Scott et al. v. City of Laporte et al., 162 Ind. 34

Gillett, J. Appellants, as taxpayers of the city of Laporte, commenced this action to enjoin the taking of certain steps by said city looking to the procuring of an additional water supply for its purposes and for the use of its inhabitants. Upon a final hearing an injunction was refused. A motion -for a new trial was filed, assigning as grounds therefor that the decision of said court was not sustained by sufficient evidence and was contrary to law. This motion was overruled, and an • exception duly reserved by appellants, and said ruling is assigned as error.

Answering a preliminary contention of appellees’ counsel, where a copy of an item of documentary evidence has been once set out in the bill of exceptions, it is sufficient, if a copy of the document is again read in evidence in another connection, to describe such item by words of general description, and show by an appropriate cross-reference where it is exhibited in the bill. Miller v. Coulter, 156 Ind. 290; Henry v. Thomas, 118 Ind. 23; McFadden v. Wilson, 96 Ind. 253; Colee v. State, 75 Ind. 511; Smith v. Lisher, 23 Ind. 500.

There is no question involved as to the opinion of the reporter that the instrument before copied and the one afterward referred to are identical. The effectiAre certification as to Avhat the eAÚdence Avas is that of the judge. Hauger v. Benua, 153 Ind. 642. If the clerk may pursue a like course in the preparation of his transcript, as oiir cases assert, much more ought it to be held that the trial judge may refer in a bill of exceptions to a prior portion of such bill.

As the original bill of exceptions is before us, thus preserving the original paging, there can be no element of uncertainty occasioned by the practice pursued in this instance. The material facts in this case are substantially as follows : The city of Laporte is incorporated under the general law for the incorporation of cities, and it had a population of a little less than 8,000 prior to the year 1900. In 1898, and for many years theretofore, the city had owned a water-works system, two lakes being the source of supply.

In August, 1898, the legal voters of said city had submitted to them a proposition to seek a water supply elsewhere, and the proposition was carried. Plans and specifications were thereupon prepared, calling for the building of a plant whereby the necessary water could be pumped and transported from a contemplated new source of supply to a reservoir that the city was to build adj acent to the pumping-station of said city. On July 24, 1899, the city, pursuant to advertisement, received bids for such plant, the lowest bid being $97,850, submitted by W. H. Wheeler.

The valuation of the property in the city for taxation in the year 1899 was $3,972,169. Its total indebtedness at that time (not counting street assessment warrants, which would afterwards be retired by the sale of bonds, which would be liens against the abutting property) was $45,359.40. On each'$100 of valuation the city tax levy for the year 1899 was $1.05, twenty cents of which levy was designated as on account of new waterworks fund, and the balance was levied for other purposes.

The bid aforesaid was brought to the attention of the common council through the report of a committee, and was made subject to acceptance “up to and until Tuesday, July 25, 1899, and not afterwards.” The committee recommended that the common council “accept the proposition of W. II.

Wheeler, of Beloit, Wisconsin, asking for a franchise,” and that certain designated members of said council be appointed as a special committee “to draft a franchise in accordance with this report to a company to be named £The Laporte Water Supply Company/ to construct a water-works plant in accordance with the plans and specifications and profiles on file in the office of the city clerk.” A resolution was thereupon adopted, appointing a special committee “to draft a franchise in favor of W. II. Wheeler & Company to construct a water supply plant” in accordance with such plans and specifications.

August 5, 1899, articles of association were filed for the organization under the laws of Indiana of a corporation to he known as the Laporte Water Supply Company. The capital stock of the corporation was fixed at $15,000, divided into 150 shares, of the pax value of $100 each. The incorporators were W. II. Wheeler, E. P. Wheeler, and George M. Allen, whose subscriptions to said capital stock aggregated $40,000. It may be stated in this connection that $5,000 of said stock was not subscribed at any time.

On August 1, 1899, said common council adopted an ordinance entitled “An ordinance granting to the Laporte Water Supply Company the right to construct and maintain a system of water-works for the purpose of furnishing water to the city of Laporte and its inhabitants.” Said ordinance provided that said company should have the right and privilege to erect, maintain, and operate a waterworks system in accordance with said plans and specifications for the period of twenty-one years from and after the passage of the ordinance.

