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District Court of Appeal, Third District, California.


Civ. 6996.

Decided: December 11, 1943

W. Coburn Cook, of Turlock, for appellants. Jos. L. Heenan, of Marysville, and Huston, Huston & Huston, of Woodland, for defendant Bossen. Rich & Weis, of Marysville, for Board of Trustees of Reclamation Dist. No. 784. Gilbert Moody, of Turlock, for intervener–respondent Julien.

The petitioners, who own seven matured bonds of $1,000 each, together with attached interest bearing coupons, issued by Reclamation District No. 784, which were registered with the treasurer of the district as provided by Statutes of 1935, page 994, as amended by Statutes of 1937, at page 407, and which were reduced to judgment, sought by means of a writ of mandamus to compel payment of the obligations in full as preferred debts, from a limited fund of $9,466.70. The reclamation district answered the petition denying the material allegations thereof, including the asserted estoppel of the statute of limitations. By order of court E. Julien was permitted to intervene, and he alleged that he was the owner of one matured bond of the district, No. 434, in the sum of $1,000, together with attached coupons, for payment of which he claimed the right to participate in said fund, in spite of the fact that his bond was neither registered nor reduced to judgment. He also denied that either his bond or attached coupons were barred by the statute of limitations.

The court adopted findings favorable to the respondents, except that petitioners' bonds and coupons, together with intervener's bond and coupons, were found to be valid obligations which, together with all valid matured bonds and coupons held by other owners thereof and duly presented for payment, after ninety days notice of the availability of said fund of $9,466.70, as provided by statute, shall be paid pro rata by first satisfying the obligations maturing January 1, 1930, and then by distributing the balance of the fund, if any, to the owners of said obligations maturing thereafter. A writ of mandamus was directed to issue in accordance therewith. From that portion of the judgment which directs the pro rata payment of bonds and coupons, and from the determination that the statute of limitations has not expired against the bonds and coupons of owners other than those belonging to petitioners, this appeal was perfected.

The petition alleges and the court found that Reclamation District No. 784 was duly organized in 1907; that bonds of the denomination of $1,000 each in the aggregate sum of $834,000 were issued and sold January 1, 1921; that all of said bonds which matured prior to January 1, 1930, were fully paid; that petitioners' seven bonds and the attached coupons, which matured in 1930 and 1931, were “protected by judgments” and duly presented to the Treasurer for registration, no part of which has been paid except a portion of the interest on the coupons which matured January 1, 1930; that none of said bonds or coupons maturing after January 1, 1930, except bonds in the aggregate sum of $71,000, and petitioners' said seven bonds and coupons, have been protected by judgments or presented to the Treasurer for registration; that the intervener's bond No. 434 was not protected by judgment or registration, and that the aggregate sum of such bonds not so protected amounts to $141,000, all of which matured subsequent to January 1, 1930; that of said unprotected bonds the total sum of $25,000 matured January 1, 1930, and the further sum of $22,000 matured January 1, 1931, no part of which matured bonds has been paid.

The court found that the reclamation district was solvent; that the Treasurer has made all calls for assessments required by the statute “but there has never been sufficient funds on hand to pay all of the outstanding and unpaid bonds”; that there is now on hand only the sum of $9,466.70; that the bondholders have no legal method of enforcing their obligations by judgments or otherwise; that the district has not provided funds with which to meet its obligations, nor has it fulfilled its duties in that respect as required by sections 3446 to 3493 of the Political Code; that no notice of the availability of funds with which to pay its obligations has been served upon any bondholders, and that the statute of limitations has therefore not run against any of said bonds or coupons. Judgment was thereupon rendered as previously stated.

The chief issue raised by the pleadings is the question as to whether the statute of limitations barred recovery on bonds and coupons, other than those which were registered and reduced to judgments.

The appellants claim “that the moneys in the bond fund should be applied to the payment of their bonds in full with interest at 6 per cent per annum on the theory that all other bonds maturing in 1930 and 1931 are barred by the statute of limitations.”

We are of the opinion that neither the intervener's bond No. 434, nor the other valid matured and unpaid bonds of the same issue of that district, are barred by the statute of limitations for the reason that at no time since their maturity has the district ever had funds with which to pay them; that no notice of the availability of such fund has ever been served on the bondholders and that the procuring of judgments on those obligations would have been useless and unavailing.

It was stipulated, and the court found, that the Treasurer had made all calls for assessments for payment of the bonds authorized by the statute. It was alleged by petitioners that the Treasurer had in the bond fund “the sum of $10,394.00 and no more.” The court found that the Treasurer had in that bond fund only the sum of $9,466.70. Those findings are supported by the evidence. It is conceded that no notice of the availability of funds with which to satisfy the matured and unpaid bonds was served on any of the owners thereof.

