Court Opinion

ID: 3832177
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:02:52.887587+00
Date Added: 2024-06-11T07:40:10.101313
License: Public Domain

I cannot concur in the majority opinion.
This action was commenced in the district court of Oklahoma county by W.H. Woods, a resident taxpayer, hereinafter referred to as plaintiff, against H.E. Cole and certain individual members of the city council of Oklahoma City, hereinafter referred to as defendants. The action was brought under the authority of sections 5964 and 5965, O. S. 1931, whereby plaintiff seeks to recover on behalf of himself and the city a sum double the amount paid to Cole by the council for services rendered by Cole under the terms of an alleged void contract of employment entered into by the council in behalf of the city with the said Cole. This appeal is here from the judgment of the trial court sustaining defendants' demurrer to the petition and dismissing the action.
The petition charges that the contract in question was entered into on August 5, 1933; that by the terms thereof the defendant councilmen purported to employ defendant Cole to make investigation of certain oil producing lands belonging to the city and to discover and collect any unpaid royalties found due the city on account of the oil produced therefrom prior to May 31, 1933. Cole's fee as fixed by the contract was 25 per cent. of the sum collected by him. The sum so received by Cole was $17,662.84.
We are concerned with the one question, whether or not the petition states a cause of action.
Summed up, the allegations are that the contract was ultra vires, prohibited by the Constitution, the statutes, and the city charter; that the execution thereof constituted constructive fraud. The petition, in our opinion, contains a sufficient statement of essential facts relating to the contract, the acts done thereunder, and its alleged validity to enable us to determine the questions which are decisive of this case. Section 26, art. 10, of the Constitution provides:
"No county, city, town, township, school district, or other political corporation, or subdivision of the state, shall be allowed to become indebted, in any manner, or for any purpose, to an amount exceeding, in any year, the income and revenue provided for such year, without the assent of three-fifths of the voters thereof, voting at an election, to be held for that purpose. * * *"
In State ex rel. Edwards v. Millar, 21 Okla. 448, 96 P. 747, we held that the quoted section of the Constitution is a limitation on the power of the Legislature. The holding in that case has been uniformly followed by us. Legislative enactments which followed the adoption of the Constitution disclose a legislative intent to provide every possible safeguard for the preservation of public funds in the hands of public officials, and to insure their proper and lawful disbursement. Sections 5948, 5950, 5953, 5955, and 5956, O. S. 1931. The cited statutes and the quoted constitutional provision have been strictly construed. Fairbanks Morse Co. v. City of Geary,59 Okla. 22, 157 P. 720; Wilson v. City of Oklahoma City,120 Okla. 266, 251 P. 484; Shannon v. state ex rel. Davidson,33 Okla. 293, 125 P. 1106.
It is conceded by counsel that Cole's compensation, as provided in the contract, was not to be paid out of the income and revenue provided for the particular year within the provisions of section 26, art. 10, of the Constitution. In this case counsel for plaintiffs say: "The claim of Cole arising under the contract is neither a current expense nor to be paid out of current tax funds, but on the contrary is a contingent expense to come out of special funds, and such funds need not even be appropriated." It is said further that Cole's contract is not on the "pay as you go" basis established by the Constitution, but, "When he collects, 75 per cent. goes to the city and 25 per cent. to him. He is, in truth and in fact, obtaining moneys and in a sense revenues for the city."
Under the provisions of section 26, art. 10, Constitution, and the statutes enacted pursuant thereto, it is unlawful for a city council to contract indebtedness against the city in excess of the estimate made and approved by the excise board for the current fiscal year and for the particular purposes for which the debt is created. It is well established that such a contract is illegal, and unenforceable in the courts of this state. Wilson v. Oklahoma City supra; Incorporated Town of Jenks v. Pratt, 137 Okla. 156, 278 P. 331.