It was further provided therein that the city would purchase of said company at least thirty million gallons of water per month, to be delivered in said proposed reservoir, to be paid for semiannually at the rate of three cents per thousand gallons, but the city was not to pay for any water not actually furnished. The ordinance also provided that the city would furnish said company the necessary live steam, delivered at sufficient pressure, to operate the machinery and pumps of said company to their full capacity.

Section five of said ordinance contains the following provision: “The city of Laporte hereby pledges the income and revenue of its waterworks system for the payment of water rentals accruing hereunder, and in addition it agrees to annually, in due time, manner, and season, levy a tax sufficient to amply supplement said* income and revenue, so that at all times the said water rentals shall be promptly paid.

In the event that the company shall issue bonds, the city of Laporte agrees to pay the rentals herein provided- for to the trustees for said bonds, as may be directed by the company.” On August 14, 1899, the common council adopted a resolution providing for the employment of an engineer and assistants to supervise the construction of said water-works syste'm by said company.

On the same date said council provided for the sale of bonds by the city to the amount of $30,000, the proceeds to be used in the purchase from said company of 300 shares of its capital stock, which the mayor and city clerk were authorized to subscribe for. On August 21, 1899, said stockholders, Wheeler, Wheeler, and Allen, signed and delivered to said city a writing, purporting to be a contract between said city and said stockholders, providing:

(1) That the stock subscription of said city of $30,000 should be paid to a trustee to be expended on orders given during the construction of said plant, and for that purpose, after said other stockholders had expended a like sum in its construction; and (2) that said other stockholders should deposit their stock in said company with said trustee, and indorse the certificates therefor in blank, and authorize said trustee to deliver said certificates to the clerk of said city upon 'the payment to said trustee, for the use of said stockholders, within one year thereafter, of the sum of $10,000.

On August 28, 1899, said company filed its written acceptance of said ordinance of August Y, 1899. On the same date, said Wheeler, Wheeler, and Allen contracted with the company that they would construct said plant for $30,000 cash, 350 shares of the stock of said company, and the mortgage bonds of said company to the amount of $60,000. There was a change made afterwards, by which, in consideration of delays and extras, the contractors were to receive $5,000 additional, payable in the bonds of the company, and $5,000 additional, payable in the stock of said company.

The sale of said city bonds and the investment of the proceeds thereof, as provided by said ordinance of August 14, was reported to the council September 25, 1899. On the next day a bond issue of the company to the amount of $65,000 was authorized by the stockholders and directors thereof, secured by a mortgage on the proposed plant of said company and by an assignment of its contract with the city of Laporte. At the same time the issue of bonds of said company was reported sold by the said Wheeler, Wheeler, and Allen to third parties, the proceeds to be paid to them, the said contractors.

The plant was built under the supervision of an engineer employed by the city. On May 2, 1900, a special committee of the council reported that the plant was completed, and on the same date said council accepted a proposition of said Wheeler, Wheeler, and Allen to purchase 398 of their said shares of stock for $9,950. On June 11, 1899, a special committee of the council reported that it had consummated gaid transaction, and it appears that the remaining two .shares of stock that were held by said contractors were fiurped over by them to certain citizens of Laporte, prefsu,mably for the «benefit of the city.

It appears .that said water company has never possessed ¡any property .other than such property as was vested in fit ;by the .transactions with it. above recited. The defense ■offered ¡testimony ¡tending to show that there was no agreement among the members of the common council that the option of August 21, 1899, should be accepted by the city, and it further offered testimony to the effect that three cents a thousand gallons was a reasonable price to pay for water under the circumstances. This action was commenced August 26, 1899, and on October 18, 1900, a supplemental complaint was filed.