Reclamation and irrigation districts are sovereign agencies of the state and as such are strictly limited by the terms of the statutes creating them, with respect to the incurring or payment of obligations. People ex rel. Chapman v. Sacramento Drainage District, 155 Cal. 373, 382, 103 P. 207; Peterson v. Board of Supervisors of Solano County, 65 Cal.App. 670, 674, 225 P. 28; Nissen v. Cordua Irrigation District, 204 Cal. 542, 269 P. 171; Moody v. Provident Irrigation District, 12 Cal.2d 389, 394, 85 P.2d 128, 131.

Section 3480 of the Political Code provides, with respect to reclamation districts, that: “All moneys collected by any county treasurer upon any assessment upon which bonds shall have been issued, including all moneys derived from sale of land for delinquent installments, or from redemption thereof, or from sale of lands bought by the treasurer at any such sale, shall be by such treasurer forthwith paid into the main county treasury and except as otherwise provided in section 3466a of this code, shall be credited to the bond fund of such reclamation district and used exclusively for the payment of principal and interest of said bonds issued on such assessment, and of the principal and interest of any refunding bonds issued thereon, and the expenses of the county treasurer as hereinafter provided.” (Italics ours)

In the absence of funds or the statutory authorization for securing funds with which to pay outstanding matured bonds, the securing of judgments by the holders of such bonds would be unavailing and useless. Real and personal property in the possession of the district is held in trust and is not subject to execution or sale by creditors of the district. Moody v. Provident Irrigation District, supra. Under circumstances similar to the facts of this proceeding, it was held in the last mentioned case: “The property of the district, so far as it owns any property, constitutes a public trust and is held by the district for a public use, and, therefore, is not subject to levy and sale upon execution by a creditor of the district. Tulare Irr. Dist. v. Collins, 154 Cal. 440, 97 P. 1124.”

In accordance with the preceding declaration of law it follows that since the recproceeding has never possessed funds with which to pay the bonds which matured after January 1, 1930, and that it has made “all calls” for assessments and has exhausted all means provided by law for creating that fund, the mere procuring of judgments on such bonds would be futile, and that the statute of limitations is therefore not a bar to the right of the owners thereof to payment from any funds available therefor. Moody v. Provident Irrigation District, supra; Freehill v. Chamberlain, 65 Cal. 603, 4 P. 646; 37 C.J. 849, § 209. In the Moody case it is said in that regard: “The statute of limitations, under the circumstances disclosed by this case, could never be pleaded by the district until it had the money in its possession to pay the bonds belonging to the plaintiff, and had given notice.”

In 37 C.J. 849, § 209, it is said, with respect to the application of the doctrine of the statute of limitations to the enforcement of obligations evidenced by bonds of a state or its agencies, that: “Where it is provided by law that state or county bonds, or the interest coupons thereon, or other municipal obligations, shall be payable out of a particular fund or in a particular manner, the statute of limitations does not begin to run unless it appears that the particular fund has been provided or the method pursued, or until demand for payment is repudiated.”

The preceding statement of law is supported by the following citations: City of New Orleans v. Warner, 175 U.S. 120, 20 S.Ct. 44, 44 L.Ed. 96; Lincoln County v. Luning, 133 U.S. 529, 10 S.Ct. 363, 33 L.Ed. 766; King Iron Bridge, etc., Co. v. Otoe County, 124 U.S. 459, 8 S.Ct. 582, 31 L.Ed. 514; Sawyer v. Colgan, 102 Cal. 283, 36 P. 580, 834; Freehill v. Chamberlain, 65 Cal. 603, 4 P. 646; Underhill v. Trustees of City of Sonora, 17 Cal. 172, 173; Little v. Emmett Irrigation District, 45 Idaho 485, 263 P. 40, 56 A.L.R. 822, and by many additional authorities of other jurisdictions.

In support of petitioners' contention that they are entitled to payment in full of their seven bonds, in preference to all other matured bonds, they rely on the fact that they registered their bonds with the Treasurer as provided by Statutes of California of 1935, page 994, which reads:

“Section 1. When any bond or any interest coupon, payable from the funds in the custody of the county treasurer, is presented to the treasurer for payment and is not paid for want of funds, the treasurer must indorse thereon ‘Not paid for want of funds', with the date of presentation and the serial number indicating the order of presentation and sign or stamp his name thereon. Such bonds and/or coupons, so indorsed and numbered, are entitled to preference as to payment out of the first moneys received in the treasury properly applicable to the payment thereof, in the order in which they were so presented and registered.

