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District Court of Appeal, Third District, California.

SUTTER BASIN CORP., Limited, v. BROWN et al.

Civ. 7792.

Decided: January 31, 1951

Wright & Garrett, Los Angeles, for petitioner. Loyd E. Hewitt, D. A. of Sutter County, Yuba City, Bruce F. Allen, Cupertino, Downey, Brand, Seymour & Rohwer, Sacramento, for respondents.

This is a petition for a writ of mandate directed against Hanlon Brown, as County Treasurer of Sutter County, to compel him to cancel a call issued by him on October 1, 1949, upon all land owners owning land subject to a bond assessment in Reclamation District No. 1500 for the payment of an installment on the said assessment; and to direct him to estimate the amount of the installment due on the said assessment in accordance with the provisions of Section 3480 of the Political Code as that section read in 1930. Also named as respondents are the owners of ninety per cent of the outstanding bonds of the district.

In 1919 said district levied an assessment designated as Assessment No. 1 upon all lands in the district. The assessment was bonded in 1920 pursuant to Section 3480. In 1930, the bonds issued in 1920 being in default, refunding bonds were issued under the provisions of Section 3480(a) of the Political Code.

Section 3480 of the Political Code, as it read in 1930, provided in part as follows:

‘Bond fund. 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 to the credit of the bond fund of such reclamation district, and shall be 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.

‘Estimate of amount to pay interest and principal. At least ninety days before any interest date of the bonds, including refunding bonds, the county treasurer of the main county shall estimate the amount of money necessary to pay interest and principal maturing on such interest date after crediting thereon the funds in the treasury applicable to the payment thereof * * *.’

From the stipulation of the parties as to certain facts it appears that many of the land owners in said district have paid their portion of said assessment in full by the surrender of bonds purchased at a substantial discount. It further appears from said stipulation that there is now on hand in the bond fund approximately $710,000.00, which is available for payment of maturing interest and principal on refunding bonds and that there is an additional amount of approximately $160,000.00 which has not been transferred to the fund. Substantially all of the moneys so held by the district have been derived from farming operations on lands previously sold to the district to satisfy the lien of unpaid calls issued against said lands under Assessment No. 1 or are proceeds from the sale of lands by the district.

To satisfy the installment of principal and interest due and payable on January 1, 1950 respondent treasurer issued a call for an installment on said Assessment No. 1 in the amount of $29,397.12 of which $12,757.35 was assessed against petitioner. The amount of said call was computed under the provisions of Section 3480 of the Political Code as amended in 1949, the pertinent portions thereof reading as follows: ‘At least ninety days before any interest date of the bonds, including refunding bonds, the county treasurer of the main county shall estimate the amount of money necessary to pay interest and principal maturing on such interest date after crediting thereon the funds in the treasury applicable to the payment thereof, excluding therefrom any funds in the treasury deposited therein pursuant to Section 3466a of this code or derived from the sale of lands by the county treasurer as trustee of the district under the provisions of this section or Sections 3466a and 3480a of this code and the expenses of the county treasurer hereinafter provided and shall add thereto 15 percent of such aggregate sum to cover possible delinquencies * * *.’ (Emphasis added.)

The petitioner contends that since under said section 3480 as it read prior to 1949 it would not have been called upon to pay the call due January 1, 1950, and since it is conceded that there was sufficient cash in the bond fund available for the payment of principal and interest then due on the bonds remaining outstanding, that therefore the 1949 amendment of section 3480 excluding from computation in determining the amount of installment due on the assessment, all monies derived from sale or crop rentals of delinquent lands, effects an invalid impairment of the obligations of the contract existing between the bondholders and the landowners in the district.

We cannot agree with respondents' answer to petitioner's contention that there is no impairment of contract since the legislation in question concerns only the state and the landowner and hence involves no contractual right; and that insofar as the bondholder-landholder relationship is concerned there is no change in the obligation whatever. In other words, it is respondents' argument that petitioner herein is involved only as a landowner in the district and not as a party to a contract with the bondholders.

