Opinion
No. 32958.
January 10, 1938. Suggestion of Error Overruled February 21, 1938.
1. MANDAMUS.
Where validity of drainage bonds was not questioned, bondholders need not obtain judgments against drainage district on bonds as preliminary to bringing mandamus to compel payment of bonds out of funds on hand.
2. DRAINAGE DISTRICTS.
Where drainage district's unpaid indebtedness amounted to only about one-tenth of the assessed benefits, bondholders were entitled to payment in full in absence of showing that district was insolvent, notwithstanding that cash on hand was insufficient to pay all outstanding bonds (Code 1930, section 4492).
3. DRAINAGE DISTRICTS.
There can be no preference among the bondholders of an insolvent drainage district, but creditors must share pro rata.
APPEAL from the circuit court of Leflore county. HON. S.F. DAVIS, Judge.
Arthar Bruce and H.C. Mounger, both of Greenwood, for appellants.
The statute under which these bonds were issued, Section 4988 of Hemingway's Annotated Mississippi Code of 1927, Section 4492 of the Mississippi Code of 1930, provides that "all bonds and evidences of indebtedness issued by the Commissioners under the terms of this article shall be secured by a lien on all lands and railroads subject to taxation under this article, in an amount not to exceed the amount of benefits assessed against such lands and railroads."
And the following section, Section 4989 of Hemingway's Annotated Mississippi Code of 1927, Section 4493 of the Mississippi Code of 1930, provides that the entire revenues of the district are by this article pledged to secure these bonds.
As we understand the statute, these two sections of the code contemplate that all bonds due at any one time should be paid pro rata and no bonds paid to the exclusion of all other bonds.
First Nat. Bank of Meridian v. Commissioners of Lake Cormorant Dr. Dist., 167 Miss. 354, 147 So. 807; Moran v. State ex rel. Montgomery, 149 So. 477; Norris v. Montezuma Valley Irrigation Dist., 248 F. 369; Duncan Townsite Co. v. Lane, 245 U.S. 308, 38 S.Ct. 99, 62 L.Ed. 309; Ex Parte Skinner Eddy Corp., 265 U.S. 86, 44 S.Ct. 446, 68 L.Ed. 912; State v. Knott, 176 So. 113; State ex rel. Buckwalter v. Lakeland, 150 So. 508, 90 A.L.R. 704.
It is our claim that all bonds of the district which were due should be paid pro rata out of the funds of the district; that the funds should not be exhausted in the payment of any one bondholder's bonds; that all past due bonds, being all issued at the same time and predicated on the same security, should be paid pro rata. The judgment of the court certainly gave a preference in awarding the writ of mandamus for the payment of the particular bonds sued on in full in preference to any and all other past due bonds and interest. What we objected to was not the payment of these particular bonds sued on in this case, but we objected to their payment in full preference to the other past due bonds.
We submit that the defendant should have been allowed in the lower court to show they had complied with their duty, that these tax levies had been made, but had not produced sufficient money to pay the bonds and interest for the reason the property owners had not been able to pay their taxes and a great deal of the lands had been forfeited to the state for taxes.
Oldham v. Lafayette County Bd. of Dr. Comrs., 133 Miss. 505, 97 So. 885.
We introduced certified records from the boards of supervisors of Leflore and Carroll counties showing the amount of tax levies which the boards of commissioners had recommended to the boards of supervisors of each of the two counties in which the district lay, and this was relevant to show whether or not the commissioners had performed their duty. For, as said in the case of Wood v. State, 169 Miss. 790, 142 So. 747, on page 750, it must first be shown whether or not the commissioners had performed their duty before the writ of mandamus should be issued against them. They had to be shown to be in default.
Wood v. State, 169 Miss. 790, 142 So. 747.
The court erred in not entering judgment spreading the payment of matured bonds and interest over a period of years as would be in full recognition of relators' adjudicated legal rights as litigants to be paid what is owed them at the earliest practical date, but consistent with the cognate rights and interests of other creditors similarly situated, the burdens on taxpayers, the pressing necessities of the sub-drainage district, and the exigencies of the sub-drainage district's financial structure as a whole.
United States v. Key West, 78 F. 88; City of East St. Louis v. U.S., 120 U.S. 600, 7 S.Ct. 739, 30 L.Ed. 798; Taxing District of Brownsville v. Loague, 129 U.S. 493, 9 S.Ct. 327, 32 L.Ed. 780; State ex rel. Bottome v. City of St. Petersburg, 170 So. 730; State v. Lehman, 131 So. 533.