It is unnecessary to make a detailed statement of the averments of these pleadings. The Laporte Water Supply Company was made a defendant, but the holders of the $30,000 issue of bonds by the city and of the water company bonds were not made parties. It is contended by counsel for appellants that the evidence shows that the transaction as a whole was but an attempted, evasion of

article 13 of the Indiana Constitution, relative to municipal indebtedness, and should therefore be condemned, citing Mayor, etc., v. Gill, 31 Md. 375; Brown v. City of Corry, 175 Pa. St. 528, 34 Atl. 854; Ironwood Water-Works Co. v. City of Ironwood, 99 Mich. 454; Earles v. Wells, 94 Wis. 285, 68 N. W. 964, 59 Am. St. 885; Newell v. People, ex rel., 7 N. Y. 9; Culbertson v. City of Fulton, 127 Ill. 30, 18 N. E. 781; Hebard v. Ashland County, 55 Wis. 145, 12 N. W. 437; City of Joliet v. Alexander, 194 Ill. 457, 62 N. E. 861; State, ex rel., v. City of Helena, 24 Mont. 521, 63 Pac. 99, 81 Am. St. 453; Browne v.

City of Boston, 179 Mass. 321, 60 N. E. 934; City of Springfield v. Edwards, 84 Ill. 626; City of Ottumwa v. City Water Supply Co., 119 Fed. 315, 56 C. C. A. 219, 59 L. R. A. 604. The city practically owns the corporation that owns the addition to the water-works, subject to a bonded indebtedness of $65,000, and to obtain this equity the city has been compelled to invest $39,950, $30,000 of which was raised by a sale of the city’s bonds. If the plant shall be finally paid for it will cost the city $104,950, aside from interest.

It is true that.-the city has not engaged to pay the $65,000 bonded indebtedness of the water company — that is, eo nomine — but the ordinance of August 1, 1899, assumes to bind the city, in addition to furnishing the energy to pump and transport the water, to pay $10,800 per year for twenty-one years as water rentals, which amount is to be paid to the trustees of the bondholders of the company, and in addition the ordinance assumes to hypothecate the water plant of the city and pledge the city’s power of taxation that such fixed charges shall be met.

We are not at liberty, however, to view the transaction entirely from the standpoint of the city. A corporation has in fact been created, which has negotiated its securities, and it is not alleged that the purchasers or the holders of such securities had any notice of the option agreement of August 21, 1899, which it is to be borne in mind was not of record. We shall therefore assume that whatever the city was endeavoring to do in the use that it was making of the Laporte Water Supply Company, those who invested in the bonds of the city or the bonds of the water company had no notice of such purpose.

It is provided by statute that a city in the general class may become a part stockholder in a water-works corporation by subscribing to its .capital stock, and may borrow money to pay its stock subscription. §3541, subdivision 20, §3614 Burns 1901. Counsel for appellants do not assail this statute, and therefore we assume its validity.

Moreover, we find that the supplemental complaint proceeds on the theory that the $30,000 bond issue of the city is valid, since it charges that upon the sale of said bonds “the said city became indebted to the full amount of two per cent, of its taxable property, as ascertained by the last assessment for state and county taxes prior to the sale of said bonds.” We may assume that the $65,000 bond issue is a charge upon the physical property of the Laporte Water Supply Company, in view of the state of the record, but we may properly examine the claim that the city is bound to perform the terms of its ordinance respecting the quantity of water to be purchased from the company, since all persons must take notice of the limitations upon the power of a municipality to contract that arise by virtue of the general law.

Platter v. Board, etc., 103 Ind. 360; Shea v. City of Muncie, 148 Ind. 14, and cases there cited. The powers conferred upon municipalities must be construed with reference to the object of their creation, namely, as agencies of the state in local government.' “A municipal corporation,” says Mr. Justice Bradley, “is a subordinate branch of the domestic government of a state. It is instituted for public purposes only; and has none of the peculiar qualities and characteristics of a trading corporation, instituted for the purposes of private gain, except that of acting in a corporate capacity.

Its objects, its responsibilities, and its powers are different. As a local governmental institution, it exists for the benefit of the people within its corporate limits. The legislature invests it with such powers as it deems adequate to the ends to bo accomplished.” Mayor, etc., v. Ray, 19 Wall. 468, 475, 22 L. Ed. 164. See Schneck v. City of Jeffersonville, 152 Ind. 204. The statute under which a municipal corporation is created is its organic act.

