State Ex Rel. Clark County v. Hackmann , 280 Mo. 686 ( 1920 )

Original proceeding in mandamus. By such process the relator seeks to compel the respondent State Auditor to register certain bonds of Clark County, in the aggregate sum of over $103,000. Clark County had issued warrants which were not paid. In the application for the alternative writ here, which was taken as for the alternate writ, it is averred that such warrants were duly issued. This is not very material, because it further appears that suits were brought upon these warrants and judgments had against the county in the aggregate sum of $97,004.39, which judgments bore interest at the rate of six per cent.

At the May Term (1917) of the county court of said county, upon a petition signed by more than 300 qualified voters and taxpayers, the county court called a special election upon a proposition to incur an indebtedness of $103,944.04, and evidence the same by bonds in said sum, out of the proceeds of which these judgments were to be paid. The issue submitted to the voters read:

"For incuring an indebtedness in the sum of one hundred and three thousand, nine hundred and forty-four and 04/100 dollars ($103,944.04), and issuing bonds therefor, to pay judgment against the county in said sum — Yes.

"For incurring an indebtedness in the sum of one hundred and three thousand, nine hundred and forty-four and 04/100 dollars ($103,944.04) and issuing bonds therefor, to pay judgments against the county in said sum — No.

"Erase the clause you do not favor."

The proposition was carried by an overwhelming majority of the votes cast at such election, the vote being 1,011 for the proposition to 110 against it. The bonds were issued, and respondent refused to register them. His return is before us, and in it are his several reasons for refusing to register the bonds. They go to the meat of the case, and will be noted in the course of the opinion. A motion by relator for judgment on the pleadings closed the issues in the case.

I. It is suggested that the warrants which furnished the basis of the judgment mentioned were the accumulations of years. Also that many other counties are situated just as is Clark County. We need not blind our eyes to facts which everybodyValid Warrants. knows. The counties of the State, in anticipation of their yearly revenue, issue warrants against such revenue. The county authorities know from the assessed values and the tax rates just what revenue should come in for the year. They often issue warrants up to the very limit of the anticipated revenue, and these warrants we have held to be valid obligations of the county. This, on the theory that the warrants represent valid contracts made during the year. By valid contracts we mean contracts within the anticipated revenue of the year. Thus in Trask v. Livingston County, 210 Mo. l.c. 594, it is said:

"It has been uniformly construed that this provision of the Constitution permits the anticipation of the current revenues to the extent of the year's income in which the debt is contracted or created, and prohibits the anticipation of the revenues of any future year."

So also in State ex rel. v. Johnson, 162 Mo. l.c. 629, it is said:

"It was ruled in Book v. Earl, 87 Mo. 246, that ``the evident purpose of the framers of the Constitution and the people who adopted it was to abolish in the administration of county and municipal government, the credit system, and establish the cash system by limiting the amount of tax which might be imposed by a county for county purposes, and limiting the expenditures in any given year to the amount of revenue which such tax would bring into the treasury for that year.' But it was at the same time said: ``Under this section the county court might anticipate the revenue collected, and to be collected, for any given year, and contract debts for ordinary current expenses, which would be binding on the county to the extent of the revenue provided for that year, but not in excess of it.'

"It was then anticipated that, though the county court might not issue warrants in excess of the levy for a year's current expenses, and that a creditor might rely upon the fact that his contract was within the amount of revenue levied and provided, and trust to the power of the State to enforce its taxes, still it might happen from some unforeseen cause enough of the estimated amount of revenue might not be collected to pay all the warrants drawn against it in anticipation. Under such circumstances it has never been ruled that such a creditor's warrant was absolutely void and extinguished by the non-payment in the year in which it was drawn. On the contrary, this court has often said in no uncertain terms that it was valid and payable out of any surplus revenue in the hands of the county treasurer that might arise in subsequent years. [Randolph v. Knox County, 114 Mo. 142; Andrew County v. Schell, 135 Mo. l.c. 39; State ex rel. v. Payne, 151 Mo. l.c. 673; Railroad Co. v. Thornton, 152 Mo. 570; State ex rel. v. Allison, 155 Mo. l.c. 344; and on this point, Reynolds v. Norman, 114 Mo. 509.]"

