Butler v. City of Ashland

232 P. 655, 113 Or. 174, 1925 Ore. LEXIS 190

• Court: Oregon Supreme Court
• Decided: November 5, 1924
• Status: Published

Opinion

CO SHOW, J.

The only question raised by this appeal is one of power. Has the council of the City of Ashland the power to provide for the payment of water agreed to be purchased from the defendant Irrigation District without first submitting the matter to the electors of said city? The original contract between the defendants city and Irrigation District provides that the amount agreed to be paid for the 600 acre-feet of water should be secured by the defendant city by issuing bonds, which would become a general liability of the city, and, that before the contract became binding, the electors of the city should authorize the execution of the contract by the city. It was afterwards determined, however, that it would be unnecessary, in order to make payment for the water, to issue bonds; that the city had sufficient funds on hand in the Water Fund together with the anticipated revenues from the sale of water to meet its obligation incurred by the contract within a very short period after the payment was required by the terms of the contract. For that reason, the plan of making payment by special obligation notes of the city was agreed to by the defendants city and said Irrigation District. In this connection it must be kept in mind that the charter provision, quoted above, expressly provides:

“That all revenues arising from the sale of water, water power, or the collection of water rents shall be set apart as a fund from which to pay-—first, all needful expenses in repairing, renewing, and extending said water system as necessity therefor shall arise, and for the payment of the interest on the water bonds of the city of Ashland as the same shall accrue; and, second, of the residue of such water returns and revenues a sinking fund shall be created to be inviolate, and to be applied in the discharge of the water bonds of said city, when the same shall become due, and said funds shall be used for no other purposes.”

It appears from the record that the city has paid all of the water bonds issued by it. It follows, therefore, that the entire revenue, by a specific provision of the charter, is committed to the management of the city council to pay all needful expenses in repairing, renewing and extending said water system as necessity therefor shall arise. It necessarily follows, therefore, that the city council is authorized, by the specific provisions of the charter quoted, to apply the revenues in its treasury as the same are received from the sale or other disposal of water to the performance of its contract with the defendant Irrigation District for an extension of the defendant city’s water system. Unless, therefore, the obligation created by the contract under consideration is a general liability of the city and exceeds the limitation of indebtedness prescribed by its charter, the contract assailed in this appeal is within the powers of the council of the defendant city, and is lawful.

The authorities are well-nigh unanimous, that where a contract creating an indebtedness provides for a special fund with which to meet the indebtedness as the same accrues, and no general liability is thereby created against the municipality, such an indebtedness is not within the constitutional inhibition against' creating a debt in excess of a fixed amount.

“A municipality does not create an indebtedness by obtaining property to be paid for wholly out of the ■income of the property.” 5 McQuillin, Municipal Corporations, 4725, § 2230.

“If there is money in the treasury sufficient to meet a liability, and which can be applied thereto when due, at the time the liability is created, no indebtedness is incurred.” 5 McQuillin, Municipal Corporations, 4722, § 2227.

“If an obligation is payable out of a special fund only, and the municipality is not otherwise liable, it is generally held that there is no indebtedness, subject to certain exceptions hereinafter noticed in this connection.” 5 McQuillin, Municipal Corporations, 4722, 4723, § 2228.

This court has frequently approved the principles enumerated in the foregoing quotations from McQuillin: Morris v. City of Sheridan, 86 Or. 224, 233 (167 Pac. 593); Smith v. Jefferson, 75 Or. 179 (146 Pac. 809); Joseph City v. Joseph Water Works, 57 Or. 586 (111 Pac. 864, 112 Pac. 1083); Kadderly v. Portland, 44 Or. 118, 151 (74 Pac. 710, 75 Pac. 222); Little v. City of Portland, 26 Or. 235, 246 (37 Pac. 911).

The language of the special obligation note limits the liability of the city to the water revenues. The special obligation notes, therefore, do not constitute an indebtedness against the city within the meaning of Article XI, Section 5, of the Constitution of Oregon.

The provisions of the charter, under which the defendant city is acting, conferred the power to manage the water system upon the city council of Ashland. That charter specifically directed the city council to use the revenues from the disposal of water in the specific manner provided for in the contract involved in this appeal. This provision of the charter was first enacted by the legislature of the state, but that provision was amended by the vote of the electors of the City of Ashland in 1915. The people of the City of Ashland, therefore, have directly, by their vote, authorized the council of the City of Ashland to enter into such a contract, as it has done, with the defendant Irrigation. District. The contract, therefore, is within the power of the city council of the defendant City of Ashland to make and is lawful. The decree appealed from is affirmed and the complaint of the plaintiff dismissed.

Affirmed.