Nolan County v. State , 83 Tex. 182 ( 1891 )

The act by virtue of which the bonds in controversy purport to have been issued contains the following provisions:

"Section 1. * * * That the County Commissioners Court of any county which has no court house at the county seat is hereby authorized and empowered to issue the bonds of said county, with interest coupons attached, in such amount as may be necessary to erect a suitable building for a court house; said bonds running not exceeding fifteen years, and redeemable at the pleasure of the county, and bearing interest at a rate not exceeding 8 per cent per annum.

Section 2. The Commissioners Court of the county shall levy an annual ad valorem tax on the property in said county sufficient to pay the interest and create a sinking fund for the redemption of said bonds, not to exceed one-fourth of 1 per cent for any one year.

"Section 3. The county shall not issue a larger number of bonds than a tax of one-fourth of 1 per cent annually will liquidate in ten years, and said bonds shall only be sold at their face or par value.

"Section 4. The interest on said bonds shall be paid annually on the 10th day of April, and they shall be registered and an account kept by the county treasurer of the amount of principal and interest paid on each.

"Section 5. Said bonds shall be signed by the county judge and countersigned by the county clerk, and registered by the county treasurer, before they are delivered." Laws 17th Leg., p. 5.

It is contended on behalf of the appellant that all the bonds are wholly void, because their amount is in excess of that allowed by the Constitution of the State and the act herein before set out, and because they do not conform to the provisions of that statute. It is also insisted on behalf of the county, that the first series of bonds, namely, those issued to Martin, Burns Johnson for building a jail, are void for the additional reason that the county was not authorized by law to create a bonded indebtedness for that purpose. On the other hand, it is insisted for the appellee, first, that the State is a bona fide holder of the bonds involved in this suit, and that therefore they are not subject to the defenses urged against them; and secondly, that if originally void they have been made valid by the Act of the Legislature passed March 24, 1885. Gen. Laws 1885, p. 40.

We will first discuss the bonds issued to Martin, Burns Johnson, for upon their validity in a measure depends the soundness of those subsequently issued; for the amount of indebtedness which the county had the power to create at the time the subsequent bonds were issued depended upon the amount of any valid bonded indebtedness then subsisting.

It may be considered settled law in this State that one of its counties can not issue bonds without an act of the Legislature conferring that power. Robertson v. Breedlove,61 Tex. 316. The case cited is also authority for holding that the act by virtue of which the bonds in question were issued conferred authority to issue bonds upon such counties only as had no court house at their county seat. We think it equally clear that the only purpose for which the power could be exercised was to provide the means for building a court house. The Act of February 2, 1884, which authorizes the issue of bonds for the construction not only of court houses but also of jails, tends to show that such is the legislative construction of the act under consideration. Gen. Laws 1884, p. 28. Therefore, at the threshold of the discussion we are met with the question whether there was any authority whatever for the issue of the first series of bonds. It is not to be supposed that the Legislature intended to confer the power upon the counties to create a bonded indebtedness to build a temporary structure to be used as a court house until a permanent building could be constructed. The limitations in the Constitution upon the creation of municipal debts, and the great caution manifested in conferring power upon municipal corporations to issue bonds, repel the idea that it could have been the purpose to authorize counties to issue them for the purpose of building other than permanent court houses. The building for the construction of which the first series of bonds were issued was primarily intended for a jail, and it was to this use that it was to be permanently devoted. The fact that it was the purpose of the Commissioners Court to use it also as a court house until a court house could be built did not authorize an issue of bonds for its construction. We therefore conclude that the first series of bonds was issued without authority of law. Should we hold otherwise, and determine that the building for the construction of which they were issued was a court house, then it would follow that when the additional bonds were issued the county had a court house, and that the commissioners were without authority to make the additional issue. But we think the jail, although used both as a court house and a jail, can not be deemed a court house within the meaning of the statute, and that therefore the Commissioners Court had the power to create a bonded indebtedness for the purpose of constructing a separate court house for the county.