There can be no question but that upon the issuance of the bonds there was formed a contract between the property owner and the bondholder. County of Los Angeles v. Rockhold, 3 Cal.2d 192, 44 P.2d 340, 100 A.L.R. 149; San Diego County v. Childs, 217 Cal. 109, 17 P.2d 734; Chapman v. Jocelyn, 182 Cal. 294, 187 P. 962. Equally well established is the rule that the laws in existence at the time of the issuance of the bonds, under the authority of which the bonds were issued ‘* * * enter into and become a part of the contract to such an extent that the obligation of the contract cannot thereafter be impaired or filfillment of the bond obligation hampered or obstructed by a change in such laws. * * * Nothing is more material to the obligation of a contract than the means of enforcement. The ideas of validity and remedy are therefore inseparable, and both are parts of the obligation which is guaranteed by the Constitution against impairment.’ County of San Bernardino v. Way, 18 Cal.2d 647, 661, 117 P.2d 354, 363. The court therein, further quoting with approval from the case of Von Hoffman v. City of Quincy, 4 Wall. 535, 550, 71 U.S. 535, 550, 18 L.Ed. 403, held that it is competent for the states to change the form of the remedy, or to modify it otherwise, as they may see fit, provided “no substantial right secured by the contract is thereby impaired”. The court, however, made no attempt to fix definitely the line between alterations of the remedy, which would be deemed legitimate, and those which, under the form of modifying the remedy, would impair substantial rights—its conclusion being merely that “Every case must be determined upon its own circumstances”. (Italics added.)

In view of the numerous discussions wherein the reviewing courts of this state have exhaustively treated the problem of impairment as it arose in cases not wholly unlike the present it would seem unnecessary for this court to prolong unduly our discussion of the question as applied to the facts herein. Illustrative of the cases holding that the legislation therein attacked effected an invalid impairment of the bond contract, art,

(1) Copeland v. Raub, 36 Cal.App.2d 441, 97 P.2d 859—cutting down the method of satisfaction of the payment of an assessment; (2) McCormack v. Houston, 84 Cal.App.2d 665, 191 P.2d 569—establishing a reserve fund for bondholders where none was provided for in the original contract; (3) Shouse v. Quinley, 3 Cal.2d 357, 45 P.2d 701—allowing a mode of payment different from that envisioned by the original contract; (4) Hershey v. Cole, 130 Cal.App. 683, 20 P.2d 972—diminishing the time within which to make assessment payments; (5) Warden v. Barnes, 111 Cal.App. 287, 295 P. 569—charging a party $1.00 not chargeable under the original contract; (6) Security Trust & Savings Bank v. City of Los Angeles, 120 Cal.App. 518, 7 P.2d 1061—adding to the fund from which bonds are payable; (7) Sammon v. Wing, 105 Cal.App. 689, 288 P. 711—requiring bondholders to make a demand on property owners not required at the time the contract was made.

Of the cases referred to, the one which appears to be most similar to the present is that of Hershey v. Cole, supra. There the bonds which were issued under the same Political Code section as is here in question were made payable in ten equal annual installments. The act then contained no provision allowing the land owner to prematurely discharge the assessments against his land. By a subsequent amendment to the act a land owner was given the privilege of removing the lien of his assessment by delivery for cancellation of any bonds payable out of the assessment. This court in that case held that the amendment could not be given such a retroactive effect as would increase the annual installments which the respective land owners might be required to pay or diminish the time in which to make his payments, even though such land owners might be remotely benefitted by the lessened interest charge.

In determining the question so presented the court reiterated the general rules heretofore mentioned and further observed that when a land owner goes to the polls and votes for the particular bonds in question he obligates himself to pay the assessment in the manner provided and ‘his part of the obligation is thereby fixed’ and that ‘it can neither be limited nor increased during the lifetime of the bonds for the issuance of which he has voted.’ While on the other hand a bondholder who has purchased a bond based upon the assessment accepts that bond upon the same basis and his ‘right is to have collected from each land owner the annual percentage of the assessment as specified in the bond—no more and no less.’ [130 Cal.App. 683, 20 P.2d 980.]

