Williamson v. City of High Point

195 S.E. 90, 213 N.C. 96, 1938 N.C. LEXIS 16

Opinion

Winborne, J.

The right of plaintiffs, as taxpayers in the city of High Point, to maintain this action to test the authority of the city to issue the proposed bonds and to acquire and construct the proposed electric system, is too well recognized in this State to admit of debate. Therefore, if the plaintiffs be correct in their contentions, they are entitled' to injunction. Hence, we deem it unnecessary to consider the further claim of the intervening plaintiff, as a public electric utility entity, owning a lawful business, valuable franchises, and property rights, to the additional right to maintain the action against threatened competition from a municipally owned electric system to be constructed allegedly without legal authority.

Three questions arise on this appeal for consideration: (1) Do bonds, issued to enable a municipality to acquire and construct a revenue producing undertaking, an electric system, payable exclusively from the revenue therefrom, pledged in security therefor, constitute a debt of the municipality within the meaning of Art. VII, sec. 7, and of Art. V, sec. 4, of the Constitution of North Carolina?

(2) If not, on the facts presented on this record, has the city of High Point, under the Revenue Bond Act of 1935 and its charter as amended, the authority to issue the proposed revenue bonds ?

(3) On the facts presented on this record, does the city of High Point have the authority to acquire and construct the proposed electric system ?

The first question is answered “No,” on the authority of Brockenbrough v. Comrs., 134 N. C., 1, 46 S. E., 28. An electric plant for municipal use and for the comfort and convenience of the inhabitants of a municipality is a public purpose and a necessary expense within tbe meaning of Art. VII, see. 7. Fawcett v. Mount Airy, 134 N. C., 125, 45 S. E., 1029; Swindell v. Belhaven, 173 N. C., 1, 91 S. E., 369. Nothing else appearing, the city of High Point has the authority to contract a debt for such expense and levy a tax (1) up to the constitutional limitation, without a vote of the majority of the qualified voters without legislative authority, and (2) in excess of the constitutional limitation by legislative authority without a vote of the people. Palmer v. Haywood County, 212 N. C., 284, 193 S. E., 668, and cases cited therein. However, Art. V, see. 4, as adopted in amended form in 1936, except in certain cases not pertinent here, provides: “. . . The Gen-

eral Assembly shall have no power to authorize counties or municipalities to contract debts, and counties and municipalities shall not contract debts, during any fiscal year, to an amount exceeding two-thirds of the amount by which the outstanding indebtedness of the particular county or municipality shall have been reduced during the next preceding fiscal year, unless the subject be submitted to a vote of the people of the particular county or municipality.” In the instant case it is admitted of record that the amount of the proposed bonds is far in excess of the amount by which the indebtedness of the city of High Point was reduced during the last fiscal year. Therefore, if the proposed bonds be a debt within the meaning of Art. V, sec. 4, even though the purpose be a necessary expense, the Legislature has no power to authorize the city to issue them unless the question be submitted to a vote of the people.

The word “debt” is used in both Article VII, sec. 7, and Article V, sec. 4. • The sections are to be considered in pari materia. Parvin v. Comrs., 177 N. C., 508, 99 S. E., 432.

When so considered, the Broclcenbrough case, supra, is decisive of the question. In that case this Court first considered the question and approved the issuance of special revenue bonds. There the board of water commissioners, acting for the city of Charlotte, under ch. 271, Private Laws 1899, as amended by ch. 196 of Private Laws of 1903, was authorized to issue $200,000 in bonds “to acquire additional property and make such additional improvements thereto as may be necessary to at all times furnish the city of Charlotte with a sufficient supply of good, wholesome water,” and to be secured equally and ratably by a first mortgage or deed of trust upon all the property that constitutes the waterworks system, including such additional property.

