Opinion
Decided June 27, 1935.
Municipal corporations — Waterworks — Funds for extension cannot be diverted — Section 3959, General Code — Judgment of court not substituted for that of legislative body — Constitutional law — Grant of funds by Public Works Administration, sustained, when — Uniform Bond Act strictly construed — Sections 2293-9 and 2293-10, General Code — Exclusive franchise to operate public utility, invalid — Grant of franchise to corporation prohibited from owning public utility, enjoined — Section 614-73, General Code.
1. Funds obtained by the issuing of bonds for the extension of a municipal waterworks plant cannot, by virtue of Section 3959, General Code, be diverted to any other purpose.
2. A court will not substitute its judgment for that of a legislative body, nor will it enjoin the carrying out of a legislative act on the ground of abuse of discretion, unless such abuse is clearly shown.
3. A grant or loan of funds by the Public Works Administration for a purpose essentially local may be sustained under the general welfare clause of the federal Constitution.
4. Sections 2293-9 and 2293-10, General Code, a part of the Uniform Bond Act, must be construed strictly.
5. The granting of an exclusive franchise to operate a public utility is invalid as against public policy.
6. A court will enjoin the granting of a franchise which may vest in a corporation prohibited, by Section 614-73, General Code, from owning or operating a public utility.
APPEAL: Court of Appeals for Coshocton county.
Mr. Charles Price, Mr. C.M. Patterson and Mr. Warner M. Pomerene, for plaintiffs.
Mr. Robert A. Carton, city solicitor, and Messrs. Wheeler Ely, for defendants.
This cause comes before this court upon appeal from the Court of Common Pleas. The plaintiffs, as taxpayers, by their amended petition filed in that court, and by an amendment thereto filed in this court after the appeal had been perfected, seek an injunction against the defendants, the officials of the city of Coshocton, restraining them from carrying into effect a certain franchise ordinance, and a certain contract entered into with the federal government for the obtaining of a loan of $125,000 for the extension of the waterworks plant of said city.
This relief is sought upon five grounds, to-wit:
1. That the obtaining of funds for the purpose alleged is a subterfuge and is consequently illegal.
2. That the proposed improvement is excessive in capacity but inadequate in character, and that the defendants in their authorization of it were guilty of an abuse of discretion.
3. That the loan or grant from the National Public Works Administration is to be made under and by virtue of the National Industrial Recovery Act, which is unconstitutional.
4. That the action taken by the city authorities is invalid because of failure to comply with the requirements of the Uniform Bond Act.
5. That the franchise granted by the ordinance in question is invalid, because it is exclusive and may become the property of corporations which are by law precluded from holding or exercising franchise grants.
These several claims will be discussed in the order designated.
1. It is contended that funds obtained from water rentals or waterworks purposes cannot be diverted to any other purpose. Reliance is placed upon Section 3959, General Code, and upon the two cases of City of Cincinnati v. Roettinger, a Taxpayer, 105 Ohio St. 145, 137 N.E. 6, and Hartwig Realty Co. v. City of Cleveland, 128 Ohio St. 583, 192 N.E. 880. These authorities do justify and sustain that contention. Defendants in their brief ignore this proposition, but in open court they conceded that such diversion of funds would be illegal.
By their answer, which is in effect a general denial, they deny any intention to divert funds obtained for waterworks purposes to the generating or furnishing of electric current, which is the charge made by plaintiffs. However, various defendants, city officials, have, according to the record, expressed an intention to use this plant, when improved, for the generation of electric current, and the record further shows that this proposed use was considered in the negotiations with the Public Works Administration. In view of these disclosures in the record of such intent and purposes, in spite of disclaimer now made, the plaintiffs were justified in asking, and are entitled to obtain from this court, an injunction against the use by the city of any money obtained for waterworks extension purposes for the generation of electric current or for furnishing same to itself, or to any consumer, and there may be a finding accordingly.
2. From a study of this record, it would seem that the proposed improvement is of a capacity out of proportion to the needs of the city for waterworks purposes. And the city council did ignore the written petition, of what the record shows to be more than seventy-five per cent of the voters of the city, to substitute a water softening plant for a generating plant, and did pass all legislation as emergency legislation, thus forestalling any referendum or official expression of opinion by the voters. However, mindful of the rule that a court should not substitute its judgment for that of a legislative body, and not finding any clear abuse of discretion on the part of the council, the prayer for injunction upon that ground is denied.
