City of Charlotte v. American Trust Co.

Controversy without action submitted to determine whether certain bonds contracted to be sold by plaintiff to the defendant are the obligations or bonds of the city of Charlotte and binding upon the municipality. His Honor adjudged the bonds to be the "general, personal, and direct obligation of the city of Charlotte," and rendered judgment against the purchaser, the defendant. A copy of the bond is set out in full in the record and is marked "Exhibit B." The defendant excepted and appealed.

The facts are sufficiently stated in the opinion of the Court by MR. JUSTICE BROWN. The bond in question is one of a series issued pursuant (390) to an act of the General Assembly ratified 3 March, 1911, and are denominated "street improvement bonds." Each bond contains this clause: "This bond shall constitute a general, personal, and direct obligation of the city, and, in addition thereto, the payment thereof is chargeable to the property abutting upon certain streets which have been laid out by ordinance passed by the board of aldermen as permanent improvement districts or sections, and are as follows:" [Here follows a list of assessments.]

It is too plain for discusion [discussion] that upon their face the bonds are the direct obligation of the city of Charlotte, and that the assessments specified on the face of the bond are but additional security for their payment.

But it is contended that they are issued as such in violation of the terms of the statute, and are therefore ultra vires. It is agreed that they are issued pursuant to the terms of an act entitled "An act to amend the charter of the city of Charlotte," ratified on 3 March, 1911, being chapter 251, Private Laws 1911.

The plaintiff, prior to this act, had the right to pave its streets as a necessary expense, and to pay for the same out of its general funds. Tuckerv. Raleigh, 75 N.C. 267; Hightower v. Raleigh, 150 N.C. 569.

We think the act of 3 March, 1911, did not intend to curtail the power and means of the city to pave its streets, but to increase them.

Inasmuch as prior to these special acts the plaintiff had the right to contract debts for paving its streets and to make the obligations issued for such purpose a part of its general and direct indebtedness, these special acts giving it power to tax the cost of paving against abutting property-owners must be construed as enabling legislation intended to enlarge the ability of the city to pave its streets by giving an additional source of revenue, and, furthermore, to render the bonds more salable by giving the bondholder a specific charge and lien against the abutting property-owners in addition to the general obligation of the city. The Legislature could not have intended to authorize an unsalable security.

The bonds are required to be sold at not less than par, and such (391) an obligation could not be sold at par unless it constitutes the direct debt of a solvent obligor. As Mr. Justice Harlan very forcibly says, in a case on all-fours with this, U.S. v. Fort Scott,99 U.S. 152: "Experience informs us that the city would have met with serious, if not insuperable, obstacles in its negotiations had the bonds upon their face, in unmistakable terms, declared that the purchaser had no security beyond the assessments upon the particular property improved."

The act directs the board of aldermen to issue bonds of the city and sell them. The use of the word bond ex vi termini implies that the city is bound. As said by the United States Supreme Court in Davenport v. County ofDodge, 105 U.S. 237, a "a bond implies an obligor bound to do what isagreed shall be done."

Also, in Morrison v. Township of Bernards, 25 N.J. Law, 219, ChiefJustice Beasley, speaking of the force and effect of a direction in the statute that the township issue "bonds," says: "A similar implication, but one of greater force, arises from the direction that bonds are to be given under the hands and seals of the commissioners, for an instrument of that kind cannot be created without the presence of an obligor; and, indeed, it seems like a solecism to say that the statute calls for the making of a bond, but that nobody is to be bound by it."

Not only that, but it is also held by the authorities that when the word "bond" is used in connection with municipal obligations, designating what is commonly called "municipal bonds," then this means negotiable bonds. This is expressly held in Nallie v. Austin, 85 Tex. 520. See, also,McCless v. Meekins, 117 N.C. 34; Charlotte v. Shepard, 122 N.C. 602.

These bonds, called "street improvement bonds" in section 12 of the act authorizing their issue, are specifically named such in that act; they are to be issued in ten equal series and each series shall consist of a like number of bonds; they bear interest at 6 per cent, fixed by the statute, and they are required to be signed by the mayor and attested by the city clerk. Thus it is seen that they possess all of the characteristics of a municipal bond, being payable to bearer, redeemable by the city at a stipulated time, and executed with all the formality of (392) regular bonds by its officers.

It is true that the statute requires that the bonds shall contain such recitals as may be necessary to show that they are chargeable to particular property. We construe this to mean that these assessments are to be devoted by the city to the payment of these particular bonds, and it would be a violation of law to divert the proceeds arising from such assessments to any other purpose. The fact that these assessments are dedicated to the specific purpose of paying these bonds does not render the bonds any the less the general obligation of the city.

It is also said that these bonds were not submitted to a vote of the people. In our opinion that was not necessary. There are classes of bonds other than those mentioned in this act of 1911 which are required to be submitted to a vote of the qualified voters, but there is no such provision or requirement in regard to these street improvement bonds secured by the assessment. On the contrary, the board is invested with power to issue these bonds without any vote of the people.

We are advertent to the previous decisions of this Court that where the General Assembly specifically requires a proposition to incur an indebtedness, or issue bonds for a given purpose, to be submitted to the qualified voters for their approval, this, as said by Mr. Justice Hoke, "will amount to a statutory restriction, and such indebtedness shall not be incurred unless the measure has been sanctioned and approved by the voters according to the provisions of the statute; and this though such indebtedness is properly classed as necessary expense." Ellison v.Williamston, 152 N.C. 149. Inasmuch as the statute does not require this particular issue of bonds to be submitted to the qualified voters, the principle announced in that decision has no application here.

Neither do we think the issue of bonds comes within the inhibition contained in Revisal, sec. 2977, as they are issued for a necessary expense, and specifically authorized by special legislation. Wharton v.Greensboro, 146 N.C. 357.

The judgment of the Superior Court is

Affirmed.

Cited: Caravan v. Comrs., 161 N.C. 103.