Ward v. McDonald

• Decision Date: 17 January 1918
• Docket Number: 6 Div. 443
• Citation: 201 Ala. 237,77 So. 827
• Parties: WARD et al. v. McDONALD.
• Court: Alabama Supreme Court

77 So. 827

201 Ala. 237

WARD et al. v. McDONALD.

6 Div. 443

Supreme Court of Alabama

January 17, 1918

Appeal from City Court of Birmingham; H.A. Sharpe, Judge.

Suit by T.C. McDonald against George B. Ward and others. From an order granting a preliminary injunction, defendants appeal. Affirmed.

The appeal in this cause is from an order granting a preliminary injunction. The bill was filed by the appellee, as a resident taxpayer of the city of Birmingham, against the commissioners of said city, and sought an injunction against the city to prevent the issuance of $3,000,000 of bonds, and also the diversion of the special tax of one-half of 1 per centum which Birmingham is empowered to levy under section 216 of the Constitution, and an accounting as to the amount of the sinking fund directed to be accumulated by that section out of the proceeds of such special tax--not necessary to pay the interest on the bonds, to pay which under that section such special tax might be used. The substance of the bill as amended is as follows:

The city of Birmingham has outstanding bonded indebtedness approximating the sum of $7,110,000, exclusive of the bonds issued by said city for street and similar improvements. The interest charges on said outstanding bonds of approximately $7,110,000 approximates the sum of $369,000 per annum. The outstanding bonds of approximately $7,110,000 include the outstanding bonds of the various municipalities which have been absorbed in the municipality of the city of Birmingham--said assumed bonds amounting to $1,320,000. Of the outstanding bonds solely of the city of Birmingham approximately $2,160,000, face value thereof, were issued prior to the adoption of the Constitution of 1901; the annual interest charges being approximately $121,500.

In addition to the above-mentioned bonded indebtedness, at an election held on June 5, 1916, the electors of the city of Birmingham authorized the issuance of bonds in the sum of $2,000,000 for the purpose of acquiring school property, in the sum of $500,000 for the purpose of acquiring an auditorium, and $500,000 for the purpose of acquiring an electric light and power plant; said bonds to be issued at an annual rate of interest of 4 1/2 per cent.

The revenues of the city, except for small sums acquired by it from fines and forfeitures, are derived from taxation. The taxes consist of an annual tax of 1 per cent. on the real and personal property in the city subject to taxation, and from licenses. Of the tax of 1 per cent. above referred to one-half of 1 per cent. is levied for the general purposes of the city, and the other one-half of 1 per centum is levied pursuant to section 216 of the Constitution, which provides among other things:

That "such special tax to be applied exclusively to the payment of interest on bonds of said cities of Birmingham. Huntsville and Bessemer, and the town of Andalusia respectively, heretofore issued in pursuance of law, or now authorized by law to be issued, and for a sinking fund to pay off said bonds at the maturity thereof."

That although the taxes had been levied and collected for the purposes for which they might be levied and collected, the commissioners of the city of Birmingham have from time to time used the proceeds of such one-half of 1 per centum for the purpose of paying interest on bonds of the city, regardless of whether such bonds were issued before or since the adoption of the Constitution of 1901. At the time of the adoption of the Constitution of 1901, there had been enacted an act entitled "An act to authorize the city of Birmingham *** to buy, build, direct and own, maintain and operate waterworks for the supply of said city *** and to issue and sell, or exchange said bonds for said purposes," approved February 23, 1899 (found in the Local Laws of Jefferson County, p. 259), and which said act authorized the issuance of the $1,000,000 of bonds. It is averred that the bonds authorized to be issued by said act have in fact never been issued. That the general revenues of the city exclusive of those derived from the said one-half of 1 per centum just referred to are not sufficient to pay the ordinary expenses of the city, including the interest on its bonds; and also including the interest on the $3,000,000 of bonds above referred to as having been authorized by the election of June 5, 1916.

