Kelly v. Cole

The opinion of the court was delivered by Pollock, J. : This controversy arises over the construction of section 1, chapter 288, Laws of 1901 (Gen. Stat. 1901, § 517), recited in the bonds. This section reads: “That section 1 of chapter 163 of the Laws of'1891 be and is hereby amended so as to read as follows : — 390 — Section 1. Every county, every city of the first, second or third class, the board of education of any city, every township and every school district is hereby authorized and empowered to compromise and refund its bonded indebtedness, including coupons and judgments thereon, upon such terms as can be agreed upon, and to issue new bonds with semiannual interest coupons attached in payment for any sums so compromised, which bonds shall be sold at not less than par, shall not be for a longer period than thirty years, shall not exceed in amount the actual amount of outstanding indebtedness, inclusive of attached coupons, and shall not draw a greater interest than six per cent, per annum. No indebtedness of any kind shall be funded or refunded under the provisions of this act except bonded indebtedness actually existing at the time of the passage of this act or hereafter legally created; and nothing herein contained shall be construed to validate or invalidate any existing bonded indebtedness.” It is strenuously insisted by counsel for relators that this act confers power upon the municipalities therein named to refund their outstanding bonded indebtedness by the issuance of new bonds, in conformity with the provisions of this act and in compliance with the provisions of the other acts of which this act is amendatory, aggregating, in face value, the entire amount of bonded debt of the municipality, inclusive of interest coupons thereto attached, whether earned or unearned; and that in the present case, as Chase county is refunding $80,000, face value, of the aid bonds, which have thereto attached unmatured interest coupons aggregating $103,200, or a total debt of $183,200, by the issuance of $100,000, face value, of the refunding bonds, the aid bonds are actually being refunded at their present worth, and the transaction is clearly within the power conferred upon the county by the act quoted. — 391 — On the other hand, it is contended by counsel for respondent that the act in question, construed in connection with the several acts recited in the bonds, confers power to compromise and refund actually outstanding bonded indebtedness, including matured interest coupons and judgments thereon only, and that the unearned or unmatured interest coupons attached to the aid bonds are not actually outstanding bonded indebtedness within the terms of the act, and may not, therefore, be refunded under the power conferred ; that, as it is admitted that $20,000 of the bonds sought to be registered represent unearned interest coupons, and not indebtedness of the county, the issue in such amount exceeds the power conferred on the county, and that the desire of the county or its agents so to magnify and multiply the bonded debt of the county must be denied. An examination of the title and provisions of the original act of 1879 (ch. 50), and a comparison of this act with the several acts amendatory thereof subsequently passed, prior to the act in question, leave it entirely free from doubt that only actually outstanding bonded indebtedness may be refunded under the power here conferred; that heretofore the policy of the lawmaking power, as expressed in the amendment of 1891 (ch. 163), has been greatly to restrict and safeguard the large measure of power conferred by the original act. For example, under the original act, “matured' and maturing indebtedness of every kind and description whatsoever ’ ’ might be refunded, whereas the amendment of 1891 limited the scope of the power to refund to “bonded indebtedness, including matured coupons and judgments thereon.” Again, the original act made no requirement as to registration of the refunding bonds in the office of the — 392 — auditor of state. This safeguard to prevent abuse of the power the act of 1891 incorporated in the law. By the original act, no restriction was placed on the amount of bonds which a municipality might issue. By the act of 1891, the power of counties and townships to issue bonds, except in refunding outstanding bonded indebtedness, was restricted to five per cent, of the assessed valuation of the municipality, as shown by the last determination of the board of equalization, and of cities (except cities of the first class) and school districts to six per cent. Viewed in the light of this former restrictive legislation on this subject, we are justified in holding that the power conferred by the apparently conflicting provisions of the act under consideration is limited to and controlled by the prohibition that ‘ ‘ no indebtedness of any kind shall be funded or refunded under the provisions of this act except bonded indebtedness actually existing at the time of the passage of this act or hereafter legally created.” As interest earned upon a principal bond, represented by past-due coupons, from its very nature inheres in and forms a part of the bond itself, by force of necessity such interest becomes a part of the. “bonded indebtedness actually existing.” But as to the unearned interest represented by coupons attached to the aid bonds sought to be refunded in this case, the holder of the principal bond has not the present right to demand or to receive the same. It is only by his forbearance of the use of the principal sum, evidenced by the face of the bond he holds, for a given period of time in future, that the amount expressed in such coupons becomes the demandable property of the holder or the actual bonded indebtedness of the county. This is not only the natural and reasonable defini — 393 — tion of the term “bonded indebtedness,” but it is also the rule adopted by all courts in estimating the amount of indebtedness that may be lawfully incurred under constitutional and statutory limitations upon the power of municipal corporations to incur indebtedness. The face value of the obligations and the accrued interest thereon are alone considered as the debt. Interest to become due thereon in the future is not reckoned indebtedness. (Carroll County v. Smith, 111 U. S. 556, 4 Sup. Ct. 539, 28 L. Ed. 517; Lake County v. Graham, 130 id. 674, 9 Sup. Ct. 654, 32 L. Ed. 1065; Chaffee County v. Potter, 142 id. 355, 12 Sup. Ct. 216, 35 L. Ed. 1040; Sutliff v. Lake County Commissioners, 147 id. 230, 13 Sup. Ct. 318, 37 L. Ed. 145; German Ins. Co. v. City of Manning, 95 Fed. 597.) This is also the view taken by the officers of the county, as they certify to the respondent that “the bonded indebtedness of said county at this date is $80,000,” not $183,200. The construction we have placed upon the act under consideration seems not only in harmony with the policy and intent of the legislature, as ascertained from prior amendments to the original act, but in direct accord with the positive inhibition contained in the act itself. It is also important to consider the fact that while the original act and amendments thereto recited in the bonds as affording lawful power for their existence have many times been resorted to for the purpose of ,changing the form of the municipal indebtedness of the bodies corporate therein named, it has not heretofore been contemplated that any authority or power resided therein absolutely to create additional bonded indebtedness of such municipalities, but rather, that the power to create bonded indebtedness, as contra-distinguished from the power to change the form of — 394 — indebtedness, rests in the people, and a vote of the electors is necessary to call such power into operation. Should the construction contended for by counsel for relators be adopted, the very bonds now sought to be registered may, at the expiration of two years from their date, notwithstanding the option of payment therein contained, be refunded by the issuance of other bonds, aggregating in face value the entire amount of principal and unearned coupons thereto attached. Such power, so liable to abuse, of such vital importance to the taxpayers of the municipality, if intended, must be conferred in such clear, positive and unmistakable terms as to leave no room for construction by the courts. It follows that the writ must be denied. Doster, O.J., Johnston, Greene, JJ., concurring.