Summary
In Miller v. City of Buhl, 48 Idaho 668, 284 P. 843, 72 A.L.R. 682, we held that city could not incur obligation for purchase of an electric generating system to be paid for from receipts from sale of power and light without complying with Article VIII, Section 3, of the Constitution.
Summary of this case from O'Bryant v. City of Idaho FallsOpinion
No. 5483.
February 1, 1930.
APPLICATION for the issuance of a writ prohibiting the City of Buhl from entering into a contract with another for the purchase of a generating system for the production of electricity, and paying the purchase price therefor out of the receipts from the sale of power and light.
Alternative writ of prohibition made permanent.
Frank L. Stephan, for Plaintiff.
The cost of a light and power plant purchased by a municipality is not necessarily incident to the transaction of municipal business or the maintenance of municipal property and is not an ordinary or a necessary expense authorized by the general laws of the state and does not come within the proviso clause of Const., art. 8, sec. 3. It is an extraordinary expense and when it exceeds the income and revenue of the municipality for the year in which such expense is incurred it is brought within the provisions of the forepart of said section. ( Thomas v. Glindeman, 33 Idaho 394, 195 P. 92; Dexter Horton Trust Sav. Bank v. Clearwater County, 235 Fed. 743; Feil v. City of Coeur d'Alene, 23 Idaho 32, 129 P. 643, 43 L.R.A., N.S., 1095; Brown v. City of Corry, 175 Pa. St. 528, 34 Atl. 854; Helena Waterworks Co. v. City of Helena, 31 Mont. 243, 78 P. 220 (syllabus and opinion); Stephens County v. City of Charlotte, 172 N.C. 564, 90 S.E. 588; Burns v. City of Watertown, 126 Misc. Rep. 140, 213 N.Y. Supp. 90; 44 C. J. 1137, par. 4078.)
The purchase price of a municipal light and power plant under the terms of the proposed contract will constitute an indebtedness or liability of the municipality in violation of Const., art. 7, sec. 3.
Plaintiff claims that the real test as to whether the resolution, ordinance, contract and pledge orders create an indebtedness or liability within the meaning of the Constitution is, whether in order for the city to acquire ownership in the light and power plant, the city must pay a consideration for such plant; or stated another way, whether, when the city makes payment to the company out of the "special fund," it exchanges ownership in funds belonging to the city for property rights in the plant, or in case of default, becomes liable to lose its equity, measured by the amounts already paid therefor. If the foregoing is a correct statement of the test to be applied, and we believe it is, it is of extreme importance to determine who owns the moneys in the so-called special fund, for that is the source from which payment is to be made. We do not deem the question of remedy as vital or important or as having any bearing whatsoever on the issue. Const., art. 8, sec. 3, does not deal with remedy. It deals with "any indebtedness or liability." An indebtedness or liability does not depend upon a remedy for existence. And it is plaintiff's position that the test by which the existence of indebtedness or liability is to be determined is not whether Fairbanks, Morse Company may procure a money judgment against the City of Buhl for breach of contract or whether, if said company should procure such judgment against the city, it could collect the same out of the general funds of the city. Most certainly under the terms of the contract the city will have to pay for the light and power plant if it hopes to ever own it. Conversely, the city will lose the plant and its equity therein, measured by any amounts already paid, if it ever defaults. The purchase price must be paid. (Const., art. 8, secs. 3, 4; Const., art. 12, sec. 4; Cal. Const., art. 11, sec. 18; Henning's General Laws of California, pt. 1, p. lxxxv; 1927 Sess. Laws, chap. 195, amending C. S., sec. 3971, chap. 163; 44 C. J. 1134, note 20 (b), 1135, sec. 4073; Michael v. City of Atoka, 76 Okl. 266, 185 P. 96; Long Beach v. Lisenby, 180 Cal. 52, 179 P. 198; Feil v. City of Coeur d'Alene, supra; 36 C. J. 1050; Chester v. Carmichael, 187 Cal. 287, 201 P. 925; 5 Words and Phrases, First Series, pp. 4112, 4113; 31 C. J. 411, 412, sec. 3C; 4 Words and Phrases, First Series, pp. 3528-3530; People v. Chicago A. R. Co., 253 Ill. 191, 97 N.E. 310; Brown v. City of Corry, supra; Campbell v. State, 23 Okl. 109, 99 P. 778; Beard v. City of Hopkinsville, 95 Ky. 239, 44 Am. St. 222, 24 S.W. 872, 23 L.R.A. 402; Windsor v. Des Moines, 110 Iowa, 175, 80 Am. St. 280, 81 N.W. 476; Boise Development Co. v. Boise, 26 Idaho 347, 143 P. 531.)
