Crogster v. Bayfield County

74 N.W. 635, 99 Wis. 1, 1898 Wisc. LEXIS 26

• Court: Wisconsin Supreme Court
• Decided: March 22, 1898
• Status: Published

Opinion

Cassoday, C. J.

1. This action was commenced September 22, 1896, to set aside the contract between the railway-company and the county, whereby the latter agreed to aid the railway company to the extent of $240,000, in bonds of $1,000 each, in exchange for a corresponding amount of stock in the company, and to restrain the delivery of the 'bonds issued and held in escrow therefor, on the ground that the aid so voted was in excess of the constitutional limitation. Sec. 3, art. XI, Const., as amended. That section de-miares that “ no county, city, town, village, school district, •or other municipal corporation, shall be allowed to become •indebted in any manner or for curvy 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 indebtedness.” After ■careful consideration, and in the light of numerous adjudications in other jurisdictions-, this court has held that “ 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 of cash on hand, and the available assets and resources readily convertible into •cash, to meet the payment of such liabilities as they become due.” Earles v. Wells, 94 Wis. 298; State ex rel. M., T. & W. R. Co. v. Common Council of Tomahawk, 96 Wis. 13. Upon this basis it appears from the facts stated that the indebtedness of the county, September 17, 1895, aside from the bonds in question, and over and above the cash on hand, and the available assets and resources readily convertible into cash to meet the payment of outstanding liabilities, was a little more than $33,000. That amount, with the $240,000 in bonds, would make $273,000. As stated, the court found that five per centum of the value of the taxable property in the county, as shown by the last assessment prior to September 17, 1895, was $257,440. If, as contended by plaintiff’s counsel, the contract between the county and the railway company was an entire contract and the incurring of an indebtedness, within the meaning of the constitutional provision quoted, and if such value of taxable property in the county was to be so ascertained from such last assessment, then it is very obvious that such limit was exceeded by $15,560. Upon the theory thus assumed, there can be no question but that all the bonds so issued upon such void contract would be absolutely void. In other words, the bonds so issued upon such void contract could not be scaled down by the court to an amount which the county might thus have legally contracted to pay. Hedges v. Dixon Co. 150 U. S. 182; Doon v. Cummins, 142 U. S. 366. It would, in that event, be unlike the case where bonds were issued in excess of the amount voted by the county, and which were held valid only to the extent of the amount voted and first issued. Daviess Co. v. Dickinson, 117 U. S. 657.

2. The question recurs whether the proposition submitted ¡by the railway company, and accepted by the county, constituted an entire or severable contract. As indicated, the proposition so submitted was for the. construction of the road in six distinct sections, with bonds of particular numbers to be used in payment of each of the specified sections. The first instalment of bonds (numbered from 1 to 55, inclusive), in payment of the first section, were to be delivered when the first section should be completed; the ■second instalment thereof (56-100), in payment of the second section, to be delivered when the third section should be completed; the third instalment thereof (101-130), in payment of the third section, to be delivered when the fifth section should be completed; the fourth instalment thereof (131-112^), in payment of the fourth section, to be delivered when the second section should be completed; the fifth in-stalment thereof (113-215), in payment of the fifth section, to be delivered when the fourth section should be completed; and the sixth instalment thereof (216-240), in payment of the sixth section, to be delivered when that section should be completed. It will be observed that the payment of the sixth instalment of $25,000 is not to be made, according to the proposition, until that section shall be completed; and hence, if that instalment should be rejected, as in excess of the constitutional limitation, upon the basis mentioned, then the first five instalments of $215,000, mentioned, and the other outstanding liabilities of $33,000, would only make $248,000, and would therefore be within the constitutional limit as found by the court.

