Case Name: George W. Reynolds, and others, vs. City of Waterville, and others
Court: Maine Supreme Judicial Court
Jurisdiction: Maine
Decision Date: 1898-12-26
Citations: 92 Me. 292
Docket Number: 
Parties: George W. Reynolds, and others, vs. City of Waterville, and others.
Judges: Sitting: Peters, C. J., Emery, Haskell, Wiswell, Strotjt, JJ. Savage, J., dissenting. Foster, J., did not sit being related to one of the parties.
Reporter: Maine Reports
Volume: 92
Pages: 292–328

Head Matter:
George W. Reynolds, and others, vs. City of Waterville, and others.
Kennebec.
December 26, 1898.
Constitutional Law. Municipal Debts. Spec. Laws, 1897, c. 523; Constitution of Maine, Amendment XZff.
By Article XXII oí tlie Amendments to the Constitution of Maine, it is provided as follows : " No city or town shall hereafter create any debt or liability, which singly, or in the aggregate with previous debts or liabilities, shall exceed five per centum of the last regular valuation of said city or town; provided, however, that the adoption of this article shall not be construed as applying to any fund received in trust by said city or town, lior to any loan for the purpose of renewing existing loans or for war, or to temporary loans to be paid out of money raised by taxation, during the year in which they are made.”
The court construes the act of the legislature (cli. 523 laws of 18971, incorporating the City Hall Commission of Waterville, as imposing additional indebtedness and liability on the city while its municipal debt is already beyond the constitutional limit, the commission being regarded as merely the agent or trustee of the city, and therefore declares such act unconstitutional and void.
A proper remedy of tax-payers to prevent proceedings by the city in pursuance of the act is in equity by injunction.
The city’s own valuation, and not that made by the State Board of Commissioners, is the test by which to ascertain the amount of indebtedness which settles the constitutional limit.
The court expresses a willingness, in a proper case, to adopt the rule adopted by many authorities, which allows a municipal corporation, although its indebtedness has reached the constitutional limit, to make time contracts, in order to provide for certain municipal wants which involve only the ordinary current expenses of municipal administration, provided there is to be no payment or liability until the services be furnished, and then to be met by annual appropriations and levy of taxes; so that each year’s services shall lie paid for by each year’s taxes.
On Report.
Bill in equity, heard on bill, answers and proof. The bill was brought by the plaintiffs, being twelve taxable inhabitants of the city of Waterville, against the City, the City Hall Commission, created by special laws of 1897, c. 523, and M. C. Foster &Son, who were alleged to have contracted with .the City Hall Commission for the erection of a city building in the city of Waterville.
The act of the Legislature which came under consideration by the court in this case provides, among other things, (Sect. 1) that the mayor of Waterville for the time being, and four other persons named “ are hereby created a body corporate and politic, by the name of the City Hall Commission, and as such shall have a common seal and power to sue and be sued; ” that vacancies in the City Hall Commission caused by expiration of term, or otherwise, shall be filled by the city council of Waterville; that the city treasurer of Waterville shall be ex officio treasurer of the City Hall Commission; that (Sect. 2) the powers and duties of the City Hall Commission shall be those heretofore conferred upon the new City Hall Commission by the city council of Waterville, and it “shall have any other powers and perform any other duties which may hereafter from time to time be voted and conferred upon it by the city council of Waterville;” that (Sect. 3) “the City Hall Commission are hereby authorized to issue the bonds of the corporation .... at such rates and on such times as may be approved by the city council, and for such an amount as the city council may approve, not to exceed seventy-five thousand dollars; and the proceeds of the sale of said bonds shall be exclusively used for the purpose of erecting a city building in the city of Waterville;” that (Sect. 4) “the city of Waterville is hereby authorized when its city council so votes, to convey to the City Hall Commission . ... in trust, its present city hall building lot in said Waterville, together with all buildings, additions and improvements existing on said city hall lot at the time of said conveyance, for the sole pur pose of securing the payment of the bonds issued under the provisions of section three of this act and for no other purpose; ” that the Commission shall hold said property in trust for said purposes; that the lot and all improvements, and all buildings which shall be erected thereon by virtue of the powers of this act shall be holden for the payment of said bonds and coupons, which shall constitute a first lien thereon, which lien shall not be impaired; that (Sect. 5) in case of default in the payment of bonds or coupons, any holder may have remedy by bill in equity for the benefit of himself as well as for the benefit of other holders: and that the lien may be enforced by appointment of receiver, and sale, according to the usual practice in equity proceedings; that (Sect. 6) “ the city of Waterville is hereby authorized and required to raise annually by taxation such sum or sums as may be necessary to pay all expenses for repairs, insurance and management of said city building in a sum equal to the annual interest on the bonds issued and outstanding,” and may exempt the trust property from taxation; that, (Sect. 7) in consideration of the rental, the city shall become the tenant of the building under such provisions and directions as the city council may vote from time to time, with power to sublet parts of the building; that the revenue derived from the building shall be invested in a sinking fund, to be used for the purchase of the bonds and for no other purpose; that the city may raise by taxation, or other means, such other sums from time to time as may be voted by the city council to be added to the sinking fund or used in the purchase of bonds; that (Sect. 9) the city may assume the indebtedness represented by the bonds whenever it can constitutionally, and whenever all of such indebtedness is thus assumed, or the bonds and coupons are paid, the property shall be reconveyed; that (Sect. 10) the Commission shall not sell or mortgage the property; that (Sect. 11) all duties and powers necessary to the erection and care of the city building, not conferred upon the Commission by existing ordinance or vote of the city or by this act, shall be vested in the city council; that the city and not the Commission shall be liable for damages, in the erection and proper care of the buildings; that vacancies occurring in said City Hall Commission shall be filled by the city council of Waterville; that (Sect. 13) the act shall take effect whenever approved by a majority vote of the votes cast by the legal voters of the city.