Such a corporation can only exercise the following powers: Birst, those granted in express words; second, those necessarily implied in or incident to the powers expressly granted; and, third, those essential to the declared objects and purposes of the corporation, not simply convenient, but indispensable. Dillon, Mun. Corp. (4th ed.), §89, and eases there cited; Muncie Nat. Gas Co. v. City of Muncie, 160 Ind. 97, 60 L. R. A. 822; Pittsburgh, etc., R. Co. v. Town of Crown Point, 146 Ind. 421, 35 L. R. A. 684; Kyle v. Malin, 8 Ind. 34; Smith v. City of Madison, 7 Ind. 86. In Spaulding v.

City of Lowell, 23 Pick. 71, Shaw, C. J., speaking for the court, said: “In aggregate corporations, as a general rule, the act and will of a majority is deemed in law the act and will of the whole, * * * as the act of the .corporate body. The consequence is, that a minority must be bound, not only without, but against their consent. Such obliga-. tion may extend to every onerous duty, to pay money to an unlimited amount, to perform services, to surrender lands, and the like.

It is obvious, therefore, that if this liability were to extend to unlimited and indefinite objects, the citizen, by being a member of a corporation, might be deprived of his most valuable personal rights and liberties.

The security against this danger is in a steady adherence to the principle stated, that corporations can only exercise their powers over their respective members, for the accomplishment of limited and well-defined objects.” The presumption is that any power has been withhold that is not expressed or fairly to be implied, and therefore all reasonable doubts as to the existence of a power in a municipality must be resolved against it. Smith v. City of Madison, supra; Kyle v. Malin, supra; Pittsburgh, etc., R. Co. v. Town of Crown Point, supra; Lake County Water & Light Co. v. Walsh, 160 Ind. 32; State, ex rel., v.

Indianapolis Union R. Co., 160 Ind. 45, 60 L. R. A. 831; Ravenna v. Pennsylvania Co., 45 Ohio St. 118, 12 N. E. 445; Detroit Citizens St. R. Co. v. City of Detroit, 110 Mich. 384, 68 N. W. 304, 35 L. R. A. 859, 64 Am. St. 350; City of Corvallis v. Carlile, 10 Ore. 139, 45 Am. Rep. 134; Dillon, Mun. Corp. (4th ed.), §89; Smith, Mun. Corp., §673; Cooley, Const. Lim. (6th ed.), 231; 20 Am. & Eng. Ency. Law (2d ed.), 1140. The general disposition of the courts of this country has been to apply to those corporations substantially the same rule that is applied to charters of private corporations. Cooley, Const.

Lim. (6th ed.), 231; Smith, Mun. Corp., §673. Even general and indefinite grants of power are subject to be controlled by the nature of the charter and the par-' ticular powers granted. City of Winchester v. Redmond, 93 Va. 711, 25 S. E. 1001, 57 Am. St. 822; Mayor, etc., v. Putnam, 103 Ga. 110, 29 S. E. 602, 68 Am. St. 80; Cook County v. McCrea, 93 Ill. 236. And see, by way of illustration, City of Logansport v. Humphrey, 84 Ind. 467. Tlie following is a quotation from Cook County v.

McCrea, supra: “But it is contended that there is an implied power to that end embraced in the provision conferring upon county boards power ‘to'manage the county funds and county business, except as otherwise specifically provided.’ This can not be understood to give to county boards the absolute and unlimited power of management of county funds, where there is the absence of any specific provision of law to the contrary, It hardly means more, we think, than a power to.manage the county funds and county business according to law.” In Rothrock v.

