Summary
In Bruml, the court held that "[u]nder a contract for the payment of interest at a specified rate annually, whereon there is a default of payment of such interest when due, interest on interest will be computed at the regular rate."
Summary of this case from Mayer v. MedancicOpinion
Nos. 23941 and 29423
Decided June 16, 1943.
Uniform Bond Act — Refunding outstanding bonds upon consent of bondholders — Section 2293-5p et seq., General Code — Nonconsenting bondholders entitled to payment of bonds upon maturity — Municipal bonds — Interest payable upon defaulted interest, when.
1. Section 2293-5 p et seq., General Code, as amended in 116 Ohio Laws, pt. 2, 281, providing a plan of debt readjustment for political subdivisions by the issue of refunding bonds on consent of bondholders owning a certain proportion of existing outstanding bonds, cannot affect the right of nonconsenting bondholders of such political subdivision to have their bonds paid immediately upon maturity.
2. Where a bond of a municipality provides for the payment of interest at a specified rate, payable semiannually, and there is a default in the payment of such interest, interest on such defaulted interest should be allowed and computed at the legal rate.
IN MANDAMUS.
These two causes, original actions in this court, have been consolidated and are submitted on an agreed statement of facts.
The present issues in the first cause above mentioned, in which Fred E. Bruml is the relator, arises on a motion and citation for an order of contempt against the officials of the village of Brooklyn because of their failure to comply with an order in mandamus issued by this court in November 1935, commanding them to apply any and all moneys on hand in the treasury of the village on certain outstanding bonds of the village as "are applicable thereto and not otherwise certified and appropriated, to the payment, first, of the accrued interest due and payable on its outstanding bonds, and then to the payment of its past due and matured bonds; further, to adopt a budget for the fiscal year 1936 or to so amend any budget now adopted for said fiscal year so as to show the full amount required to pay the interest and principal charges on its bonded indebtedness now due and unpaid, or to become due in the fiscal year," and to do all acts necessary to pay outstanding bonds of the village until such outstanding bonds have been fully paid. (See State, ex rel. Bruml, v. Village of Brooklyn, 130 Ohio St. 223, 198 N.E. 634.)
The relator in that action then was and now is the holder of nine bonds of the village of the face value of $9,000, all of which matured on or before October 1, 1936. No payments have been made upon such bonds except that $1,305 was paid on interest on December 13, 1941, and a tender of payment of $1,119.60 was made on March 25, 1943, which sums represent the proportionate share on the nine bonds of all general taxes and special assessments collected since the writ of mandamus was issued by this court.
The second cause above named is an action in mandamus more recently brought by the relator Oliver Crist against the village of Brooklyn, its officials and taxing authorities to compel payment of three $1,000 bonds of the village owned by the relator which were issued June 1, 1930, and matured October 1, 1933. These bonds bear interest at the rate of six per cent, payable semiannually. No interest has been paid since October 1, 1931, except that a payment of $808.20 was made on March 25, 1943, which sum represents the proportionate share of his three bonds of all general taxes and special assessments collected since the writ of mandamus was issued by this court.
After Sections 2293-5 p et seq., General Code, as amended in 116 Ohio Laws, pt. 2, 281, and known as the Gallagher Act, became effective on October 26, 1936, the village of Brooklyn attempted to make a complete readjustment of its bonded indebtedness by refunding the various issues of village bonds, and such bonds were refunded on a 30-year refunding payment plan previously adopted by the village.
The plan was consented to in writing by more than 75 per cent of the original bondholders and subsequently 99 per cent of such bondholders waived certain past due interest on the original bonds and accepted refunding bonds in lieu of the original bonds, in accordance with the plan of debt readjustment of the village, but the relators in these cases did not consent to or participate in such plan and still retain their original bonds, demanding their immediate payment.
The bond retirement or sinking fund of the village contains a total of approximately $30,500, which fund has been, by action of the village council on February 8, 1943, divided into subclassifications known as the "consenters fund" and "non-consenters fund" alloting to the former the sum of $28,572.13, and to the latter $1,927.87. There is a balance in the "consenters fund," over and above interest requirements due on June 1, 1943, of approximately $11,276.10. The refunding bonds are not in default or about to become due.
In July 1942, a balance remained in the village bond retirement fund in excess of the requirements of the next succeeding months, and pursuant to the bond retirement plan above referred to, the village authorities purchased $16,000 face value of its outstanding refunding bonds, not yet matured, for the sum of $14,895.71, and retired and cancelled such bonds.