“Sec. 2. Upon receipt of moneys into the treasury applicable to the payment thereof, the treasurer must set apart the same, or so much thereof as is necessary, for the payment of such registered bonds and/or coupons. He must then give notice by registered mail to the owner or holder of such registered bonds and/or coupons, at the address last filed with the treasurer, stating therein that he is ready to pay such registered bonds and/or coupons. (Italics ours)

“Sec. 3. Should such registered bonds and/or coupons not be presented for payment within thirty days from the date of mailing notice hereinbefore provided for, the fund set aside for the payment thereof must be applied by the treasurer to unpaid registered bonds and/or coupons next in order until all bonds and/or coupons so registered have been called.”

It appears that petitioners' seven bonds, together with several belonging to other bondholders, were presented to the Treasurer and registered pursuant to the foregoing statute, but that notices of such registrations and intention to pay the bonds were not given to the bondholders as required by section two of said statute by registered mail or otherwise, and that no payments were in fact made by the Treasurer upon any of said bonds. It does not appear when said fund of $9,466.70 was acquired by the Treasurer. In construing the foregoing statute as a whole we assume that, even if preferences could be thereby acquired over other matured bonds by virtue of a statute adopted after the obligation vested, without the acceptance of the owners, which we do not concede, payment of registered bonds may not be lawfully made to the detriment of other registered bonds until after notice has been served upon the owners thereof as required by the statute. In the present case it appears that matured bonds, other than those belonging to the petitioners were in fact registered. No such notice has ever been given by the Treasurer to the bondholders.

But the appellants contend that the foregoing statute was amended (Stats.1937, p. 407) by eliminating therefrom sections two and three relating to the necessity of giving notice of the intention of the Treasurer to pay the bonds in the order of their registration. That is true.

We are, nevertheless, of the opinion the petitioners in this case acquired no prior rights to payment of their bonds in full, to the detriment of other matured bonds, merely because they had been registered pursuant to the statute of 1935, as amended in 1937. The obligations of the district and the absolute right of the bondholders to payment at maturity were fixed and determined by the express terms of the bonds construed in the light of the Reclamation District Act under which they were issued and sold. Neither that act nor the terms of the bonds provided for a forfeiture of the right to participate in any fund of the district which might become available for that purpose on account of a failure to register the bonds. The additional burden, and detriment created by the subsequent enactments of the statutes of 1935 and 1937, result in an impairment of the obligations of the contracts represented by the bonds. Those alterations did not occur until more than four years had elapsed after the maturity of the bonds. There is no evidence that the bondholders ever consented or acquiesced in those changes of their contracts. Such material and detrimental changes of the contracts could not lawfully be made without the consent or acquiescence of the holders of matured bonds. The court therefore correctly determined that the holders of the bonds which matured in 1930 and 1931, were entitled to participate pro rata in the funds on hand, regardless of the fact that some of the owners thereof had not registered their bonds.

The law pursuant to which the bonds were issued constitutes an essential part of the contract of the bonds. In 11 C.J.S., Bonds, p. 420, § 40, subsec. e, it is said in that regard:

“The law at the time of the execution of a statutory bond is a part of it; if it gives to the bond a certain legal effect, it is as much a part of the bond as if in terms incorporated therein. Where a bond is given under the authority of a statute in force when it is executed, in the absence of anything appearing to show a different intention it will be presumed that the intention of the parties was to execute such a bond as the law required, and such statute constitutes a part of the bond as if incorporated in it, and the bond must be construed in connection with the statute and the construction given to the statute by the courts. Such a bond must be given the effect which in reason must have been intended by the statute. Whatever is included in the bond, and is not required by the law, must be read out of it, and whatever is not expressed, and ought to have been incorporated, must be read as if inserted into it; but such rule applies only to matters of substance and not to mere matters of form. Although the terms of the bond may bear a broader construction, the liability of the parties will be confined to the measure of liability as contemplated by the law requiring the bond; but it will not be assumed that the legislative enactment was intended to import to an instrument an effect different from that intended by the parties. * * *

“Ordinarily, the liability on a bond cannot be affected by a law passed subsequent to its execution; * * *.” (Italics ours)

The foregoing text is supported by numerous authorities. Certainly the express covenants of a bond issued in strict accordance with the provisions of law authorizing their issuance, may not be materially altered by a subsequent statute to the detriment of a purchaser thereof for a valuable consideration, without his acceptance of the new terms or consent to the change of contract.

We conclude that the enactment of the statute of 1935, page 994, as amended by the statute of 1937, page 407, authorizing a preference in payment of bonds in the order in which they are registered, has no application, under the circumstances of this case, to the bonds which matured in 1930 and 1931. The trial court properly directed the payment of such bonds pro rata from the limited fund on hand.

There is nothing in the authorities cited by the appellants in conflict with what we have previously held regarding the statute of limitations or the alleged preference acquired by virtue of registering the bonds for payment.

The judgment is affirmed.

THOMPSON, Justice.

ADAMS, P.J., and SCHOTTKY, Justice pro tem., concur.