Summary
In Pryor v. Goza, 172 Miss. 46 (159 So. 99), the court held invalid a statute which provided that whenever the assessed benefits of a drainage district were less in value than its indebtedness the latter might be scaled down in the manner allowed by the act, and that the new indebtedness could be made payable in a different manner than the original indebtedness.
Summary of this case from City of Enterprise v. StateOpinion
No. 31559.
January 28, 1935. Suggestion of Error Overruled, March 11, 1935.
1. DRAINS.
Drainage districts provided for by statutes for the purpose of reclaiming swamp and overflowed lands and the promotion of public health are a political subdivision of state and have governmental powers.
2. CONSTITUTIONAL LAW.
Statute providing for scaling down of indebtedness of a drainage district when assessed benefits received are less than its bonded or other indebtedness, and providing for issuance of liquidation certificates, which may be made payable at dates different from original obligations, and providing that payment of such certificates would prevent further levy on lands for the benefits received, held unconstitutional as impairing obligation of contracts evidenced by bonds issued before enactment of the statute (Laws 1932, chapter 278; Const. Miss., section 16; Const. U.S., article 1, section 10, clause 1).
3. CONSTITUTIONAL LAW.
Obligation of a contract is "impaired" where statute makes contract more beneficial to one party and less to another than its terms provide, or where statute enlarges, abridges, or in any substantial manner changes the intention of the parties as expressed in the contract.
4. CONSTITUTIONAL LAW.
Contract clause of Federal Constitution prevents state action which would impair obligation of contracts of state and its political subdivisions as well as those of persons, partnerships, and corporations engaged in private business (Const. U.S., article 1, section 10, clause 1).
APPEAL from the chancery court of Calhoun county.
HON. N.R. SLEDGE, Chancellor.
Suit by A. Pryor and others, Commissioners of the Sabougla Drainage District No. 2, against R.E. Goza and others. From a decree in favor of defendants, plaintiffs appeal. Affirmed.
W.J. Evans, of Calhoun City, and Stone Stone, of Coffeeville, for appellants.
Chapter 278 does not create insolvency but it simply declares the existence of insolvency that has been created by the unparalleled depression that has existed since the beginning of 1930 and provides instead of the knock-down and drag-out system of foreclosures and demoralization and chaos, an orderly administration by way of liquidation, with the rights of creditors as well as debtors protected, with no rights or asset taken from creditors, with no burden on debtors except those that have been voluntarily assumed and which in all respects constitutes the best that can possibly be done by the lawmaking power for the public welfare, creditor and debtor alike.
On the proposition that the Chapter 278 is unconstitutional in that its operation would impair the obligation of the contract of the district; here we are met with a perfect flood of authority, not only extending back many years but right up to this very good day and hour from every court of every state in the Union and from the lesser Federal Courts and from the Supreme Court of the United States, declaring and proclaiming the validity of the statutes remedial in their nature and obligation.
Dunn v. Love, 155 So. 333.
It would be a vain thing for us to try to discuss or argue out a proposition that has been so fairly and so well stated as the decision of this court. While not a drainage statute but the principle is the same that citizens of Mississippi in making contracts with reference to Mississippi property are always subject to the laws inspired by the wisdom of the Mississippi Legislature taken in the interest of the public welfare and under the police power of the state.
Union Dry Goods Co. v. Georgia Public Service Corporation, 63 L.Ed. 309-12; Home Building Loan Association v. Blaisdell, 78 L.Ed. —, 88 A.L.R. 481, 86 A.L.R. 1488, 89.
The application is plain and the petition shows the conditions to be attributable to the ravages of the economic depression. In construing statutes this Honorable Court will take official notice of the existence, and somewhat of the extension, of the said depression.
C.A. Jaquess, Dulaney Bell and W.L. Bankston, all of Tunica, for appellants.
An act of the legislature will not be held unconstitutional if under any reasonable construction it would be valid.
