Opinion
No. 233.
May 21, 1943.
Wm. H. Crutcher, Jr., Louisville, Ky., for Catholic Order of Foresters et al.
Alfred Holman, Cincinnati, Ohio, for intervenors W.C. Thornburgh Co.
A.T.W. Manning, Manchester, Ky., for Clay County and Intervenors Burchell, Manning, Sizemore and Henson.
T.T. Burchell, County Attorney, Manchester, Ky., for Clay County, Ky.
Roy W. House, Manchester, Ky., for First National Bank.
Nichols, Wood, Marx Ginter and Harry Kasfir, Cincinnati, Ohio, for Woodmen of the World.
Consolidated actions by the Woodmen of the World, and Stanley Gates, against Clay County, Ky., and by E.P. Hayes and others against W.G. Abner and others, to recover on various evidences of outstanding indebtedness of the county, wherein the W.C. Thornburgh Company filed an intervening petition.
Judgments for plaintiffs; intervening petition dismissed.
The above styled causes, after being consolidated, were heard by the court and submitted for judgment. The Court being advised, adopts the following Findings of Fact and Conclusions of Law, offered by various creditors of the defendant Clay County holding funding bonds, unpaid warrants, judgments, and other evidences of outstanding indebtedness of Clay County:
Findings of Fact.
1. In each of the above styled causes the matter in controversy exceeds, exclusive of interest and cost, the sum or value of $3,000, and is between citizens of different states.
2. On or about September 10, 1928, the Fiscal Court of Clay County issued and sold negotiable road and bridge funding bonds of Clay County, Kentucky, in the aggregate amount of $75,000, numbered from 1 to 75 inclusive, of the denomination of $1,000 each, dated September 1, 1928, bearing interest at the rate of 5 3/4% per annum, payable semi-annually, and maturing serially, as follows: $5,000 on September 1, 1938, $10,000 on September 1, 1943, $20,000 on September 1, 1948, $20,000 on September 1, 1953, and $20,000 on September 1, 1958, all of which are outstanding and unpaid, and were, at the time of the filing of their joint amended petition herein on March 19, 1942, owned and held in due course and for value, by Women's Catholic Order of Foresters of Chicago, Illinois, Minnesota Mutual Life Insurance Company of St. Paul, Minnesota, Northwestern National Life Insurance Company of Minneapolis, Minnesota, Ancient Order of United Workmen of St. Paul, United Mutual Life Insurance Company of Indianapolis, Indiana, Leila Y. Post Montgomery and Stanley Gates.
3. On or about June 1, 1930, the Fiscal Court of Clay County issued and sold negotiable funding bonds of Clay County, Kentucky, in the aggregate amount of $36,000 numbered from 1 to 36 inclusive, of the denomination of $1,000 each, dated June 1, lifted the Herald and when she came down her stem knifed through the starboard side of the Neptune, inflicting a mortal wound. It soon became evident that she could not be saved and orders were given to abandon ship. One of her officers fell overboard and died, apparently from a heart attack. The Balsam took the remaining officers and men on board, then followed the drifting Herald after instructing the tug Sea Fox to stand by the Neptune. The Sea Fox remained with the sinking tug until she went down some five hours later, then proceeded as fast as she could for the Herald. In the meantime the Balsam had got her ten inch manila hawser on the Herald but it soon parted in the storm and the ship continued to drift in toward shore, which it was estimated she would strike about midnight.
By the time the Sea Fox reached the Herald she had come into shoal water and the Balsam radioed the tug to instruct the Herald to drop anchor, At first the Herald failed to let out enough chain. The Sea Fox then instructed her to let out about 9 shots and after this had been done, the anchor apparently held. It was now dark and the attempt of the Sea Fox to shoot a line to the Herald with a Lyle gun failed, the crew evidently missing it in the darkness.
By early morning of the 17th, when the Coast Guard Cutter Winona arrived on the scene, the weather had moderated.
