IRVINE v. RECLAMATION DIST NO 108 ET AL

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District Court of Appeal, Third District, California.

IRVINE v. RECLAMATION DIST. NO. 108 ET AL.

BEKINS ET AL. v. RECLAMATION DIST. NO. 1500 ET AL.

Civ. 6985, 6979.

Decided: December 11, 1943

W. Coburn Cook, of Turlock, and A. A. Tiscornia, of San Francisco, for appellants. Rutledge & Rutledge, of Colusa, Huston, Huston & Huston, of Woodland, Downey, Brand & Seymour, of Sacramento, and Loyd E. Hewitt, of Yuba City, for respondents.

The above entitled actions were consolidated for the purpose of presenting the appeals. Separate appeals were perfected from the judgments which were rendered against the respective plaintiffs after demurrers to the complaints had been sustained without leave to amend the pleadings.

In the Irvine case, the amended complaint alleges that Reclamation District No. 108 was duly organized pursuant to law; that on January 1, 1925, it issued bonds in denominations of $1,000 each, numbered consecutively from 1 to 3142 inclusive, to each of which bonds there was attached coupons bearing interest at the rate of 6% per annum; that plaintiff purchased and is now the owner of thirty–one of said bonds, all of which matured on or before January 1, 1936; that plaintiff's bonds “matured and were unpaid and there were no funds available for payment thereof”; that the plaintiff owns a number of said 6 % Interest bearing coupons of the denomination of $30 each, attached to sixteen of said consecutively numbered bonds, aggregating the sum of $480, all of which matured prior to January 1, 1936, and each of which remains unpaid; that “said bonds and coupons bear interest at the rate of 7% per annum * * * from the several dates of their maturity until payment of the principal thereof”; that said bonds and interest coupons were presented to the treasurer for payment on October 6, 1938, duly registered and endorsed “Not paid for want of funds.” The amended complaint asks for judgment for 7% interest on the principal and interest represented by said bonds and coupons after their maturity.

The Bekins case alleges that Reclamation District No. 1500 was duly organized pursuant to law, and issued refunding bonds January 1, 1930, to each of which bonds there was attached coupons bearing 6% interest payable semi–annually; that plaintiffs under the will of Martin Bekins, deceased, were the owners and entitled to payment of five of said refunding bonds of the face value of $1,000 each, together with the interest bearing coupons attached thereto which were subsequently paid, but claim additional interest at the rate of 7% per annum on the aggregate amount of said bonds and coupons from and after the maturity thereof until they were fully paid. It is further alleged that in a mandamus proceeding which was previously filed by plaintiffs in the Superior Court of Sutter County, judgment was rendered in plaintiffs' favor, directing the payment of said bonds and coupons only, but reserving the question of liability of the district for payment of interest after maturity on said bonds and coupons, since that issue was then pending in another appealed action. Bekins v. Heiken, 41 Cal.App.2d 846, 107 P.2d 941.

The complaint in each of the present cases asks for judgment for 7% interest, after maturity, on the amounts specified in the several bonds and coupons owned by the plaintiffs. The recovery of that interest after maturity of the bonds and coupons is the only issue on these appeals.

The respective parties to these consolidated cases concede that the only question to be determined on these appeals is whether or not a reclamation district is obligated to pay interest after maturity on its bonds and interest coupons.

We are firmly convinced the reclamation districts which are involved on these appeals are agencies of the State and that, as such, they are not obligated to pay interest after maturity on their bonds and coupons, since the statute does not authorize that liability. Neither the language of the statute authorizing the issuing of the bonds, nor the language of the bonds or coupons provides for interest after maturity. Section 3480 of the Political Code, which provides the authority for the issuance of said bonds, appears to refute the assertion of the appellants that interest accrues after maturity. The statute contains no machinery authorizing the creation of a fund from which such interest may be paid.

It has been frequently held, and the rule is well established, that reclamation and irrigation districts, organized pursuant to law, are sovereign agencies of the state. The same limitations with respect to the incurring and the payment of obligations apply to both the state and its agencies or subdivisions. 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.

Neither the state, its legally constituted agencies, nor its political subdivisions, is liable for interest on their obligations after maturity or otherwise, in the absence of statutory provisions or lawful contracts of their agents acting within the scope of their authority. Reclamation District No. 1500 v. Reclamation Board, 197 Cal. 482, 502, 241 P. 552; Engebretson v. City of San Diego, 185 Cal. 475, 479, 197 P. 651; McNutt v. Los Angeles, 187 Cal. 245, 259, 201 P. 592; Savings & Loan Society v. City and County of San Francisco, 131 Cal. 356, 363, 63 P. 665; Hopkins v. Contra Costa County, 106 Cal. 566, 573, 39 P. 933; Sawyer v. Colgan, 102 Cal. 283, 293, 36 P. 580, 583, 834; Molineux v. State of California, 109 Cal. 378, 380, 42 P. 34, 50 Am.St.Rep. 49; Bullard v. Riverside County Drainage Dist., 41 Cal.App.2d 900, 107 P.2d 929, 931. This limitation of liability is based on public policy. Interest allowable as damages for delay in payment of an obligation has no application to the state or its agencies. Section 3287 of the Civil Code creates no liability against the state or its agencies for payment of interest after maturity on either bonds or their interest bearing coupons. Hopkins v. Contra Costa County, supra. The Sawyer case, supra, holds that: “The state is not liable to pay interest on its debts, unless its consent to do so has been manifested by an act of its legislature, or some lawful contract of its executive officers.”