The defendants demurred to the bill, and also answered.
From the bill, answer, evidence and admissions, may be gathered the following facts, about which the parties, were not in dispute.
1. That the indebtedness of the city of Waterville exceeds, by more than five thousand dollars, “five per centum of the last regular valuation of said city.”
2. That on the third day of June, 1896, the city council of Waterville created the “New City Hall Building Commission,” which was then and afterwards authorized and empowered to “advertise for plans for a new city building,” “to receive bids for a new city building,” to employ an architect to prepare suitable plans and working specifications for the proposed building, “to advertise for bids by contractors for the construction of a new city building, according to plans drawn by George G. Adams or others,” with full power and authority to close a contract or contracts; to “ excavate for a foundation;” that the commission, by authority of the city, enlarged the city hall lot by the purchase of other lands, and caused the whole to be prepared for the erection of a city building, and contracted with an architect.
3. That on the fifteenth day of May, 1897, the City Hall Commission, incorporated by Chap. 523 of the Private and Special Laws of 1897, and one of these defendants, contracted with M. C. Foster & Son, other defendants, for the erection by them of a city building, under the provisions of the foregoing act, for the sum of $61,737, and that the Fosters intend to build the city building according to this contract.
4. That the city building as contracted to be built, will contain among other rooms, a large hall which can be used as a public opera or public amusement hall, but it is admitted that “ the use of said city hall will go primarily for the city, and secondarily as a place of amusement.” The hall will be furnished with opera chairs, stage scenery, etc.
5. That chap. 523 of Private and Special Laws of 1897, has been duly accepted by a majority vote of the voters of Waterville.
6. That by authority of the city council, the city hall building lot, additions and improvements, have been conveyed, in trust, to the City Hall Commission, under the provisions of its charter. ■
7. That the city council of Waterville has authorized and directed the City Hall Commission to issue its bonds, for the purposes specified in its charter, not to exceed seventy-five thousand dollars, and that the City Hall Commission intends to issue such bonds, or as much as may be necessary.
8. That the city intends to become a tenant of the city building, when erected, under the provisions of said act.
The complainants charged, and in argument claimed, that the act of incorporating the City Hall Commission, as a whole, is “ an evasion and legal artifice” to enable the city to increase its debts and liabilities far beyond the constitutional debt limit created by the 22nd amendment of the constitution, and is therefore unconstitutional and void; and specifically, (Waterville being already in debt beyond the limit) that the provisions of the act authorizing the conveyance of the city hall lot and other property to the commission, in trust, directing the indefinite, future, annual assessment of taxes for rental, repairs, insurance and care of the city building, and creating a sinking fund out of the income of the city building, are each and all of them means to enable the city to indirectly create debts or liabilities, beyond its constitutional limit, and are therefore unconstitutional.
The complainants further asserted that, in case of default of payment of the bonds, in the manner provided by the special statute, the city will ultimately be liable for their payment.
The complainants prayed that the contract between the City Hall Commission and the Fosters, the act incorporating the City Hall Commission, and the several votes of the city council, may all be declared illegal and in contravention of the constitution of Maine. Also that the City Hall Commission be ordered to reconvey to the city of Waterville the city hall building lot, and the additions and improvements. Also that the defendants be enjoined from performing the stipulations of the contract to build a city building and from making any contract for the erection of the city building and lease thereof to the city of Waterville, and from issuing the bonds authorized by the act and by the vote of the city council.
E. F. Webb and J. W. Symonds, for plaintiffs.
Jurisdiction in equity: Carleton v. Newman, 77 Maine, 408; Crampton v. Zabriski, 101 U. S. 610, (Taxpayers may maintain suit) Saekett v. City of New Albany, 88 Ind. 478, (45 Am. Rep. 467); 1 Pom. Eq. § 265.
22d Amendment to Const.: To have liberal construction. Law v. People, 87 111. 885. Forbids implied as well as expressed indebtedness. Litchfield v. Ballou, 114 U. S. 190; Buchanan v. Litchfield, 102 U. S. 278; Lake Qounty v. Rollins, 180 U. S. 662; Lake Qounty v. Graham, Id, 674; McPherson v. Foster, 48 Iowa, 48, (22 Am. Rep. 215.)
The last regular valuation means that of the city assessors: Buchanan v. Litchfield, 102 U. S'. 288.