The more difficult question is whether the statutes authorized the submission of such proposition to construct such railway in such separate and independent sections. In the statutes it is mentioned as “ the proposition; ” “ such proposition ;” “such a proposition.” S. & B. Ann. Stats, secs. 943, 946. In sec. 945 it is mentioned - as “a definite proposition in writing;” and which, if the subscription is to be made payable in bonds, shall specify “ when said bonds shall be delivered with reference to the time of the complete construction of such railroad from point to point; and within what time such road shall be so constructed as to be entitled to such aid or bonds, or any instalment thereof.1” So it is provided, in the section of the statute declaring the effect of accepting the proposition of the railway company, that “no such bonds shall be delivered, or be valid if delivered, until the road, to aid in the construction of which such bonds were voted, shall have been completed and in operation, by the passage of cars continuously from one terminus to such points as such company shall have agreed to construct the same, in consideration thereof.” E. S. 1878, sec. 948. After careful consideration, we are constrained to hold that the proposition submitted by the railway company was authorized by the statutes cited.' Since this is so, and if we assume that the plaintiff’s theory is otherwise correct, then it would logically follow that the first five instalments of the bonds, amounting to $215,000, are within the constitutional limit, and therefore valid.

3. At an election properly held upon due notice, September 17, 1895, the proposition so submitted was accepted by a vote of 1,602 for and 196 against the proposition. In issuing the bonds and placing them in escrow, the statutes appear to have been substantially complied with. E. S. 1878, secs. 943, 945; Keystone Lumber Co. v. Bayfield, 94 Wis. 494. An important question presented is as to the legal effect of such acceptance. The statute provides that, “ whenever any municipality shall incur any indebtedness by the issue of bonds or municipal obligations, all the territory embraced Avithin the limits of such municipality shall remain liable to the payment thereof, until such bonds or obligations are fully paid.” E. S. 1878, sec. 944. The statute also provides that if such “definite proposition in writing,” so made by the railway company, is “ accepted ” by the county, then it becomes “ irrevocably binding on sueh company.” E. S. 1878, sec. 945. It further provides that by such acceptance the proposition becomes “ mutually obligatory.” E. S. 1878, sec. 946. It further provides that, when such proposition is thus accepted, “ then the proposition so made by such company shall be deemed obligatory as a mxdual agreement on such company and such municipality.” E. S. 1878, sec. 948.. The language of the statutes seems to be clear, certain, and unambiguous. The issuing of 9,600 shares, at $25 each, of the capital stock of the railway company, so deposited in escrow, and the agreement of the company to construct the railway in sections, as indicated, certain-ly was a good consideration for issuing and agreeing to pay the bonds so deposited in escrow. The contract between the county and the company, therefore, was based upon a good and valuable consideration. Phillips v. Albany, 28 Wis. 340; Bound v. W. C. R. Co. 45 Wis. 543; Lynch v. E., L. F. & M. R. Co. 57 Wis. 430, 468; Hall v. Balter, 74 Wis. 118. Moreover, under the statute cited, it became mutually and irrevocably binding upon the county as well as the company.

There is no suggestion that such contract is repugnant to any constitutional inhibition, except as mentioned, nor that it is contrary to any principle of public policy. On the contrary, this court has repeatedly sanctioned the binding force of such contracts. Thus, it has been held that “ where a proposition for county aid to a railroad upon stipulated conditions has been submitted to the electors of the county, and approved by their vote, such conditions cannot afterwards be essentially modified by any agreement between the railroad company and the board of county supervisors.” Douglas Co. v. Walbridge, 38 Wis. 179. To the same effect, Platteville v. G. & S. W. R. Co. 43 Wis. 493. So, it was said by Mr. Justice Cole, in one of the cases cited, that “in a number of cases which have come before this court it has, in effect, been decided that a proposition for aid, submitted by a railroad company to the voters of a town or city, and accepted by the voters, becomes a contract mutually binding upon the railroad company and the town.” Bound v. W. R. C. Co. 45 Wis. 564. These adjudications are expressly sanctioned by Mr. Justice Pinney, speaking for the whole court, in State ex rel. M., T. & W. R. Co. v. Common Council of Tomahawk, 96 Wis. 73; and, upon the strength of other adjudications, he there said: “The legislature may confer directly the necessary authority for such purposes on the proper town, city, or county authorities to represent and act for the municipal corporation or organization, . . . and the municipal authorities may be compelled to issue the bonds if-the-contract has been performed on the part of the railway company.” State ex rel. G. B. & M. R. Co. v. Jennings, 48 Wis. 549.