Although we hold that the Commissioners Court of Nolan County exceeded its authority in issuing bonds to Martin, Burns Johnson for the construction of a jail, it does not follow that they may not be a valid indebtedness in part at least against the county. They are payable, to bearer, and in all other respects they are regular upon their face. They recite, that they were issued for the purpose of erecting a court house for Nolan County, and in pursuance of the authority conferred by the Act of February 11, 1881. They also purport to have been registered by the treasurer of the county. The State is admitted to be a holder for value of the four bonds of this series which are in part the foundation of this suit; and it is also admitted, that at the time of their purchase its agents had no actual notice of any fact which impaired their validity. The county of Nolan had no court house, and therefore the Commissioners Court had power to issue bonds for the erection of such a structure, containing all the recitals necessary to show the authority for the creation of the debt.

If a purchaser were bound to inquire into the existence of the facts which empowered the court to issue bonds to build a court house, and to know that the county had no court house, in view of the recitals upon the face of the obligations he was bound to look no further. He had the right to rely upon the truth of such recitals, and having paid value for the bonds without actual knowledge of their illegality, the county would be estopped to set up that they were not issued for the purpose for which they purported to be issued. Chambers County v. Clews, 21 Wall., 321; Wilson v. Salamanca, 99 U.S. 504; Marcy v. Oswego, 92 U.S. 640; Humboldt v. Long, 92 U.S. 644; Davis County v. Huidekoper, 98 U.S. 100. We conclude, therefore, that the four bonds issued to Martin, Burns Johnson, now held by the State, are valid obligations against the county, unless that entire issue was in excess of the amount of indebtedness which the court was authorized by law to create.

The question of excess in the amount of the indebtedness depends upon the construction of the statute. It must be interpreted in the light of the constitutional provisions which relate to the same subject matter. In The Citizens Bank v. The City of Terrell, 78 Tex. 450, section 8 of article 9 of the Constitution as amended in 1883 was construed, and it was held that the amount of indebtedness which counties, towns, and cities were authorized to create for the erection of public buildings, etc., was limited to 25 cents upon $100 worth of property as shown by the assessment rolls of the municipality. The word "valuation" as used in the section was held to mean the value as fixed by competent authority for the purposes of taxation. The result of that decision is, that the governing bodies of municipal corporations are not empowered, when ascertaining the amount of an indebtedness to be created, to determine for themselves the aggregate value of the property therein subject to taxation, but are to be governed by the official rolls made out by the tax assessor. The original section 8 of article 14 of the Constitution was in force when the bonds in controversy were issued, but it is subject to the same construction. If, instead of being limited to the amount of taxable property as shown by the assessor's rolls, the Constitution had conferred upon the Commissioners Courts the power of determining that question for themselves, then, according to the rule laid down in Marcy v. Oswego, supra, and recognized in the case of The Citizens Bank v. Terrell, supra, their determination of the amount would have been conclusive, and would have precluded inquiry into the power to issue the bonds in so far as the question of amount is concerned. But the power being limited as to the amount by the official assessment, the commissioners were not authorized to look beyond it and to determine the extent of their power from other data within their reach. In such a case the rule established in Dixon County v. Field, 111 United States, 94, and acted upon in The Citizens Bank v. Terrell, applies.

If our Constitution were silent upon this subject, then it might reasonably be held that section 3 of the statute quoted above authorized the Commissioners Courts to determine the question as to the amount of bonds "a tax of one-fourth of 1 per cent annually will liquidate in ten years." But there being a provision in the Constitution bearing directly upon that subject, we are of the opinion that this section must be construed in connection with it. The limit in the Constitution being an amount upon which a tax of one-half of 1 per cent Would pay annually the interest and 2 per cent as a sinking fund, and the statutory requirements being such an amount only as one-fourth of 1 per cent would liquidate in a period of ten years, it was not absolutely necessary that the commissioners should be governed by the same rule in determining the two limits. An amount of indebtedness that would be liquidated within ten years, though based upon a valuation in excess of that shown by the assessment rolls, might still be within the constitutional limit, which permits the creation of such a debt as will be ultimately paid by an annual tax of one-half of 1 per cent upon the taxable values of the county as shown by the official assessment. But we think it more reasonable to presume that the Legislature intended that the same rule should govern in determining both limits, and that the Commissioners Courts should not look beyond the assessment rolls in ascertaining the amount of the indebtedness which the statute authorizes them to create.