It is also averred: That the defendants do not expect and propose to pay the interest on the bonds to be issued for the purpose of acquiring an electric light plant and an auditorium out of the revenues to be derived from the operation of the same, but they threaten and propose to pay the interest on such bonds, as well as the interest on the said $2,000,000 of bonds to be issued for the purpose of acquiring school property, out of the special tax of one-half of 1 per centum authorized by section 216 of the Constitution for the special purposes therein provided; and, in so proposing, the defendants propose to thwart the plain mandates of the Constitution of the state, and to divert the revenues derived from taxation to purposes for which the collection of such revenues were unauthorized. There is no source from which the interest on said $3,000,000 of bonds can be derived, except from the proceeds of such special tax. That the defendants propose to issue the $3,000,000 of bonds, as voted on June 5, 1916, and will do so unless restrained by the injunctive process of this court. It is further averred that they propose to assert and represent to the prospective purchasers of such bonds that the interest thereon will be paid out of the proceeds of such special tax above referred to, and that, if negotiated and sold, such bonds will be bought by the purchasers thereof relying upon the expectation that the interest thereon will be paid out of such special tax, and that they will claim, if, as a fact, the interest cannot be so paid out of such taxes legally, that nevertheless the city and the taxpayers are estopped from contending that such special tax cannot be used for such special purposes; that said bonds will be negotiable, and orator will have no practical means of preventing the payment of interest on said bonds out of such special tax. The bill further charges that such diversion of said special tax of one-half of 1 per centum constitutes a wrong on the part of defendants, to remedy which complainant has no adequate remedy at law, and as against which he is entitled to injunctive process.

The answer admits the averments of paragraphs 1 and 2 of the bill. It is also admitted that the revenues of the city are derived mainly from taxation--as alleged in paragraph 3 of the bill--and from licenses; that the tax of one-half of 1 per centum is levied pursuant to section 216 of the Constitution, but it is denied that all of the pertinent provisions of said section are quoted. It is further denied that said special tax is levied under the exclusive authority of said section 216, but, on the contrary, said additional tax of one-half of 1 per centum is authorized to be levied, and is levied in fact, under the provisions of an act of the Legislature entitled "An act to establish a new charter for the city of Birmingham, Alabama," approved February 23, 1899. Loc.Laws 1898-99, p. 1391.

It is admitted that the commissioners of the city of Birmingham have used the proceeds of such tax of one-half of 1 per centum from time to time for the purpose of paying interest on bonds of the city, regardless of whether such bonds were issued before or since the adoption of the Constitution of 1901, and that this practice has been continuously indulged in by each administration since the enactment of the above-mentioned statute, and that the practice is a lawful one.

It is further averred that the general revenues of the city, exclusive of such special tax, are not sufficient to pay the ordinary expenses of the municipality, including the interest on its bonds issued since the adoption of the Constitution of 1901, and also insufficient to pay such expenses and interest on bonds issued since 1901 including the interest on the $3,000,000 of bonds authorized by the election of June 5, 1916. The answer then avers that it is not true the respondents are under any obligation, in law or fact, to apply the revenues derived from the special tax of one-half of 1 per centum exclusively to the payment of the interest upon and the creation of a sinking fund for the benefit of the bonds issued prior to the adoption of the Constitution of 1901; but, on the contrary, it is lawful and proper to apply the proceeds of such special tax to the payment of the interest on bonds issued since the adoption of the Constitution of 1901, as well as prior thereto; and in so using the proceeds of said tax, the general revenues of the city will be sufficient to pay the ordinary expenses of the municipality, and the proceeds of such special tax will be sufficient to pay the interest upon the $3,000,000 of bonds authorized by the election of June 5, 1916.

It is also averred that the respondents expect the proceeds from the light plant and the auditorium to make the same self-sustaining, and to pay the interest on these bonds out of the operative revenues derived therefrom, but that respondents contemplate the payment of the interest on the $2,000,000 of bonds to be issued for school purposes out of the special tax of one-half of 1 per centum above referred to, which it is claimed is lawful and right. It is then averred that the validity of said bond issues authorized by the election of June 5, 1916, is not affected by the source from which it is expected that the interest thereon will be paid, and that, so far as the legality of said issues are concerned, it is immaterial from what...