Court Opinion

ID: 8185325
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:07:43.463012+00
Date Added: 2024-06-11T16:40:23.692764
License: Public Domain

Cassoday, C. J.
It appears from the statement made that the ordinance was adopted May 4, 1894; that thereupon Wells, Eeichert & Co. filed their acceptance of the same, and gave their bond for the faithful performance of the work, as required, which bond was approved by the city May 7,1894; that such ordinance, acceptance, bond, and approval were therein agreed to be in full force and effect as a contract between the firm and the city; that by the terms of such contract such works were to be completed within seven months,— that is to say, on or before December 7, 1894; that the city therein reserved the right at all times to have its engineer fully inspect the nature of the work done and materials furnished, and all books and papers, to-enable him to ascertain the exact cost of the works; that to construct the works the firm was authorized to issue-bonds of $500 each to an amount not exceeding $100,000, and to mortgage the plant to secure not exceeding $80,000 of such bonds, which last amount was to be regarded the original cost of such plant; that, as soon as completed, and certified to by such engineer as such inspector, the city was *294to receive the lease of the same, as prescribed; that such lease was to extend for twenty years from the completion of the works, wbicb covers substantially all the time the franchises are to remain in force, as they are to terminate January 1, 1915; that the firm was authorized to assign such lease to a trustee or mortgagee to effect a sale of such bonds; that, after receiving the lease, the city was to pay, as rental thereon, annually, $7,000 during each of the first four years, $9,000 during each of the next six years, and $10,000 during each of the remaining ten years; that such bonds were to be made payable at such times and in such manner that all sums paid by the city, as such lessee, as rentals, in excess of the interest upon the original cost, may, •at the time of payment, be at once applied to the payment and cancellation of the bonds to the amount so paid; that all surplus on the sale of the bonds, after paying the $80,000 and accrued interest, was to apply on the payment of the principal sums named in the bonds, to the end that the city should only pay, as rentals, the original cost of the plant, $80,000 and interest; that from the time of receiving the lease the city was not only to pay all taxes and assessments upon the plant, but to keep the same in repair, and pay all damages resulting from its maintenance and operation; that from a time not expressly named, but fairly implied to be the time of receiving such lease, the city was to “ assume the management and operation of said system of waterworks ; ” that the city was, annually, for the term of said twenty years, to levy and collect a tax sufficient to pay such hydrant and lease rentals; that upon the payment of the several sums of money at the times and in the manner mentioned, without delay,— that is to say, upon paying and taking up such bonds,— then the plant should at once pass to and become the property of the city, without any further conveyance or contract whatever.
The upshot of the arrangement is to the effect that Wells, *295Eeichert & Co. should construct the works, and issue bonds and secure the same by mortgage on the plant to the amount of $80,000, and, when completed, lease the same to the city, and then assign the lease to the mortgagee or a trustee for the benefit of the bondholders, and that the city should thereupon take possession and assume the management and operation of the plant, and assume the payment of the outstanding bonds and mortgage in the manner indicated. The agreement to pay the annual rentals mentioned is but an indirect method of expressly agreeing to pay the principal and interest to become due on the several bonds. In fact, by the express provisions of the ordinance and the contents of each bond, as therein prescribed, the city is, in legal effect, to be a party to each and every bond, and necessarily responsible for its payment. The city was authorized “to provide for the erection, maintenance, and operation of waterworks,” and “ by contract or ordinance grant to any person or persons, company or corporation, the full right and privilege to build and own such waterworks, and to maintain, operate and regulate the same.” Laws 1891, ch. 135, sec. 39, subd. 33. It was also authorized to “ purchase or lease ” waterworks, or the interest of any corporation therein, or to “obtain the control of such works by purchasing the stock of such corporation and keeping up its organization,” and “ provide for the payment of such purchase by the issuance of bonds or otherwise, . . . not contravening the provisions of the constitution in respect to municipal indebtedness.” Laws of 1895, ch. 182. The constitution of this state provides that “No county, city, town, village, school district, or other municipal corporation, shall be allowed to become indebted in any manner or for any purpose, to any amount including existing indebtedness in the aggregate exceeding five per centum on the value of the taxable property therein, to be ascertained by the last assessment for state and county taxes previous to the incurring of such, in*296debtedness;” that before “incurring such indebtedness” such municipality must “ provide for the collection of a direct annual tax sufficient to pay the interest on such debt as it falls due, and also to pay and discharge the principal thereof within twenty years from the time of contracting the same.” Sec. 3, art. XI, as amended in 1874. It requires the authority of no adjudication to prove that this constitutional limitation means just what it says, and is absolutely binding, not only upon every such municipality and its officers, but also upon the legislature itself. Nevertheless we cite a few of the many cases construing similar constitutional provisions: Buchanan v. Litchfield, 102 U. S. 278; Weightman v. Clark, 103 U. S. 256; School Dist. v. Stone, 106 U. S. 183; Litchfield v. Ballou, 114 U. S. 190; Lake Co. v. Rollins, 130 U. S. 662; Lake Co. v. Graham, 130 U. S. 674; Doon v. Cummins, 142 U. S. 366; Nesbit v. Riverside Independent Dist. 144 U. S. 610; Hedges v. Dixon Co. 150 U. S. 182.