The act there provides for the payment of the principal and interest on said bonds out of revenues collected from the said water system, and further provides: “That none of the funds of the city of Charlotte, raised by taxation, shall ever be applied to the payment of either the principal or interest of the bonds issued by virtue of sec. 6 hereof.” It is recited that: “The city has found it necessary to and has laid many miles of sewer and water pipes, and purchased tbe necessary implements, tools, etc., for tbe operation thereof, all of which are necessary for the protection of the property and health of said city and its inhabitants; that the present water supply is inadequate to meet the demands of public and private consumers and an efficient operation of said plant.” The resolution of the commission provided: “That neither the bonds authorized to be issued hereunder, the coupons attached thereto, nor the deed of trust securing the same, shall be deemed or held as creating any debt of the city of Charlotte, or as pledging the faith or lending the credit of said city for the payment of the indebtedness hereby authorized, and no action shall be maintained in any court against said city or any of its officers to enforce the payment of said indebtedness evidenced by said bonds, coupons, or deed of trust except as to the funds and property herein expressly charged with the payment thereof.” This Court, speaking to the question, said: “If, as contended by the defendants, the bonds proposed to be issued are not debts or liabilities of the city, or if the making and issuance of them be not pledging the faith or lending the credit of the city within the meaning of Art. VII, sec. 7, of the Constitution, several important and interesting questions discussed in the briefs will be eliminated. This question has not before been presented to or decided by this Court. The language of the Constitution declares that no county, city, town, or other municipal corporation ‘shall contract any debt, pledge its faith, or loan its credit,’ etc. The plaintiffs insist that the issuing of the bonds in controversy comes within this inhibition. ‘Debt’ is defined to be ‘that which is due from one person to another; that which one person is bound to pay or perform to another.’ Black’s Law Dict., 337. Perrigo v. Milwaukee, 92 Wis., 236. ‘An indebtedness within restrictions upon municipal indebtedness is an agreement of some kind by the municipality to pay money where no suitable provision has been made for the prompt discharge of the obligation imposed by the agreement.’ Sackett v. New Albany, 88 Ind., 473, 45 Am. Rep., 467. ‘A debt is a specified sum of money which is due from one person to another, and denotes not only the obligation of the debtor to pay, but also the right of the creditor to receive and enforce payment.’ S. v. Hawes, 112 Ind., 323. It would not be contended that upon the facts in this ease the city lends its credit or pledges its faith in regard to the proposed bonds. It does not endorse or guarantee their payment or assume any obligation in respect to them. Nor can its revenues be applied to the payment of them.” Then, after reviewing authorities elsewhere, the Court continued: “We can see no reason why the Legislature may not, under its general power to provide for the government of cities and towns and legislate in regard to them, authorize the board of water commissioners to apply the rents and tolls, as they accrue, to the purposes set out in the act and to pledge such application. The contract tbus made will be enforcible by appropriate remedies. ~We therefore bold that the bonds authorized by the Act of 1903 to be issued do not constitute a debt against the city of Charlotte; . . . that the Legislature has the power to authorize the issuing of bonds and the execution of the mortgage proposed to be issued- and executed pursuant to the Act of 1903. . . .”

“It is an established rule of construction that, where a constitutional provision has received a settled judicial construction, and is afterward incorporated into a new or revised Constitution, it will be presumed to have been retained with a knowledge of the previous construction, and the courts will feel bound to adhere to it.” 12 C. J., 717.

In this State, in Ferrall v. Ferrall, 153 N. C., 174, 69 S. E., 60, Holce, J., speaking to the same subject of construction, said: “The action of our constitutional convention in thus adopting a public statute of accepted construction and on a subject of momentous interest and making the same, in its entirety and very words, a part of our organic law, while not necessarily conclusive, affords well-nigh convincing evidence that the words were intended to bear their established meaning, and in this subject should so prevail as the law of the land,” citing Rhyne v. Lipscombe, 122 N. C., 650, 29 S. E., 57.

In Hall v. Redd, 196 N. C., 622, 146 S. E., 583, Stacy, C. J., said : “It is not proposed that the municipality shall contract any debt or loan its credit so as to involve the imposition of a tax. Hence, this renders Art. VII, sec. 7, of the Constitution, requiring a vote of the people, except for a necessary expense, inapplicable,” citing Brockenbrough v. Comrs., supra; Gardner v. New Bern, 98 N. C., 228, 3 S. E., 500.

Since the word “debt” as used in Art. VII, sec. 7, of the Constitution has been so interpreted by the Court, proper interpretation will give to it the same meaning in a later amendment to the Constitution as in Art. V, sec. 4.

The prevailing opinion in other jurisdictions is that the special fund doctrine, as enunciated in the Brockenbrough case, supra, to the effect that a contract by a municipality to purchase and pay for property for public purposes solely out of the net earnings of the property, without resort directly or indirectly to revenue derived from taxation, does not create a debt within the meaning of such constitutional provisions. Fairbanks v. City of Wagoner, 81 Fed. (2d), 209, note, page 216; George v. City of Asheville, 80 Fed. (2d), 55; 72 A. L. R., 688 n.

In view of the disposition hereinafter to be made of the present case, we deem it needless to determine whether any of the covenants between the city and the bondholders go beyond the holding in the Brockenbrough case, supra.

The second question is so closely interwoven with the third that the two may be considered together. Each is answered in the negative. This invites inquiry as to the authority and extent of authority of a municipal corporation in connection with a municipally owned and operated public utility.