The bonds issued to Martin, Burns Johnson were delivered to them in April, 1882, and the last official assessment (that for 1881) showed the amount of the taxable values of the county to be $361,770. According to the rule laid down in Russell v. Cage, 66 Tex. 428, a tax of one-fourth of 1 per cent upon this sum would pay in ten years $6280.75, and no more. To that amount the bonds now under consideration were valid. As to the excess over that sum, they were void; and having all been issued at the same time, under the rule laid down in the case of The Citizens Bank v. Terrell, supra, each will bear a relative proportion of the loss. It was also held in the case last cited, that the purchasers of the bonds of a city must look to the official assessment in order to ascertain the extent of the council's authority to create a municipal indebtedness, and that as to an excessive issue they can not claim to be innocent purchasers. The same rule applies in this case.

It will be noted that in determining the amount of indebtedness which the Commissioners Court of Nolan County had the power to create in April, 1882, we have not taken into the computation the assessed values of Fisher County, which was attached to it for judicial purposes. We do not doubt that for most purposes of government a county which is attached to another for judicial purposes is to be treated as a part of the county to which it is annexed. The people of the two counties connected should alike enjoy the benefits and bear the ordinary burdens of the county administration. But where the boundary of a new county is defined and it is attached to another for the purpose of county government it is evident that the arrangement is provisional, and that it is expected that the population of the new county will soon be able to organize as an independent municipality and administer their own county affairs. Therefore it is unreasonable to presume that it was contemplated that in determining the amount of indebtedness which a county could lawfully create for erecting a public building the value of the property in a new county attached to it for temporary purposes should be taken into the calculation. When the new county is organized, the property within its limits is no longer subject to be taxed by the parent county. Such property must then bear the burden of taxation for the purpose of construction of public buildings for the use of the county in which it is situate.

It follows, from what has been said, that when the bonds were issued for building the court house proper there was an existing indebtedness outstanding against Nolan County, which it was the duty of the Commissioners Court to consider in estimating the amount of additional indebtedness which they had the power to create. What the amount of the valid indebtedness then existing was, we have had some difficulty in determining. As to the four bonds of the first issue, there is no question. They passed into the hands of the State as an innocent purchaser. The others, so far as the evidence shows, remained in the hands of Martin, Burns Johnson, who knew the facts, and can not be considered bona fide holders. But these latter bonds are negotiable, and until maturity, unless the transfer be enjoined, they were capable of becoming in part valid obligations of the county by assignment to an innocent purchaser; and we think that as to this matter the presumption should be indulged that the first holders have availed themselves of the advantage of their situation and have negotiated the bonds. We are of the opinion, therefore, that when the second series of bonds was issued the county should be considered as having an existing bonded indebtedness of $6280.75.