By failure to collect taxes, and other reasons, there are many valid outstanding county warrants in the several counties of the State — nearly $2,000,000 dollars according to reports. By valid outstanding warrants, we mean warrants issued for the current expenses of the year, and warrants which, when issued, were within the anticipated revenue of the year. By the issuance of the bonds involved here, Clark County is seeking to discharge judgments upon warrants of this character. This we say because the validity of the warrants is vouched for by court judgments. If Clark County is successful, the other counties, to use a homely expression, "will follow suit."

As said in State ex rel. v. Johnson, supra, warrants of this character are not invalid because the revenue for the year (as collected) does not meet them, for they may be paid out of the surplus revenues of future years. Of course, there could be no surplus until all debts of the current year have been provided for or met. Up to this time we have not gone further in the protection of such warrants, so that we have a new idea suggested by the instant case. Such indebtedness should be paid, if any legal and constitutional method can be devised. The question is, has Clark County devised such a method?

II. In the very lucid brief of the Attorney-General for respondent it is said:

"The only manner by which an indebtedness in excess of the income and revenue for any year may be lawfullyIndebtedness. created is with the assent of two-thirds of the qualified voters voting at an election held for that purpose, as provided by Section 12 of Article X of the Constitution."

This is a true statement of the situation, if you read into it what kind of indebtedness, as this court has repeatedly said, and we have outlined in the previous paragraph. That is to say, an indebtedness contracted in excess of the anticipated revenue is invalid, but an indebtedness contracted within the anticipated year's revenue is valid although all of the anticipated revenue may not be collected. It is the revenue which is provided for and should come into the county treasury during the year, that fixes the status (as to validity or invalidity) of the indebtedness contracted during the year, rather than the revenue actually collected and paid out on warrant. We should probably use the term "income and revenue" as distinguished counsel have used, because the receipts of a county may come from several different sources.

So, too, when this court has said (and rightfully so) that the purpose of Sections 11 and 12 of Article X of the Constitution was to place the business of the counties upon a cash basis, we did not mean that debts contracted within the anticipated revenues of the year were invalid because the collected revenues were insufficient to meet all of such debts. Nor did we mean by such expression that warrants issued for such debts were invalid because all of them could not be paid out of the revenue actually collected. Nor did we mean that each debt should be met with cash, but we did mean that during the fiscal year the cash would be available to meet the debt if the anticipated revenue was collected and rightfully disbursed. In other words, we have dealt with the matter upon the basis of a year's business, and the term "cash basis" has been used in the sense that the anticipated revenues of the year should at least equal the contracted debts of the year. Such has been our construction of the constitutional system, and as suggested by consul for respondent, if the county desired to contract debts in excess of the year's revenue, resort would have to be made to the people for their consent to the creation of such debt.

But neither the warrants, nor the judgments against Clark County, were debts of that character. The warrants were lawfully issued, so the alternative writ avers, and the judgments were based upon such warrants. To be lawfully issued, they had to be warrants issued for debts created or contracts made within the anticipated revenues of the several years of their issuance. The warrants were legal obligations against the county, and if this court is to know what the general run of mankind knows, and what the history of the State, as well as the departmental records show, there are many valid outstanding warrants (unpaid and without funds with which to pay) in many, if not most, of the counties of the State. As suggested before, they are valid debts and obligations, and should be paid, if a legal method of payment can be devised. This brings us to the crucial question in the case, which question we did not desire to discuss without the side-lights discussed above. In other words, we are not dealing with outlawed warrants, or debts created in violation of law, as this court has construed the law. Has a county, which has thus become legally obligated to pay, and when the annual revenues at the present time is only sufficient to meet its annual legal necessities, no method of paying these debts, or of refunding them, even at a lower rate of interest? This question we take next.

III. That the payment of its legal obligations is a legitimate county purpose, there can be no serious question. But of this later. As to how it may be able to pay them, is another story.