Both bonded and floating indebtedness prohibited: People v. May, 9 Colo. 80; Law v. People, 87 111. 385; French v. Burlington, 42 Iowa; 614; Lake Qounty v. Rollins, 130 U. S. 662; (Current expenses) Prince v. Quincy, 105 111. 138, (44 Am. Rep. 785); Saekett v. New Albany, 88 Tnd. 473, citing Springfield v. Edwards, 84 111. 626; (Water supply and lighting) State v. Atlantic Gity,A9> N. J. L. 558; Prince v. Quincy, supra; Salem Water Co. v. Salem, 5 Ore. 30; Buchanan v. Litchfield, supra; Qranch v. Davenport, 36 Iowa, 402; (Future Contracts) Law v. People, supra; Davenport v. Kleinschmidt, 6 Mont. 502; Wallace v. San Jose, 29 Cal. 180; Niles Water Works v. Niles, 59 Mich. 311; Springfield v. Edwards, supra; Culbertson v. Fulton, 127 111. 30; Qoulson v. Portland, Beady, (U. S.) 481; Saekett v. Davenport, 34 Iowa, 208; City of Erie, 91 Pa. St. 398; (grading streets) French v. Burlington, supra; (County court house) Heb-bard v. Ashland County, 55 Wis. 145; Crooke v. Earl, 87 Mo. 246; (wagon road) People v. Johnson, 6 Cal. 499.
Validity of past indebtedness: McPherson v. Foster, 43 Iowa, 48; Millerstown v. Frederick, 114 Pa. St. 435; City of Valparaiso y. Car diner, 97 Ind. 1, (49 Am. Rep. 416). Opera House: Thorndike v. Camden, 82 Maine, 39, and cases.
Stat. 1897, c. 523: - An evasion of the constitution, and what the law forbids to be done directly cannot be done indirectly. Jose v. Heivitt, 50 Maine, 248; Magdalen College ease, 11 Coke, 79; Carleton v. Newman, 77 Maine, 408; Buchanan v. Litchfield, supra; Board of Liquidation v. McComb, 92 U. S. 531; Fletcher v. Peck, 6 Cranch, 87; Marbury v. Madison,, 1 Cranch, 137; Henderson v. Mayor, 92 U. S. 259; Creen v. Biddle, 8 Wheat. 1; Packet Co. v. Keokuk, 95 U. S. 80; Township .of Boon v. Cummins, 142 U. S. 366.
II. M. Heath and C. L. Andrews; (Harvey B. Eaton, city solicitor, for Waterville; W. C. Philbrook, for M. C. Foster & Son; with them) for defendants.
Purpose lawful: It cannot be controverted that it is a legitimate municipal purpose for a city to ei’ect or rent a building containing, as limited by the municipal records put in evidence and the terms of the special act, “rooms and apartments for all city officers, vaults for the city records, rooms for a public library, an assembly hall and an armory for the militia.” The words “ City Building” as used in the special act define themselves. Such a building has been often said by the courts to be a necessity. State v. Haynes, 72 Mo. 377; Beaver Bam v. Brings, 17 Wis. 398; People v. Harris, 4 Cal. 9; Creeley v. People, 60 111. 20; Eastman v. Meredith, 36 N. H. 295; Spaulding v. Lowell, 23 Pick. 74; French v. Quincy, 3 Allen 9; Walton v. New Bedford, 131 Mass. 23; Stetson v. Kempton, 13 Mass. 278; Torrent v. Muskegon, 47 Mich. 115; Mayor v. McWilliams, 67 Ga. 106 ; Halbut v. Forrest City, 34 Ark. 246 ; Camden v. Camden Village Corporation, 77 Maine, 530.
The courts have often held that the people are the sole judges of the necessity, and that the court will not disturb the exercise of such discretion. Greeley v. People, 60 111. 20 ; Chambers v. St. Louis, 29 Mo. 548; Spaulding v. Lowell, 28 Pick. 74; Torrent v. Muskegon, 47 Mich. 115, (41 Am. Rep. 715).
The right to erect carries with it necessarily the right to lease a suitable building. So held in Wade v. New Berne, 77 N. C. 460 ; People v. Green, 64 N. Y. 499; Chambers v. St. Louis, 29 Mo. 548; Eastman v. Meredith, 36 N. H. 295.
No special act was needed to authorize the city of Waterville to lease a building for municipal purposes. People v. Harris, 4 Cal. 9. The authority is inherent. People v. Green, -64 N. Y. 499.
Commission a lawful corporation: Lester v. Georgia, 90 Ga. 802; Hinsdale v. Lamed, 16 Mass. 65; People v. Salomon, 51 111. 37 ; Howard v-. St. Clair Drainage District, 51 111. 130 ; People v. Mayor of Chicago, 51 111. 17. (Road Districts.) Buts v. Kerr, 123 111. 659; (Drainage District.) Owners of Land v. People, 113 111. 304; (Commissioners of Public Ponds.) St. Louis v. Shields, 62 Mo. 247 ; (Mobile School Commission.) Horton v. Com’rs, 43 Ala. 598; (Park Commission.) Kelly v. Minneapolis, 30 L. R. A. 281; Orvis v. Park Corners, 88 Iowa, 674.