4. Of course, the contract so made was an executory contract. Before any instalment of bonds was to be delivered to the company, or any taxes were to be collected to make payments thereon, the company was required to perform on its part and construct the section of the road called for by the contract. Keystone Lumber Co. v. Bayfield, 94 Wis. 491. The most important question in the case is whether such contract, when so made, became an indebtedness of the county, within the meaning of the constitutional provision quoted. That provision is found in the amendment of 1814: to sec. 3, art. XI, of the constitution. It was manifestly intended to prohibit abuses which formerly existed by reason of the failures of the legislature to sufficiently restrict the powers of municipalities in the matter of “ borrowing money, contracting debts, and loaning their credit.” See the section before the amendment. Mark the language of the amendment: “No county . . . shall be allowed to become indebted in any manner or for any purpose, to any amount,” exceeding the limit therein fixed. This language is broad enough to include the contracting of any such debt or the incurring of any such liability.

Thus, it was held by this court in Hebard v. Ashland Co. 55 Wis. 145, 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 court house, or for any other purpose, and a tax levied to pay such further alleged indebtedness is void.” Earles v. Wells, 94 Wis. 298. Such language has been construed to “forbid implied as well as expressed indebtedness.” Litchfield v. Ballou, 114 U. S. 190. So, it has been construed to be “ an. absolute limitation upon the power of the county to contract any and all indebtedness ” for any and every purpose whatsoever. Lake Co. v. Rollins, 130 U. S. 662. So, it has been held that the legislature cannot, either directly or indirectly, dispense with such limitation upon the power of municipal corporations “to incur debts.” Lake Co. v. Graham, 130 U. S. 674. So, it has been held, under such provision, that, “ when such municipality shall have reached the limit prescribed by the constitution, it 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.” Prince v. Quincy, 105 Ill. 138. So, it has been held that, “ where a city enters into a contract to pay a sum of money when certain work 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 to the time of the completion and acceptance of the work.” Culbertson v. Fulton, 127 Ill. 30. So, it has been 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.” Beard v. Hopkinsville, 95 Ky. 239; S. C. 23 L. R. A. 402. To the same effect, Howard v. Smith, 91 Tex. 8.

The authorities cited are all to the effect that the acceptance of the proposition was “ the incurring of such indebtedness,” within the meaning of the constitution. This is in harmony with the ruling of this court in Earles v. Wells, 94 Wis. 285, where it was held, in effect, that the city had no power to assume an obligation or incur a debt or liability iu excess of the constitutional limit.

5. There is another view of the question which leads to the same conclusion. The limit of such indebtedness, as fixed in the constitutional provision in question, is “five per centum on the value of the taxable property ” in the county, “ to be ascertained by the last assessment for state and county taxes previous to the incurring of such indebtedness.” The manifest purpose of ascertaining such value of the taxable property in the county by such “last assessment” previous to the incurring of such indebtedness-was to enable all parties to know in advance whether the debt so contracted was within or exceeded the constitutional limit. In the language of Mr. Justice LaMAb, speaking for the whole court, in one of the cases cited: “In this case the standard of validity is created b}r the constitution. In that standard two factors are to be considered,— one the amount of the assessed value, and the other the ratio between that assessed value and the debt proposed. These being exactions of the constitution itself, it is not within the power of a legislature to dispense with them, either directly or indirectly, by the creation of a ministerial commission whose finding shall be taken in lieu of the facts.” Lake Co. v. Graham, 130 U. S. 683, 681. In that case the indebtedness of the county was considered as of September 6,1881. The bonds were authorized by a vote of a majority of the electors, November 8, 1881, and the bonds were issued January 2,1882, and were payable in ten to twenty years. As indicated in that opinion, the two standards of validity created by the constitution, to wit, the amount of such assessed value and the ratio between that “ value and the debt proposed,” are indispensable requisites, and must always be kept in mind in determining the validity of any such contract. The legislature necessarily had them in mind when they provided that the acceptance of such proposition by the qualified voters of the county should be mutually and irrevocably binding, not only upon the company, but the county. This conclusion is irresistible from the fact that the same legislature which first proposed that constitutional amendment enacted those statutes essentially as they are now in force, except that such statutes provided that no bonds should be issued by any city, etc., to ant amount exceeding ten per centum upon the valuation of the taxable property therein as the same should “ appear upon the last previous assessment roll,” nor by a county exceeding such per centum “ upon the valuation of the property therein, as fixed by the last previous state board of equalization.” Laws of 1872, ch. 182. The present statute fixes the qualification of the voters for accepting the proposition as-those “who were assessed for taxes on real or personal estate in such municipality, as shown by the last assessment roll.” S. & B. Ann. Stats, sec. 946; State ex rel. C., M. & St. P. R. Co. v. Blackstone, 63 Wis. 362.

