
    Board of Councilmen of the City of Frankfort v. Board of Education of the City of Frankfort.
    (Decided June 22, 1926.)
    Appeal from Franklin Circuit Court.
    1 .Municipal ■ Corporations — City Renewing Bonds and Paying Interest Until Maturity Cannot After 40 Years Plead Want of Consideration, or Deny Receipt from Lottery (Acts 1881-82, c. 1292; Acts 1888-84, c. 459; Acts 1889-90, c. 1700; Acts 1837-38, c. 703; Acts 1848-49, c. 317; Acts 1891-92-93, e.. 222; Ky. Stats., Sections 3462, 3469, 3474, 3475). — In action to compel payment of school -bonds-authorized by Acts 1881-82, c. 1292, Apts 1883-84, c. 459, Acts 1889-90, c.1700, to pay'amount due from city for fund collected from lottery authorized by Acts 1837-38, c. 703, city renewing bonds in 1904 and paying interest tbereori until' maturity cannot after 40 years plead want of consideration or- deny receipt from lottery of amount for which bonds-were issued, though bonds are not in hands of purchaser, in view of Acts 1848-49, c. 317, Acts 1891-92-93, c. 222, Ky. Stats,, sections 3462, 3469, ÍJ474, 3475, relating to school funds of city.
    2. Evidence. — School bonds, containing on their ¡face absolute promise to pay, cannot he varried by parol in absence of fraud or mistake.
    3. Municipal Corporations — City Paying Interest on School Bonds Until Maturity Cannot After 40 Years Rely on Fraud or Mistake to Avoid Liability, but Must Issue Renewal Bonds (Acts 1881-82, c. 1292; Acts 1883-84, c. 459; Acts 1889-90, c. 1700; Constitution, Section 159). — City paying interest until maturity on school bonds issued under Acts 1881-82, c. 1292, Acts 1883-84, c, 459, and Acts 1889-90, e. 1700, cannot after 40 years rely on fraud or mistake to avoid liability on bonds, but must issue renewal bonds and provide for sinking fund to' pay them, as required by Constitution, section 159.
    JAMES H. POLSGROVE for appellant.
    OREJAR, FOWLER & WALLACE and EDELEN & McLEOD for appellee.
   Opinion of the Court by

Judge McCandless—

Affirming.

By an Act of the General Assembly, approved February 1,1838, Acts 1837,1838, p. 126, it was enacted! that five men therein named were authorized to raise, by way of lottery, any Sum not exceeding $100,000.00, to be appropriated, one-half for the use and benefit of a city school in Frankfort and' the other half for the construction of waterworks for the city. As shown by the preamble of the act it was necessary.to establish a public school, suited to the wants and conditions of the city, as the Franklin' Seminary had been lost to the city. It was also recited that it was necessary to supply the city with water. By an act of the General Assembly, approved April 26,1882, Acts 1881-1882, vol. 2,.p. 840, it was enacted by the assembly that the city was authorized to issue coupon bonds in a sum not exceeding $70,000.00 in the aggregate for’any period not exceeding twenty years. Of said bonds $35,000.00 should bear interest at six per cent and be delivered in payment of that amount due from the city for the fund collected'by it from the lottery, and when so issued to be delivered to the care of the sinking fund commissioners for safekeeping. The remaining $35,000.00 of the bonds should be sold and disposed of by the board of councilmen in such a manner as was deemed best by the board of sinking fund commissioners for the interest of the city. By an act, approved March 26, 1884, Acts 1883-1884, p. 809, it was enacted that the city was authorized to issue its coupon bonds in sums not exceeding $75,000.00 in the aggregate for any; period not exceeding twenty years, bearing interest not exceeding six per cent. Of said bonds $50,000.00 should bear interest at six per cent, be specially registered as issued and delivered in payment of that amount due from the city for the fund collected by it from the lottery, and when so issued to be delivered to the sinking fund commissioners for safekeeping. The remaining $25,000.00 of bonds should be sold upon such terms and in such manner as may be deemed best for the interests of the city. By an act approved May 22, 1890, it was enacted that the city was authorized to issue its coupon bonds in the sum of $10,000.00, said bonds when issued to be delivered to the sinking fund commissioners of the city of Frankfort in payment of that amount due from the city for the funds collected by it from the lottery franchise. Said bonds when so issued to be delivered to the sinking fund commissioners of the city for safekeeping and be held by them as an investment for the benefit of the Frankfort public school. The bonds provided for by these acts were duly issued. The city paid the school board the interest on the bonds regularly and until 1904. By an ordinance of the city, then duly enacted, renewal bonds in the sum of $85,000.00 due in twenty years, were issued by the city ^payable to bearer and delivered to the school board. The city paid the interest on the bonds until they matured. On March 26,1925, the school board brought this action against the city, charging that the bonds properly came to its hands as part of the school funds of the city, but that the city since July 1, 1924, had paid.no part of principal or interest, although often.re,guested, so'tó; do.,' Judgment was prayed against the city for the money. The city by its answer denied that it had received from the lottery any. sum exceeding $10,000.00. These affirmative-allegations follow: !