Mississippi Digest, Constitutional Law, sec. 48; Natchez, etc., R.R. Co. v. Crawford, 99 Miss. 697, 55 So. 596; Tucker Printing Co. v. Attala County, 158 So. 336.
The court will not pass upon the constitutionality of a statute unless necessary for the determination of a pending case.
Mississippi Digest, Constitutional Law, sec. 46; Adams, State Revenue Agent, v. Capital State Bank, 74 Miss. 307.
The Sabougla Drainage District was solvent and not subject to liquidation under the liquidation act.
C.R. Bolton, of Tupelo, for appellees.
States may not pass or enforce laws interfering with or complimenting the Bankruptcy Act or provide additional or auxiliary regulations.
International Shoe Company v. Pinkus, 73 L.Ed. 318.
While some of the lands are delinquent, the title to none of them have matured in the state, and even if a portion of them should go to the state, the drainage tax thereon would be merely in abeyance and not lost to the district, except, temporarily, and would doubtless be returned to the district before the maturity of the last bond.
Howie v. Panola County, 151 So. 154.
The bondholders' contract is impaired by reducing the assets from which he may collect his indebtedness and by an extension of time for the collection of same without any compensation benefits or corresponding protection in his security.
Thos. L. Haman, of Houston, for appellees.
The petition shows that the district is not insolvent as contemplated by Chapter 278, Laws 1932, in that it shows that the levies decreed in 1924 against the land of the district not delinquent for taxes, on the strength of which decree as part of the contract, the bonds were issued and are now held, which levies have not been made, provide ample funds to meet both defaulting bonds and unmatured bonds as they mature.
There is a question whether insolvency can result from a redeemable sale to the state of lands of the district, or for that matter from such sale after the time for redemption has passed without a showing that the land is without any value and the state is unable to sell the land for any price, so that it would have to remain indefinitely a long time in the state, since district improvement taxes remain merely in abeyance on the sale of the land to the state (or district) for taxes, as held in Howie v. Panola County, 151 So. 154.
Under the contractual decree entered in 1924 under the law as it existed at the time and when the bonds were issued and sold, fixed liens on the land of the District were impressed to be paid to the District in definite and fixed amounts in annual installments, as a part of the benefits assessed against each tract of land in the district to result from the proceeds of sale of bonds of the district secured by these liens of the district as its only assets. In the procurement of that decree and in the sale of the bonds the district became bound by all the terms and provisions of the decree and the law then in force as a part of its contract with the bondholders, and the rights of the bondholders became vested under that decree and the law.
There can be little disagreement, in general, as to the law with regard to the impairment of contracts. The question of serious import is what effect has the act under consideration as applied to this case on the original contract with regard to security of the bondholders and the rights of the parties, and does it in such application, derogate from substantial contractual rights.
Mississippi Laws 1932, Chapter 278.
Mississippi Laws 1912, Chapter 195, and amendments thereto in force in the years 1924 and 1925 comprehended in Article 4 of Chapter 110 of the unofficial Hemingways Miss. Code of 1927, section 4946 to 5003 inclusive, with especial reference to sections 4591 and 4975.