At the suggestion of the Sea Fox, the Winona passed one end of her 12 inch manila hawser to the Herald and the other end to the Sea Fox and the tug then moved out ahead of the anchored ship and kept her engines going ahead in order to ease the strain on the Herald's anchor chain and gear. The Balsam now left the scene to take the Neptune's crew to Astoria, Oregon, but later returned. The Winona remained until after the Tug Hercules, which had been summoned from Seattle, arrived early on the morning of November 18th.
The Hercules passed her tow wire to the Herald. Both tugs were soon in difficulty because in their effort to keep far enough apart to avoid collision they broached broadside to the wind and were carried toward the Herald's stern. During this time the Herald's crew endeavored, unsuccessfully, to slip her anchor and finally had to cut the anchor chain with an acetylene torch borrowed from the Balsam. The Sea Fox and the Hercules succeeded in forging ahead of the Herald and commenced towing her, accompanied by the Balsam. They reached Everett, their destination, on the evening of November 19th and the Hercules then returned to Seattle, arriving about one o'clock on the morning of the 20th.
The first question for decision is whether the foregoing facts show a case of salvage. If they do, the court must then fix the award and determine the extent to which each vessel is entitled to participate, if at all.
To constitute salvage of a vessel she must be in impending peril of the sea from which she is rescued by the voluntary efforts of others. Whether the Herald was in such peril after her tow wire parted shortly after midnight on November 16th is a question of fact and the court believes that the evidence shows conclusively that she was. Respondent Waterman attempts to minimize the danger by stressing the fact that the ship was able to anchor in shoal water and that her anchor held. The record discloses, however, that during the period when the Herald was being held only by her anchor the weather had moderated and was relatively calm. By the time the wind and seas began to increase in force the Sea Fox had a line on the Herald and by keeping her engines going ahead she materially eased the strain on the Herald's anchor chain. Furthermore, another heavy storm blew up on the night of the 18th, and there is credible testimony that the vessel's single anchor probably would not have been sufficient to keep her from being blown ashore where she would have become a total loss. It was only through the efforts of the Sea Fox and the Hercules, assisted by the two Coast Guard cutters, that the Herald was rescued from her position of peril and towed safely to her destination. Bige Hensley and Hugh T. Baker, who are now the lawful holders and owners thereof.
7. During the years 1938-39-40 the defendant Fannie B. Sizemore was the duly elected, qualified and acting jailer of Clay County, and during her term of office as such, Clay County became indebted to her for her official services rendered in the performance of her duties as jailer of the county, and issued to her, County Warrant #784, for $847.35, with interest at 6% from the 29th day of June, 1938, which she assigned to Rogers Swafford who are now the owners and holders of said warrant, and the further sum of $993.40, balance on the county's indebtedness to her for her official services as such jailer, no part of either has ever been paid.
This indebtedness of Clay County to Fannie B. Sizemore in these two amounts was a current governmental expense for the fiscal year 1938-39 and 1939-40 when a portion of the impounded funds was allocated by the Fiscal Court of the county from the general fund levy for said years.
8. The Court takes judicial knowledge of the facts stated in the opinions of the Court of Appeals of Kentucky in Clay County v. Sizemore, 278 Ky. 120, 128 S.W.2d 556, and First National Bank of Manchester v. Hays, 288 Ky. 297, 156 S.W.2d 121, to the effect that Clay County is further indebted to the First National Bank of Manchester, Russell Dyche, and other creditors holding county warrants which were issued for necessary governmental purposes.
9. The defendants, T.T. Burchell and A.T.W. Manning, are holders and owners of a warrant of Clay County for the sum of $3,927.67 issued by the Fiscal Court at its October Term 1941 in payment of a balance due for legal services rendered the county pursuant to employment as special attorneys for the county, no part of which has been paid.