Receipts for the operation of a municipal electric light and power plant constitute municipal income and cannot be expended without compliance with the provisions of Const., art. 8, sec. 3, and C. S., chap. 165. (44 C. J. 1135, par. 4072; 31 C. J. 396, 397, 398; Holmgren v. City of Moline, 269 Ill. 248, 109 N.E. 1031; C. S., sec. 3971; Const., art. 8, sec. 3; Feil v. City of Coeur d'Alene, supra; C. S., chap. 165; Strickfaden v. Green Creek Highway Dist., 42 Idaho 738, 49 A.L.R. 1057, 248 Pac. 456; Omaha Water Co. v. Omaha, 147 Fed. 1, 5, 8 Ann. Cas. 614, 77 C.C.A. 267, 12 L.R.A., N.S., 736; 4 McQuillin on Municipal Corporations, p. 3860.)
Roy L. Black, for Defendant Fairbanks, Morse Co.
J.H. Sherfey, for Defendants City of Buhl et al.
The question involved is: Does the city, by entering into the said contract, incur an indebtedness or liability in any manner or for any purpose against the city, in violation of Const., art. 8, sec. 3.
In the Feil case, supra, Justice Ailshie, speaking for the court, lays special stress on the meaning of the word "liability" as used in our Idaho Constitution.
We assert that the interpretation placed by Justice Ailshie upon said word is entirely out of harmony with the meaning of the word as used in the Constitution and that the statement contained in Judge Stewart's dissenting opinion is a statement of much greater weight than we could make with regard thereto.
We herein direct the court's attention to the numerous cases supporting the holding of Justice Stewart in the dissenting opinion and the defendant's contentions in the case at bar. The defendants, in the case at bar, contend that under the terms of the ordinance and contract herein referred to, the plant is to be paid for solely out of the revenues of the plant and that no money coming from taxation or from any other city revenue is pledged, or is provided to be used in the paying for, said plant and that, therefore, no debt or liability of any kind is created against the City of Buhl.
In addition to some of these cases being very recent, we direct the court's attention to the fact that several of the recent cases involved the interpretation of the contract with Fairbanks, Morse Co. almost identical, and identical in the main provisions, with the case at bar, which makes such cases particularly applicable as authorities in the case at bar.
The Utah case is one of the most recent cases and involves the interpretation of a Fairbanks, Morse Co. contract, identical in its terms with the contract in the case at bar. ( Barnes v. Lehi City, (Utah) 279 P. 878.) This case discusses practically every point raised in the case at bar and is, therefore, particularly important. Johnston v. City of Stuart, (Iowa) 226 N.W. 164, likewise involves the interpretation of a Fairbanks, Morse Co. contract similar to the contract in question in the case at bar. (Const., art. 8, see. 3; C. S., sec. 3971, as amended by 1927 Sess. Laws, chap. 195; Feil v. City of Coeur d'Alene, 23 Idaho 32, 129 P. 643, 43 L.R.A., N. S., 1095; City of Ottumwa, Iowa, v. City Water Supply Co., 119 Fed. 315, 56 C.C.A. 219, 59 L.R.A. 604; Swanson v. Ottumwa, 118 Iowa, 161, 91 N.W. 1048, 59 L.R.A. 620; City of Joliet v. Alexander, 194 Ill. 457, 62 N.E. 861; Franklin Trust Co. v. City of Loveland, 3 Fed. (2d) 114; First Nat. Bank v. Doschades, 47 Idaho 661, 279 P. 416; Searle v. Town of Haxtun, 84 Colo. 494, 271 P. 629; County of Larimer v. City of Ft. Collins, 68 Colo. 364, 189 P. 929; Shields v. City of Loveland, 74 Colo. 27, 218 P. 913; Leadville Illuminating Gas Co. v. City of Leadville, 9 Colo. App. 400, 49 P. 268; Valparaiso v. Gardner, 97 Ind. 1, 49 Am. Rep. 416; Bowling Green v. Kirby, 220 Ky. 839, 295 S.W. 1004; Winston v. City of Spokane, 12 Wn. 524, 41 P. 888.)