The first set of bonds intended to be issued for the purpose of building the court house proper were executed and put into the hands of the county's agent for sale before the delivery of those which were issued in payment for the construction of the jail. These were, however, returned, and new bonds executed in lieu thereof, under an order of the Commissioners Court made April 22, 1882. The latter — twenty in number, and numbered consecutively from 1 to 20, inclusive — were placed in the hands of an agent, and were by him sold to Matthews Whitaker, of St. Louis. It does not appear when this sale was effected. However, at the date of the order which provided for their issue the assessment rolls of 1882 could not have been made out and finally passed upon by the board of equalization. We are of opinion that until the new rolls were examined, corrected, and approved by the latter board the official assessment for 1882 was not definitely ascertained, and that in determining the amount of indebtedness which it was authorized to create for the county, the Commissioners Court was required to be governed by the official assessment for 1881. But we have seen that the court had already incurred in behalf of the county all the indebtedness which the statute authorized them to create, until a new assessment should show an increase of taxable values. If it appeared that the twenty bonds now under consideration had not been sold until after the assessment rolls for 1882 had been made complete by the action of the equalizing board, then it might be held that that assessment should be taken as the basis of calculation in determining the question of excess. But the final order which authorized the bonds to be issued, the registration, and the bonds themselves, are all dated long prior to the time at which under the statute the board of equalization could have acted upon the assessment of the year 1882; and therefore we think that in absence of some direct testimony upon the subject it is not to be presumed that they were not sold until after that time. We are therefore of the opinion that at the time the indebtedness evidenced by the bonds now in question was attempted to be created the Commissioners Court of Nolan County had no power to issue any bonds in addition to those outstanding, and that they are therefore invalid, even in the hands of a purchaser without actual notice of the defect.

The entire series of bonds which were issued for the construction of the court house proper were numbered from 1 to 30, inclusive. What we have just said applies to bonds numbered from 1 to 20, inclusive, of which the State holds five. The Commissioners Court, by a special order passed November 20, 1882, directed that bonds numbered respectively 21, 22, and 23 should be delivered to Archer (the contractor) in part payment for building the court house, and they were so delivered. This was after the assessment rolls for 1882 should have become a finality. The twenty bonds previously issued for building the court house being in our opinion invalid, the only bonded indebtedness at that time outstanding was that created by the bonds issued to Martin, Burns Johnson for $8755, which were good for the sum of $6280.75. Under the assessment for 1882, which showed taxable property to the amount of $908,276, the Commissioners Court under the rule before announced was authorized to increase the debt for building a court house to the sum of $15,768.68. These bonds would therefore be good unless invalid upon some other ground. Bonds numbered respectively 24, 25, and 26, were by an order of the court passed placed in the hands of an agent for sale, and were sold in 1884. For the same reason, we are of the opinion they should be deemed valid obligations of the county. The last bonds of this series, which are numbered respectively 28, 29, and 30, and are now held by the State, were ordered to be issued November 8, 1883, and, so far as appears by the agreed statement of facts in this case, did not increase the valid bonded debt of the county beyond the amount which the court had power to create. That amount was properly controlled by the assessment for 1883. The amount of this assessment is not shown, but we would not presume that it was less than that of 1882. After the latter assessment was finally determined, the court had the power to increase the indebtedness for the construction of the court house to the sum of $15,768.68, in 8 per cent bonds, as has been previously shown. There was then subsisting of valid indebtedness, $6280.75, on the bonds delivered to Martin, Burns Johnson, at the time the nine bonds last named were issued. They increased the debt to the sum of $15,280.75, an amount which the court then had the power to create. There is one other bond, but the date of its issue does not appear; and we are of opinion that if it had been issued at such time as to make it valid, and the county desired to take advantage of the fact, the burden was upon it to show it.

From what has been said it appears that, in our opinion, of the bonds which are made the foundation of this suit, those numbered 28, 29, and 30 were valid when issued; those numbered 10, 11, 12, 13, and 14 were invalid; and that those numbered 1, 2, 3, and 4, issued to Martin, Burns Johnson, were originally only good in part. It remains to Consider whether the bonds which were originally invalid in whole or in part have been made valid by the Act of March 24, 1885. Sections 3 and 4 of that act are as follows:

"Section 3. In all cases where the proceeds of the sale of any bonds have been received by the proper officers of the county, or by a party acting for it in negotiating the sale thereof, such county shall be thereafter estopped from denying the validity of such bonds so issued, and the same shall be held to be valid and binding obligations of the county, and in any action upon such bonds or coupons thereto, judgment shall be rendered against the county for the amount of the bonds sued on and interest, thereon at the rate mentioned therein, deducting such amounts, if any, as have been previously paid thereon.