In Wilson v. Sanitary District, 133 111. 443, (36 Am. & Eng. Corp. Cases, 340,) the question is discussed at length. Unincorporated commissioners were simply agents of the city. Orvis v. Park Commissioners, 88 Iowa, 674; West Chicago Park Commissioners v. Chicago, 152 111. 392.
Bonds not city debt: Gibbons v. JR. R. Co., 36 Ala. 410; Powell v. Madison, 107 Ind. 106 ; Pinnegan v. Vaughan, 54 Minn. 331.
Deed valid: Weymouth f B. Fire Dist. v. Co. Com., 108 Mass. 142; Whiting v. Stow, 111 Mass. 214; Kingman, Petitioner, 153 Mass. 566; Meriwether v. Garrett, 102 U. S. 472; Mayor of Baltimore v. State, 15 Md. 376.
The Legislature can always authorize a municipality to dispose of its property as seems in consonance with the public welfare. People v. Wren, 4 Scam. (111.) 269; County of Richland v. Law rence, 12 111. 1; Trustees v. Taiman, 13 111. 27; Rock Island v. Sage, 88 111. 582; Supervisors v. People, 110 111. 511; Harris v. Supervisors, 105 111. 445; Wetherall v. Devine, 116 111. 631; JVt Wayne v. 22. i2. Co., 132 Ind. 558; Coyle v. Mclntire, 7 Houston, 44.
Lease is honest: Portland v. Portland Water Co., 67 Maine, 135; Grant v. Davenport, 36 Iowa, 396; Utiea Water Co. v. Utica, 31 Hun, 431.
Rent not a liability : Smith v. Dedham, 144 Mass. 177 ; Crowder v. Sullivan, 128 Ind. 486, (13 L. R. A. 647); Grant v. Davenport, 36 Iowa, 396; Appeal of Erie, 91 Pa. St. 398; Wade v. Borough, 165 Pa. St. 497; Brown v. Corry, 175 Pa. St. 528; Jacksonville R. R. Co. v. Jacksonville, 144 111. 567; New Orleans Gas Co. v. New Orleans, (Louisiana, 1889,) 29 Am. & Eng. Corp. Cases, p. 247); Simonton on Municipal Bonds, 60, 61; Walla Walla Water Co. v. Walla Walla, 60 Fed. Rep. 957; People v. May, 9 Colo. 404; Dively v. Cedar Falls, 27 Iowa, 227 ; Corpus Christi v. Woesner, 58 Texas, 462; Laycock v. Baton Rouge, 38 La. Ann. 475; Kerlie v. South Bend, 76 Fed. Rep. 921; Weston v. Syracuse, 17 N. Y. 110; Territory v. Oklahoma, 37 Pac. Rep. 1094; Porter v. Douglass, 87 Mo. 239; Lott v. Mayor, 84 Ga. 681 ; French v. Burlington, 42 Iowa, 614; Lehigh Coal Co. Appeal, 112 Pa. St. 360; Rice v. Keokuk, 15 Iowa, 579; Dyer v. Brenham, 65 Tex. 526; Carter v. Sedy of State, (S. Dak.) 24 L. R. A. 734; McBean v. Fresno, 112 Cal. 159, (53 Am. St. Rep. 191; also 13 L. R. A. 794); Carlyle Water Co. y. Carlyle, 140 111. 445; Saleno v. Neosho, 127 Mo. 627 ; State v. McAuley, 15 Cal. 429 ; People v. Arguello, 37 Cal. 524; Fast St. Louis v. Gas Co., 98 111. 415, (38 Am. Rep. 97); Valparaiso v. Gardner, 97 Ind. 1, (49 Am. Rep. 419); Utica Water Co. v. Utica, 31 Hun, 431; Davenport v. Kleinschmidt, (Monta.) 16 Am. & Eng. Corp. Cases, 301; Prince v. Quincy, 105 111. 138, (44 Am. Rep. 785; also 2 Am. & Eng. Corp. Cases, 66); Niles Water Works v. Niles, 59 Mich. 311, (11 Am. & Eng. Corp. Cases, 299); State v. Atlantic City, (N. J. 1877) 17 Am. & Eng. Corp. Cases, 592 ; Beard v. Hopkinsville, 95 Ky. 239; Salem Water Co. v. Salem, 5 Ore. 29, (49 Am. Rep. 416); Sackett v. New Albany, 88 Ind. 473, (45 Am. Rep. 467; also 2 Am. & Eng. Corp. Cases, 85); Council Bluffs v. Stewart, 51 Iowa, 385; Law v. People, 87 111. 385; Puller v. Chicago, 89 111. 282; Lake Co. v. Rollins, 130 U. S. 662; Spiller v. Parkersburg, 35 W. Va. 605; Bead v. Atlantic City, 49 N. J. L. 569.
Bead v. Atlantic City, 49 N. J. L. 569, in fact furnishes a rule for reconciling all the cases. The court says the true rule is between the extremes. That where the money to be paid upon such contracts is provided for, and to be raised by taxation upon some fixed and definite scheme, such contracts are not within the constitutional restriction; that where there is no legislative scheme positively prescribing that the sum to be due shall be raised by taxation and appropriated as needed, then such contracts do not increase the debt within the meaning of the constitutional prohibition.