Carr, 55 Ind. 334 — a ease involving the construction of a statute relative to the powers of boards of county commissioners - — this court said: “The words to ‘make allowances at their discretion,’ as used in the above section, mean to make allowances according to law, at their discretion.” If

an act that is done on behalf of a municipality can not be justified when tested by a consideration of the general nature of the charter and the particular powers granted, no argument of advantage, or even of necessity, in the particular instance, will suffice to beguile the court into becoming a party to the usurpation. To make considerations of this kind the basis for a judicial recognition of power “would lead,” to adopt the language of the supreme court of Massachusetts, “to a latitude of construction in regard to corporate powers and duties which would be in a high "degree dangerous.” Anthony v.

Adams, 1 Metc. (Mass.) 284. The powers that are implied because they are essential to the declared objects and purposes of a municipal corporation are ordinarily few in number, and need not engage our attention here. It is also clear that under the Indiana act relating to cities of the general class, where specific grants of authority-have well marked the path of corporate privilege, there is little, if any, opportunity for difficulty in determining what is an authorized corporate end. Many perplexing questions arise, however, as to the means that municipalities may adopt to effectuate their grants of power.

We think that it may he laid down generally, however, that an implied power must he directly and immediately appropriate to the exercise of the principal authority. Smith, Mun. Corp., §673. If there are two ways of attaining an authorized municipal end, and both of such ways are proper, the governing body has a choice as to which of such means it will select; but where the means selected has not been directly authorized, such means must be reasonable, and the exercise of the discretion on the part of the governing body is in such cases subject to review by the courts on the point of reasonableness. Champer v.

City of Greencastle, 138 Ind. 339, 24 L. R. A. 768, 46 Am. St. 390. Within the scope of authorized municipal purposes the courts will be careful to accord to municipalities authority enough fully to accomplish their granted powers, but it is enough to condemn a course that has been selected, where not plainly authorized by the legislature, that it involves a wide and unnecessary departure from municipal usage. For the purpose of illustrating this point, we quote the following from the case of Spaulding v. Inhabitants of Peabody, 153 Mass. 129, 10 L. R.

A. 397: “Under the special acts whereby Boston was authorized to maintain street lamps, it could not have been held that the town or city was authorized to engñge in the whale fisheries for the purpose of procuring oil. The intention was that the oil for the lamps should be bought as persons generally bought oil used for lights.

Towns are authorized to raise money for the support and employment of the poor, but it could not reasonably be held that it was intended that towns should at public expense erect and maintain factories for the manufacturo of all of the clothing which the poor might wear, or of all the implements which they might use. Towns are authorized to raise money for carrying pupils to and from the public schools, but this could not be held to authorize towns to maintain a street railway or railroad.

Towns are authorized to maintain public libraries, but this does not mean that they can maintain paper-mills and printing establishments for making books for the libraries. These are undoubtedly extreme examples, but they illustrate the necessity of a somewhat strict construction of the statutes relating to the powers of towns.” Subdivision 26 of §3541 Burns 1901 authorizes a city to construct works for furnishing the city with wholesome water, and the subdivision further provides that the common council may authorize a private corporation to construct such works.

This subdivision, when taken in connection with some of the more general grants of power in other subdivisions of the same section, would authorize the city to obtain an element of such primal necessity as water for the use of its inhabitants. City of Crawfordsville v. Braden, 130 Ind. 149, 14 L. R. A. 268, 30 Am. St. 214; Rushville Gas Co. v. City of Rushville, 121 Ind. 206, 6 L. R. A. 315, 16 Am. St. 388. Was the ordinance of August 7, 1899, above mentioned, a reasonable one?

It in part purported to be a contract for the purchasing of.water by the city for a period of twenty-one years, in quantities of at least thirty million gallons per month, a large part of which, as we judicially know, it would have to sell again if it were disposed of at all, and this surplus the city undertook to pay for whether it exceeded the needs of the city and its inhabitants or no.

This element, together with the furnishing of energy by the city to pump and transport the water, and the undertaking to pay the rental to the trustees of' the bondholders, make it apparent, upon the whole, that there was in effect an undertaking on the part of the city to stand sponsor for the whole transaction. Moreover, we find that in its practical working this plan will enable the water company, within the period of the contract, to retire a bonded indebtedness of $65,000.