After a review of the decisions of this court, it becomes clearly apparent that the contract here in question was an attempt to create a present debt against the city. In O'Neil Eng. Co. v. Inc. Town of Ryan, 32 Okla. 738, 124 P. 19, the town council contracted to pay certain engineering fees upon a contingency and in the absence of an appropriation by the excise board for the particular purpose. There the court said:
"We think the contract in this case attempted to impose a present obligation and liability upon defendant, notwithstanding the contingency as to payments to be made thereunder." *Page 573 
This holding of the court was based largely upon the authority of Beard v. Hopkinsville, 95 Ky. 248, 23 L. R. A. 409, from which decision the court quoted, with full approval, as follows:
"* * * A debt, payable in the future, is obviously no less a debt than if payable presently; and a debt payable upon a contingency, as upon the happening of some event, such as the rendering of service or the delivery of property, etc., is some kind of a debt, and therefore within the prohibition. If a contract or undertaking contemplates, in any contingency, a liability to pay when the contingency occurs, the liability is absolute; the debt exists, and it differs from a present unqualified promise to pay only in the manner by which the indebtedness was incurred. * * *"
The contract there considered was held to be in violation of section 26, art. 10, of the Constitution. See, also, Flood v. City of Shidler, 127 Okla. 148, 260 P. 52; Haskins  Sells v. Oklahoma City, 36 Okla. 57, 126 P. 204. In such cases the debt is created when the contract is made. Faught v. City of Sapulpa, 145 Okla. 164, 292 P. 15.
In view of defendants' admissions that no appropriation existed from which the debt could be paid, the contract cannot be sustained unless defendants can point to some constitutional or statutory provision other than section 26, art. 10, Constitution, and section 5955, O. S. 1931, whereby such contract may be justified. We are familiar with but one character of debt that may be legally created by a city in the absence of due appropriation therefor made in conformity with the foregoing constitutional and statutory provisions. Such character of debt is that arising from the operation of that class of business owned and operated by a city under authority of section 27, art. 10, and section 6, art. 18, of the Constitution, authorizing cities to own and operate their own utilities. It has been held that the expenditure of revenues so produced is not within the supervisory control of the excise board. City of Pawhuska v. Pawhuska O.  G. Co., 118 Okla. 201,248 P. 336; In re Bliss, 142 Okla. 1, 285 P. 73; In re Protest of St. Louis  S. F. Ry. Co., 153 Okla. 283, 5 P.2d 763. See, also, Commerce Trust Co. v. Morris, 157 Okla. 127,11 P.2d 183; In re Tax Levies of City of Woodward, 143; Okla. 204, 288 P. 458; Jones v. Blaine, 149 Okla. 153, 300 P. 369; Aaronson v. Smiley, 142 Okla. 29, 285 P. 59; Protest of Murray,140 Okla. 240, 285 P. 80; Perrine v. Bonaparte, 140 Okla. 165,282 P. 332; St. L.  F. Ry. Co. v. Andrews, 137 Okla. 222,278 P. 617; Pitts v. Allen, 138 Okla. 295, 281 P. 126. The rule announced in the foregoing cases is well defined, and limited in the scope of its operation, by our decision in Re Protest St. L.  S. F. Ry., supra, as follows:
"* * * Where water plant is entirely self-supporting and operated without ad valorem taxation, expenditures for operation may be made out of surplus revenues without appropriation."
Defendants take the position that Cole's contract should be sustained under the rule applied in the case of expenditures of revenues derived from utilities. In this connection it is urged that the city is authorized to lease its lands for oil and gas purposes (sec. 1, art. 1, charter; Ruth v. Oklahoma City,143 Okla. 266, 287 P. 406); that in so doing it acts in a proprietary and not a governmental capacity and therefore is governed largely by the same rules applicable to individuals or private corporations engaged in the same business. City of Pawhuska v. Pawhuska Oil  Gas Co., supra. It is said that under that decision the city should be entitled to collect its royalties from its land unimpaired by the constitutional restriction as to appropriation of funds for government expense. As we have heretofore said, that case dealt with a municipally owned utility. The later case of Zachary v. Wagoner. 146 Okla. 268, 292 P. 345, limits the expenditure of utility revenues without appropriation to the expenses of operation, and holds that surplus revenues are income which must be appropriated and used as required by section 26, art. 10, Constitution.
