Wilcoxon v. City of Bluffton

Jordan, C. J. Appellant, a taxpayer of the city- of Bluffton, Indiana, a city organized under the general laws of this State, unsuccessfully prosecuted this action in the lower court to enjoin the levying and collection of taxes by said city for the payment of interest and principal of certain water-works bonds alleged to have been issued by the city of Bluffton on March 1, 1894, and by it negotiated to the amount of $6,500, in order to procure money to extend and improve the water-works system owned and operated by the city. The complaint assails the validity of these bonds, upon the ground that they were issued and negotiated in violation of article 18 of the Constitution of this State, which forbids any political or municipal corporation from becoming indebted to an amount in excess of two per cent, of the value of its taxable property. The complaint inter alia charges that at the time these water-works bonds were issued, the taxables of the city of Bluffton, as shown by the previous assessment, for State and county taxes, were of the total value of $1,672,-625, and that the city at that time was- indebted to the amount of $32,500, part of which indebtedness consisted of $12,000 in certain school bonds issued and sold by the city of Bluffton, on April 1, 1890, for the purpose of obtaining money to build a public school building within the said city. Appellees, by answer, interposed in bar of the action a defense to the effect that these school bonds when issued and negotiated did not constitute an indebtedness of the city of Bluffton, but, upon the contrary, they constituted an indebtedness of the school city of Bluffton, a distinct and separate corporation from that of the civil city. The facts averred in this answer relative to these school bonds in brief are: On February 26, 1890, the trustees of the school city of Bluffton filed and presented to the common council of the city of Bluffton a report under oath, showing therein the necessity of constructing a public schoolhouse, the estimated cost of — 269 — which, as stated in said report, was $12,000, and that said trustees were without funds to construct said building. In pursuance of this report, it appears, the common council adopted an ordinance authorizing bonds to be issued to the amount of $12,000 and provided therein for the sale of the same and that the money arising from such sale should be paid over to the school trustees upon their compliance with the provisions of §4489 E. S. 1881. The bonds were sold as provided, and 'the proceeds of their sale were turned over, as directed by the ordinance, to the school trustees and were used by them in constructing the schoolhouse mentioned in their report. The ordinance passed by the common council of the city of Bluffton authorizing the issue and sale of the school bonds, it appears, prescribed the particular form in which they were to be executed, and the form so prescribed recited “that the school city of Bluffton, in the State of Indiana, hereby promises to pay to the beárer hereof,” etc. At the close of this form appears a testimonial certificate wherein it is recited that the “city of Bluffton has caused these presents to be signed by its mayor and city clerk, under its corporate seal hereto attached, and also to be countersigned by the said school trustees, all in behalf of the said school city of Bluffton, this 1st day of April, 1890.” It is alleged that the bonds were executed in accord with this prescribed form. The lower court on demurrer adjudged this answer sufficient. The question raised for our decision by this appeal is this: In the determination of the question whether the aggregate indebtedness of the city of Bluffton, at the time of the issue and sale by it of its water-works bonds, had reached or exceeded the constitutional limit, must the $12,000, evidenced by the school bonds in controversy, be considered as a part of said city’s indebtedness, or must these school bonds be excluded from such indebtedness and held to be an outstanding indebtedness of the school city of Bluffton? — 270 — This is the sole proposition presented and discussed by-counsel for the respective parties. It is evident, under the facts, that, if these bonds constitute an indebtedness of the city of Bluffton, then the issue and sale of the water-works bonds’would swell its aggregate indebtedness to an amount in excess of the constitutional limit. This is the first time, we believe, that the precise question, as now involved, has been before this court. It cannot be successfully controverted but what the legislature of this State, if it deems proper, may empower school corporations of cities and towns to issue and sell their bonds in order to raise money to construct schoolhouses, etc., and in this manner create an indebtedness upon the part of such school corporations, for which they alone would be liable. But that is not the question with which we have to deal, but the one which confronts us is: Has the legislature conferred this extraordinary power upon school corporations of a city organized under the general laws of the State, like the city of Bluffton? Neither can it be said that the question, as to whether a civil city or town, and a school city or town, in view of the constitutional inhibition, may each become indebted to the amount of two per cent, upon the value of its taxables, is necessarily involved in this case; hence, as to this question, we need intimate no opinion. By the school law of 1865 it was declared that, “Each civil township and each incorporated town or city in the several counties of the State is hereby