The Constitution imposes upon the Legislature the duty to provide by general laws for the organization of cities, towns, and incorporated villages. Art. VIII, sec. 4. “It is said that the power of the Legislature to control them in the exercise of their municipal powers is somewhat more restricted than in the case of counties, yet both are but instru-mentalities of the State for the administration of local government, and their authority as such may be enlarged, abridged, or withdrawn entirely at the will or pleasure of the Legislature.” Murphy v. Webb, 156 N. C., 402, 72 S. E., 460.

In Holmes v. Fayetteville, 197 N. C., 740, 150 S. E., 624, Adams, J., said: “The powers of a municipal corporation are those granted in express words, those necessary or fairly implied in, or incident to, the powers expressly granted, and those essential to the declared objects and purposes of the corporation. . . . The dual capacity or twofold character possessed by municipal corporations is governmental, public, or political, and proprietary, private, or quasi-private. In its governmental capacity a city or town acts as an agency of the State for the better government of those who reside within the corporate limits, and in its private or quasi-private capacity it exercises powers and privileges for its own benefit. . . . The general rule is that a municipal corporation has no extra-territorial powers; but the rule is not without exceptions. The Legislature has undoubted authority to confer upon cities and towns jurisdiction for sanitary and police purposes in territory contiguous to the corporation. ... If a municipality owns and operates a water or lighting plant and has an excess of water or electricity beyond the requirements of the public, which is available for disposal, it may make a sale of such excess to outside consumers as an incident to the proper exercise of its legitimate powers. . . . It is equally clear that without legislative authority the defendant would not be permitted to extend its lines beyond the corporate limits for the purpose of selling electricity to nonresidents of the city.”

In Asbury v. Albemarle, 162 N. C., 247, 78 S. E., 146, Brown, J., said: “It is well settled that local conveniences and public utilities, like water and lights, are not provided by municipal corporations in their political or governmental capacity, but in that quasi-private capacity in which they act for the benefit of their citizens exclusively.”

Reviewing pertinent statutory authority with which the city of High Point is clothed, we find that the charter, Private Laws 1931, ch. 107, Art. II, sec. 4, provides that the city shall have the rights inter alia contained in: (1) C. S., 2791-2792, to purchase lands within and outside of the city, for electric lights, power systems, and other public utilities, with right of eminent domain; (2) C. S., 2807-2808, to own and maintain its own light and water systems, to furnish light to the city and its citizens and to any person, firm, or corporation desiring same outside the corporate limits, where the service is available,” and to fix rates for those outside different from those inside. The charter was amended by ch. 171, Private Laws 1931, by which the city was given the right to operate its water, sewerage, and electric light lines and system “for a distance not exceeding three miles” outside the city limits. The words “for a distance not exceeding three miles” were stricken therefrom by ch. 149, Private Laws 1935, so that the provisions of ch. 171 now read: “The said city of High Point be and it is hereby authorized and empowered, in its discretion, to extend, construct or purchase, maintain and operate its water, sewerage and electric lines and system ... in all directions beyond the corporate limits of said city as the same now exist or may hereafter be established; to sell and furnish electric current and lights in such area, and to charge for the use of such utility such rates as the city council may determine.” This act became effective upon ratification on 10 April, 1935.

Then in 1937 by two private acts, chs. 65 and 561, the powers of the Revenue Bond Act of 1935 were continued for four years for High Point to issue revenue bonds thereunder for any purpose now authorized by the Municipal Finance Act or any other law. C. S., 2787 (3) (5), authorizes all cities to purchase, conduct, own, lease, and acquire public utilities and to create, provide for, construct, regulate, and maintain all things in the nature of public works.

Conceding, therefore, that the city of High Point has express authority of the Legislature to purchase lands within and outside of the city for an electric power system, and to extend, construct, maintain, and operate such system in all directions beyond the corporate limits, and to sell and furnish electric current and lights to the users in such area, ordinarily such powers relate to and are limited by the proprietary capacity in which the city acts for the benefit of its citizens in a compact community.

But, be that as it may, the city of High Point is here undertaking to acquire and construct an electric system and to issue revenue bonds to finance same under the authority of the Revenue Bond Act of 1935. This act became effective 11 May, 1935. It contains provision that: “The powers conferred in this act shall be in addition and supplemental-to the powers conferred by any other general, special, or local law.” But it further provides that: “In so far as the provisions of this-act are inconsistent with any other general, special, or local law, the provisions of this act shall be controlling.” C. S., 2969 (13).-

In the act the Legislature expressly declares the policy of the State with reference to its purpose in this manner: “. . . No municipal-. ity shall operate such undertaking primarily for profit, but shall operate such undertaking for the use and benefit of the consumers served by such undertaking and for the promotion of the welfare and for the improvement of the health and safety of the inhabitants of the municipality.” C. S., 2969 (3).