The court erred in rendering the judgments, ordering the commissioners to pay the bonds sued on, to the exclusion of all other past due bonds and interest.
The order of the court necessarily contained the proviso that these bonds should be paid in full to the exclusion of all other bonds and interest which were past due, because it was made plain to the court that there was not enough cash on hand to pay the entire amount of past due bonds and interest.
First Natl. Bank v. Comrs. Lake Cormorant Dr. Dist., 167 Miss. 354, 147 So. 807; Moran v. State ex rel. Montgomery, 149 So. 477.
The court erred in rendering a judgment in mandamus when it was shown that a refunding operation was being had and would probably be completed shortly; and in not ordering that the writ of mandamus be presently stayed in its enforcement for such reasonable length of time as will enable the court to be definitely advised whether or not such refunding operations that have already been begun can be successfully concluded to the advantage of all concerned.
City of Asbury Park v. Christmas, 78 F.2d 1003; State ex rel. Bottome v. St. Petersburg, 170 So. 730.
In the recent case of Pryor, et al., Comrs. of Sabougla Dr. Dist. v. Goza, 172 Miss. 46, 159 So. 99, the court held that the act of bankruptcy involved in this case was unconstitutional, and so the present defendants had no remedy by which it could go into bankruptcy and pay each of the bondholders the pro rata share of his money. We think, however, that this matter could have been taken care of by the court in this particular instance simply by awarding a judgment to these two petitioners for a pro rata share of their money and not giving them a preference and priority in full over everybody else.
Moran v. State ex rel. Montgomery, 149 So. 477.
We respectfully submit that this case should be reversed, and, if the case is reversed and remanded, that it should be remanded to the Chancery Court of Leflore County, Mississippi, for further proceedings, in accordance with Dilworth v. Federal Reserve Bank, 170 Miss. 373, 150 So. 821.
Pat D. Holcomb, of Clarksdale, and A.H. Bell, Knox Lamb and Hardy Lott, all of Greenwood, Amici Curiae.
Sections 4492 and 4493 of the Mississippi Code of 1930 provide that the bonds of drainage districts are secured by lien on all the lands of the district not to exceed the amount of the benefits assessed against such land, and these sections make it the duty of the commissioners of such districts to see to it that assessments on said lands are levied and collected annually and to pay from the revenues thus derived the principal and interest on the bonds of the district. As we understand these two statutes and the interpretation given them by this court in First National Bank of Meridian v. Commissioners of Lake Cormorant Dr. Dist., 167 Miss. 354, 147 So. 807, the intent of the Legislature was that all past due bonds should stand on the same footing insofar as payment was concerned and that the revenues of the district should be applied ratably to their payment. Therefore, the judgment of the lower court in the case at bar compels the commissioners of the district to perform an act which, if done voluntarily by them, would amount to a breach of duty on their part and would be a fraud upon the rights of other holders of past due bonds of the district.
The fact that appellees obtained judgments upon their bonds gave them no greater right than they already had and gave them no rights superior to the rights of the other holders of past due bonds for the reason that by virtue of the two statutes last mentioned all of the revenues of the district are pledged to the payment of all past due bonds.
Johnson v. Bruce, 171 So. 685.
In some jurisdictions it has been held that where the funds out of which the bonds are to be paid are inexhaustible the rule of "first come, first served" applies, but in no case has it been held that this rule applies when there is any question as to whether there are sufficient funds to pay all bonds. In other words, the rule is that there must be sufficient funds on hand to pay all bonds or that there must be an inexhaustible source from which such funds may be derived, before the "first come, first served" doctrine will be invoked; and even this rule has been pronounced unsound and inequitable in most jurisdictions, on the ground that the statutes, as here, do not provide that the bonds be paid in the order of their presentation for payment but on the contrary provide that the fund realized from the collection of taxes levied to pay bonds is for the benefit of the holders of all of the bonds which can be legally paid out of such funds. And even though this court should recognize the minority rule mentioned above, it must hold that it has no application in the case at bar for the reason that it was not shown that the funds are inexhaustible. But, on the other hand, the lower court refused to allow the introduction of testimony tending to show that much of the land in the district had been sold for non-payment of taxes and that title to much of this land was in the State of Mississippi and yielded no revenue.
Rothschild v. Calumet Park, 350 Ill. 330, 183 N.E. 337; Jewell v. Superior, 135 Fed. 19, 198 U.S. 583, 49 L.Ed. 1173; Norris v. Montgomery Valley Irrigation Dist., 248 Fed. 369; 63 L.Ed. 425.
Pollard Hamner, of Greenwood, for appellees.