The defendant says' that all of the said school bonds, amounting to $95,:000'.00, including those involved in'this suit, were delivered to the school board and "to the plaintiff, board of education, and the plaintiff and' it® predecessors- accepted and- held the same for safekeeping, and with the-'distinct understanding and'-agréement, and subject to the" limitations and conditions', that*, they were 'irredeemables and never to be paid and. that said bonds were to be stamped on tbe face of each with tbe words ‘nonnegotiable, ’ and the originals of tbe said several issues were to bé stamped, and in that condition were delivered to and accepted, and held, by thev plaintiff and its predecessors.- d
“Tbe defendant says that prior to tbe adoption of tbe present constitution a levy of .25c on the. $100.00 of taxable property in tbe city was tbe maximum allowed for school purposes; that tbe issue of bonds now held by tbe plaintiff, including those sued upon, was a scheme adopted by tbe city council' and school board to enable the raising of sufficient revenue to conduct tbe schools of tbe city, by collecting from tbe sinking fund tbe interest bn said bonds and turning it in to tbe school fund; tbe sinking fund being replenished and reimbursed by general taxation; that there was never any intention on tbe part of the school board, or tbe city council, that said bonds, or any of them, would ever be liquidated; that they have never been regarded as a part of tbe public debt of tbe city, nor previously by tbe school board, as an- asset. But tbe defendant says that on account of tbe fact that said bonds aré outstanding and because tbe plaintiff is now claiming them as an asset belonging to tbe school fund and continually demanding payment thereof, the defendant is being harassed and embarrassed and its credit is beings impaired.
“Tbe defendant says that under tbe present law a levy up to $1.50 can be made for school purposes, in any year, if tbe plaintiff demands it, and sufficient funds can be secured and be made available by tbe plaintiff to take care of tbe expenses of .maintaining tbe schools of tbe city and.it now desires to change the method adopted for tbe support of tbe city schools and withdraw from tbe bands of the school board and cancel tbe $95,000.00 of bonds, beid by it for which no considerations ever passed from it to tbe defendant.
“Wherefore, tbe defendant prays as in its original answer, and further that this cause be transferred to- tbe equity docket and that said entire $95,000.00 in bonds be cancelled and1 be held- for naught, . .It prays -for, its costs and for all proper ’[.jralief.” > . :..,0

In addition to the $85,000.00 of bonds the city had issued $10,000.00 of bonds pursuant to the act of May 3, 1884, for the purpose of erecting a colored school house,but these bonds are not in issue. The circuit court sustained a demurrer to the answer and gave judgment for the plaintiff. The defendant appeals.

The charter of the city in force before the adoption of the present constitution contained, among other things, this provision:

“Section 4. All bonds, obligations, debts, claims and demands of what kind or nature so ever, due to, or-from the present board of trustees of the town of Frankfort, shall continue as existing obligations, debts and claims due to, or against, the board of councilmen-of the city of Frankfort; and suits may be brought by, or against the said board of councilmen for the recovery of the same, in the same manner that the act to which this is an amendment authorized the institution of suits by, or against, the board of trustees of the town of Frankfort.” (See “Act to- amend laws relating to the town of Frankfort,!’ approved.February 21, 1849!, Acts 1849, page 216.)

It was also provided under the old law that the public schools of the city should be under the exclusive control of a board of trustees, to be elected at the same time and for the same term as members of the general council of the city, and that all taxes and money received for school purposes should be kept in a separate fund to be known as the school fund, and separate reports should be made of all moneys belonging to the school fund. The act passed in 189i3i for the government of cities of the third class, including Frankfort, provides that the city schools shall be under control of the board of education, Ky. Stats., sec. 3462; that the city shall make such a levy of taxes as may be necessary for school purposes, sec. 3469, and that the board of education shall have exclusive control of all school funds of the city, from whatever source same may be derived, sec. 3474. Then follows this provision: ' . .

“That all indebtedness, bonded or otherwise, and all liabilities and contracts of the school board, .existing at the time this law takes effect, and all taxes, funds, sinking funds, or other resources that have "been pledged or set apart for the payment of the principal and interest thereof, shall continue unimpaired and remain of the same force and effect as though the same had been authorized and contracted by the express provision of this law.” Ky. Stats., sec. 3475.

Although the bonds are not in the hands of a purchaser the city cannot plead want of consideration for them or now maintain that it did not receive from the lottery the amount for which the bonds were issued. These facts are set out in the Acts of the General Assembly passed more than forty years ago. The bonds were issued by the city under those acts, which was an acceptance of them by the city, and'when the bonds so issued matured they were renewed by the city. After forty years and in view of this conduct by the city, it cannot be heard to say that it did not receive the $85,000.00 from the lottery. ,

The bonds are on their face promises to pay. Like any other written contract in the absence of fraud or mistake, the city is bound by the terms of the written contract which it signs and delivers. The bonds are an absolute promise to pay and this absolute promise cannot be varied by parol evidence in the absence of fraud or" mistake. After forty years and the renewal of the bonds in 3904 it is too late for the city to rely upon fraud or mistake and the contract must be enforced according to its terms.

The city should issue to the board of education renewal bonds, payable at such time as the city council may designate* and -it should' provide not only for the payment of the bonds but also a sinking fund to pay them at maturity, as provided in section 159 of the Constitution :

“Whenever any city, town, county, taxing district or other municipality is authorized to contract an indebtedness, it shall be required, at the same time, to provide for the- collection of an annual tax; sufficient to pay the interest on said indebtedness, and to create a sinking fund for the payment of the principal thereof, within not more than forty years from the time of contracting the same.”

As we understand the record the purpose of the suit was simply to have a judicial settlement of the rights of ‘the’ school hoard and the city! As the city was refusing to renew the bonds or to pay interest there was no substantial error in the judgment of the circuit court.

Judgment affirmed.  