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Lawskills.com Georgia Caselaw
HICKS v. STATE OF GEORGIA et al.
37457.
Validation of revenue certificates. Franklin Superior Court. Before Judge Skelton. September 24, 1958.
TOWNSEND, Judge.
1. Covenants against leasing or otherwise disposing of an undertaking, revenues of which are pledged in accordance with the contract between a governing authority and its bondholders under the Revenue Bond Law (Code, Ann., Ch. 87-8), constitute a contract between such governing body and each bondholder which is enforceable by the latter under the provisions of Code (Ann.) 87-806.
2. Where the revenues of such an undertaking or a part thereof are already pledged under revenue bonds issued by a municipality, any revenue bonds issued upon the same undertaking or part thereof by another municipality can constitute only a second lien against such revenues so long as any of the prior revenue bonds issued by the first governing body remain outstanding. This is true even though the second municipality seeks to purchase a part of the assets of the undertaking from the municipality originally issuing revenue bonds, and even though the sum so received represents the fair value of the part so purchased and is used for the purpose of retiring a part of the bonds issued by the first municipality.
3. In the present case the City of Toccoa in 1951 procured the validation of gas revenue certificates, with the proceeds of which it constructed and maintained a gas distribution system, part of which lies within the corporate limits of the City of Lavonia, and which system it has by resolution pledged its bondholders not to dispose of so long as any part of the certificates or interest there on remains unpaid. The City of Lavonia now seeks, pursuant to the terms of an option granted by the City of Toccoa, to purchase that part of the gas distribution system within its boundaries and, in this proceeding, to procure the validation of revenue bonds to be issued by it on the same facilities. Since it appears from the stipulations and other evidence in the record that the City of Lavonia cannot procure such part of the system free and clear of the prior lien against its revenues represented by the certificates outstanding under the Toccoa validation proceedings, it appears that the proposed undertaking on the part of the City of Lavonia is not economically feasible as a matter of law, and that the trial court erred in entering up a judgment validating the Lavonia bonds.
The exception here is to an order of the Judge of the Superior Court of Franklin County validating certain revenue-anticipation certificates of the City of Lavonia for use in purchasing and operating a gas distribution system within its corporate limits which was constructed out of the proceeds of previously validated revenue-anticipation certificates of the City of Toccoa, as against the objections of the intervenor in this proceeding, J. D. Hicks. It appears from the record that the judge considered and disposed of the case on its merits, taking into account a stipulation of fact between the parties. The pertinent facts in the pleadings as verified by the stipulation are substantially as follows:
On August 17, 1951, by order of the Superior Court of Stephens County, the City of Toccoa procured the validation of $1,700,000 worth of gas revenue certificates in accordance with the terms of a resolution and ordinance of that municipality dated July 30, 1951. The ordinance recited that one of the purposes of the proceeding was "in certain instances to furnish gas to other municipalities on a basis to be agreed upon satisfactory to the parties concerned." Sections 3 and 11 provide as follows: "3. The provisions of this ordinance shall constitute a contract by and between the City of Toccoa and the holders of the certificates authorized to be issued hereunder, and after the issuance of said certificates, this ordinance shall not be repealed or amended in any respect which will adversely affect the rights and interest of the holders of said certificates, nor shall the City Commission of the City of Toccoa pass any ordinance in any manner adversely affecting the rights of the holders of said certificates, so long as any of the certificates authorized by this ordinance or the interest thereon shall remain unpaid. . . . 11. So long as the certificates, or any of them shall be outstanding, and except as in this ordinance otherwise permitted, it will not grant any franchise, nor will it lease, sell or otherwise dispose of or encumber the gas system, or any part thereof, nor will it create or permit to be created any charge or lien on the revenues of such system ranking equally with, or prior to, the charges or lien of the certificates issued under and secured by this ordinance."