After all is said and done this case is controlled by the statutes of Mississippi, Chapter 269 of the Laws of 1914, Sections 10, 13, 14, and 15.
From the above sections the following will be noted: That the commissioners have a right to tax the lands in the district up to the amounts of benefits. There can be no argument of this proposition under Section 15. The commissioners have not only the right to tax the lands in the district up to the amount of benefits assessed, but this right carries with it the duty so to do. If they fail in this duty they are derelict and the proper machinery of the law should be put in motion to compel action on their part. It would be idle to say that the board had a right to levy a tax to meet its proper bonds and yet to say that when it fails so to do the courts would be powerless to force compliance with the law. In the case note to Mayor and Aldermen of the City of Davenport v. U.S., ex rel. Lord, appealed to the U.S. Supreme Court and Reported in 19 L.Ed. 704, it is said "It is to be inferred that when the Legislature of a state authorized a county or city to contract a debt by bond, it intends to authorize it to levy such taxes as are necessary to pay the debt, unless there is an act which repels such an inference. Having the power to levy a tax for the payment of the judgments, it was the duty of the city to exercise the power. The payment was not a matter resting in its pleasure, but a duty it owed to the creditor. Having neglected this duty the case was one in which a mandamus should have been issued to enforce its preference." The foregoing statement is followed by a long list of cases supporting the principle of law.
Spitzer v. Franklin County, 123 So. 636.
Under the Mississippi statute, therefore, the commissioners could and should have issued bonds, if necessary, up to the total assessed benefits.
Anderson v. Robins, 161 Miss. 604, 137 So. 476.
Section 14 clearly requires the commissioners not only to levy, but to collect the annual taxes providing that the board "shall see to it" that the levy is made and collected and the entire machinery for the levy and collection is provided by Chapter 269 of the Laws of 1914.
If the assessment and levy is made the tax collector is liable on his official bond if he neglects, fails or refuses to collect the taxes and is also liable for damages at the rate of 30%. This recourse against the sheriff and tax collector has been adverted to under subdivision (b) and reference is further made to Section 10 of Chapter 269 of the Laws of 1914 solely to show that the commissioners have the right to pursue the tax collector not only for his failure or refusal to collect, but if he collects taxes and fails to pay the same over as required by law he and his bondsmen are still subject to suit and to a penalty of 30%, plus 6% per annum damages. In the instant case the commissioners themselves have been guilty of monstrous inexcusable and gross inefficiency in failing to force the collection of drainage taxes on the lands in Carroll County. The effect of the failure is that the land owners in Leflore County have been compelled to pay the entire expense of organizing the district, digging its ditches, maintaining the canals and levees and actually retiring $22,500 of bonds with the interest accumulations thereon. Not only the land owners in Leflore County, but certainly the bondholders and creditors of the district are entitled to relief from this most unjust situation which results in loss and damage to the bondholders and creditors.
The making and levying of the assessment may be enforced by mandamus at the instance of any person interested.
Coy v. City Council of Lyons, 85 Am. Dec. 539; Marian County v. Coler, 75 Fed. 352, 21 C.C.A. 392; Voorhies v. City of Houston, 70 Tex. 331, 7 S.W. 679; Galena v. U.S., 18 L.Ed. 560; Ward v. Piper, 69 Kans. 773, 77 P. 699; Meyer v. Porter, 65 Cal. 67, 2 P. 884; City of New Orleans v. U.S., 49 Fed. 40.
As to the procedure by mandamus this is specially authorized "at the instance of any person interested" by Section 14 of the above drainage chapter. The affairs of drainage districts, of course, are controlled by the Chancery Court in Mississippi as to practically all of the procedure, and certainly as to all matters concerning them equitably, but by special statute, being Section 2348, Code of 1930, the Circuit Court is given exclusive jurisdiction of the writ of mandamus.
Anderson v. Robins, 161 Miss. 612.
The revenues from the district from any and all sources are pledged up to the amount of the betterments assessed. This is provided by Section 15 of the act and the commissioners are "required" to set aside from the first revenues collected an amount to pay the interest on the bonds for a sinking fund for their retirement. They have signally failed to do this in the present case and the bondholders are the sufferers.
The commissioners are required to set aside annually the interest on bonds and a sinking fund for ultimate retirement.
Payment of appellees' judgment would not constitute a preference as the commissioners can easily levy and collect taxes sufficient to pay every bondholder and no bondholder or creditor need lose anything.
Under these circumstances appellee is entitled to the machinery of the law to force payment of his judgment. This machinery was put into operation through the Circuit Court of Leflore County by a petition for mandamus. The writ was granted and the judgment of the Circuit Court should be affirmed.