10. In 1938 the Fiscal Court of Clay County, by its appropriate orders and resolutions, entered upon a plan to refinance the outstanding indebtedness of the county upon more favorable terms, and with that end in view it entered into certain contracts with The W.C. Thornburgh Company for the furtherance and consummation of the plan, and took appropriate steps to secure the approval of the State Local Finance Officer and County Debt Commission, and in order to meet the expenses incident to the re-financing plan and to put it in operation, the Fiscal Court of the county appropriated and paid into the hands of the State Local Finance Officer from the general funds of the county tax levy for the fiscal year 1938-1939, the sum of $2500, and from the general fund of the tax levy of the county for the fiscal year 1939-40 appropriated and budgeted the sum of $8193.53, which sum it caused to be deposited in a special account in the First National Bank of Manchester, Kentucky, designated as "Sinking Fund 300-E-3," and out of the tax levy of the county for general fund purposes for the fiscal year 1940-41, the further sum of $10,000 was appropriated and caused to be deposited in said bank in this special account. These deposits and appropriations, with any additional deposits made to that special account, constituted, and are the funds impounded by the order of this Court in this action, together with the $2500 in the hands of the State Local Finance Officer. The order of this court impounding said funds was made by the consent of the county officials and various creditors then of record in these actions, and for the purpose of preserving said impounded funds pending the conclusion of the proposed refinancing plan, for which purpose the funds were accumulated and, so far as appears from the record, with the exception of several payments made to this court's official reporter, Harry G. Bright, upon orders made herein on account of costs incurred in preparing the record in this proceeding, the said funds now remain intact and undisturbed.
The proposed re-financing plan, however, has not been consummated, and the State Local Finance Officer never at any time made, entered or signed any order approving the issuance of refunding bonds by the Fiscal Court of Clay County in accordance with the proposed plan, or at all, and no such refunding bonds have, therefore, been lawfully issued, but in January, 1942, the Fiscal Court of Clay County ordered the withdrawal of all proceedings pending before the State Local Finance Officer in reference to the proposed re-financing of the outstanding indebtedness of the county, and cancelling its contract with The W.C. Thornburgh Company, and countermanding the authority of that contract to further promote the project on behalf of the county, and so far as the record discloses, the county has made no further effort to re-finance its outstanding indebtedness.
Conclusions of Law.
1. The Court has jurisdiction of the parties and the subject matter of these consolidated actions.
2. Current necessary governmental expenses are compulsory obligations of the county, and such obligations have priority of payment over all other obligations of the county. Duvall's Adm'x v. Elliott County, 275 Ky. 85, 120 S.W.2d 78.
The indebtedness of Clay County to Fannie B. Sizemore in the sum of $993.40, with interest from June 18, 1940, and to Rogers Swafford, assignees of said Fannie B. Sizemore for $847.35, with 6% interest from June 29, 1938, is a valid and subsisting obligation of Clay County, incurred for necessary governmental expenses for the fiscal years 1938-1939 and 40, and had priority of payment from the revenues of Clay County for said years when a portion of the impounded fund was allocated by the Fiscal Court, and its priority and preference of payment from the impounded fund must be recognized and this indebtedness paid in full from said funds impounded in this action. Duvall's Adm'x, v. Elliott County, 275 Ky. 85, 120 S.W.2d 78; Elliott County v. Duvall, 286 Ky. 841, 151 S.W.2d 1040.
3. The judgment of the Circuit Court of Clay County, of date February 5, 1937, in favor of T.J. Henson and assigned by him to Bige Hensley and Hugh T. Baker, is a valid and subsisting obligation of Clay County, Kentucky, in the amount of $6,695.15, with interest thereon at 6% per annum from November 1, 1940. This judgment represents an indebtedness of Clay County incurred for necessary governmental expenses during the fiscal years 1933-34, 1934-35, 1935-36, during which time said Henson was jailer of the county, and it is now a valid floating indebtedness reduced to judgment, and until this judgment is paid the Fiscal Court cannot validly pay any debts other than those for strictly governmental expenses, Landrum v. Ingram, 274 Ky. 736,120 S.W.2d 393; City of Catlettsburg v. Fabric Fire Hose Co., 264 Ky. 594, 95 S.W.2d 285; Perry County v. Kentucky River Coal Corporation, 268 Ky. 78, 103 S.W.2d 689; Duvall's Adm'x, v. Elliott County, 275 Ky. 85, 120 S.W.2d 78; Elliott County v. Duvall, 286 Ky. 841, 151 S.W.2d 1040.