City not suable: There can be no “ debt or liability,” unless under, at least, some contingencies an action can be brought against the city and judgment recovered.
This reliance of the bondholders upon the power of the Commission to compel the city to levy a tax to meet the annual rental, and to have it in the treasury at the end of each year to discharge the rental due for the preceding year, robs the case of all pretense of there being any debt or liability against the city. There can be no debt or liability unless the obligation runs against the city as a whole. Where a special tax is to be assessed to meet the agreed price and the obligee looks to that particular fund, there is no debt or liability. People v. May, 9 Colo. 404; Puller v. Chicago, 89 111. 282. If a tax is authorized and set apart to meet the contract, no debt is created. State v. Pacheco, 27 Cal. 175. Obligations payable from a particular fund and for which the fund only and not the municipality is liable are not within the constitutional restriction. Quill v. Indianapolis, 124 Ind. 292, (7 L. R. A. 681); Strieb v. Cox, 111 Ind. 299 ; Baker v. Seattle, 2 Wash. 576; Davis v. Bes Moines, 71 Iowa, 500. For illustrations see: (Paving certificates.) Tuttle v. Polk, 92 Iowa, 433; (Betterment assess menfcs.) Atkinson v. Great Falls, 16 Mont. 372; (Park certificates.) Kelly v. Minneapolis, 30 L. R. A. 281. In suck cases, it is essential that all right of action against the city as a whole is clearly surrendered. State y. Fayette Go. Gom’rs, 37 Ohio St. 526; Kimball v. Grant Go. GorrUrs, 21 Fed. Rep. 45.
Future city councils bound: It is no answer to suggest that future city councils are not required to order the rental tax. ■ A contract that is fair, just and reasonable, and prompted by the necessities of the situation or advantageous to the municipality will not be construed as an unreasonable restraint upon the power of succeeding boards. McBean v. Fresno, (Cal.) 13 L. R. A. 794, and cases above cited.
Purpose of constitutional limit: Cooley Const. Lim. (5th ed.) 78, 79.
Adequate remedy at law: Searle v. Abraham, 73 Iowa, 507; Dodd v. Hartford, 25 Conn. 237; Sheldon v. School Dist. 25 Conn. 223; Oregon v. Lord, 1 L. R. A. 473; Dow v. Chicago, 11 Wallace, 108; State B. B. Tax Gases, 92 U. S. 575; Moers'v. Smedlay, 6 Johns. Ch. 27; Sellinger v. White, 9 Neb. 399; Altgett v. San Antonio, 81 Tex. 446.
No equity jurisdiction: Loud v. Charleston, 99 Mass. 208; Garleton v. Salem, 103 Mass. 141; Fiske v. Springfield, 116 Mass. 88; Prince v. Boston, 148 Mass. 285; Steele v. Municipal Signal Go., 160 Mass. 36; Johnson v. Thorndike, 56 Maine, 32. In the last case the court say that there are two classes of cases, and only two, where the court is authorized to interfere; where the city or town attempts to raise or pay money, or pledge its credit for a purpose not authorized by law, and where any agent or officer thereof attempts to pay out the money of such city or town without authority.
Laches: Parsons v. Northampton, 154 Mass. 410; Tash v. Adams, 10 Cush. 252; Freeland v. Hastings, 10 Allen, 575; Frost y. Belmont, 6 Allen, 156; Hurd v. Lynn, 1 Allen, 103; Fuller v. Melrose, 1 Allen, 166; Babbitt v. Savoy, 3 Cush. 530.
Sitting: Peters, C. J., Emery, Haskell, Wiswell, Strotjt, JJ. Savage, J., dissenting. Foster, J., did not sit being related to one of the parties.

Opinion:
Peters, C. J.
The constitution of this State provides that no city or town shall create any debt or liability, which singly, or in the aggregate with previous debts or liabilities, shall exceed five per centum of the last regular valuation of said city or town.
In interpreting this constitutional provision we believe we would be willing to adopt the middle doctrine on which some of-the authorities stand, called by counsel for respondents the rule of reconciliation, which allows a municipal corporation, although its indebtedness has already reached the constitutional limit, to make time contracts in order to provide for certain municipal wants which involve only the ordinary current expenses of municipal administration, provided there is to be no payment or liability until the services be furnished, and then to be met by annual appropriations and levy of taxes; so that each year's services shall be paid for by each year's taxes; the scheme being variously denominated in the cases as a business, or cash, or pay-as-you-go transaction, and the like.
And we incline to the belief that, on this principle, a town or city may contract for the use of a hall for a term of year's, to be used for strictly municipal purposes, provided the principle be fairly applied in any case and not be abused; not however allowing a hall to be hired for the purpose of subletting either the whole or any part of it. Municipal necessities are only to be regarded.