Policy is a settled or definite course or method adopted and followed by a government. Webster’s International Diet. Ordinarily, where the law making power distinctly states its design, no place is left for construction. 59 C. J\, 960.

Further analyzing the Act of 1935, it is seen that, in addition to the powers which it may now have, any municipality as therein defined, including cities, shall have the power under this act: “(a) To construct, acquire by gift, purchase, or the exercise of the right of eminent domain, . . . any undertaking, within the municipality, and to acquire . . . lands or rights in land or water rights in connection therewith, (b) to operate and maintain any undertalcing for its own use or for the use and benefit of its inhabitants, and also to operate and maintain such undertalcing for the use and benefit of persons, firms, and corporations (including municipal corporations and inhabitants thereof) whose residences or places of business are (or which are) located in such municipality (italics ours) ; (c) to issue its bonds to finance in whole or in part the cost of the acquisition, purchase, construction, ... of any undertaking; (d) to prescribe and collect, rates, fees, charges for services, facilities and commodities furnished by such undertaking; and (e) to pledge to the punctual payment of said bonds and interest thereon an amount of the revenues of such undertaking . . . sufficient to pay said bonds and interest as the same shall become due and to create and maintain reasonable reserves therefor.” Thus, the right of acquisition, purpose of operation, and manner of financing of an undertaking are linked together, and limit the extent of the undertaking.

The narrative revealed by the findings of fact of the court below discloses that in the proposed undertaking and proposed bond issue the city of High Point is in conflict with the purpose and intent of the provisions of the act. These findings show that: The city owns and operates, in its proprietary capacity, a system for distribution of electricity for light, heat and power purposes, through which it sells and distributes electric current, purchased therefor. The system and supply of current are adequate and sufficient for the needs and requirements of the city and its citizens. For the fiscal year 1936-37 the net profit derived from the distribution system was approximately $200,000. The total power requirements during the calendar year 1935 within the city and in the vicinity thereof and adjacent thereto, including the requirements of the city itself, were 32,249,000 kilowatt hours. The current annually generated by the proposed system will be 104,000,000 kilowatt hours of electric power, consisting of approximately 60,000,000 kilowatt hours of primary and approximately 44,000,000 kilowatt hours of secondary power. The city is preparing and proposing to construct a system, to cost more than $5,500,000, “with transmission and distribution lines extending from said plant into and through the counties of Guilford, Forsyth, and Davidson, . . . for the purpose of engaging in the power business generally and of furnishing electric power and current to cities and towns, to industrial and commercial enterprises, to private individuals and the public generally for domestic, commercial, and industrial use.”

Such an undertaking goes far beyond the powers conferred by the Eevenue Bond Act of 1985, and is ultra vires. The excess power is not incidental to a plant operated “for its own use or for the use and benefit of its inhabitants.”

The defendant contends, however, that there is no evidence to support such findings, and that the only evidence in the record bearing upon the purpose of the city council is that expressed in the amendment of 80 June, 1937, to the original resolution authorizing the construction of the system, in which it is stated: “The electric system shall be constructed and operated primarily for the use and benefit of the city of High Point and the consumers therein, but any services, facilities or commodities furnished by the electric system which shall not, in the judgment of council, be immediately required for the use and benefit of the city and consumers therein may be sold to consumers outside the city.” Defendants request that facts be reviewed by this Court, and cite Mewborn v. Kinston, 199 N. C., 72, 154 S. E., 76, as authority. Brogden, J., there said: “The Court has the power to review facts in injunction proceedings. Peters v. Highway Commission, 184 N. C., 30, 113 S. E., 567. Nevertheless, there is a presumption that the judgment and findings of fact are correct, and the burden is upon the appellant to assign and show error. Plott v. Comrs., 187 N. C., 125, 126 S. E., 190.”

In the instant case there is no exception to the findings of fact by either plaintiffs or defendants. The record further shows that the statement of case on appeal as served by plaintiffs, service of which was accepted by defendants, contains the statement: “The following statement . . . does not contain all of the evidence relating to the court’s findings of fact to which there are no exceptions.” Under these circumstances, the findings of fact have the force and effect of a verdict by a jury and are conclusive. Art. IV, sec. 13, N. C. Constitution. Barringer v. Savings & Trust Co., 207 N. C., 505, 177 S. E., 795.

On these facts the court below erred in refusing to grant the injunction as prayed.

The judgment below is

Beversed.