Section 10, Article I, U.S. Constitution; Section 1, Article XIV, U.S. Constitution; Sections 14, 16, Article III, Mississippi Constitution; Eastin v. Van Dorn, Walk. 214; Rice v. Smith, 72 Miss. 42, 16 So. 417; Payne v. Baldwin, 3 S. M. 661; Commercial Bank v. State, 6 S. M. 599; Lesley v. Phipps, 49 Miss. 790; Johnson v. Fletcher, 54 Miss. 628; Priestly v. Watkins, 62 Miss. 798; Fosdick v. Levee Commissioners, 79 Miss. 859, 25 So. 637; Woodruff v. State, 77 Miss. 68, 25 So. 483; Richards v. City Lumber Co., 101 Miss. 678, 57 So. 977; Wisconsin Lumber Co. v. State, 97 Miss. 571, 54 So. 247; Columbia County Commissioners v. King, 13 Fla. 451; Southern Realty Co. v. Tchula Co-op. Stores, 75 So. 121, 114 Miss. 309; City of Ensley v. Simpson, 52 So. 21, 166 Ala. 366; Mobile Electric Co. v. City of Mobile, 201 Ala. 607, 79 So. 39; Price v. Harley, 142 Miss. 584, 107 So. 673; McNealy v. Gregory, 13 Fla. 417; Myrick v. Battle, 5 Fla. 345; Rhodes v. Marengo County Bank, 205 Ala. 677, 88 So. 850; McCreight v. W.W. Scales Co., 134 Miss. 303, 99 So. 257; Harris v. Monroe Building Loan Ass'n, 154 So. 503; State ex rel. Sherrill v. Milam, 153 So. 100; Coombes v. Getz, 285 U.S. 434, 52 S.Ct. 435, 76 L.Ed. 866; Home Bldg. Loan Association v. Blaisdell, 290 U.S. 398, 54 S.Ct. 231, 88 A.L.R. 1481, 78 L.Ed. 413; W.R. Worthen Co. v. Thomas, 292 U.S. 426, 54 S.Ct. 816, 78 L.Ed. 1344; Franklin v. Ellis, 130 Miss. 164, 93 So. 738.
The Legislature of 1932 adopted a bankruptcy act for drainage districts (chapter 278, Laws 1932). Appellants, the commissioners of the Sabougla drainage district No. 2 in Calhoun and Webster counties and a majority of the landowners of the district, filed their bill in the chancery court of Calhoun county, making appellees, People's Bank Trust Company and R.E. Goza, who are the owners and holders of the bonds of the district of the face value of thirty-one thousand dollars, and all others provided for by the statute, parties to the cause. Appellees demurred to the bill, one ground of which was that the statute was unconstitutional, in that it violated the contract clause of both the federal and state Constitutions (Const. Miss. section 16; Const. U.S. art. 1, sec. 10, cl. 1). The demurrer was sustained, and final decree entered dismissing the bill. From that decree appellants prosecute this appeal.
The bill and exhibits constitute the necessary averments under the statute, in short, that the assessed benefits of the district which constitute its assets are wholly insufficient in value to pay the bonded and other indebtedness. The statute provides a method of valuing the assets, and, when the value is ascertained to be less than the bonded and other indebtedness of the district, for the issuance of liquidation certificates in lieu thereof in amounts proportioned to such reduced value. In other words, the indebtedness of the district is scaled down to that extent. When the liquidation certificates are discharged, section 20 of the act provides that the lands of the district shall not be subject to any further taxes levied against the assessed benefits, except taxes for maintenance and administration "which may be levied under acts of the Legislature hereafter enacted." The outstanding obligations are not only scaled down to come within the decreased value of the assessed benefits of the district, but, in addition, the liquidation certificates may be made to become due and payable at different dates from such obligations.
The affairs of the district are not to be wound up and the district discontinued. On the contrary, it is provided that it shall remain a going concern, notwithstanding its bankruptcy. The statute is unusual in that respect, as in others. One other is that it provides a scheme of bankruptcy for a political subdivision of the state. Drainage districts are provided for by our statutes, not only for the purpose of the reclamation of swamp and overflowed lands for agriculture, but also for the promotion of the public health. They have governmental powers. Standard Oil Co. v. National Surety Co., 143 Miss. 841, 107 So. 559; Tallahatchie Drainage District v. Yocona-Tallahatchie Drainage District, 148 Miss. 182, 114 So. 264.
It is difficult to conceive of the insolvency of a taxing district; the lands constituting the district are there — they cannot be lost except by tax title in the state. Furthermore, the assessed benefits of the district may be wholly insufficient to pay its obligations during the years of an economic depression and amply sufficient for many years after recovery from such depression. If the Legislature has the power to enact a bankruptcy law for a drainage district — one of the state's governmental units — why not for counties, municipalities, and levee districts, and, if that could be done, why not a bankruptcy law for the state itself?