But under the guise of the principle above stated, a municipality should not be allowed to pass off, as an agreement for renting a hall, an agreement which is not really entered into strictly for such purpose. And we feel that the transaction here in question must be repudiated upon that ground. The transaction has in some respects the semblance of a lease, but it is a misnomer to call it such. It is attempted to make it one thing in form, while in reality it is something else. It is apparent enough that the city is to have not merely the use of the building to be erected, but the building itself. It is not to get an annual service to be paid for out of annual revenues, but the city is to acquire a city hall presently, to be paid for by assessments of taxes for the long period of thirty years. It is a purchase.
It would not be a misinterpretation to say that the city of Water-ville, instead of leasing the property, undertakes to purchase or pay for it on the installment plan, and that what are called rentals for the hall are merely partial payments on its cost.
In Gross v. Jordan, 83 Maine, 380, the head-note is as follows: " Writing an agreement in the form of a lease does not alter the character of an instrument which by its more essential terms discloses itself to be a conditional sale of personal property." The facts of that case showed that by a paper called a lease, and sprinkled with phrases appropriate to a lease, one person received a wagon of another, agreeing to pay fifteen dollars a month for its use, and when the sums so paid amounted to one hundred and sixty-five dollars and interest thereon, such party was to receive title to the wagon. The court said: "This paper, which calls itself a lease, is a conditional sale of property, the title passing when the full price shall have been paid. Its own terms are the true test of the nature of a contract, whatever its framers may denominate it." That case was followed by other cases in this state where agreements to convey pianos and sewing machines were attempted to be passed off and construed as leases, but the attempts did not prevail.
We need not dwell on this point, however, because our opinion is that the true nature of the transaction is rather the hiring of money by the city upon the security of city property through the intervention of a trustee, the title to the property being and remaining in the city from the beginning to the end, subject only to the lien upon it in favor of bondholders for money to be lent. This kind of agreement is so clearly and satisfactorily explained by Pomeroy in his Equity Jurisprudence, in § 995, that we here quote the entire section, as follows: " Deeds .of Trust to Secure Debts.— A special form of trust for the benefit of creditors peculiar to the law of this country, has become quite common in several of the states, and requires a brief description. A 'deed of trust to secure a debt ' is a conveyance made to a trustee as security for a debt owing to the beneficiary — a creditor of the grantor, and conditioned to be void on payment of the debt by a certain time, but if not paid the trustee to sell the land and apply the proceeds in extinguishing the debt, paying over any surplus to the grantor. The object of such deeds is, by means of the introduction of trustees, as impartial agents of the creditor and debtor, to provide a convenient, cheap and speedy mode of satisfying debts on default of payment. A distinction, however, should be noted in this connection between unconditional deeds of trust to raise funds for the payment of debts, and deeds of trust in the nature of mortgages, the former being absolute and indefeasible conveyances for the purposes of the trust, while the latter are conveyances by way of security, subject to a condition of defeasance. In many states deeds of trust to secure debts are much favored, either on account of the intervention of disinterested third parties, whose position as trustees secures to the debtor fair dealing, or the absence of any necessity for the intervention of the courts ; though in some states they are required to be judicially foreclosed, and are therefore of no practical advantage. Indeed, in a majority of the states this form of security has come into general, and, in some instances, universal use. An intimate relation exists between deeds of trust to secure debts and mortgages, especially mortgages containing powers of sale ; in fact, the former are generally considered as being in legal effect mortgages. Where a mortgage is regarded as a conveyance of the legal estate, a deed of trust can be no less a conveyance of the legal estate, and where a mortgage is considered as but a mere lien, a deed of trust is generally considered as nothing more than a lien. A reconveyance, as a general rule, is not necessary on payment of the debt secured by a deed of trust, satisfaction being entered in the margin, as in the case of a mortgage. Statutes relating to the recording of mortgages embrace deeds of trust, without special mention of the latter, as also do those relating to powers of sale contained in mortgages. While a mortgage with power of sale may be assigned, in the absence of words -restricting an assignment, and the power of sale passes thereby to the assignee, a deed of trust to secure a debt, being a confidence reposed, cannot be delegated, and no assignment is possible, without an express and positive permission in the deed. The duties of the trustee of a deed of trust require the utmost good faith and impartiality as regards both the debtor and creditor. He is personally liable in á suit at law for damages to the party aggrieved for a failure to use reasonable diligence,- or an abuse of his discretionary powers; and a sale may be enjoined or set aside at the instance of the injured party. It is not necessary that the person who is to execute the power in a trust deed should join in the deed, or execute any formal writing showing his acceptance of the trust: nor is it necessary that the beneficiary should signify his assent by any formal writing, for his assent is presumed since the deed is for his benefit. Where a trustee has accepted the trust, he cannot renounce it without the consent of the beneficiary, or of a court of equity; and he may be compelled to discharge the trust."
The statutory commission in the case before us was very little more than a passive trustee, and would be entirely such when the bonds should become paid. The trust at all times was to be fastened upon the estate rather than upon the trustee, and a conveyance of the estate by the city itself, after payment of the debt, could not be repudiated by the trustee. Sawyer v. Skowhegan, 57 Maine, 500; Pom. Eq. Juris. § 988. So there was no need of inserting in the act that the commission should reconvey to the city. The learned counsel for the respondents admits that an equity of redemption reposed in the city. When therefore the debt should become paid, the new city hall would be absolutely the property of the city.