declared a distinct municipal corporation for school purposes, by the name and style of the civil township, town or city corporation respectively, and by such name may contract and be contracted with, sue and be sued, in any court having competent jurisdiction; and the trustees of such township, and the trustees provided for in the next section of this act, shall, for their township, town or city, be school trustees, and perform .the duties of clerk and treasurer for school purposes.” §§4438 R. S. 1881, §5914 Burns 1894, §4438 Horner 1897. These particular school cities and towns are not voluntary corporations but — 271 — are arbitrarily created by legislative fiat for school and educational purposes, and their powers depend upon laws enacted by the legislature relative thereto, and they are entrusted only with such limited powers as that body has deemed necessary to carry out the purposes for which they were created. Frell v. School City of Crawfordsville, 142 Ind. 27, 37 L. R. A. 301. It has been frequently decided by this court that such school corporations must be considered a separate and distinct legal entity from that of the civil town or city in which they have their existence, and that the civil city or town and the school city thereof is each, under the law, entitled to its own rights and subject to its own liabilities. The question, however, as here involved, depends in the main upon the interpretation of an act of the legislature approved March 8, 1873.(Acts 1873, p. 60), which is entitled: “An act to authorize cities and towns to negotiate and sell bonds to procure means with which to erect and complete unfinished school buildings, and to purchase any ground and building for school purposes, and to pay debts contracted for such erection and completion, and purchase of buildings and grounds, and authorizing the levy and collection of an additional, special school tax for the payment of such bonds.” The first, second, and third sections of this act are embraced, in the order stated, in §§4488, 4489, 4490 R. S. 1881, §§5975, 5976, 5977 Burns 1894, and §§4488, 4489, 4490 Horner 1897, the latter section now existing as amended by the act of 1875. The first section of this statute provides as follows: “Any city or incorporated town in this State which shall, by the action of its school trustees, have purchased any ground and building or buildings; or may hereafter purchase any ground and building or buildings; or has commenced, or may hereafter commence, the erection of any building or buildings for school purposes; or which shall have, by its school trustees, contracted any debts for the erection of such building or buildings, or the purchase of such ground and building or buildings; or such trustees shall not — 272 — have the necessary means with which to complete such building or buildings, or to pay for the purchase of such ground and building or buildings, or pay such debt — may, on the filing by the school trustees of said city or town of a report, under oath, with the common council of such city, or the board of trustees of such town, showing the estimated of actual cost of any such ground and building or buildings, or the amount required to complete such building or buildings, or purchase such ground and building or buildings, or the amount of such debt, on the passage of an ordinance authorizing the same by the common council of said city or the board of trustees of such town, issue the bonds of such city or town to an amount not exceeding in the aggregate fifty thous- and dollars, in denominations not less than one hundred nor more than one thousand dollars and payable at any place that may be designated in the bonds (the principal in not less than one year nor more than twenty years after the date of such bonds, and the interest annually or semi-annually, as may be therein provided) to provide the means with which to complete such building or buildings, or to pay for the purchase of such ground and building or buildings, and to pay such debt. Such common council or board of trustees may, from time to time, negotiate and sell as many of such bonds as may be necessary for such purpose, in any place and for the best price that can be obtained therefor in cash: Provided, That such bonds shall not be sold at a price less than ninety-four cents on the -dollar.” The second section provides that the proceeds of the sale of such bonds shall be paid to the school trustees, to enable them to erect or complete such building or buildings, and pay such debt, and requires of the school trustees a bond conditioned for the faithful and honest application of the money to the purpose for which the same was provided. The third section authorizes and requires the common council of such cities, and the board of trustees of towns, availing themselves of the provisions of the act, to levy an — 273 — nually an additional tax to pay the interest and principal of the bonds, and directs that the treasurer of the city or town shall keep an accurate account of the revenue arising out of such special tax, and that he shall pay. out the same only upon the authority of the common council of the city or the board of trustees of the town, and that he shall permit the money so derived to be applied to no other purpose than the payment of the principal and interest of such bonds, etc. In 1879 the legislature deemed it proper further to restrict school trustees of cities and towns, and therefore denied them the right to purchase any ground for school purposes or to enter into any contract for constructing any school building until they had first secured the permission of the