R.F. Kimmons, of Water Valley, for appellees.
We have no fault to find with the decisions cited by appellants. If a taxing district becomes insolvent there should be no preferences. But where there is ample assets to pay all creditors and the funds with which payment is to be made is ample the rule of "first come, first served" applies. It is true in the decisions quoted by appellant the phrases "inexhaustible taxing power" and "unlimited taxing power" are used but what do these terms mean? Surely these terms are relative, and depend on the circumstances in which they are used. In the case of Moran v. State, 149 So. 477, quoted by appellants, this is made plain, and a careful reading of that decision shows conclusively that where the assets are sufficient to pay all creditors the power to tax was inexhaustible.
Equity aids the vigilant, not those who slumber, is one of its great maxims.
Griffith's Chancery Practice, sec. 32; Buckwalter v. City of Lakeland, 150 So. 508.
When the courts say that a taxing district must have unlimited taxing power it simply means that it has the power unlimited by the necessities of the particular case. The Teoc Drainage District has power to levy many thousands of dollars on the lands of the district in excess of its needs and, therefore, its taxing power in this case is unlimited within the meaning given by the courts to that phrase.
We insist that in a mandamus proceeding, with none of the facts laid before the court, and without jurisdiction of any of the parties, the court could never do otherwise than render the judgments shown by the record in this case. The judgments rendered by the court below are eminently just and right, and should be affirmed.
Argued orally by Arthar Bruce, and H.C. Mounger, for appellant, and by R.F. Kimmons, and W.L. Hamner, for appellee.
Appellees, Halliwell and Cooper, brought their separate actions in the circuit court of Leflore county against appellant drainage district for a writ of mandamus to compel the commissioners of the district to pay out of its funds on hand the bonds of the district held by them in the aggregate sum of $3,114.53. The facts in each case were the same, and by agreement the cases were consolidated and tried as one.
The trial was on petition for mandamus, answers, agreed facts, and additional testimony of witnesses introduced, resulting in a judgment in appellees' favor awarding the writ. From that judgment appellant prosecutes this appeal.
The defense of the district was that to pay the bonds of appellees in full would result in giving them a preference over other bondholders, which the law would not permit. Appellees first obtained judgments against the district for the amounts of their bonds, which was not necessary as the validity of the bonds was not questioned. Johnson v. Bruce, 177 Miss. 581, 171 So. 685.
The agreed facts were as follows: In 1922 the district issued its bonds in the sum of $42,500, of which $22,500 has been paid and retired. In 1928 additional bonds were authorized in the sum of $14,500, of which only $9500 has been sold. The first issue will mature on March 1, 1938. On January 1, 1937, the district had on hand $7,841.60 in cash. At the time of the trial in June, 1937, it had on hand $13,723.33 in cash. The assessed benefits of the district amount to $288,915.02. The total amount of bonds issued was $52,000, of which, as stated, $22,500 has been paid, leaving unpaid $29,500. The drainage taxes collected in 1937 totaled $5,881.73. The lands of the district are partly in Leflore county and partly in Carroll county. The lands in the latter county are in arrears in drainage taxes in the sum of $6,500 with interest thereon since 1923. The district has $5,400 of authorized bonds unsold.
The district offered to prove, which the court on objection did not permit, that during what is commonly known as the period of depression some of the lands of the district had been forfeited to the state for state and county taxes and not redeemed, and furthermore that it was necessary to make certain expenditures for the maintenance and repair of the levies and other expenses of the district. Other evidence was offered by the district, and ruled out on objection, tending to show in a general way that during that period the assessed betterments of the district were reduced in value.
Those rulings of the court are assigned and argued as error. There was no offer to prove that the district was insolvent. Under section 4492, Code of 1930 (Drainage District Chapter), the bonds and other evidences of indebtedness of the district are secured by a lien on the lands and railroads, subject to taxation in the district, "in an amount not to exceed the amount of benefits assessed against such lands and railroads." As stated, the assessed benefits of the district amounted to $288,915.02. They constitute the assets of the district for the solvency of which the lands and railroad property are made liable.
The argument that there can be no preference among the bondholders of an insolvent taxing district is not controverted. That position is sustained by numerous authorities. When the taxing power is exhausted and there are not sufficient funds to pay all indebtedness in full, there can be no preference — creditors must share pro rata unless the law provides otherwise, and it does not here. On their face the unpaid indebtedness of the district amounts to only about one-tenth of the assets — the assessed benefits.
Affirmed.