Would the enforcement of the statute impair the obligation of the contract evidenced by the bonds held by appellees? We think it clear that that question must be answered in the affirmative. Where a statute makes the contract more beneficial to one party and less to the other than its terms provide, its obligation is impaired; releasing only a part of the obligation impairs the contract. A law which enlarges, abridges, or in any substantial manner changes the intention of the parties as expressed in the contract impairs the obligation. A law dispensing with any substantial force of the contract imposing conditions not expressed, or dispensing with those expressed, is a violation of its obligation. Green v. Biddle, 8 Wheat. 84, 5 L.Ed. 547; Edwards v. Kearzey, 96 U.S. 595, 24 L.Ed. 793; McGahey v. Virginia, 135 U.S. 662, 10 S.Ct. 972, 34 L.Ed. 304; Farmers' M. Bank v. Smith, 6 Wheat. 131, 5 L.Ed. 224; New Jersey v. Wilson, 7 Cranch, 164, 3 L.Ed. 303; Oshkosh Waterworks Co. v. Oshkosh, 187 U.S. 437, 23 S.Ct. 234, 47 L.Ed. 249; Sturges v. Crowninshield, 4 Wheat. 122, 4 L.Ed. 529; Antoni v. Greenhow, 107 U.S. 769, 2 S.Ct. 91, 27 L.Ed. 468; McCracken v. Hayward, 2 How. 608, 11 L.Ed. 397; Ogden v. Saunders, 12 Wheat. 213, 6 L.Ed. 606; Pennsylvania v. Wheeling, etc., Bridge Co., 18 How. 421, 15 L.Ed. 435. "The obligation of a contract imports, for the most part, its binding force upon the obligor to perform the duty agreed on, according to the nature and effect of the contract. It relates to the performance rather than to a breach of the contract. The nature, construction, and effect of a contract are governed by the laws existing when and where it was made, or where it is, by its terms, to be performed; and, in this respect, the rights of the parties under the contract are beyond the legislative power." Price v. Harley, 142 Miss. 584, 107 So. 673, 674.
A state bankruptcy law discharging liability on contracts entered into before its passage impairs the obligation of such contract and is void. Sturges v. Crowninshield, supra; Ogden v. Saunders, supra; Denny v. Bennett, 128 U.S. 497, 9 S.Ct. 134, 32 L.Ed. 491. The bonds here involved were issued and sold in 1924 and the statute enacted in 1932. The contract clause of the Federal Constitution applies, not only to state action impairing the obligation of contracts of persons, partnerships, and corporations engaged in private business, but to contracts by the state itself and all of its political subdivisions, including counties, municipalities, and other taxing districts. New York Guaranty I. Co. v. Board of Liquidation, 105 U.S. 622, 26 L.Ed. 1106; Hall v. Wisconsin, 103 U.S. 5, 26 L.Ed. 302; State of Louisiana v. Jumel, 107 U.S. 711, 2 S.Ct. 128, 27 L.Ed. 448; Curran v. Arkansas, 15 How. 304, 14 L.Ed. 705; State of Mississippi v. Miller, 276 U.S. 174, 48 S.Ct. 266, 72 L.Ed. 517.
We conclude that the statute is violative of the contract clause of both the state and Federal Constitutions, and therefore void. Instead of providing for the bankruptcy of drainage districts, the statute provides a scheme for the repudiation of their indebtedness. Having reached the conclusion that the statute is void, we are not called upon to decide whether or not the amendment to the Federal Bankruptcy Act (sections 78-80), chapter 9, approved May 24, 1934 (11 U.S.C.A. sections 301-303), supplanted the state statute because it has occupied the entire field, and, if it does, whether Congress under the bankruptcy clause of the Federal Constitution (article 1, section 8, clause 4) has the power to pass such an act. That amendment provides for the bankruptcy of counties, municipalities, and all other character of taxing districts. The procedure in this cause was not under that statute but under the state statute.
We would not be understood as holding our state statute void as to debts incurred after its adoption; that question is not involved, and therefore not decided. It is as to debts incurred before the adoption of the statute that we are holding it unconstitutional and void.
Affirmed.