Avery v. Job

36 P. 293, 25 Or. 512, 1894 Ore. LEXIS 50

• Court: Oregon Supreme Court
• Decided: April 3, 1894
• Status: Published

Opinion

Opinion by

Mr. Justice Bean.

1. It is first insisted, in support of the demurrer, that under the charter the loan evidenced by thb bonds issued for the purpose of raising money to erect or purchase waterworks is not a debt or obligation of the city for the payment of which money raised by taxation can be used, and therefore the plaintiffs do not show any interest in the subject matter of the suit, or any injury to themselves, present or prospective, from the contemplated issue of bonds or the purchase of the waterworks. This argument is based upon that provision of the charter, which, after authorizing the council to construct or purchase, keep, conduct, and maintain waterworks, to furnish the city and its inhabitants with pure, wholesome water, and for such purpose to issue and dispose of the bonds of the city, the par value of which shall not exceed fifty thousand dollars, whereby the city shall be held and considered in substance and effect to undertake and promise to pay to the bearer of each of said bonds, at the expiration of such time as the council shall prescribe, not exceeding twenty years, the sum named therein, with interest at the rate of six per cent per annum, and to establish and collect water rates, further provides that “all moneys collected from water rates shall he kept separate from all other funds, and shall be known as the ‘water fund,’ and shall be used only to pay the costs incurred by the city in operating such waterworks, and extending and improving the same, and to pay the semiannual interest on the bonds issued under this act, and all the surplus collected from the water rates shall go to create a sinking fund with which to pay the principal of such bonds at maturity.” The argument is that by this provision of the charter the money collected for water rates is made a special fund for the payment of the interest on the bonds it accrues, and for the creation of a sinking fund for their payment at maturity, and that it is the only fund out of which such bonds or the interest thereon can be paid. As a general rule, when the legislature authorizes a municipality to contract a debt, and issue bonds therefor, it is to be inferred that it intended to authorize the payment of such bonds out of the money raised by general taxation, unless there is something in the act itself, or some general limitation upon the power of taxation, which repels such an inference; and, although a special tax or fund maj? be provided, the bondholders’ remedy is not limited to such tax or fund, unless it is provided that the bonds shall not be paid in any other way. The bonds, when issued, become a debt of the corporation for which it is primarily liable, and for any balance due thereon after the application of the special fund the holders are entitled to payment out of the general fund of the corporation. In United States v. County of Clark, 96 U. S. 211, the county had subscribed for stock of a railroad company, and issued its bonds in payment therefor pursuant to the law which authorized the levy of a special tax to pay them, “ not exceeding one-twentieth of one per cent upon the assessed value of taxable property for each year,” but contained no provision that only the fund so derived should be applied to their payment. On an application for a writ of mandamus by the holders of the bonds to compel the clerk of the county to draw a warrant on the county treasurer, payable from the general fund of the county, for the balan'ce due on the bonds after the application of the proceeds of a special tax, the court held that the bonds were debts of the county as fully as any other liability, the special tax being merely an additional provision for their payment, and for any balance remaining due thereon of either principal or interest, after the application of the proceeds of the special tax, the holders were entitled to payment out of the general fund of the county.

In Lowell v. Boston, 111 Mass. 460, 15 Am. Rep. 39, the supreme court of Massachusetts, in speaking of bonds which the city of Boston was authorized to issue by an act of the legislature to enable it to raise funds to be loaned to individuals to aid them in rebuilding that portion of the city destroyed by fire in November, eighteen hundred and seventy-two, which act established a sinking fund for the payment of such bonds, to consist of all premiums on the sale of bonds above their par value, of all receipts of interest on loans made over and above the interest paid on such bonds, and of all payments of the loans made under the authority of the act, said: ‘‘The issue of the bonds by the city, whatever provision may be made for their redemption, involves the possible and not improbable consequence of a necessity to provide for their payment by the city. The right to incur the obligation implies the right to raise money by taxation for payment of the bonds; or, what is equivalent, the right to levy a tax for the purposes for which the fund is to be raised by means of the bonds so authorized.” To the same purport is State v. Milwaukee, 25 Wis. 122; Parsons v. City of Charleston, 1 Hughes, 282, Fed. Cas. No. 10, 774; Knox County Court v. United States, 109 U. S. 229, 3 Sup. Ct. Rep. 131; United States v. New Orleans, 98 U. S. 381. “Indeed,” as was said by Mr. Justice Field in the case last cited, “it is always to be assumed, in the absence of clear restrictive provisions, that when the legislature grants to a city the power to create a debt, it intends that the city, shall pay it, and that payment shall not be left to its caprice or pleasure. When, therefore, power to contract a debt is conferred, it must be held that a corresponding power of providing for its payment is also conferred. The latter is implied in the grant of the former, and such implication cannot be overcome except by express words excluding it.”