The relator Bruml claims there is due him not only the face value of his bonds, all matured, but the interest and interest upon the unpaid interest at the statutory rate from the dates upon which the interest payments became due.
The prayer Of the petition of the relator Crist is that a writ of mandamus issue in his favor commanding the village of Brooklyn and its officials to forthwith apply any and all moneys on hand in the treasury of the village and any and all moneys on hand in the sinking fund, which are applicable, to the payment of interest due to date and the overdue bonds held by the relator; and that the village officers and taxing authorities be commanded to so amend the tax budget of the village for the ensuing year as to provide the full amount to pay the bonds and interest due to the relator and that the county officers make the necessary tax levy for that purpose.
The respondents filed joint answers in which they deny the allegations and charges contained in the motion of relator Bruml and claim that they have complied with the order granted by this court in cause No. 23941 or that such compliance was impossible.
Respondents contend that they have complied by adopting a plan of refunding the bonded indebtedness of the village under the Gallagher Act, and that the protection given by that act to the relators as nonconsenting bondholders has been accorded to them, and that the village has provided for the payment of the unrefunded bonds of relator in accordance with the provisions of Section 2293-5 s, General Code.
Mr. David Ralph Hertz, for relator in cause No. 23941.
Mr. J.W. McCarron, for relator in cause No. 29423.
Mr. Michael L. Hearns, for respondents.
The two issues in these cases, substantially stated, are: Whether the relators, who did not consent to the refunding program, should be preferred over the "consenters" in the payment of their bonds; and whether the relator Bruml is entitled to interest upon interest accruing upon his bonds.
The respondents take the position that the order issued by this court in the earlier case contemplated that all of the bondholders of the village of Brooklyn, including the holders of refunding bonds as well as the relators holding original or unrefunded bonds, should be protected in accordance with their respective proportionate interests without reference to the maturity of the bonds. This is an unwarranted assumption because there were no refunding bonds, but only original bonds, outstanding at the time the court made its order.
No act of the General Assembly could impair or modify the contract obligations of the village to the relators without their consent, and this court, in the absence of such consent, must accord to them their rights as they stand under the bonds as issued.
Section 2293-5 s, General Code, relied upon by the village of Brooklyn as protecting it from the charge and demands of the relators, is as follows:
"In order to preserve and protect the lien of the nonconsenting bondholders, the funds collected each year on such reassessments shall be pledged first for payment of any amounts due or to become due on interest and principal on bonds of the original issue, whether matured or immatured, the holders of which have not consented, until the amount so collected equals the amount which would have been collected under the original assessment, and applicable to such bonds not refunded and in consenting to any such refunding of bonds, the consenting bondholders shall be conclusively presumed to have consented to such preference. No refunding shall be accomplished or re-assessment made on such a basis that the amount certified for annual collection upon any re-assessment shall be less than the principal and interest requirements of the bonds held by nonconsenting bondholders. General taxes levied annually under the requirements of Section II, Article XII of the Constitution shall be apportioned between the bonds not refunded and those refunded in proportion to the interest and maturity requirements of bonds outstanding prior to such refunding until bonds of the original issue not refunded have been paid. * * *"
Perhaps it should be noted in passing that we are here dealing with the general bonds of the village of Brooklyn which are a direct indebtedness of the village, and not with mortgage improvement bonds which would be a lien only on some improvement or utility owned by the village.
This section of the statute attempts to preserve the rights of nonconsenting original bondholders as against consenting refunding bondholders, the proceeds of whose bonds have taken up and paid off a portion of the original issue of bonds of the same class as the bonds of the nonconsenting bondholders, by appropriating thereto taxes and assessments as paid. Under the Uniform Bond Act when the original bonds were issued, levies or assessments were required to be made to meet the interest on such bonds and the principal at maturity, and Section 2293-5 p of the act as amended (118 Ohio Laws, 62), shows that it was the intention to preserve through the act itself the vested rights of bondholders who did not consent to the debt readjustment plan as provided for therein. This section of the act, among other things, provides:
"The annual interest and retirement levies required to pay the interest on the original issue of bonds and the principal thereof at maturity shall be reduced in each year by the amount of such levies which would have been required to pay the interest and principal of such bonds as may be surrendered for cancellation and refunded hereunder."
