MILLSAPS 11. CITY OF ·TE:BRELL.
persons, restraining their action .as prayed for in the billiand, on complainants amending their bill as herein suggested, such injunction may issue, but not to interfere with the prosecution of any suits, civil or criminal, commenced before the filing of this bill
MILLSAPS v. CITY OF TERRELL. (Olrcult Court of Appeals, Fifth Circuit.
February 13, 1894.)
MUNICIPAL CORPORATIONS-BoNDS-LIMIT OF INDEBTEDNESS.
Const. Tex. art. 11, §§ 5, 7, provide that no city shall ever incur a debt for any purpose or in any manner, unless at the same time provision Is made for levyIng and collecting a. tax sufficient to pay the interest, and a sinking fund of at least 2 per cent. per annum. Article 8, § 9, provides that the tax to be levied for the erection of public buildings arid other permanent improvements shall not exceed 25 cents of the $100 valuatIon in anyone year. Held, that the power of a city to create debts for such purposes is limited to a sum upon which the Interest, together with 2 per cent. for the sinking fund, will not exceed the revenue derived from a tax of 25 cents on the $100. After a city had Issued bonds to such an amount that the Interest and sinking fund absorbed the whole of such tax, it issued another series, and provided that the interest and sinking fund should be appropriated out of the general revenue of the city. 'lIe/d, that the first issue of bonds, to the full amount authorized by the constitution, exhausted its power to contract debts, and the additional Issue is void, without regard to its authority to apply its general revenue to the payment of interest and sinking fund of a bonded debt.
In Error to the Circuit Court of the United States for the Northern District of Texas. At Law. This was an action by Reuben W. Millsaps against the city of Terrell. There was judgment for defendant, and plaintiff brings erI'or.
The defendant, the city of Terrell, is a municipal corporatjon in the state of Texas, existing under and by virtue of chapters 1 to 10 of title 17 of the Revised Statutes. In the month of July, 1884, defendant created a debt for waterworks purposes by issuing bonds to the amount of $28,000, bearing interest at the rate of 7 per cent. per annum. In the month of October of the same year, for the purpose of erecting a city hall, defendant issued other bonds to the amount of $25,000, bearing interest at the rate of 8 per qent. per annum; and on the 1st day of January, 1885, for the purpose of completing this building, defendant made yet another issue to the amount of $2,000, bearing interest at the rate of 8 per cent. per annum. The taxable values of all the real and personal property 1n the city for the year 1884, as shown by the assessment rolls for that year, were $908,976. At the time of issuing the waterworks bonds, the city, by ordinance, provided for the levy of an annual tax o·f one-fourth of 1 per cent. to pay the interest and create a sinking fund for said bonds. Plaintiff's bonds of the first ($25,000) series were issued under an ordinance passed September 23, 1884, the third section of which is as follows: "Sec. 3. For the purpose of meeting the interest upon said bonds, and provIding an annual sinking fund sufficient to discharge the principal at maturity, an !lnnual ad valorem tax of twenty-five cents on the $100 on all property, real and personal, in said city subject to taxation, IS hereby levied, and there shall be, and is hereby set apart out of the general revenue of the city constituted by one-fourth of one per cent. ad
... oCCilpatlon. taxes levJec! anc! to makeup allde1lclency that may exist from .thieiapprul)rfatlon hereinbefore made In paying said interest and 'slnklng tl1D.d>"'(,IvFlalntltf's' b01ldspf::tbe seeondserles ($2,000) were issued under an ordinance p'!"ser4N\>v,emJ)C'll:' 25, 1884i\the is as follows: "Sec. 3. Said bonds shall be known as bonds of the second series, city ball bonds, and the Interest and sinking fund sball be paid out of the funds beretofore levied and set apart for the pa.yment of interest and sinking fund of the first series." The present action is upon coupons of the 27 bonds con· stituting the last two'issues' above described. The defense is that the city exhaustecl its power to create debt when It issued the waterworks bonds, and th'st!'tliepresel1t bonds ate therefore void;:' The court foUnd as facts that, from the year 1882 down to the trial, the city had annually levied and collected a tax of one-fourth of 1 per cerit. to defray its current expenses, and had also collected occupation taxes to, the extent allowell by law. The "amount these latter WII-s shown by the d..fendant's evidence to be about $4,OOO>1Iel',annum. The <lovrtalso fouqd thuc plaintitr is a,holder for value, maturity,without actual notice of any objection to the bonds. JJi!IJ' facts, the court found for the defendant, and entered judgthereupon sued out this writ of error, and filed an ,assigJl.ment of errors, cl)mplaining that, the court erred in holding that prior issuanceot the bonds sued on herein the defendant had, by issW4lce" of its w,aterworks bonds, exhausted Its authority to create ,debti!l"llJll,1.the plaintlfr's: bonds and coupons were therefore void.