The bonds in this case were voted by the two-thirds vote required by Section 12 of Article 10 of the Constitution, but learned counsel for the respondent say that thisMethods of section only applies to a new indebtedness, and thatPayment. these bonds are invalid because they do not represent a new indebtedness. As we gather it, astute counsel for relator concede that the indebtedness provided for by this section must be a new indebtedness, but they contend that these bonds represent a new indebtedness, and for that reason are valid.

We take it as fundamental that a new indebtedness, within the limits of the provisions of Section 12 of Article 10 of the Constitution, may be created for any lawful county public purpose. If therefore, the discharge of its legal obligations is a lawful county public purpose, then a new debt may be created in the discharge of that public purpose. We are cited to State ex rel. v. City of Neosho, 203 Mo. l.c. 76 and 95, as conclusive of the proposition that a new debt cannot be created in the discharge of an old one. In the dissenting opinion on page 95 of the report of that case, it is said:

"It will be seen that the section just quoted says no city shall become indebted. The indebtedness there mentioned refers to new debts or obligations created or contracted for by the city and does not refer to prior valid debts and obligations of the city, except, however, they must be considered and included in the estimation whenever any new or additional indebtedness is proposed to be saddled upon the city. The object of the Constitution is to prevent the city from going into debt beyond a certain amount and not to extinguish its valid obligations. That being true, it becomes necessary to determine to which of the above classes of indebtedness the $21,000 belongs, to the new or the old."

In the principal opinion at page 82 (203 Mo. l.c. 82) it said:

"The underlying purpose of the constitutional prohibition of an indebtedness beyond five per centum of the taxable wealth of a city was to serve as a limit to taxation as a protection to tax payers. If, therefore, there was no debt contracted for the $21,000, then the citizens of Neosho are accorded the full protection of the Constitution, and the interdiction of Section 12 of Article 10, supra, does not apply."

But neither of the opinions in that case rule that a new debt may not be incurred for the valid public purpose (if such be a valid public purpose) of discharging a prior valid indebtedness. And this is the vital question here.

The first thing to be determined is whether or not the discharge of a valid existing indebtedness is a county public purpose. The second is whether there is (under the facts of this case) a new debt created for such public county purpose. Of these in order.

We hardly deem it to be debatable that the payment of a valid indebtedness by a county, is a county public purpose. Section 3 of Article 10 of the Constitution says that: "Taxes may be levied and collected for public purposes only," and this we have held was the law long prior to its incorporation in the Constitution. [State ex rel. v. St. Louis, 216 Mo. l.c. 90; State ex rel. v. Orear, 210 S.W. l.c. 396.] If, therefore, no taxes can be levied and collected by the county, save for a county public purpose, and the payment of a valid county indebtedness is not a county public purpose, there is no authority on earth by which such valid debt can be discharged, for counties have no way of getting money except through the medium of taxes of some kind. The Constitution (Sec. 1, Art. 10) places the taxing power for state purposes in the General Assembly, and in the counties and other municipal corporations for county and other corporate purposes, but these purposes are not defined. It is true that this constitutional provision says that counties and other municipal corporations shall exercise their taxing power "under authority granted to them by the General Assembly," but the very laws which create these municipal corporations grants them the right (within limitations) to contract and pay valid debts. Whether in express language or not, it is clear that it could not be otherwise. No new municipal corporation could start its functions without such power. The General Assembly in the very creation (by laws) of these municipal corporations granted such powers, i.e., to create valid debts and to pay valid debts. The courts have held such payment a public and corporate purpose. [National Life Ins. Co. v. Mead, 48 L.R.A. 785; Stone v. Chicago,207 Ill. 492.] We conclude therefore that the payment of a valid existing debt by a county is a county public purpose. And not only so, but that such purpose is within the meaning of the word "purposes" as used in Sections 1, 3, 11 and 12 of Article 10 of the Constitution. The Constitution recognizes the payment of debts as a public purpose, for in Sec. 20 of Article 10 it is said:

"The moneys arising from any loan, debt or liability contracted by the State, or any county, city, town or other municipal corporation, shall be applied to the purpose for which they were obtained, or to the repayment of such debt or liability, and not otherwise."