From the provisions of the statute just quoted, it clearly appears that the annual interest and retirement levies required to pay the interest and the principal on such original bonds as were not surrendered and cancelled under the refunding plan, should not be reduced under the plan but should continue for the retirement of such bonds. The nonconsenting bondholders cannot complain as to the distribution of assessments paid in to retire such bonds as is contemplated by the statute so long as the bonds of the nonconsenting bondholders have not matured, but this arrangement cannot defeat the right of such bondholders to demand immediate payment of their bonds when they mature.
The bonds of the relators, unlike the refunding bonds, are now in default and no legal reason can excuse their immediate payment. While bondholders holding assessment bonds are entitled to have assessments paid applied on the liquidation on their bonds, and may prevent such paid assessments from being diverted to other purposes, yet when such bonds mature they become the absolute debt of the governmental subdivision issuing them and are then payable whether sufficient assessments have been paid in or not.
The village of Brooklyn, instead of paying off these defaulted bonds from funds in its sinking fund, chose to go into the market and purchase to its own advantage and to the advantage of the remaining consenting bondholders holding refunding bonds, certain of such refunding bonds held by consenting bondholders, at less than par. In pursuing such course, it violated the order of this court as to payment of relators' bonds.
The claim of the relator Bruml for interest on accrued interest on his bonds must be allowed. Under a contract for the payment of interest at a specified rate annually, whereon there is a default of payment of such interest when due, interest on interest will be computed at the regular rate. Cook v. Courtright, 40 Ohio St. 248, 48 Am. Rep., 681; Cramer v. Lepper, 26 Ohio St. 59, 20 Am. Rep., 756; Anketel v. Converse, 17 Ohio St. 11, 91 Am. Dec., 115. And the courts of this state have adopted the general view that a municipality is liable for interest on its obligations the same as a natural person. City of Cincinnati v. Whetstone, 47 Ohio St. 196, 24 N.E. 409; Warren Bros. Co. v. City of Cincinnati, 92 Ohio St. 514, 112 N.E. 1087; City of Toledo v. Scott, O. S. U., 123, 23 W. L. B., 238.
By the weight of authority outside of Ohio, in the absence of statute, the same rule applies to overdue interest on bonds issued by a government or governmental subdivisions. Bd. of Commrs. of Ouray County v. Geer, 108 F., 478; Gelpcke v. City of Dubuque, 68 U.S. (1 Wall.), 175, 17 L.Ed., 520; Aurora City v. West, 74 U.S. (7 Wall.), 82, 19 L.Ed., 42; Cromwell v. Sac County, 96 U.S. 51, 24 L.Ed., 681; Walnut v. Wade, 103 U.S. 683, 26 L.Ed., 526; Koshkonong v. Burton, 104 U.S. 668, 26 L.Ed., 886; Pana v. Bowler, 107 U.S. 529, 27 L.Ed., 424, 2 S.Ct., 704; Scotland County v. Hill, 132 U.S. 107, 33 L.Ed., 261, 10 S.Ct., 26; Cairo v. Zane, 149 U.S. 122, 37 L.Ed., 673, 13 S.Ct., 803; Edwards v. Bates County, 163 U.S. 269, 41 L.Ed., 155, 16 S.Ct., 967; Hughes County v. Livingston, 104 F., 306, writ of certiorari denied, County of Hughes v. Livingston, 181 U.S. 623, 45 L.Ed., 1033, 21 S.Ct., 926; Caldwell v. Dunklin, 65 Ala. 461; Bd. of Commrs. of Lake County v. Linn, 29 Col., 446, 68 P. 839; City of Cripple Creek v. Adams, 36 Col., 320, 85 P. 184; Jefferson County v. Hawkins, Trustee, 23 Fla. 223, 2 So. 362; City of San Antonio v. Lane, 32 Tex. 405; Mills v. Town of Jefferson, 20 Wis. 50.
While this court finds that the village of Brooklyn in failing to carry out the order of this court is in contempt, yet, because some uncertainty existed in the interpretation of the order of the court and the legal rights of the relators, which the village officials have been attempting to determine, the village and its officers should be granted a period of time within which they may purge themselves of such contempt by taking steps to comply with the order; and a period of 90 days is fixed by this court for that purpose.
Motion sustained in cause No. 23941. Writ allowed in cause No. 29423.
WEYGANDT, C.J., MATTHIAS, ZIMMERMAN, BELL and TURNER, JJ., concur.
WILLIAMS, J., not participating.