In the Bullard case, supra, it was determined in a suit for declaratory relief, based on a similar statute, that the act did not contemplate the payment of interest on bonds after maturity, and that the statute was the measure of the responsibility of the district on its obligations. The court said in that regard: “It is rather clear from the provisions of the act that the legislature intended to provide the machinery for raising sufficient funds to pay the principal and interest on the bonds as they became due and did not contemplate that there would be any defaults in any of these payments so that no question should arise as to interest on any bond after maturity.”

The Bullard opinion quoted with approval from the case of Meyer v. City & County of San Francisco, 150 Cal. 131, 88 P. 722, 10 L.R.A.,N.S., 110, stating that the facts of those cases were almost identical, and that the Meyer case was therefore controlling on that issue. For the same reasons, we are of the opinion the Meyer case is controlling of the issues of the present appeals.

Since the reclamation districts which are involved on these appeals are agencies of the state, their liability for payment of interest on their bonds is limited by the provisions of the statute with relation thereto. Reading Section 3480 of the Political Code and the other sections applicable to the issuing and payment of reclamation bonds, we are convinced there is no legislative authority for the payment of interest on either the bonds or their attached coupons after the maturity thereof, and that such interest is therefore not due to these plaintiffs as owners and holders of bonds and coupons.

A critical examination of the statutes applicable to the issuance and payment of reclamation bonds, discloses the fact that (1) no legislative authority for payment of interest after maturity exists, (2) no legislative machinery is provided with which to meet that asserted obligation, and (3) the statutes clearly indicate that no such obligation was contemplated by the legislature.

Practically all of the statutory provisions applicable to the creation of obligations of reclamation districts on their bonds is embodied in Section 3480 of the Political Code. The legislative declaration of those obligations is found in the paragraph of that section which reads: “If a majority of the votes cast at such election are in favor of the issuance of bonds, the board of trustees of the district shall cause bonds in the amount stated in the order for the election to be executed and delivered, together with the assessment list, to the treasurer of said main county. Said bonds shall be of the denomination of not less than one hundred dollars nor more than one thousand dollars each; they shall be signed by the president of the board of trustees of the district and attested by the county auditor of said main county, and shall be numbered consecutively in the order of their maturity, and shall bear interest at a rate not to exceed six per cent per annum, payable semiannually on the first day of January and the first day of July in each year at the office of said county treasurer upon the presentation of the proper coupons therefor. Coupons for each installment of interest shall be attached to said bonds * * *.”

The only language contained in the statute which may possibly lend color to the appellants' contention that interest on the bonds, after maturity, was contemplated by the legislature is found in the proposed form of bonds appearing in the paragraph following the preceding quotation. The statute merely states: “Said bonds shall be substantially in the following form.” The language upon which the appellants rely is the provision that: “Reclamation District No. _, for value received hereby acknowledges itself indebted to the promisees to pay to the holder hereof * * *, the sum of $_, in gold coin of the United States of America, with interest thereon in like gold coin from the date hereof until paid, at the rate of _ per cent, per annum, payable * * * on the first day of January, and the first day of July in each year on presentation and surrender of the interest coupons hereto attached.”

It will be observed, by reference to the preceding quoted paragraph, that “coupons for each installment of interest”, for which the district may become liable “shall be attached to said bonds.” The very language in the proposed form of bond, upon which the appellants rely, declares that the interest is payable only “on presentation and surrender, of the interest coupons hereto attached.” No other method of collecting interest is provided for. The language of the statute refutes the assertion that the legislature intended to authorize the payment of interest after maturity of the bonds. We assume that the language relied upon by the appellants to the effect that the bonds will be satisfied “with interest thereon * * * from date hereof until paid,” means that interest will accrue “until paid” in the manner provided by the statute, towit, by presenting the coupons therefor attached to the bonds, and not otherwise. No other method of determining the amount of interest due, or the means of collection is provided. The modus operandi to secure funds for payment of the bonds and interest is limited to the amount due thereon to the time of maturity.

The limitation of liability for the payment of interest to the date of maturity appears to be further indicated by the paragraph of Section 3480, which provides that assessments may be paid either in cash or by means of the bonds “or their interest coupons * * * taken at their face value.” That paragraph reads in part: “Said installment may be paid either in cash or in bonds of said district, or their interest coupons, * * * taken at their face value.”