ta. ,hl!1etotP"r J1!v1el!.aa
T. K. Skinker, for plainttil' in error. B. F. Worci and M, lJ. Crawford, for defendant in error. Before'PARDEE and McCORMICK, Circuit Judges.
PARD;EE, Circu,it (after the facts). The plainti:ff in 'error does not disp'!1tethat the tax:. of one-fourth of 1 per cent, authorized by the ordinance of July, 1884, does not provide a fund sufficient to pay the interest on the waterworks bonds and create a l'IinJd,ngfund" of 2 percent., but ,he insists that the bonds under the ordinances of September 23 and November 25, 1884, involved in this suit Q,re, nevert1J.eless, valid, because, he says, the city did not by' the issue of .the waterworks ponds. exhaust its power to create debts, arid the provisions made by the ordinances of September 23 and .November 25, 1884, for the payment of interest and to create .a fund are sufficient. The bonds in question bear interest at the rate of 8 per cent. per annum which, with 2 per cent. additional for sinking fund, must be raised annually, requiring an . aggregate a.m;ount of about .2,700. The provisions made by the comdst of (1) a, special tax of 25 cents on the $100 which, it is conceded, is already fully mortgaged; (2) ageDeral revenue tax of 25 cents on the $100; (3) the occupation taxes, -the latter constituting, M we understand it, the alimony of the city. ,The question presented by the plainttil' in error, and argued bybis cov.nsel" i!J whether the alimony of the city, made up, under the constitution and'laws of the state, of the general revenue taxaIld"oeeupation taxes, can be used as a basis for creating a debt fot pet"IQ.arient bnpro:vement and issuing therefor time-running bonds;' the prQvision for the payment of the principal and interest thereof being, the or pledge of such general revenue and occupation taxes., 'In our opinion, however, the first, question in fil the municipality had power to create the
MILLSAPS 't7. CITY OF TERRELL.
debt based on any taXation; if not, the peculiar character of occupation taxes need not be discussed. Article 11, § 5, of the constitution of the state, provides:
"That no debt shall ever be created by any city, unless at the same time, provision be made to assess and collect annually a sufficient sum to pay the interest thereon and create a sinking fund of, at least, two per cent."
Section 7 of the same article is the same, substantially, but with emphasis, to wit:
"But no debt for any purpose shall ever be incurred in any manner by any city or county, unless provision Is made at the time of creating the same for levying and collecting a sufficient tax to pay the interest thereon and provide, at least, two per cent, as a sinking fund."
These two sections of the constitution unquestionably prohibit municipal corporations from creating debts, unless payment of such debts is provided for by taxes to be assessed and collected annually. Article 8, § 9, of the constitution, as amended in 1883, pro· vides:
"That no county, city or town shall levy mOl'e than twenty-five cents for city or county purposes, and not to exceed fifteen cents for roads and bridges on the one hundred dollars valuation, except for the payment of debts incurred prior the adoption of this amendment; and for the erection of publ1c buildings, streets, sewer and other permanent improvements not to exceed twenty-five cents on the one hundred dollars valuation in anyone year, and except as is in this constitution otherwise provided."