Applying what this court said in the Hershey case to the facts presented in the instant case it appears that here a land owner in accordance with the bond contract agreed to pay the amount as found by the county treasurer to be ‘necessary to pay interest and principal maturing on such interest date after crediting thereon the funds in the treasury applicable to the payment thereof’. Sec. 3480. In other words the land owner agreed to pay whatever was necessary to meet the principal and interest maturities, subject to a credit of whatever funds were then available in the bond account and a bondholder agreed accordingly. The obligations of both parties having been fixed at the time of the issuance of the bonds, their ‘obligations cannot be increased or lessened.’

It necessarily follows that when the legislature adopted the 1949 amendment to section 3480 it thereby (1) accelerated the time payment insofar as petitioner herein is concerned, since, under the statutes effective in 1930, no call could issue to it unless the bond fund were insufficient to service current maturities of both bond and interest. Thus, to give retroactive effect to the 1949 amendment would be to force petitioner to pay an amount at this time which would not now be payable under the 1930 contract. (2) It changed the method of payment since under the statutes effective in 1930 bondholders were to be paid from the moneys on hand in the bond fund if the fund were sufficient for that purpose. (3) It gave additional security to the bondholders not agreed upon nor a part of the bond contract at the time of the issuance of the bond, since by giving retroactive effect the bondholders would be paid from assessment calls regardless of the sufficiency of the bond fund, and therefore such fund would remain intact with a consequent resultant increase in the bondholders' offer of security.

Respondents' argument in answer to petitioner's contentions is in effect that even though it could be held that the 1949 amendment to section 3480 did effect an unlawful impairment of the bond contract nevertheless by virtue of an appearance by petitioner's counsel before committees of both Houses of the Legislature, petitioner's right to raise the constitutional question herein posed was thereby waived. The basis of respondents' argument is that petitioner's counsel in said appearance advocated the adoption of the particular amendment to section 3480 here in issue.

Petitioner does not deny that its counsel appeared before such legislative committees but it does deny that said counsel urged the adoption of said amendment to section 3480. In this regard petitioner contends that the statements of its counsel constituted merely an advocacy of amendments relative to the sale of delinquent lands in the district and that at no time did its counsel advocate that the moneys in the bond fund be excluded from the treasurer's estimates. We are persuaded, from our examination of the stipulation of facts on file herein, that petitioner's statement and interpretation of the facts are correct.

It is true that provisions of a constitutional nature intended for the benefit or protection of a party may be waived by him by a course of conduct evidencing the intention to waive such provisions, that is, participating in the procurement of the passage of the legislation by acts of ratification or approval after its passage or by accepting benefits thereunder. However, as previously stated we find no evidence of like activities on the part of petitioner's counsel. We are convinced that the rule as enunciated in the case of Board of Levee Commissioners of Fulton County v. Johnson, 178 Ky. 287, 199 S.W. 8, 17, and cases therein cited, should apply to the present situation. There it was held that: ‘To work an estoppel that will deny the right to assail unconstitutional legislation, there must be clear evidence showing that the party sought to be estopped aided in procuring the legislation and derived benefit therefrom, and that to set it aside would work a hardship or injustice on others who were misled to their prejudice into believing that the legislation was valid’.

Lastly, respondents argue that if it should be held that the 1949 amendment to section 3480 impaired petitioner's obligation under the contract then there would result a clear violation of numerous constitutional guarantees. In addition, respondents further argue that this court should decide whether or not the unpaid portion of petitioner's assessment will be extinguished if and when the outstanding bonds have been fully paid and cancelled without petitioner's assessment having been called. We do not consider that such matters are properly before the court for decision in this proceeding, and nothing said herein is to be construed as determinative thereof. If and when the bonds are paid, there should remain unpaid assessments on petitioner's land, then whether or not petitioner can be compelled to pay such assessments is a question which properly can be determined at that time.

Let the writ issue.

PEEK, Justice.

ADAMS, P. J., and VAN DYKE, J., concur.

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