board of trustees of the town or the common council of the city. §4491 R. S. 1881, §5978 Burns 1894, §4491 Horner 1897. While the legislature, in the furtherance of educational purposes, has considered it essential to create these school corporations, which the law views as of an inferior grade, still it has deemed it judicious to confer upon them absolutely no powers of an extraordinary character, and has materially restricted them in the exercise of such with which they have been expressly invested. It is not necessary, however, to the-determination of the question presented by this appeal, that, we enter upon a review of the many decisions of this court relating to the authority of the trustee or trustees of the school corporation to contract debts on its behalf. It is sufficient to say that while the force or effect of the decisions of this court is to deny that school trustees, under the law, have-any express power or right to borrow money, still it is true that our decisions do recognize and uphold their right or power to bind the corporations which they represent by promissory notes or other written obligations for the payment in the future of a valid preexisting indebtedness, or for the repayment of money advanced to such trustees which they have — 274 — actually aud rightfully expended for the use and benefit of the school corporation. The contention of counsel for appellees proceeds upon the theory asserted, that, inasmuch as the civil city or town is not empowered by the laws of the State to purchase ground or erect buildings for school purposes, and as all schoolhouses constructed within the limits of an incorporated city are the sole and exclusive property of the school corporation, and not that of the corporation represented by the civil city, therefore it is insisted that the act of 1873, supra, does not contemplate that the bonds authorized to be issued thereunder shall be those of the civil city. Counsel affirm that the city, the bonds of which are to be issued as mentioned in this statute, is meant and intended to be the school city and not the civil city, and-that the bonds shall be issued as the obligations alone of the school city for the payment of which it will be liable. Or, in other words, it is said that whatever is done by the common council of the civil city, under the provisions of this statute, in relation to the issuing and sale of such bonds, is performed by such council as an agency of the school city, and therefore cannot have the effect of making such bonds an indebtedness of the civil city. This contention is not tenable. It may be conceded that the draftsman of this statute omitted to make, or properly recognize the correct distinctions between the two particular corporations, each of which embraces, as we have seen, the same territory. By the use of the words, “Any city or incorporated town * * * which shall by the action of its school trustees have purchased any ground * * * or commenced * * * the erection of any building for school purposes, or which shall have by its school trustees contracted any debts” etc., the statute is made to ascribe to the civil city the performance of acts which the law has assigned to and placed under the jurisdiction of the board of school trustees, and thereby the act apparently confuses the powers of the school trustees with those of the civiL city. — 275 — Nevertheless, when its provisions as an entirety are read and construed together, and the words therein employed given their ordinary and proper signification, its meaning, we think, in respect to the city authorized to issue the bonds, becomes obvious. By making an immaterial change in the grammatical constructipn of that part of the first section of this statute by which authority to issue and sell bonds is granted, it may be read as follows: “Any city or incorporated town in this State * * * on the filing by the school trustees of said city * * * of a report under oath with the common council of such city showing the estimate or actual cost * * * may, on the passage of an ordinance authorizing the same by the common council of said city * * * issue the bonds of such city to an-amount not exceeding in the aggregate $50,000. Such common council may from time to time negotiate and sell as many of such bonds as may be necessary for such purposes” etc. The bonds are authorized to be issued-under an ordinance adopted by the common council, and they are denominated by the statute as “The bonds of such city.” The phrase “such city,” under the circumstances, certainly cannot be interpreted to signify or mean any other city than the civil city, which is under the jurisdiction of the common council, by the authority of whose ordinance provisions are made for the issue and sale of the bonds. It cannot reasonably be interpreted to mean the school city as the latter does not exercise its powers by a body denominated the common council, but acts through, and is under the jurisdiction of another and different body known as the board of school trustees. That the statute in controversy contemplates or intends that these bonds, when negotiated in pursuance thereof, shall become the obligations of the civil city, is made more evident when the provisions of the third section of the, act are considered. It is therein provided, as heretofore stated, that in addition to the taxes levied by cities and-incorporated towns — 276 — for general purposes “the common council of any such city and the board of trustees of any such incorporated towns, as shall avail themselves of this act, are hereby authorized and required to levy annually a special, additional