S.T. Lowe, Amicus Curiae.
A special obligation, payable only from a special fund, created by the revenues from the electric light and power plant does not constitute an indebtedness or liability of the municipality. ( Blackwell v. Village of Coeur d'Alene, 13 Idaho 357, 90 P. 353; Board v. City of Moscow, 15 Idaho 606, 99 Pac. 101; McGilvery v. City of Lewiston, 13 Idaho 338, 90 P. 348; Byrns v. City of Moscow, 21 Idaho 398, 121 P. 1034; Elliott v. McCrea, 23 Idaho 524, 130 P. 785; Bosworth v. Anderson, 47 Idaho 697, 280 P. 227; Winston v. City of Spokane, supra; Twitchell v. City of Seattle, 106 Wn. 32, 179 P. 127; Franklin Trust Co. v. City of Loveland, 3 Fed. (2d) 114; Searle v. Town of Haxtun, 84 Colo. 494, 271 P. 639.)
C.G.A. Divelbiss and Hodgin Hodgin, for Certain Intervenors, file brief, citing substantially the same authorities as plaintiff.
Hawley Hawley, for Intervenor Idaho Power Company.
Our Constitution inhibits not only incurring an "indebtedness" but a "liability" and its authors drove its meaning still farther beyond the skill of evaders and distorters of word meanings by adding — "in any manner or for any purpose."
We must always bear in mind that this inhibition was not meant to deprive the people of a municipality of the right to incur debts and liabilities, but it was directed against the municipal authorities passing beyond the revenue and income of a year without the approval of two-thirds of the voters.
This provision of our Constitution has been interpreted in a case nationally outstanding on this subject. ( Feil v. City of Coeur d'Alene, 23 Idaho 32, 129 P. 643, 43 L.R.A., N.S., 1095.)
Two years after the Feil case came Boise Development Co. v. Boise City, 26 Idaho 347, 143 P. 531.
Again, our court refuses to evade the plain meaning of the Constitution, although California had done so, and commenting on the California decision said:
"Because of the merits of the contract and the pressing necessity for some means to take care of the sewage of the city, we believe the better judgment of the court was somewhat biased by its desire to actually benefit the people of the city. In fact, as a matter of public policy, the execution of this contract might well be justified. But when the court attempts by argument to escape the force and effect of the constitutional provision under consideration and show that the city incurred no liability under the contract, we submit that its reasoning is not sound."
The Feil case is affirmed in this language:
"We are of the opinion, therefore, that under the authority of Feil v. City of Coeur d'Alene, the contract upon which this action is based by its terms plainly incurs a liability, if not a debt, upon the city of Boise, that the obligations of said contract do constitute a new debt upon the city, and we therefore hold that said contract is void."
The Feil case, and the Boise Development case were referred to as authority in the case of Allen v. Domecq Highway Dist., 33 Idaho 249, 192 P. 662, decided in 1920.
In 1928, in the case of Boise Payette Lumber Co. v. School Dist. No. 1, united for decision with National Park Lumber Co. v. Challis Independent School Dist. No. 1, 46 Idaho 403, 268 Pac. 26, the doctrine of the Feil case was approved.
Buhl is a municipal corporation, a city of the second class. Desirous of owning and operating an electric light and power system of its own, it conceived a plan therefor, the legality of which is for determination in this proceeding. It proposes to construct an electrical distributing system from the proceeds of a bond issue already authorized, and to enter into a contract with Fairbanks, Morse Co., for the purchase of a fully equipped electric power generating plant and pay the purchase price from a special fund to be supplied from the rates to be collected from the product or service of the combined distributing system and generating plant. Among other things, it is provided in the contract, which this court is asked to prohibit the city from entering into, that title to the generating plant, which Fairbanks, Morse Co., is to construct, will remain in them until the purchase price is fully paid.