On September 24, 1951, the cities of Lavonia and Toccoa entered into a contract reciting in part that Toccoa is now in process of acquiring a gas transmission line and will finance the line and distribution system out of the issuance and sale of revenue certificates; that it would be financially unsound for Lavonia to attempt to construct its own distribution system within the foreseeable future; that Toccoa is willing to undertake to supply gas to Lavonia; that Lavonia grants a franchise to Toccoa to construct, maintain, replace, extend and operate a gas distribution system within its corporate limits and suburbs, for which Toccoa is to pay as annual franchise fee 3% of revenues collected within the corporate limits of Lavonia, and undertakes to supply a reasonable amount of gas for that system. Lavonia transferred to Toccoa its gas allocation received from the Federal Power Commission to be furnished by the Transcontinental Pipe Line Corporation passing through its limits, retaining the right to use an amount of gas equal to such allocation. Paragraph 7 of this agreement is in part as follows:, "7 . . . The City of Lavonia shall have the option to purchase all the gas distribution facilities, including the original system and all additions thereto made prior to the date of exercise of the option located within the corporate limits of said city and its normal suburban areas with the exception of the transmission line . . . (c) In the event the City of Lavonia shall exercise the option herein granted, the City of Lavonia shall pay the City of Toccoa an amount of money sufficient to call and to retire, at that time, gas revenue certificates equal to the total of items (a) and (b) above, [these being the cost price of the Lavonia project] and the exercise of the option shall conform in every respect to the provisions of Gas Revenue Certificate Resolution heretofore adopted by the City of Toccoa. (d) Upon payment by the City of Lavonia as above provided, the City of Toccoa shall retire the certificates represented by the money received for the City of Lavonia, and shall convey to the City of Lavonia the Lavonia Gas Distribution System free and clear of all liens and encumbrances."
It thus appears from the stipulated facts, as against the contentions of the intervenor that Lavonia is the owner of an option to purchase the facilities from Toccoa which, if enforceable, is sufficient to meet the objections urged against validating the Lavonia revenue certificates. If it is not enforceable, then the objections are good. The answer to this single question is to be found within the Revenue Bond Law, Code (Ann.) Ch. 87-8. Code (Ann.) 87-806 provides in part: "Any resolution or resolutions authorizing the issuance of bonds under this Chapter to finance in whole or in part the acquisition, construction, reconstruction, improvement, betterment, or extension of an undertaking may contain covenants (notwithstanding that such covenants may limit the exercise of powers conferred by this Chapter) as to: . . . (j) Limitations or restrictions as to the leasing or otherwise disposing of the undertaking while any of the bonds or interest thereon remain outstanding and unpaid . . . The provisions of this Chapter and of any such resolution or resolutions shall be a contract with every holder of said bonds; and the duties of the municipality and the governing body and the officers of the municipality under this Chapter and under any such resolution or resolutions shall be enforceable by any certificate holder by mandamus or other appropriate suit, action, or proceeding at law or in equity."
Under Code (Ann.) 87-808 and 87-809, if a municipality defaults in the payment of principal or interest according to the tenor of its obligations, or shall "default in any material respect in any agreement made with the holders of the revenue bonds" upon application of the aggrieved bondholders or any of them the court may appoint a receiver to "take possession of the undertaking and each and every part thereof."
Thus, two things very clearly appear from this record. First, the provision of the Toccoa resolution of July, 1951, (on which its own bond validation proceeding was based, and which antedates the franchise and option contract between the municipalities) pledges itself, as it is specifically authorized by law to do, not to dispose of its facilities so long as any part of the revenue-anticipation certificates or interest thereon remains unpaid. This constitutes a binding contract between Toccoa and each of its bondholders, which any of the latter may enforce at any time in a court of law or equity if the covenant is broken. Secondly, the very option upon which the City of Lavonia relies provides that "the exercise of the option shall conform in every respect to the provisions of the Gas Revenue Certificate Resolution heretofore adopted by the City of Toccoa." The resolution having provided that the City Of Toccoa may not sell or otherwise dispose of its gas distribution system or any part thereof so long as any of its revenue-anticipation certificates issued to construct that system remain unpaid, and it appearing that Toccoa issued $1,700,000 worth of certificates of which $1,500,000 are still outstanding, the issuance of $200,000 worth of revenue-anticipation certificates by the City of Lavonia for the purchase of that part of the Toccoa gas distribution system within its corporate limits is clearly unfeasible at this time, unless it is shown that all of the revenue-anticipation certificates previously issued by the City of Toccoa would thereby be retired. So long as one of them is outstanding, the holder of that one can enforce its covenant and either prevent the City of Toccoa from selling any or all of its gas distribution system, and thus prevent the acquisition by the City of Lavonia of the property for the purchase of which it seeks to have these bonds validated, or if after the sale of the facilities covered by the Toccoa revenue certificates has been consummated to Lavonia, and such facilities are covered by the Lavonia certificates also, and should there then be a default in the payment of the Toccoa certificates, the holders thereof may proceed against the entire Toccoa system including these facilities under the provisions of Code (Ann.) 87-808 and 87-809, supra. Thus, it appears that the Lavonia certificates sought to be validated in this proceeding would constitute no more than a second lien against the revenue of the facilities in question so long as any of the Toccoa certificates remained unpaid. Accordingly, such a proposition, as a matter of law, is unfeasible and economically unsound. The present holders of Toccoa Gas Revenue Certificates and their assigns will have the prior lien upon all of the facilities of the system until all of the certificates then issued have been paid off. It follows from this that the City of Toccoa is not in a position to divide up its facilities and sell a part of them, pay off certain of its bond holders or even all of them pro rata, and then restrict the lien of the bondholders to that part of the system which it elects not to sell.