Section 12 of Article 10 is a limitation upon the exercise of the taxing power, both by the General Assembly and the county or other Municipal Corporation. We say taxing power, because whilst the section speaks of debt-making, the only way to pay public debts is through taxes, and one of the great purposes of the Constitution of 1875 was to limit the taxing power. [State ex rel. v. Mo. Pac. Ry. Co., 123 Mo. l.c. 78.] When you limit the debt-making rights or powers, you limit the taxing power, and vice versa. But with all this in view, we find in this Section 12 of Article 10 authority for counties to become indebted up to a given amount, by procuring the assent of two-thirds of the voters. This indebtedness, so to be assumed, is not limited to any one particular purpose, but covers any county public purpose. And if the paying of a valid debt is a county public purpose, it means that, as well as other such purposes. In other words, it means that by such assent the county can create an obligation, even though the purpose of that obligation is to procure funds with which to pay off and discharge a previous valid debt.

The learned Attorney-General urges that this section has reference to new obligations, and for the purpose of this case we may grant it. In this case the county has issued its bonds to be sold upon the general market and with the funds so procured it expects to discharge these judgments. These bonds, when sold to A, B, C and others of the general public, are new debts and obligations, notwithstanding the fact that the cash received may be used in the discharge of the previous valid obligations of the county. If I owe John Jones $1000, evidenced by my note, I am indebted to him. If when that note reaches maturity (or even before maturity) I go to John Smith and give him my note for $1000, with the purpose of taking the $1000 and paying Jones, I have created a new debt or obligation, although my purpose was to discharge an old debt. The obligation or debt in the one instance was to Jones, but in the other it is to Smith. They are not the same obligations or debts, and the latter is a new debt or obligation. If I actually pay the Jones debt my liabilities will then be the same as before, but if not, they are doubled. But in neither event can it be said that I have created no new debts. So in the case at bar, when these bonds are sold they create a new debt or obligation against the county, although the purpose may be to use the proceeds to discharge an old debt. The bonds are not payable to the same parties as are the judgments. The two transactions are as separate and distinct as the Jones and Smith matters, supra.

The bonds therefore constitute a new debt. This is not a case where the bonds are to be given to the old creditors in exchange for their obligations, and we need not discuss the question from that angle. Whilst we have no direct construction of the point by our courts, we do have a legislative construction. Section 9356, Revised Statutes 1909, authorizes cities of the fourth class to vote bonds to pay off existing judgments. Section 9357 following, thus reads:

"No such bonds shall be issued in such a manner as to increase the indebtedness of the said city, but such bonds shall be sold as directed by the board of aldermen of such city, and the proceeds thereof shall be applied only to the payment and discharge of the judgment and decrees of any court for the payment of which the same may be issued, and such bonds so sold shall be delivered at the same time that the judgment and decree aforesaid shall be paid and discharged."

This section forbids the issuance of such bonds in a way to increase the indebtedness. To that end it provides that the bonds shall be sold, but not delivered until the judgments are paid and discharged. The issuance and delivery of the bonds and the release of the judgments must be at the same time. The legislative idea was that unless so done the debt of the city would be increased by the new debt created by the bonds. The case law is divided upon the question, but we believe the reason of the thing lies with the idea that bonds issued and sold as these bonds are to be sold creates a new, and for a time at least, and additional indebtedness.

The pioneer in constitutional provisions, such as we have in our Section 12 of Art. 10, is the State of Iowa, in 1857, followed by Illinois and West Virginia, prior to our Constitution of 1875. Ours evidently came from one or the other of those states. Our court in Barnard Co. v. Knox County, 105 Mo. 382, has approved of the rulings in Iowa as to this provision of the Constitution. In Doon Township v. Cummins, 142 U.S. l.c. 370, it is said:

