one per centum annually, which, when collected, shall be applied exclusively to the payment of said series of principal warrants and the interest thereon as pledged by said contract and order of the court of county commissioners of said county sufficient to pay said warrants as they severally mature.'

Other obligations, designated simply 'county warrants,' were issued, containing similar recitals as to the validity and regularity of the issue, omitting any reference to the debt limit.

The attack, in the outset, was directed against all, or practically all, of the various outstanding and unpaid obligations of the county, regardless of their character; but by concession and admission made in arguments and brief of counsel for the defendant, and by their exceptions to the master's report, the attack is now limited, it seems, to the four separate obligations, viz. the road warrants, aggregating some $21,500, issued in August, 1917; the two issues of temporary loan certificates issued in 1919, maturing February 1, 1920, of $25,000 each; and the issue of road warrants of April, 1919, amounting to $22,000, all bearing interest at the rate of 6 per cent. per annum. It was either admitted or shown in evidence without dispute that these obligations were from time to time issued, duly registered, sold, and put in circulation by the county, and that the plaintiff and the several interveners and claimants here are the owners severally thereof, having acquired the same bona fide in due course of business, for value, before maturity. It is also either admitted or shown without dispute that the funds arising from these various securities or evidences of indebtedness were received and appropriated or applied by the county authorities to the purposes for which they were issued. There is no averment or charge of fraud or bad faith of any kind on the part of the officials of the county in either the issuance or sale of the securities, or of the disposition of the proceeds thereof.

It is insisted for the plaintiff, interveners, and creditors (1) that the obligation created by the certificates of indebtedness issued for temporary loans, and in anticipation of the current year's taxes and revenues of the county and pledging such taxes and revenues, to defray expenditures made mandatory by law for the...