There appears upon the brief of respondents this assertion: "In many -cases, where commissioners, not being incorporated, have issued bonds, the courts have held that the city was liable, as the statutes properly construed required a holding that such unincorporated commissioners were simply agents of the city." We can see no reason why an. incorporated commission may not act as an agent or trustee just as well. An examination of the various sections of the legislative act reveals the fact that the commission was to be but the humble trustee of the city of Waterville, and the city itself the real owner of the property.
The commission as created by the act was naked of all authority excepting in just one respect, and that was as a formal medium through which the city could secure to the bondholders its debt. It will be seen all the way along that the commission is to be under the control of the city. The commission could sue and be sued, but it had no property and was subjected to no risks. It is entitled to have certain officers, and such others "as the city may direct." The city treasurer is to be the treasurer of the commission, but no new bond is required of him, and his sureties would not be responsible for his defaults, unless he be considered as acting for the city in what he does for the commission.
Section 2 declares that the powers and duties of the commission shall be controlled by the city. The commission is to have "such powers as are already conferred on it by the city," and it "shall have any other 'powers and perform any other duties which may hereafter from time to time be voted and conferred upon it by the city council." This does not sound much like the city being only a hirer and tenant of the property.
Section 3 imposes merely a clerical duty upon the commission, without the exercise of any discretionary power whatever. It is authorized to issue its bonds " at such rates and on such times and for such amounts as the city council may approve," not exceeding $75,000. By section 4 the city is authorized, "when its council so votes," to convey its city hall lot and all improvements thereon, presumably of great comparative value, to the commission for the sole purpose of securing the bonds before named and for no other purpose, the commission to hold the property and the new building to be erected thereon in trust as security therefor. These ai'e all very commendable provisions, but only go to show the true relations which the city was to hold towards this city property, and indicating that the city was really to build the new hall as its own property. And does not the very mischief here arise which the constitutional amendment was designed to prevent, the city thus getting their hall in the present, and having thirty years of continuous annual taxations with which to pay for it? And it is further deducible from these and other clauses in the legislative act that the commission is virtually created and controlled by the city for its own purposes. It is a corporation formed in blank, the city filling the blanks.
Section 5, in case of a default in the payment of bonds or coupons, authorizes bondholders to petition the court to enforce their lien by appointing a receiver for the sale and distribution of the property. The petitition goes to the court, ignoring the commission. Is there any doubt, should there be an excess of assets over indebtedness, that the balance would belong to the city as the debtor and owner?
By section 6, tbe city is "authorized and required to raise annually by taxation such sum as may be necessary to pay all expenses for repairs, insurance and management of said city building, when completed, together with an annual rental of said building in a sum equal to the annual interest on the bonds issued and outstanding . and it shall be-authorized to except said property from taxation while held in trust" . These are exactly the burdens which the city would necessarily bear as an owner of the property, and it is nothing less than affectation to style such payments rentals instead of payments of interest on the bonds. It is indeed an ingenious provision to fix the so-called rental as just equivalent to interest on the bonds and the expenses, because it has a look of fairness on its face. But the unfairness of this proposition is exposed when we find • in section 7 a compensatory clause "authorizing and empowering the city to raise by taxation or other means such other sums as may be voted by the city council to add to the sinking fund to be provided for the purchase of the bonds and coupons issued under section 3 of this act." It eei'tainly cannot be pretended that these occasional taxations made from time to time are rentals or in the nature of rentals, for it is expressly provided that they shall swell the sinking fund for the payment of the bonds for the benefit of the city, and of course to lessen the equitable if not legal indebtedness of the city. The language is to raise money by taxation or other means. What other means, unless it be by borrowing money? It is just here that the mischief may be apprehended which the constitution intends to prevent. The city could raise any amount of money at any time, under this general authority, without restriction as to amounts and without regard to conditions and circumstances. Absolute power is committed to the-city by the legislature. It was just this kind of domination practiced by majorities and this improvidence of legislatures that the constitutional amendment was designed to restrain. If the act in question is to be deemed constitutional, in spite of the real plan transparent in it, why may not the city of Waterville be able, under a similar scheme of so-called rentals, to obtain for itself, by legislative permission, any other expensive scheme of improvements it might see fit to undertake ?
Section 7 contains grotesque provisions: "In consideration of the rental as aforesaid the city of Waterville shall become the tenant of said city building when completed." If that shall be taken to mean that the city may remain in possession of its property without interference of bondholders, so long as it promptly pays the interest on the bonded indebtedness and keeps the property in good preservation and repair, that idea may be easily understood. If it means, however, that the city is to be a tenant and some other party a landlord, who is such landlord ? It cannot be the constructors for they are to have their pay. Nor can it be the bondholders, for they have a lien only and must go to the court for the enforcement of any of their rights. It cannot be the Commission, for there are no words in the act investing them with any such authority. The landlord then cannot be other than the city itself, the city to be both landlord and tenant. The draftsman of the legislative act seems to have been in some confusion of mind on this point, evidently regarding the city as one party and its city council as another; especially when he declares in section 7 that the city shall become tenant " under such provisions and directions as the city council may vote from time to time." But it is of course difficult to keep up the landlord and tenant theory and maintain consistency at the same time. Another inconsistent thing on that theory is that the city is to pay a full rent for the property as tenant and at the same time receive only partial benefit from it, turning all the earnings to be received from subletting the hall into a sinking fund for paying the bonds issued by the Commission.