"The Constitution of Iowa, Art. 11, Sec. 3, ordains as follows: ``No county, or other political or municipal corporation, shall be allowed to become indebted in any manner, or for any purpose, to an amount in the aggregate exceeding five per centum on the value of the taxable property within such county or corporation — to be ascertained by the last state and county tax lists, previous to the incurring of such indebtedness.' The scope and meaning of this provision of the fundamental and paramount law of the State are clear and unmistakable. No municipal corporation ``shall be allowed' to contract debts beyond the constitutional limit. When that limit has been reached, no debt can be contracted ``in any manner, or for any purpose.' The limit of the aggregate debt of the municipality is fixed at five per cent of the value of the taxable property within it; and that value is to be ascertained by the last state and county tax lists,' which are public records, open to all, and of the contents of which all are bound to take notice. The prohibition is addressed to the Legislature, as well as to all municipal boards and officers, and to the people, and forbids any and all of them to create, or to give binding force to, any debts of the corporation in excess of the limit prescribed. The prohibition extending to debts contracted ``in any manner, or for any purpose,' it matters not whether they are in every sense new debts, or are debts contracted for the purpose of paying old ones, so long as the aggregate of all debts, old and new, outstanding at one time, and on which the corporation is liable to be sued, exceeds the constitutional limit. The power of the Legislature in this respect being restricted and controlled by the Constitution, any statute which purports to authorize a municipal corporation to contract debts in any manner or for any purpose whatever in excess of that limit is to that extent unconstitutional and void. By the terms of the statute of Iowa of 1880, chapter 132, under which the bonds in question were issued, any independent school district or district township, having a bonded indebtedness outstanding, is authorized to issue negotiable bonds for the purpose of funding that indebtedness; and ``the treasurer of such district is hereby authorized to sell the bonds provided for in this act at not less than their par value, and apply the proceeds thereof to the payment of the outstanding bonded indebtedness of the district, or he may exchange such bonds for outstanding bonds, par for par.' There is a wide difference in the two alternatives which this statute undertakes to authorize. The second alternative, of exchanging bonds issued under the statute for outstanding bonds, by which the new bonds, as soon as issued to the holders of the old ones, would be a substitute for and an extinguishment of them, so that the aggregate outstanding indebtedness of the corporation would not be increased, might be consistent with the Constitution. But under the first alternative, by which the treasurer is authorized to sell the new bonds and to apply the proceeds of the sale to the payment of the outstanding ones, it is evident that if (as in the case at bar) new bonds are issued without a cancellation or surrender of the old ones, the aggregate debt outstanding, and on which the corporation is liable to be sued, is at once and necessarily increased, and, if new bonds equal in amount to the old ones are so issued at one time, is doubled; and that it will remain at the increased amount until the proceeds of the new bonds are applied to the payment of the old ones, or until some of the obligations are otherwise discharged. It is true that if the proceeds of the sale are used by the municipal officers, as directed by the statute, in paying off the old debt, the aggregate indebtedness will ultimately be reduced to the former limit. But it is none the less true, that it has been increased in the interval; and that unless those officers do their duty, the increase will be permanent. It would be inconsistent alike with the words, and with the object, of the constitutional provision, framed to protect municipal corporations from being loaded with debt beyond a certain limit, to make their liability to be charged with debts contracted beyond that limit depend solely upon the discretion or the honesty of their officers."

You can't have an increase or doubling of a debt, without a new obligation or debt. As in the Cummings case, supra, so in the case at bar, there is a period of time when there are two separate and distinct debts, i.e. (1) the old judgment debts, and (2) the new bond debt.

In Reynolds v. Lyon County, 121 Iowa, l.c. 737, the Supreme Court of that State again had the matter before it. After quoting with approval from the U.S. Supreme Court, what we quoted above, the Iowa court thus proceeds:

"In the dissenting opinion this construction was denounced as purely technical, as the object of the statute was, not to create a new or increase the old indebtedness, but merely to change its form, and reduce the interest rate. The difficulty in this suggestion is that a new debt is for the time being created, and one day's continuation of it in addition to that evidenced by the old bonds is as much within the condemnation of the letter and spirit of the Constitution as that of a year. It won't do to say that officers may be relied upon to use the proceeds derived from the sale of bonds to wipe out existing obligations. In that case these were not so applied. The very object of this article of the Constitution is to protect the interests of the people against their own improvidence and extravagance. If such bonds are not within the prohibition, it would be within the power of dishonest officials by indirection to circumvent the fundamental law, and through diversion of the proceeds of new bonds saddle both them and the outstanding debts as burdens on the people."