If the payment of interest after maturity were contemplated, we see no reason why the owners of bonds should not be entitled to credit on delinquent assessments for the full value of their bonds and accrued interest, both before and after maturity.

The provisions for issuing refunding bonds, found in Section 3480b of the Political Code, confirms our conclusion that interest after maturity was not contemplated by the legislature. The form of refunding bonds provides in part that: “Reclamation District No. _ * * * is indebted to and promises to pay to the bearer hereof, for value received, the sum of _ dollars ($_), * * *, with interest thereon at the rate of _ per cent (_%) per annum from _, 19_, to and including the date of maturity of this bond.”

The bonds which are involved on appeal from the judgment in the Bekins case are in fact refunding bonds.

There appears to be no good reason why the legislature should have specifically limited the liability for payment on refunding bonds to the maturity thereof if the original bonds which they were deemed to replace were not so limited.

The case of Kendall v. Porter, 120 Cal. 106, 45 P. 333, 52 P. 143, upon which the appellants in these cases rely in support of their claim for interest after maturity, is clearly distinguishable from these cases. Justices Beatty, McFarland and Van Fleet rendered able dissenting opinions in that case. The persuasive grounds upon which those dissenting opinions were rendered were substantially incorporated in the later case of Meyer v. City & County of San Francisco [150 Cal. 131, 88 P. 724, 10 L.R.A.,N.S., 110], supra. In the last mentioned case, which is similar to the present actions in every essential respect, the court said: “This statute not only does not expressly authorize a charge of interest on the bonds after their maturity, but its provisions fairly imply that such interest was not to be paid.”

In the Meyer case a judgment which was rendered against the City and County of San Francisco for the payment of improvement bonds and interest thereon from a fund created by means of special taxes was reversed. The court said:

“The bonds were to be paid out of a special fund, to be raised * * * by means of a special tax upon the lands within a specified district. * * * The debt was due out of the funds to be raised in accordance with the provisions of the act, and not otherwise. It never became a general obligation of the city, to be enforced by a personal judgment against it. * * *

“We are of the opinion, however, that in giving judgment on the pleadings the court improperly allowed the interest which accrued on the bonds after their maturity. The act in question provided a scheme for a public improvement, the cost of which was to be paid by a special assessment upon the lands in the district specially benefited thereby. * * * The burden imposed cannot exceed that which the terms of the statute, either expressly or by fair implication, authorize. This statute not only does not expressly authorize a charge of interest on the bonds after their maturity, but its provisions fairly imply that such interest was not to be paid. * * *

“Coupons for the annual interest, consecutively numbered, were to be attached to each bond in such manner as to be easily removed. It was further provided that a tax should be levied annually upon the lands in the district to pay the interest as it matured, and that the money thus raised was ‘to be paid out by said treasurer only in payment of the coupons attached to said bonds, as the same from time to time became due.’ * * * There is no provision for the attaching of any coupons for interest accruing after maturity. * * * There being no provision for the payment of any interest accruing after maturity, the act must be understood as intending that no such interest was to accrue.”

The Meyer opinion distinguishes the case of Kendall v. Porter, upon which these appellants chiefly rely, by saying that the bonds in the Kendall action were to be paid out of “the general annual revenues of the city”, rather than from a special fund created by statute for a specified limited purpose, which is “the measure of the bondholders' rights.” In conclusion the court said: “There being no provision for the payment of any interest accruing after maturity, the act must be understood as intending that no such interest was to accrue.”

Likewise in the later case of Engebretson v. City of San Diego, supra [185 Cal. 479, 197 P. 655], a judgment for plaintiff for an agreed contract price of street improvement work under the Vrooman Act, together with interest on account of delayed payment, was reversed. With respect to the limitation of liability of a city to pay interest, the Supreme Court, in accordance with the opinion in the Meyer case, and the dissenting opinions in the Kendall case, said: “In order to recover interest against a municipality there must be some statutory provision authorizing it. The rule is thus stated in Ruling Case Law (15 R.C.L. § 14, p. 17.) ‘It is well settled, both on principle and authority, that a state cannot be held to the payment of interest on its debts unless bound by an act of the Legislature or by a lawful contract of its executive officers made within the scope of its duly constituted authority. The principle applies to bonds, claims, judgments and warrants. The theory upon which the rule is based is that, whenever interest is allowed either by statute or by common law, except in cases where there has been a contract to pay interest, it is allowed for delay or default of the debtor. But delay or default cannot be attributed to government. It is presumed to be always ready to pay what it owes. The apparently favored position of the government [in this respect] has been declared to be demanded by public policy.’ * * * The same reasons apply with equal force to a municipal corporation, although the authorities are not uniform on this subject. 15 R.C.L. § 15, p. 18.”

Regardless of whether the previously announced rule applies to municipalities, there is no doubt that it does apply to reclamation districts, which have uniformly been held to be sovereign agencies of the state.

The judgments are affirmed.

THOMPSON, Justice.

PEEK, J., and ADAMS, P. J., concur.