To hold that there was no liability on the part of the county by reason of such acceptance of the proposition, and no indebtedness incurred by the issuing of the bonds and placing them in escrow, until the completion of the road or some section thereof, and the delivery of the bonds, and that the question whether such constitutional limitation had been exceeded should be determined with reference to the last assessment prior to such completion of the road and delivery of the bonds, would not only overturn numerous decisions cited, but nullify the statutes and the provisions of the constitutional amendment quoted. Upon such theory, it would not be the majority of the qualified voters who had power to bind the county, but the manipulation of the different assessors who might happen to be in office at the time of such last assessment prior to such completion of the road and delivery of the bonds. If such assessors desired to defeat the payment of the bonds, they could easily do so by cutting down the assessment; and, if they desired to enforce such payment, they could do so by increasing the assessment. In other words, upon such theory, it would be untrue that the acceptance of the proposition was mutually and irrevocably binding upon the county as well as the company, since the county would not be bound at all, unless such subsequent assessment should be favorable to the company. Such uncertainty would not only produce endless confusion on the part of the county or other municipality in the matter of contracting debts, but render the bonds valueless as security for the construction of the road. All such confusion and uncertainty is avoided-by holding, as the law manifestly is, that the “ last assessment ” mentioned in the constitution is the last assessment prior to the acceptance of such proposition, or, in the language of the constitution, “the last assessment . . . previous to the incurring of such indebtedness.”

In support of the contrary proposition, counsel naturally rely, mainly, upon one branch of State ex rel. M., T. & W. R. Co. v. Common, Council of Tomahawk, 96 Wis. 73, cited above. In that case the railway company had commenced, and during the pendency of the action had seasonably completed, the road, and hence our attention was more particularly called to the rights of the parties after the railway had fully performed the contract on its part. But the writer of this opinion hereby assumes his full share of responsibility for all that is said in the Tomahawk Case, the same as though he had written the opinion himself. Nevertheless, after very careful consideration, we are constrained to hold that the conclusion reached on the branch of that case last mentioned is. contrary to the spirit, intent, and meaning of the statutes and the constitution, as well as numerous decisions in this and other courts, and hence to that extent must be regarded as overruled.

6. The aid was voted to the Washburn, Bayfield & Iron River Railway Company, “ its successors or assigns,” and hence the trial court properly held that the county could not escape any liability merely by reason of that company having assigned, transferred, and set over to the Bayfield Harbor & Great Western Railroad Company all its rights, '.privileges, title, and interest in and to such, subscription and bonds pertaining to or to be earned by the construction of the fifth and sixth sections of the road mentioned. Lynch v. E., L. F. & M. R. Co. 57 Wis. 430; Cass Co. v. Gillett, 100 U. S. 585.

We must hold that all the bonds are valid, except the last instalment of $25,000, for the construction of the sixth sec■tion of the road, and that they are void.

By the Court.— That part of the judgment sanctioning the validity of such last instalment of bonds is reversed, and the judgment in all other respects is affirmed, and the entry thereof is to be modified accordingly. Neither party is to 'iaave costs, except the plaintiff is to pay the clerk’s fees.

Winslow, J. In State ex rel. M., T. & W. R. Co. v. Common Council of Tomahawk, 96 Wis. 73, it ivas held that municipal indebtedness represented by railway aid bonds was "“incurred” within the meaning of sec. 3, art. XI, Const., at ’the time when the contract is performed by the railway •«company and it is entitled to the delivery of the bonds. This decision was made upon full consideration and argument of the question, and I see no good reason for summarily overruling it before the ink is fairly dry. I therefore dissent from so much of the present decision as overrules ■that case, but no more.