tax.” This section then provides that these taxes, when collected by the city or town treasurers, are to be applied by these officials to the payment of the interest and principal of such bonds. In this manner, the legislature has given express authority to the civil city or town, and required it to levy and collect taxes and apply the same to the payment of the bonds. If the statute contemplates that the bonds, when issued, are to be those of the school city, it would seem strange that the duty of raising a fund to provide for their payment should be imposed, as it is, upon the civil city. A well settled rule, relative to the construction and interpretation of a statute is, that, in case of ambiguity in its provisions, the title thereof may be consulted to aid in its interpretation. Especially is this rule applicable in this jurisdiction, as our Constitution provides that the subject of every act shall be expressed in its title and thereby the latter becomes a part of the act and is a material guide in discerning its true intent and proper application as designed by its makers. Dodd v. State, 18 Ind. 56, 23 Am. & Eng. Ency. of Law, p. 329. If we resort to the title of the act of 1873 to aid us in determining where to place the liability of bonds issued thereunder, we find that the title declares it to be “An act to authorize cities and towns to negotiate and sell bonds * * * and authorizing * * * an additional special school tax for the payment of such bonds.” If it were conceded that, under the provisions of this statute, an ambiguity exists as to which of the two corporations the outstanding indebtedness, as evidenced by such bonds, must be assigned, and as to which of the two must be held liable for their payment, then and in that event, we think, its title would, when considered along with the provisions of the act, fully disclose the legislative intent and make evident — 277 — the fact that the law intended that such bonds were to be issued and negotiated by the civil town or city, and thereby become its obligations. In determining as to which of these corporations the indebtedness, evidenced by the bonds, must be assigned, an examination of some of the decisions of the higher courts of this State will be profitable, in order to learn how these school bonds have been considered and treated by such courts in the past. In Williams v. Town of Albion, 58 Ind. 329, decided over twenty-one years ago, the action was instituted and successfully prosecuted to enjoin the civil town of Albion from issuing and negotiating its school bonds. The question, as there involved, related to the power of the civil town, under the law of 1873, supra, to issue and sell the bonds sought to be enjoined. That case discloses that the school trustees had reported to the town’s board of trustees the necessity for the purchase of a site and the erection of a school building thereon, etc. This court, in passing upon the right or power-of the town, under the circumstances in that case, to issue the bonds in controversy, said: ‘‘When the power is clearly granted to a municipal corporation to do an act, a court cannot interfere with the exercise of its ordained or administrative discretion in carrying out the power granted. The amount of bonds proposéd to be issued is the same as the debt already incurred, and the estimated cost of the schoolhouse; and we think the town of Albion, to this extent, has the power to issue the bonds.” In the appeal of Reed v. Town of Orleans, 1 Ind. App. 25, it was held by that court that the civil town was liable to a broker for his services in selling the school bonds issued by such town. In the case of Town of Winamac v. Huddleston, 132 Ind. 217, the board of trustees of the civil town had, by an ordinance, authorized it to issue and negotiate school bonds to obtain funds with which to build a schoolhouse destroyed by fire. A taxpayer of the town brought the action to enjoin — 278 — the issue and sale of the bonds on the ground that they would create,- if issued and negotiated, an indebtedness against the civil town in excess of the constitutional limit. The plaintiff prevailed in the lower court and this judgment was affirmed on appeal. Elliott, J., speaking as the organ of this court in that case, said: “The bonds, if issued, will create a debt in excess of two per centum of the taxable value of the property within the corporate limits of the town. There can be no doubt that if the bonds are executed as proposed, and are of any validity, they will create a debt against the public corporation. In this particular, as in others, this case is radically different from that of City of Valparaiso v. Gardner, 97 Ind. 1. The debt created by a bond executed by a public córporation is not án obligation payable out of specific funds, but is a contract to pay money generally, and hence this case is not within the doctrine of such cases as Quill v. City of Indianapolis, 124 Ind. 292, 7 L. R. A. 681; Strieb v. Cox, 111 Ind. 299; Board, etc., v. Hill, 115 Ind. 316. * * * We can see no possible reason for holding that bonds issued to build a schoolhouse are n'ot within the constitutional provision quoted, nor can we conceive of any reason upon which it can be held that because there is a provision or promise to levy taxes to pay the bonds the constitutional provision does not apply.” The precise question, as involved in the case at bar, it seems was not raised in the case last cited, still the latter is of much force in showing that the bonds assailed in that action were regarded and treated by this court as creating an indebtedness against the civil town of Winamac. In