3. Is the proposed grant or loan of funds by the Public Works Administration illegal? In our judgment the propriety of such a grant is a political rather than a judicial question. It has been a source of discussion, often acrimonious, during the whole of the lifetime of this Republic. The grants of public moneys for purposes essentially local have been almost universally upheld under the general welfare clause of the federal Constitution. The fact that the nominal political descendants of Jefferson and of Jackson have now adopted the political tenets of Hamilton and of Clay, and that the nominal political descendants of the latter are repeating the arguments of Jefferson and of Jackson, does not affect the legality of such grants. A change of political front does not justify a change in judicial attitude.
Moreover, the weight of authority as disclosed by pronouncements of the federal courts on such grants made in pursuance of the National Industrial Recovery Act sustains such grants. The recent decisions of the Supreme Court of the United States invalidating codes and certain restrictions provided in that Act, do not touch upon the question now before us. We see nothing in the claim of unlawful delegation of authority. Congress alone could and did appropriate the money. It certainly was never intended that Congress should supervise in detail the expenditure of the money appropriated. Unless and until the Supreme Court of the United States should hold such a grant void, it would ill become this court to make such a finding.
4. Section 2293-10, General Code, is in part as follows:
"Before any resolution, ordinance or other measure providing for the issuance of bonds, notes or other evidences of any subdivision is passed or adopted, the fiscal officer thereof shall certify to the bond-issuing authority the maximum maturity of such bonds or indebtedness, calculated in accordance with the provisions of the foregoing section, and no such bonds, notes or other evidences of indebtedness shall be authorized or issued with maturities extending beyond the maturities as thus certified by such fiscal officer."
The maximum maturity for various bonds is fixed by Section 2293-9, General Code. Forty years is the maximum for bonds class (AA), which covers waterworks improvements to buildings, mains and other structures. Ten years is the maximum for meters, fire apparatus, etc., listed in class (E). Where a bond issue includes two or more of the classes listed, it is provided under class (I) that the maximum maturity of bonds shall be the "weighted average" to be calculated by the fiscal officer.
In the instant case the obligation to issue these bonds was entered into September 13, 1934. The certificate of the fiscal officer was filed October 19, 1934, clearly not in compliance with Section 2293-10, General Code. Approximately $100,000 of the proposed bond issue of $125,000 was for waterworks improvements and extensions. The remainder was for meters and equipment. The certificate of the auditor fixed the maximum maturity of the total issue at forty years, clearly failing to comply with the requirement as to "weighted averages" provided by the statute cited.
This court held in the case of State, ex rel. Curren, Dir., v. Rees, Dir., 36 O.L.R., 488, 12 Ohio Law Abs., 185, that the provisions of the Uniform Bond Act of Ohio must be construed strictly and that substantial compliance is not sufficient. The Supreme Court affirmed that judgment in State, ex rel. Curren, Dir. of Law, v. Rees, Dir. of Finance, 125 Ohio St. 578, 183 N.E. 432. We adhere to our former conclusion and hold that decision applicable to the case at bar. Because of failure to comply with the provisions of that Act the plaintiffs are entitled to an injunction against the issuing of the proposed bonds.
5. The ordinance of the council of the city of Coshocton now in question authorized a mortgage upon improvements and extensions with a pledge of revenue to secure the payment of the bonds. It provided in Section 13 and its sub-sections A and C that, in the event of a foreclosure of the mortgage, the purchaser at foreclosure sale should have an exclusive franchise to operate the waterworks system and that such purchaser might be any person, association of persons, partnership or corporation.
The granting of an exclusive franchise to operate a public utility is invalid as against public policy. By a long and almost unvaried line of decisions it has been held that such cannot be granted unless expressly authorized by statute, and no such authority is suggested to us.
Section 614-73, General Code, is as follows:
"No franchise, permit, license or right to own, operate, manage or control any public utility, herein defined as an electric light company, gas company, waterworks company or heating and cooling company, shall be hereafter granted or transferred to any corporation not duly incorporated under the laws of Ohio."
It may be contended that a possibility is anticipated which may never be realized, in that there may be no foreclosure, or that the purchaser may not be within the class excluded by this quoted section, and hence that an injunction on that ground would be premature. The force of that suggestion is recognized. However, it seems to us, that an ordinance, having such invalid features, and subjecting the people of the city to an obligation of $125,000 with such possibilities, should be declared ineffective, and such is the judgment of the court.
It is not the intention of the court to prevent the city of Coshocton from making needed improvements to its waterworks system. Nor is it the intention to prevent the carrying out of other municipal enterprises, provided they be instituted and carried into effect in a manner authorized by law. What is done is to enjoin the carrying out of an ordinance and a contract invalid in the two respects mentioned, and to enjoin the diversion of money obtained for one purpose to an altogether different purpose, and there may be a decree accordingly.
Injunction allowed.
LEMERT, P.J., and SHERICK, J., concur.