Section 10 in effect affirms again that the commission shall have no power excepting to act as a medium through which the city may deal with the bondholders.
Certain provisions contained in section 11 are very important as disclosing the true nature of these transactions on the part of the city of Waterville, which section is as follows: "All duties and powers necessary to be exercised with respect to the erection of said city building and the care of the same after erection, not conferred on said City Hall Commission by any existing ordinance or vote of the said city of Waterville, or by the provisions of this act, shall be vested in the city council of Waterville. The city of, Waterville, and not said City Hall Commission shall be liable for all damages which said city would have been liable for in the erection of said building or the proper care of the same, had not the trust herein provided for been created."
By this section all duties and powers to be exercised in the construction and after-management of the hall, not already lodged in the commission by the city council or by the act, and we do not find that any are so lodged, are vested in the city itself. How inconsistent with the contention that the city is to be really a tenant paying rent! It may be admitted that it is provided it may be called a tenant. And so purely submissive an agent of the city is the commission to be,, and so thoroughly and abjectly under its control, that it is to be protected during the construction of the-hall, from all incidental risks, and the city is to assume all the same. What an unheard of proposition that a tenant is to pay a full price for his tenancy, and also be answerable for all injuries and misfortunes that may happen while the building he is to occupy is in process of construction!
But none of the features of this section' are at all inconsistent with the true nature of the transaction as the complainants claim it to be. They contend that the city is the actual party constructing the city hall; that it is to construct it itself with money to be hired upon the security of its city hall lot and all improvements and erections thereon, no other person or party contributing either money or liability thereto; that the form of the security is to be by a trust deed to a trustee upon a term of credit- of thirty years; and that the means of repaying the money borrowed is by annual installments for the same period from money collected by annual taxes assessed for the purpose and occasional taxes in the meantime, and by earnings of the hall when used for. other than municipal purposes; the city in the beginning having the title to the estate subject to the bonded indebtedness; and in the end free of all indebtedness or claim. This construction renders every section and clause of the- act sensible, consistent and clear, while any other construction renders it illogical and inconsistent throughout.
It appears from the facts that at first the city made its contract directly with the builders, and finding it illegal, afterwards annulled that contract, intending to make the same contract over again indirectly through its incorporated agent or trustee. Here were two forms, but the embodiment in each case is the same. Where is there any essential difference between the two?
Section 12 provides that all vacancies in the membership of the commission shall be filled by the city council. It constitutes its own agent or trustee at its liking.
Section 13 provides for the city's acceptance of the act, and it accepted it. By its acceptance the city assents to all the taxations provided for, and to all the obligations imposed upon it by the act. The learned counsel for respondents sets up the contention that the true test of its liability is whether the city can or not be sued, arguing that the only remedy against it must be by mandamus. But is not mandamus a legal remedy of the most potential kind? And is there not a .clear liability where mandamus can be maintained? After the city accepted the act, were the act free from the taint 'of unconstitutionality, would not the city be under a requirement for thirty years to make at least an annual assessment of taxes whereby to make annual payments on its indebtedness ? It is the only mode of enforcing collections from municipalities in the practice of many of the states. Does not such a requirement constitute a liability ? And could not equitable if not legal proceedings be maintained against the city in some conditions that might arise ? Can there be any doubt that the bondholders could by equity process enforce the obligation expressly assumed by the city to insure the building and keep it in repair; and why may they not also enforce the city's obligation to pay interest on the bonds either directly or by process in the name of its trustee? Or are all of these provisions merely a rope of sand?
It must be confessed that the act in question is a very dexterous attempt to accomplish one thing under the name of another thing, — as plausible as it is fallacious. It is error with truth's clothes on. And such erroneous propositions are not always easy to answer. Dr. Whately truly said of erroneous arguments:— " Although they are most unsubstantial, it is not easy to destroy them. There is not a more difficult feat known. than to cut through a cushion with a sword." It is sure, however, if the plan here, intended as it is to avoid rather than uphold the law, shall prevail, the result as a precedent will shatter the constitutional amendment into pieces.
The respondents further contend that the remedy here is at law and not in equity. Such a decision would be a victory for respondents, because the city could control its common law obligations to suit the majority; while the constitutional amendment, is for the protection of the minority against the majority.
We have no doubt that the city's own valuation, and not the valuation made by the State Board of Commissioners, is the test by which to ascertain the amount of indebtedness which settles the constitutional limit. If the city wants its valuation increased for one purpose let it increase it, by its own act, for all purposes.
Our conclusion is that the bill must be sustained, and that the deed to the City Hall Commission from the city of' Waterville must be adjudged to be illegal, null and void; and that the contract between the Commission and the firm of M. C. Foster & Son for erection of a city hall must also be adjudged to be illegal, null and void, and that an injunction must issue against all the respondents to prevent any enforcement of such contract.
Decree accordingly, and for costs against the city of Waterville.