Now, in this case there are no express words in the charter excluding the implication that the bonds to be issued for waterworks may be paid out of the general fund of the city; on the contrary, it clearly appears that the provision of the charter making water rates applicable to the payment of the bonds was only intended as an .additional provision for the payment of the proposed new debt, and not as a denial to the bondholders of the right to resort to the ordinary revenues from which payment of the debts of the city is made. It does not, in express terms, or by implication, import that they were thereby to be precluded from looking to the city for the payment of the debt. By the terms of the act authorizing the bonds it is expressly provided that the city shall “ be held and considered in substance and effect to undertake and promise, in consideration of the premises, to pay to the bearer of each of the said bonds, at the expiration of such time as the council shall prescribe, not exceeding twenty years, the sum named therein, in gold coin of the United States, together with interest thereon in like gold coin at the rate of six per cent per annum, payable half yearly as provided in said coupons.” The plain import of this language is that the city is to become primarily liable for the payment of the bonds issued by it, and nothing in the language of the charter in any respect affects this primary liability. The bonds, when issued will create a debt of the city as fully as any other liability, for the payment of which the property of its inhabitants may be subject to taxation. By its charter the city is authorized and empowered to assess and collect taxes for general municipal purposes, not to exceed one half of one per cent each year, upon all the property within its limits, and the fund thus raised may be used for the payment of interest or principal upon the bonds proposed to be issued, if the money collected from water rates should prove insufficient; for nothing is more important to the welfare of a municipality than a regular supply of good, wholesome water for its inhabitants, which can best be secured through the instrumentality of well equipped waterworks, and hence the construction and operation of such works is held to be a general municipal purpose: Smith v. Nashville, 88 Tenn. 464, 7 L. R. A. 469, 12 S. W. 924; Metcalf v. City of Seattle, 1 Wash. 297, 25 Pac. 1010. It seems to us, therefore, that the contemplated purchase of the waterworks, and the issue of bonds by the city of Corvallis, involved the possibility, if not the probability, of providing for their payment by taxation, and therefore plaintiffs are interested in and have a right to maintain this suit. The case of United States v. County of Macon, 99 U. S. 582, relied upon by the appellant, is not in point, for in that case, by the act authorizing the debt, and the general statute in force at the time, the power of taxation for its payment was, in the opinion of the court, limited to the special tax designated in the act, and such other taxes applicable to the subject as then were, or might thereafter by general or special acts, be permitted, and hence the court refused to compel the county by mandamus to levy a tax for the payment of such bonds beyond the amount so authorized.

2. Having concluded that the plaintiffs are proper parties, we now pass to the question whether, under the admitted facts, th'e plaintiffs are entitled to the relief "prayed for. The object of this suit is to prevent the purchase by the city of the plant of the Corvallis Water Company, and, as one reason therefor, the complaint alleges, and the demurrer admits, that such plant is not worth to exceed the sum of ten thousand dollars, is inadequate in capacity, faulty in construction, and wholly insufficient in every respect to supply the city and its inhabitants with water; and that to pay twenty-eight thousand dollars therefor, as contemplated by the city, will be an unreasonable and flagrant waste of eighteen thousand dollars of the city’s resources, and a great damage to the city, to these plaintiffs, and other taxpayers. The defendants having seen fit to rest their case upon the facts as stated in the complaint, the only question is whether, under these facts, the plaintiffs are entitled to have the contemplated purchase of the waterworks perpetually enjoined. If so, the complaint states a cause of suit, and the decree must be affirmed, whether the objections to the validity of the various proceedings of the council looking to the sale of bonds by the city are well taken or not. The contention for defendant is, that the erection or purchase of waterworks is by the charter left entirely to the discretion of the council, and that the courts have no jurisdiction or authority to interfere with such discretion. No principle of equity jurisprudence is, perhaps, better established than that when the officers of a municipal corporation are clothed with a discretionery power, and are acting within the scope of such power, a court of equity will not sit in review of their proceedings, or interfere by injunction, at the suit of a private citizen, unless fraud is shown, or the power or discretion is being manifestly abused to the oppression of the citizen. The fact that the court would have exercised the discretion in a different manner will not warrant it in interfering: 2 High on Injunction, § 1240; Spring Valley Water Works v. City of San Francisco, 82 Cal. 286, 16 Am. St. Rep. 116, 6 L. R. A. 756, 22 Pac. 910, 1046.

Now, in this case the matter of erecting or purchasing waterworks is, by the charter of Corvallis, committed to the judgment and discretion of the council, and whether they act wisely or unwisely in so doing, it is not the province of a court of equity to interfere, so long as they exercise such judgment or discretion in good faith ; but the gist of the complaint upon this subject is that they have not exercised their judgment and discretion in such manner, but that arbitrarily, and without regard to the rights of the city or its taxpayers, they have agreed and are about to pay twenty-eight thousand dollars for a plant worth but little more than one third that amount, and wholly inadequate and insufficient for the purpose for which it is intended. Regarding this as true—being admitted by the demurrer—it evidently amounts to a legal fraud, and is such a manifest and gross abuse of power as will be prevented by an injunction at the instance of a taxpayer. Although the acts of the council are not charged to have been fraudulent, and the term fraud is not used in the complaint, facts are stated and alleged which show -such a gross and manifest abuse of discretion, and disregard for the rights of the taxpayer, as amóunt to the same thing. Fraud is not a fact, but a conclusion of law from facts, and the term may not be used at all in the pleadings if facts are averred which show fraud as a conclusion of law: Bliss, Code Pleading, § 211; Hess v. Young, 50 Ind. 379. The officers of a municipality in many respects sustain the relation of trustees to the citizens and taxpayers, and, while they are necessarily invested with large discretionary powers in the conduct of the affairs of the corporation, with which the courts will not interfere, it is too clear for argument that they cannot, in total disregard of the rights of the citizens and taxpayers, waste and misapply the public funds, as the complaint alleges is contemplated in this case. By their demurrer the defendants admit that they intend and contemplate, as the representatives and trustees of the city, to pay twenty-eight thousand dollars out of the public funds for property worth not to exceed ten thousand dollars, and wholly inadequate and insufficient for the purpose for which it is designed, and this admission shows such an unwarranted invasion of the rights of the taxpayer as will be prevented by an injunction at the instance of such taxpayer. This being so, the complaint states a cause of suit, and the demurrer was properly overruled, whether the objection to the validity of the bonds is sound or not, and we do not, therefore, deem it necessary to consider such objection at this time. For the reasons stated, the decree of the court below is affirmed. '

Affirmed.