"Section 4. The payment of any interest upon any bonds heretofore purchased, or that may hereafter be purchased, with public school funds, or belonging thereto, shall be deemed and held a waiver of any supposed error, irregularity, or want of authority affecting or tending to affect the validity of any such bonds; and the same shall thereafter be held valid and binding obligations upon the county by which they appear or purport to have been issued, notwithstanding any such supposed error, irregularity, or want of authority as aforesaid." Gen. Laws 1885, p. 41.

It is insisted on behalf of appellant that these provisions are contrary to the Constitution of the State, because they are retroactive and an attempted usurpation of judicial power. It is also claimed that they apply only to such bonds as may have been purchased by the State directly from the counties.

That the provisions in question are not repugnant to the Constitution in the particulars urged against them we think too well settled to require discussion. Richie v. Franklin County, 22 Wall., 74; New Orleans v. Clark, 95 U.S. 644; Cool. Const. Lim., 4 ed., 466, 467. It can hardly be deemed an open question in this court. Morris v. The State, 62 Tex. 741; Blum v. Looney, 69 Tex. 3. Where a contract which a municipal corporation has attempted to create is invalid merely for want of legislative authority to create it, it can be made valid by a subsequent law. But if at the time of its attempted creation the Legislature could not have authorized it, it may be doubted whether the Legislature could make it valid, although in the meantime by a change in the Constitution the restriction upon its own power may have been removed.

At the time the first set of bonds for building the court house proper were issued, the restrictions of the Constitution upon the county in the creation of a debt for such a purpose grew out of the operation of two provisions of that instrument. Section 9 of article 8, as it then existed, limited the annual tax which a county was authorized to levy for the erection of public buildings to 50 cents on the $100 worth of property; and section 7 of article 11 provided, that no county should create any debt without making provision at the same time "for levying and collecting a sufficient tax to pay the interest thereon and provide at least 2 per cent as a sinking fund." A tax of 50 cents on the $100 worth of property would, at the time the first and second sets of bonds were issued, according to the last official assessment of the county, have yielded the sum of $1808.85. This would have paid 8 per cent interest and 2 per cent sinking fund upon an indebtedness of $18,088.50. The Legislature therefore had the power at that time to have authorized the county to issue the full amount of the jail bonds ($8875), and the amount of the five bonds of the first "set of court house bonds which the State now holds. The Legislature also clearly had the power to have authorized the issue of bonds to build a jail at the time the bonds were issued for that purpose. We conclude, therefore, that bonds numbered respectively 1, 2, 3, and 4 of the series issued for building the jail, and those numbered respectively 10, 11, 12, 13, and 14 of the court house bonds — all of which are now held by the State — were made valid to their full amount by the Act of 1885, provided the act applies to bonds which were not sold directly to the State.

There is nothing in the language of the validating act which indicates that it was not to be applied to bonds which may have been bought by the State after they had been transferred by the county to third parties. The object of the provision was to protect the school fund, and we see no reason why it was not intended to validate any county bonds held by the State for the benefit of its public schools, whether purchased directly from the county or from intermediate holders.

It is also contended that the bonds issued for the construction of the court house were invalid because by their terms they were not redeemable until after the lapse of ten years. In this particular they do not comply with the law by virtue of which they were issued. The act requires that the bonds shall be redeemable at the pleasure of the county. In Rock Creek v. Strong, 96 United States, 271, it was held that a similar irregularity did not render the bonds void. However this may be, the effect was certainly cured by the validating act.

We conclude that such of the bonds upon which this suit was brought as were originally invalid in whole or in part have been made good by the Act of May 24, 1885, and that the court below did not err in so holding.

There was no error in rendering judgment against the officers of the county commanding them to levy and collect a tax to pay the amount of the recovery. They had refused to perform that duty, had repudiated the debt, and were made parties to the suit. No execution for the money could issue against the county. Rev. Stats., art. 679.

We find no error in the judgment, and it is affirmed.

Affirmed.

Delivered December 18, 1891.

Justice HENRY not sitting.

[NOTE. — This case did not reach the Reporter until after the Tyler cases were in print.]