Defendants contend that we have departed from the rule announced in Zachary v. City of Wagoner, supra, and cite the case of Baker v. Carter, 165 Okla. 116, 25 P.2d 747. That case involved the validity of certain bonds issued under the authority of a legislative act for the construction and equipment of dormitories for the Agricultural  Mechanical College. It is sufficient to say that in that case it is specifically pointed out that the Agricultural  Mechanical College is not one of the political subdivisions of the state referred to in section 26, article 10, supra. The constitutional provisions applicable in that case were sections 23 and 25, article 10, of the Constitution.
A city is not authorized by the Constitution to engage in the business of producing oil, but the leasing of its lands for such purpose is a necessary, and authorized, function of government. Leasing the public lands and receiving the rents or royalties therefrom is not within that class of business contemplated by section 6, art. 18, and section *Page 574 
27, art. 10, of the Constitution, and is not of that character of enterprise in which the city may engage, and conduct in a proprietary capacity, within the scope of the foregoing decisions of this court. The royalties so received merely constitute revenues from sources other than ad valorem taxation within the meaning of section 12678, O. S. 1931, and must be taken into account and included in the estimate by the excise board and duly appropriated for governmental expenditure, as are other miscellaneous revenues.
Defendants rely upon the case of Board of Education of Oklahoma City v. Thurman, 121 Okla. 108, 247 P. 996, as authority sustaining the city's power to employ Cole. This was an action instituted by Thurman as plaintiff to recover from the board of education an amount alleged to be due for services rendered to defendant in certain litigation under a contingent fee contract. We have carefully examined both the majority and dissenting opinions in that case and find that no mention is made in either of said opinions of the provisions of section 26, article 10, of the Constitution. The power and authority of the board of education to make a contract with an attorney to represent it upon a contingent fee basis is not mentioned or discussed. It is therefore apparent that the question was not raised, or if raised was not determined, and the case is therefore of no aid in determining the question here presented.
The petition discloses a contract, and a resolution of the council in reference thereto, whereby the council attempted to create a debt against the city in the absence of due appropriation therefor. The contract was therefore illegal and void as violative of section 26, art. 10, Constitution, and section 5955, O. S. 1931. The petition further discloses that revenues belonging to the city were paid out by authority and direction of the defendant councilmen under the void contract. It is further charged that said councilmen knew such contract to be void. The plaintiff having complied with the provisions of section 5965, O. S. 1931, by making demand upon such officials to commence suit, his petition states facts sufficient to constitute a cause of action against the defendants.
The majority opinion states that the city is not so strictly limited in the exercise of its proprietary powers as when acting in its governmental capacity. This may be true under the certain conditions, but here we have the question of the expenditure of public funds in which, in my opinion, the city is bound by the constitutional limitations and the statutory and charter provisions. In a case recently decided by this court. Layne-Western Co. v. City of Depew, 177 Okla. 338,59 P.2d 269, we said in the first syllabus:
"The provisions of sections 26 and 27 of article 10 of the Constitution with respect to the incurring of indebtedness by the municipal subdivisions of the state apply without regard to the source from which the funds pledged to the payment of the indebtedness are to be derived or whether the expenditure is on the governmental or the corporate side of the municipal powers."
And in the body of the opinion we said:
"With the sole exception of the rule of the Smartt Case (67 Okla. 141, 169 P. 1101), these limitations have been uniformly applied to indebtedness on the governmental side of the municipal business, and it would certainly be an anomalous situation to apply the constitutional limitations to governmental expenditures and to hold in the same breath that corporate expenditures (which are of lesser importance) are above the Constitution."
For the foregoing reasons, I most respectfully dissent.
I am authorized to say that Mr. Chief Justice McNEILL concurs in the views herein expressed.
             Supplemental Opinion on Second Petition for Rehearing.