The purchase price, evidenced by pledge orders, is "payable in seventy-two equal monthly payments of $1,347.00 each, first payment of $1,347.00 to be due and payable sixty days after formal notification in writing by Company of completion of installation of Company's equipment, and a like amount payable every thirty days thereafter until paid in full, provided, however, that there are sufficient funds in said special fund to make said payments and only when there are sufficient funds in said special fund from which they can be paid."
And, it is further provided:
". . . . that the obligation to pay the deferred installments of said purchase price and said pledge orders issued in evidence thereof is not a general obligation of the said Municipality payable from taxes or its general funds but only a special obligation payable from the net revenues of the electric light and power plant of the Municipality. . . . . The Municipality covenants to operate said plant in an efficient and economic manner, and to maintain rates for the product or service of said plant which will produce sufficient revenue to provide for the payments called for by this contract so far as it may be permitted to do so by law, such rates, however, shall not exceed rates now charged in City of Buhl for like service."
The city has not set out in its annual appropriation bill for 1929 any part of the sum it proposes to pay for the generating system, except possibly an item of $3,834.25, for street lighting, etc., and the purchase price of the generating system, after deducting the $3,834.25, is in excess of the income and revenue for the year. The proposition has not been assented to by two-thirds of the qualified electors of the city, nor has the city made provision for the collection of an annual tax sufficient to pay the interest as it falls due, nor to provide for a sinking fund from which to pay the principal within twenty years.
The foregoing is a brief statement of some of the facts put in issue by the demurrers of the city and Fairbanks, Morse Co., but it is thought sufficient to disclose that the main question before us is whether, by entering into the proposed contract to purchase the generating plant and pay therefor solely out of the revenues of the combined distributing system and generating plant, the city will incur such an indebtedness or liability as is contemplated and prohibited by the Constitution of the state.
The question is not a new one in this jurisdiction; it was before this court in Feil v. City of Coeur d'Alene, 23 Idaho 32, 129 P. 643, 43 L.R.A., N.S., 1095. In that case, the city of Coeur d'Alene was enjoined from issuing and selling municipal coupon bonds in payment of a system of waterworks, the principal and interest of the bonds being payable ". . . . solely from a fund to be created from the revenues of the waterworks. . . . ."
Article 8, sec. 3, of the Constitution is as follows:
"Limitations on County and Municipal Indebtedness. No county, city, town, township, board of education, or school district, or other subdivision of the state shall incur any indebtedness, or liability in any manner, or for any purpose, exceeding in that year, the income and revenue provided for it for such year, without the assent of two-thirds of the qualified electors thereof, voting at an election to be held for that purpose, nor unless, before or at the time of incurring such indebtedness, provision shall be made for the collection of an annual tax sufficient to pay the interest on such indebtedness as it falls due, and also to constitute a sinking fund for the payment of the principal thereof, within twenty years from the time of contracting the same. Any indebtedness or liability incurred contrary to this provision shall be void: Provided, That this section shall not be construed to apply to the ordinary and necessary expenses authorized by the general laws of the state."
However, the decision in the Feil case is challenged, and, in many particulars it is insisted the facts in that case are distinguishable from the facts in the case at bar. In only two immaterial instances are we able to discern any difference. In the Feil case, municipal coupon bonds were to evidence the obligation of the city, while in this case the obligation is to be evidenced by the city's pledge orders. Since both the bonds and the pledge orders provide for payment out of special funds from the revenues of the systems respectively, in so far as the constitutional question is concerned, there is no difference in the obligations. In the Feil case the bonds were to be paid from the net revenues of the water system; in this case the obligation is to be satisfied from the net revenues of the light and power system. It is true that, in the Feil case, the city attempted to bind itself to maintain such water rates to the consumers (and increase them, if necessary), that the revenues, after subtracting the cost of operation and maintenance and the amounts required for the payment of other charges against the revenues, would be sufficient to pay the principal and interest of the bonds as they became due. In the instant case, the City of Buhl proposes to bind itself to maintain rates for the service of the light and power system that will produce sufficient revenue to make the payments specified by the contract and evidenced by the pledge orders, "so far as it is permitted to do so by law, such rates, however, shall not exceed rates now charged" in Buhl for like service. The majority held, in the Feil case, that the obligation, which Coeur d'Alene assumed, to maintain the then present water rates, or to raise them, if necessary, was "clearly ultra vires and an obligation which the city could not perform or discharge." Judge Stewart was in practical agreement, for he said that it "can in no way affect or annul the law of the state granting to a city the power to regulate the water rates within a municipality at a reasonable rate, and the purchaser of such bonds is advised of such fact when said bonds are purchased, and in accepting the bonds, accepts them with the knowledge that under the laws under which such bonds have been issued, such bonds are to be paid only from the revenue derived from the system, and that the rates fixed by the city are required to be reasonable."