GARDNER, Presiding Judge, dissenting.
It is my opinion that in order for this case to be fully understood by the bench and bar the entire bill of exceptions should be quoted, but such seems impractical since it would involve twenty-six pages of typewritten material. I therefore invite those particularly interested in this case to read the bill of exceptions in toto and it is my opinion that the order and judgment of the judge of the superior court is particularly important. The judge adjudicated the undertaking a self-liquidating project and ruled that the City of Lavonia had authority to issue the gas revenue bonds (the voters having approved them) and that the bonds would be binding obligations of the City of Lavonia.
It is the contention of the defendants in error that the contract between the City of Toccoa and the defendant City of Lavonia concerning gas revenue bonds is legal in every particular and that the hearing before the judge was regular and lawful in every respect. It must be kept in mild that we are dealing here with a contract between the City of Toccoa and the defendant City of Lavonia. Code 20-704 (4) states that one of the statutory rules of construction of contracts is as follows: "The construction which will uphold a contract in whole and in every part is to be preferred, and the whole contract should be looked to in arriving at the construction of any part." It must be kept in mind that Code (Ann.) 2-6005 provides in part as follows: ". . . if municipalities . . . shall purchase, construct, or operate such electric or gas utility plants from the proceeds of said revenue certificates, and extend their services beyond the limits of the county in which the municipality or political subdivision is located, then its services rendered and property located outside said county shall be subject to taxation and regulation as are privately owned and operated utilities." It must not be overlooked in this connection that the General Assembly of 1956 (Ga. L. 1956, Vol. 1, p. 104) passed a law that no person, firm, or corporation, except municipal corporations and counties of the State of Georgia shall be permitted to contract or operate in interstate commerce within this State any pipe line for the "transportation, distribution, or sale of natural or manufactured gas without first obtaining from the Georgia Public Service Commission a certificate of public convenience and necessity." South Georgia Natural Gas Co. v. Georgia Public Service Commission, 214 Ga. 174 (104 S. E. 2d 97) has no bearing on the instant case because under the provisions of Ga. L. 1956, Vol. 1, p. 104, municipalities are not required to get a certificate of convenience and necessity from the Georgia Public Service Commission. The following cases cited by counsel for the plaintiff in error were decided prior to the passage of the law hereinabove mentioned (Ga. L. 1956, Vol. 1, p. 104): Dade County State, 75 Ga. App. 330 (2) (43 S. E. 2d 434), Miller v. State, 83 Ga. App. 135 (2) (62 S. E. 2d 921), and Carter v. State, 93 Ga. App. 12 (7) (90 S. E. 2d 672).
It must be kept in mind that the revenue certificate law was changed by the General Assembly (Ga. L. 1957, p. 36, et seq.) and gas revenue-anticipation certificates are now called gas revenue bonds. It is contended by the plaintiff in error that although the City of Lavonia voted for the bond issue (there being 594 registered voters, 377 voting for the issue, 4 against and 2 votes being thrown out because they were not properly filled out, thus showing an overwhelming majority of the voters were in favor of the issue), nevertheless the plaintiff in error seeks to deny the authority of the City of Lavonia to procure from the City of Toccoa approximately $20,000 worth of the bonds. The statute provides that the superior court, upon application of twenty-five percent of such bond holders, shall appoint a receiver of the undertaking, under certain regulatory provisions.
I have been unable to find, and there has been no case cited by counsel for any party concerned, with faces identical with or similar to the facts of the instant case. The law provides that when, as here, a case of this type is referred to a judge of the superior court, such judge may pass upon the law and facts. This has been done by a judge of the superior court, according to the provisions of law applicable to this case.
It is my opinion that this record shows that the court did not err in denying the prayers of the intervenor, who is not shown to be a stockholder of any percent of the bond issue.
I think the bonds may be issued to finance the system as set forth hereinabove, and that the said bonds may be retired as set forth in the order of the judge.
For the reasons set forth I must dissent from the majority opinion.
Andrew J. Hill, Jr., Marshall L. Allison, Kelley & Mobley, contra.
Harold A. Boggs, for plaintiff in error.
DECIDED MARCH 20, 1959.
Saturday May 23 00:43 EDT


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