This section expressly restricts the levying of a tax for the erection of public buildings, street, sewer, and other permanent im. provements to 25 cents on the $100 valuation in anyone year, and, with sections 5 and 7, supra, restricts the creation of debts by municipalities for the purpose of erecting permanent improvements to a sum on which a tax of 25 cents on the $100 valuation in anyone year will pay the interest and create a sinking fund of 2 per cent.; for the municipality must provide, at the time of creating a debt for permanent improvements, for the assessment and collection of a sufficient tax to pay it, and yet under section 9, art. 8, cannot, for such purpose, provide over 25 cents on the $100 valuation. . If a tax is levied for the payment of debts created for permanent improvements of over 25 cents on the $100 valuation, section 9, art. 8, is violated. If a debt created for the erection of permanent improvements is in excess of such sum as the tax levied will pay the interest on, and provide 2 per cent. sinking fund, then sections 5 and 7, art. 11, are violated. When we consider, in addition, the well-settled proposition that no municipality can create a debt unless the power to do so is either expressly or impliedly conferred. upon it by law, it seems clear that in the case in hand the coupons sued on, as well as the bonds to which they were accessories, having been issued by the city of Terrell for permanent improvements after the power to create debts for such purposes was exhausted, were void for want of power in the municipality that issued them. To this effect see the decisions of the supreme court of Texas: Gould v. City of Paris, 68 Tex. 517, 4 S. W. 650; City of Terrell v. Dessaint, 71 Tex. 770, 9 S. W. 593; Citizens' Bank v. City of Terrell, 78 Tex. 450, 14 S; W. 1003; Biddle v. City of Terrell, 82 Tex.
335, S. W 691; Nolan County v. State, 83 Tex. 182-195, 17 S. W. .. 823. We quote from Citizens' Bank v.City of Terrell, 78 Tex. 456, 14 S. W. 1003, as follows :.
of Its constiwtionauthQrizes the creation of a debt and the issuance bonds by defendant city to provide for constructing mandate is Imperative that no such debt shall be created WIthout mliktng provision at the time of Its. crea tion to assess and collect annually fa.' sutllcient sum to pay the interest thereon, and create a sinking fund of at least two per cent. on the principal. Until that is done the debt is not. none exlsts, If not forbidden .by another provision of the. consdtution, the levy may provide for. the collection of a greater sum than contracted tOl'and two per cent. additional, but it cannot be less tlilin that. The is plain and unambiguous, and in relation to cities the command is twice given. The provision must be sufficient when made. subsequently, it becomes either more or less than sufficient, the validity. ofthe,.olil,igation. :would not be affected. By another provision of th¢ consijtun9J?-, the value that may be levied is effect,commands that a city with less than 10,limited.. 000 inhabitants Shall, In ol'dei' to create a debt, take Its latest assessment of property for taxes, and from that ascertain how much money a tax of 25 cents on $100 of valuatloJ;l :wUlproduce, and it may create a debt that that amount wilt for.1ib.epayment of tlle Interest on, and 2 per cent. per annum .additional. The rule applies with all its force to cities having more than 10,000 1nhabitants,'except that the limit of the percentage of taxa. tion Is great¢:r."
The coupons sued on in ,the case in hand being void for want of power in the city of TerrMl to create a debt represented by such couponSJ the: plaintiff in ··error was rightly defeated in the trial court,andit is not necessary to discuss whether the city of Terrell had a right to pledge eithrer its general revenue or its' occupation taxes to.pay the same; but, even as to that, the adjudged cases are agairist!.theplaintiffin error. See Citizens' Bank v. City of Terrell, 78 Tex.460, 14 S;W. 1003, where it is said:
"The city; had, no authority topledge or appropriate any part of the current ,revenues (01,' the payment of the principal or Interest of the debt. That ftlnlJ, Is by the constitution to the support of the city government, and is al#llyg under the control of the council for that purpose. The net proceeds from the waterworks, If there had been such, would have likewise been under the control of the,(!ouncil, and was not a basis for the creation of dept."
Also, see Texas Water & Gas Co. v. City of Cleburne, 1 Tex. Civ. :App.587, 21 S. W. 393. And, if we were without authority on the subject, we are inclined, on principle, to the opinion that it is againsfpublic' policy to permit the necessary alimony of any city, however small such city 'may be, to be bargained away beyond the year for which it is assessed and is applicable. The judgment of the circuit court is affirmed.