fact, the three cases last cited disclose that the higher courts of this State, for a long period of time, have treated these bonds as a liability or indebtedness of the civil corporation and not a liability or indebtedness existing against the school corporation. And not until now, so far as we are aware, has the question here involved been mooted in our courts. The fact that such bonds have been, impliedly at least, considered and — 279 — treated by the judiciary as the obligations of the civil town or city, and this view accepted and acquiesced in by the officials of the towns and cities concerned in their issue and payment, for so long a period of time, might be accepted by a court in case a doubt arose as to the proper construction to be placed upon the provisions of the statute, as a practical exposition or interpretation of its meaning or intention. French v. State, 341 Ind. 618, 29 L. R. A. 113, and authorities there cited. By §4457 R. S. 1881, and Horner 1897, and sections following, the legislature has lodged the control of the educational affairs of school corporations in cities of over. 3.0,000, in a board of school commissioners, and by the eighth clause of §4460 E. S. 1881, and Horner 1897, has expressly. empowered such boards to issue and sell bonds in order to secure, loans of money. In the case of Fatout v. Board, etc., 102 Ind. 223, in construing the powers of such boards, under said clause eight, this court, in the course of the opinion, on page 233, said: “We think it was the manifest intention of the legislature, in and by the eighth clause of such section, to give, such board of school commissioners an additional and extraordinary power, not conferred upon school corporations generally.” In that case, we have the express declaration of this court to the effect that the extraordinary power conferred by the legislature upon these boards of commissioners to issue and negotiate bonds to secure a loan of money, is not, conferred upon a school corporation of a city like Bluffton, having a population under 30,000. Conceding that the indebtedness contracted in the first instance by the school trustees must be regarded as that of the school corporation, and that, by reason of its receiving the money arising from the sale of such bonds, to be applied upon such indebtedness, it must be deemed the beneficiary, nevertheless, this will not prevent the indebtedness, evidenced by the bonds, from being in a legal sense considered as that, of the civil corporation, nor prevent the existence of the relation — 280 — of creditor and debtor between the latter corporation and the holder of the bonds. It is certainly manifest that if A secures a loan of money from B and executes his note or bond to the latter for the same, and then turns over the money so borrowed to C, the indebtedness evidenced by the note or bond is A’s, and not O’s. A debt in a general sense arises out of an express or implied promise made by one person to another to pay a sum of money. Anderson’s Law Dictionary, p. 315. In Quill v. City of Indianapolis, 124 Ind. 292, 7 L. R. A. 681, this court, in considering the question as to whether certain street-improvement bonds created an indebtedness against the city of Indianapolis, said per Mitchell, J.: “An indebtedness can not arise unless there is either a legal, equitable or moral obligation to pay a sum of money to another, who occupies the relation of creditor, and who has a legal or moral right to call upon or constrain the debtor to pay. State v. Hawes, 112 Ind. 323. It is not always essential, in order to the existence of an indebtedness, that there should be an absolute legal right to coerce payment, as in that sense the State could never become indebted. Mayor, etc., v. Gill, 31 Md. 375. It is, however, essential to the idea of a debt that an obligation should have arisen out of a contract, express or implied, which entitles the holder thereof unconditionally to receive from the promisor a sum of money which the latter is under a legal or moral duty to pay, without regard to any future, contingency.” The bonds in the case at bar, as we have seen, were signed by the mayor and clerk of the civil city, and the seal of the latter was attached thereto. In the body thereof, however, the school city is made to appear as a promisor, and each bond is countersigned by the school trustees. It is insisted by counsel for appellees, that, by reason of their being so executed, they ought to be held to be the bonds of the school city and not of the civil. There is no merit or force in this contention. The fact that the name of the — 281 — school city was inserted in these bonds'as the promisor, will be deemed, under the circumstances, to be a mere irregularity in their execution, and is not available to make them the bonds of the school corporation. The latter, under the circumstances as we have se'en, was not empowered by law to enter into, or bind itself by such obligations. The law, if necessary, will read into the bonds the name of the proper and legitimate promisor and will ascribe the indebtedness, evidenced thereby, to the civil city which alone, under the law, was authorized to execute them. The school bonds in controversy must be held to be an outstanding indebtedness against the civil city of Bluffton, and they must be taken into consideration in ascertaining the aggregate indebtedness of that municipality. This holding results in a reversal of the judgment. The judgment is therefore reversed, and the cause ordered to be remanded to the lower court for further proceedings. Monks and Dowling, JJ., concur in the result. Baker, J., dissents.