In Litchfield v. Ballou, supra, it was held that “A provision in a state constitution that municipal corporations shall not become indebted in any manner nor for any purpose to an amount exceeding five per cent, of the taxable property therein, forbids implied as well as expressed indebtedness, and is as binding on a court of equity as on a court of law.” In Lake Co. v. Rollins, supra, the words in the constitution of Colorado, “ the aggregate amount of indebtedness of any county for all purposes? were construed to be “an absolute limitation upon the power of the county to 'contract any and all indebtedness, not only for the purposes named in the act, but for every other purpose whatever, including county warrants issued for ordinary county expenses, such as witnesses’ and jurors’ fees, election costs, charges for board of prisoners, county treasurer’s commissions,” etc. In Lake Co. v. Graham, supra, it was held that “ When the constitution of a state imposes upon the municipal corporations within it a limitation of their power to *297incur debts, it is not within the power of the legislature of the state to dispense with that limitation, either directly or indirectly.” Here the constitutional provision prohibits the city from becoming “indebted in any manner or for any purpose to any amount” exceeding five per centum of the assessed valuation. The same language is contained in the constitution of Iowa; and in Doon v. Cummins, supra, it was held, in effect, that negotiable bonds, in excess of such limit, issued by a school district, and sold for the purpose of applying the proceeds of the sale to the payment of cm outstanding bonded indebtedness of the district, pursuant to the statute of Iowa, were void as against one who purchased with knowledge that such limit had been exceeded. In'that case Mr. Justice Guay, speaking for the court, cites five Iowa cases to the effect that the law, as settled by the supreme court of that state, is that such “ constitutional restriction includes not only municipal bonds, but all forms of indebtedness, except warrants for money actually in the treasury, and perhaps contracts for ordinary expenses withvn the limits of the current revenues.” 142 U. S. 376. The Iowa cases thus cited support the proposition. See, also, Kane v. Independent School Dist. 82 Iowa, 5; First Nat. Bank v. District of Doon, 86 Iowa, 330. In Prince v. Quincy, 105 Ill. 138, it was held that, when such constitutional limit had been reached, the municipality is prohibited from making any contract whereby an indebtedness is created, even for the necessary current expenses in the administration of the affairs and government of the corporation. In Culbertson v. Fulton, 127 Ill. 30, it was held that “Where a city enters into a contract to pay a sum of money when certain work [waterworks] shall be done and accepted, the obligation thereby assumed will constitute a debt, within the meaning of the constitutional limitation of its power to incur indebtedness. Such indebtedness will be regarded as having been incurred from the date of the contract, and not postponed *298to the time of the completion and acceptance of the work.” “The effect of this constitutional inhibition is to require cities indebted to the limit fixed by the constitution to carry on their corporate operations, while so indebted, upon the cash system, and not upon credit to any extent or any purpose.” Prince v. Quincy, 128 Ill. 443. In Beard v. Hopkinsville, 95 Ky. 239; S. C. 23 L. R. A. 402, it was held that “A contract by a city to pay an annual rental for the use of water hydrants and electric lights is a contracting of Indebtedness, within the meaning of a constitutional limitation, when the city is already indebted beyond the prescribed limit, although .the usual and legal income from taxation and otherwise would be sufficient to pay all the current expenses, including such rental.” In harmony with the decisions cited, this court has held that “Where a county is already indebted in a sum exceeding five per cent, of the value of the taxable property therein, it cannot incur a further indebtedness for building a courthouse, or for any other purpose; and a tax levied to pay such further alleged indebtedness is void.” Hebard v. Ashland Co. 55 Wis. 145. As already indicated, the case at bar is clearly distinguishable from that class of cases where there is a mere annual rental for a series of years, and where there is no liability, except as each year’s service is rendered by some person, company, or corporation, as in Crowder v. Sullivan, 128 Ind. 486; S. C. 13 L. R. A. 647; Smith v. Dedham, 144 Mass. 177. So long as the current expenses of the municipality are kept within the limits of the moneys and assets actually in the treasury, and the current revenues collected or in process of immediate collection, the municipality may be fairly regarded as doing business on a cash basis, and not upon credit,— even though there may be for a short time some unpaid liabilities. In other words, a municipality’s capacity for doing business on such cash basis, with outstanding liabilities, is necessarily measured by the amount, *299of cash on hand and the available assets and. resources readily convertible into cash to meet the payment of such liabilities as they become due. But the moment an indebtedness is voluntarily created “in any manner or for any purpose,” with no money nor assets in the treasury, nor current revenues collected or in process of collection for the payment of the same, that moment such debt must be considered in determining whether such municipality has or has not exceeded the constitutional limit of indebtedness. It .appears from the statement that the valuation of the property in the city, as shown by the assessment rolls for 1894, was only $1,114,500; that the bonded indebtedness of the city was $73,000;-that the total receipts were only :$61,377.78; that the annual disbursements were $43,963.10; that the average rate of taxation was 4.47 per centum; that the amount of tax levied was $51,287.53, and the amount collected $48,294.64. Such being the facts and the law, it is evident that by the contract in question the city attempted to become indebted to an “amount including existing indebtedness in the aggregate exceeding five per centum on the value of the taxable property therein,” within the meaning of the constitutional provision quoted, and hence the ■same is void. The method by which the attempt was made may be regarded as ingenious, but it should be remembered, as indicated in one of the cases cited, that the city could not do by indirection what it could not do directly. '
By the Oowt.— The judgment of the circuit court is reversed, and the cause is remanded with direction to enter judgment in favor of the plaintiff in accordance with the prayer of his complaint.