4. The claims of First National Bank of Manchester, Kentucky, assigned to, and now owned by W.W. Baker of Sioux Falls, South Dakota, amounting to the principal sum of $39,797.52 with accumulated interest of $19,849.73 as of April 1, 1943, making a total of $59,647.25 as of April 1, 1943, is a valid and subsisting indebtedness of Clay County for necessary governmental expenses when created, and is now a valid floating indebtedness of Clay County, for which said W.W. Baker is entitled to judgment in this action. Clay County v. Sizemore, 278 Ky. 120, 128 S.W.2d 556; First National Bank of Manchester v. Hays et al., 288 Ky. 297, 156 S.W.2d 121; Duvall's Adm'x v. Elliott County, supra; Elliott County v. Duvall, 286 Ky. 841, 151 S.W.2d 1040.
Russell C. Dyche and others holding similar claims for necessary governmental expenses when issued also have valid subsisting floating indebtedness against Clay County to the amount of their respective claims and accrued interest thereon. Elliott County v. Duvall, 286 Ky. 841, 151 S.W.2d 1040.
5. The Fiscal Court of Clay County had the power and authority to issue and sell the bonds aggregating the sum of $75,000, of date September 1, 1928, described in paragraph 2 of the Findings of Fact, and to certify to the facts set out on the face of them. The certificate so made raises an equitable estoppel against controverting the facts so certified and precludes the assertion of contrary facts as a defense to the payment or validity thereof in the hands of holders in due course and for value.
The presently outstanding issue of Clay County, Kentucky, Road and Bridge Funding bonds dated September 1, 1928, aggregating $75,000, described in paragraph 2 of the Findings of Fact, together with all interest coupons attached thereto, are valid and subsisting obligations of Clay County, Kentucky, payable according to their terms and conditions. The holders thereof, respectively, are entitled to judgment for such bonds and interest coupons as the record shows, without dispute, are past due and unpaid.
6. The Fiscal Court of Clay County had the power and authority to issue and sell the bonds aggregating the sum of $36,000, of date June 1, 1930, described in paragraph 3 of the Findings of Fact, and to certify to the facts set out on the face of them. The certificate so made raises an equitable estoppel against controverting the facts so certified and precludes the assertion of contrary facts as a defense to the payment or validity thereof in the hands of holders in due course and for value.
The presently outstanding issue of negotiable funding bonds of Clay County, Kentucky, dated June 1, 1930, aggregating $36,000, described in paragraph 3 of the Findings of Fact, together with all interest coupons attached thereto, are valid and subsisting obligations of Clay County, Kentucky, payable according to their terms and conditions. The holder thereof is entitled to judgment for the amount due on interest coupons attached to the bonds which are shown by the record, without dispute, to be past due and unpaid.
7. The Fiscal Court has full power and authority to issue bonds of the county to refund valid floating indebtedness, as Clay County did when it issued and sold the $75,000 Funding 5 3/4% bonds, dated September 1, 1928; and the $36,000 Funding 6% bonds, dated June 1, 1930.
The effect of funding a debt by the issuance of bonds is not to increase or to liquidate the indebtedness, but "it merely changes the form of the existing debt." City of Frankfort v. Fuss, 235 Ky. 143, 147, 29 S.W.2d 603.
8. The claim of T.T. Burchell and A.T.W. Manning, described in clause 9 of the Findings of Fact, on the warrant of Clay County for $3,927.67 issued at its October 1941 Term of the Fiscal Court is a valid subsisting floating indebtedness of the county for non-governmental expense and said Burchell and Manning are entitled to judgment accordingly.
9. The motion of the defendants Clay County et al. to strike certain portions of the intervening petition herein, filed by The W.C. Thornburgh Company, should be sustained and the intervening petition should be dismissed for failure to state a claim upon which relief can be granted.
10. Judgment should be entered in conformity with these Findings of Fact and Conclusions of Law. The Court should retain control of this case so long as may be necessary to safeguard the interests of the parties and for the purpose of affording such further relief as may be necessary and appropriate.