Accordingly, since a city cannot obligate itself with respect to its power to fix rates, the provision in the Feil case, to maintain rates and raise them, if necessary, was as ineffective as the agreement in the present case not to raise the rates. The two cases cannot, therefore, be differentiated on this ground.
It is also most strenuously and ably contended that the decision in the Feil case is wrong and that, even if it is thought decisive, it should not be followed. It may readily be admitted that the wording of art. 8, sec. 3, is identical with a provision in the Constitution of California and quite similar to provisions in the Constitutions of some of the other states, whose courts have held that such an obligation, as that which Coeur d'Alene attempted to incur, did not constitute an indebtedness within the constitutional sense. In fact, a majority of the courts, in passing on the question, have followed Winston v. City of Spokane, 12 Wn. 524, 41 P. 888, rather than Feil v. Coeur d'Alene. Some of those courts have attempted to explain away the decision in the Feil case, particularly the supreme court of California in Shelton v. City of Los Angeles, 206 Cal. 544, 275 P. 421. A careful analysis of the Feil case, however, will disclose, it is most respectfully submitted, that it was not decided on the ground stated by the California court.
McClain v. Regents of the University, 124 Or. 629, 265 Pac. 412; Searle v. Town of Haxtun, 84 Colo. 494, 271 P. 629; Shelton v. City of Los Angeles, 206 Cal. 544, 275 P. 421; Barnes v. Lehi City, (Utah) 279 P. 878; Briggs v. Greenville County, 137 S.C. 288, 135 S. E 153; City of Bawling Green v. Kirby, 220 Ky. 839, 295 S.W. 1004.
On the contrary, any attempt to explain away the decisions of the other courts would be unavailing. The fact remains, however, that such decisions are, as stated, based on constitutional provisions not exactly like our own. If this question were here for the first time, in view of the decisions relied on by defendants, this court might not reach the conclusion arrived at in the Feil case. Indeed it might be better, in view of the tax burden imposed on real property, for the consumers of water, electricity, etc., to provide the funds necessary to purchase such water and light systems. But the Feil case was decided in 1912, and, as suggested, in the opinion on rehearing, if the Constitution, as therein interpreted, is not satisfactory, a remedy is available. Personally, however, I am of the opinion that the Constitution is as applicable to an obligation, an indebtedness or a liability of a city, payable solely from such a special fund as to an obligation, indebtedness or liability payable out of a fund made up from municipal taxes. In the Feil case, this court said:
". . . . But when we turn to the constitution, we find that it does not merely prohibit the city from incurring any municipal indebtedness or liability, but it prohibits it incurring any indebtedness or liability. Now, if the city has the power to obligate the water consumers to pay for this system or to obligate any specific property to pay for it, or any particular class of citizens to pay for it, then it is prohibited as much by sec. 3, art. 8, of the constitution from incurring such indebtedness or liability as if it were a city indebtedness or liability, because the constitution says it 'shall not incur any indebtedness or liability' exceeding a certain limitation without at the same time levying an annual tax to meet such obligation and submitting the question to a vote of the people."
On the authority of Feil v. City of Coeur d'Alene, it is our conclusion that art. 8, sec. 3, of the Constitution prohibits the city from incurring the obligation provided in the contract and evidenced by the proposed pledge orders. We have examined all the attacks made on the decision in the Feil case. It suffices to say that, under the circumstances, we believe they are without merit. To discuss each of the many points argued would unduly lengthen this opinion. As to the other grounds advanced by plaintiff and intervenors, it is unnecessary to decide them.
The writ is made permanent.
The foregoing opinion having been written by Justice Wm. E. Lee before his retirement from this bench is hereby adopted as the opinion of the court.
Givens, C.J., and T. Bailey Lee and Varian, JJ., concur.
Budge, J., concurs in the conclusion reached.
Petition for rehearing denied.