The new bonds could not fall within the purview of the constitutional inhibition, save and except, they constitute a new debt. The Iowa court then discusses the cases pro and con, but we need not reiterate. The cases serve to illustrate the difference between cases like the one we have at bar, and cases where the new bonds are to be exchanged for the old bonds, or where the new bonds are only to be issued upon the release of the judgments, as provided for by our statute, Section 9357, supra.

But aside from all this, the very reason of the thing bespeaks a new indebtedness. The bonds were to be sold to the public, not to the judgment creditors. The obligations were to third parties, and not to the same parties. This makes a new debt, and we so rule.

Nor do we think that this ruling will thwart the constitutional idea of counties doing business on a cash basis, any more than it has been thwarted by our previous cases. The doctrine that all contracts in excess of the anticipated year's revenue are void is the corner stone of what our court fixes as the cash basis idea. That corner stone remains, under our views herein.

IV. As a last vital contention the learned counsel for respondent say that there was no law authorizing the election to be held, and therefore the bonds are invalid. It is true that this election was held prior to the Act of the General Assembly, approved May 21, 1919 (Laws of 1919, p. 178), which specifically provides for such bond election, but it does not necessarily follow from this that the election was not without authority of law. Legislative acts of this kind are sometimes passed to clear up a doubt, rather than to confer original authority. In other words a question may appear to be mooted, and to dispel all doubts legislation is passed. We think that such was the purpose of this act, and it thereby loses its force as a legislative construction of the existing status of the law.

Going then to the situation prior to this legislative expression, how stands this bond election? Under the law the payment of a valid debt is a county public purpose, and this by the legislative authority in the creation of the municipal sub-divisions, known as counties. Under Section 12 of Article 10 of the Constitution counties have the power, by elections held for that purpose, to create debts for county public purposes. Note the authority is by elections. The requisite vote is prescribed, but the details of the election are not otherwise prescribed. Whilst Section 12 of Article 10 is a clear limitation on the power to create debts, and the power to increase taxes, it is likewise a grant of power to do both in a certain way and within a prescribed limit. There is no question of the limit in this case, because the debt is within the limit. The certain way is fixed, and that is by a vote of the people. The grant or right to determine the question by a vote of the people is fixed by this constitutional provision. Even the limitations in this section of the Constitution are of two classes. First, we have those that must fall within the limitation of "five per centum on the value of the taxable property therein," and, secondly, we have those where the limit is higher, as stated in the first proviso. This proviso refers to certain specific matters, i.e. court-house, jail and rock-roads. These two classes should not be overlooked. The first embraces all usual county purposes, the other is for specific county purposes. The payment of legal debts falls within the first, and whilst both require the vote of the people, the latter, being a call for much heavier taxation, have been looked after by special legislation as to the elections for such purposes. But this does not mean that as to the first class named, the Constitution itself is not sufficient authority for the election. In State ex rel. v. M.K. T. Ry. Co., 164 Mo. l.c. 213, it is said:

"The power being conferred to hold an election and no means provided therefor, carries with it as an inevitable and indubitable incident the usual and customary means to put into effect the power thus conferred."

Whilst Section 12, Article 10, inhibits counties from contracting debts "exceeding in any year the income and revenue provided for such year" yet in addition to this inhibition is a grant of authority to contract in excess of the yearly income and revenue provided "the assent of two-thirds of the voters thereof voting at an election to be held for that purpose." If this is not a grant of the authority, there is no such authority. Without this grant the Legislature would be powerless, and no law passed by the Legislature could give it. This, because of the broad and positive restriction in the first paragraph, so that, for the ordinary and usual county public purposes, the real grant to hold an election comes from the Constitution. And where no machinery has been provided for such an election, it is sufficient if there is used the ordinary and usual machinery provided for obtaining the expression of the votes upon the question. In this case the Legislature in 1919 has specifically provided the method, which is not materially different from the one used here, but if our views of the situation are correct, there would be a useless expenditure of money to require a new vote under the Act of 1919. We think there was authority for the election without this act and that the act was passed to make assurance doubly sure.

Other questions raised do not require note in view of what we have said. It follows that our peremptory writ of mandamus should go, and it is so ordered. All concur, except Goode, J., who dissents in opinion filed; Woodson, J., absent.