Of course, it is to be presumed that a private business corporation is established with the expectation that it will yield an adequate return upon the money invested in it, but it would not ordinarily be expected that a third person would guarantee the exjoectation. Such transactions may not be unknown to the mercantile world, but the assumed underwriting of a financial project by a municipal corporation on behalf of a private corporation, in the absence of a statute clearly authorizing it, would certainly be ultra, vires. A municipality can not loan its credit to purely private undertakings. Clark v.

Des Moines, 19 Iowa 199, 87 Am. Dec. 423; Cooley, Const. Dim. (6th ed.), 262. Rot only is the legislature wanting in power to delegate authority to municipal corporations except for public purposes, but the foundation idea of taxation is that the purpose is public, and a taking for any other purpose would at best be but a disguised form of confiscation. Ottawa v. Carey, 108 U. S. 110, 2 Sup. Ct. 361, 27 L. Ed. 669; Loan Assn. v. Topeka, 20 Wall. 655,, 22 L. Ed. 455; Cole v. LaGrange, 113 U. S. 1, 5 Sup. Ct. 416, 28 L. Ed. 896; Opinion of the Justices, 150 Mass 592, 24 N. E. 1084, 8 L. R.

A. 487; Opinion of the Justices, 155 Mass. 598, 30 N. E. 1142, 15 L. R. A. 809;: Sharpless v. Mayor, 21 Pa. St. 147, 59 Am. Dec. 759;: State, ex rel., v. Osawkee Tp., 14 Kan. 418, 19 Am. Rep. 99; Mather v. City of Ottawa, 114 Ill. 659, 3 N. E. 216; Attorney-General v. City of Eau Claire, 37 Wis. 400; State v. City of Eau Claire, 40 Wis. 533; Hanson v. Vernon, 27 Iowa 28, 1 Am. Rep. 215; Opinion of the Justices, 58 Me. 590; Allen v. Inhabitants of Jay, 60 Me. 124, 11 Am. Rep. 185. As said by Appelton, C.

J., in the case last cited: “All security of private rights, all protection of private property is at an end, when one is compelled to raise money to loan at the will of others, * * * for their own use and benefit, when the power is given to a majority to lend or give away the property of an unwilling; minority.” The mere fact that a city makes an authorized, contract with a private corporation that incidentally increases the latter’s credit will not condemn the transaction.

Here, however, the foundation of the transaction was illegal, and as it started in a step aside from corporate privilege, the ■extensive credit sought to be given, since it led in the direction of such divergence, only illustrates how far from the path marked out by the legislature the city has proceeded.

We do not doubt that the procuring of water for the use of the inhabitants generally of a city is a public service, although the service affects the inhabitants in their individual, rather than in their collective, capacity, and, as stated above, we do not doubt the power of cities under existing legislation in this State to furnish water to their inhabitants, at least in connection with the procuring of a supply of water for purely public purposes.

We would not be understood either as intimating that with legislative authority a city might not reasonably aid a private corporation to enable it to furnish water to the city and its inhabitants. In a doubtful case much deference would bo paid to. a legislative declaration that a use is public, but it is not to be lightly implied that such a power has been granted to the cities of the State. As there is nothing in the statutes to lead to the conclusion that the grant necessary to uphold the act in question has been made, we need not consider the legislative authority; for, as was observed by Mr.

Chief Justice Waite, in Ottawa v. Carey, supra, “no matter how much authority there may be in the legislature to grant a particular power, if the grant has not been made, the city can not act under it.” It is no answer to the objections that we have pointed out that the city of Laporte is the owner of practically all of the stock of the private corporation.

The latter has in form executed-an assignment of the city’s undertaking of August I, 1899, to the trustees of the company’s bondholders, as well as of all else that it owns, by way of security, and, as a result of a sale on foreclosure, such undertaking, if valid, might, with the other property of the company, pass into the hands of a stranger, leaving the city, while bound to perform its contract, possessed of no property of the Laporte Water Supply Company except its corporate shell.

It may be further suggested in this connection that the city was not the owner of even a majority of the stock in the water company at the time the ordinance was enacted, and it was denied upon the trial that it was intended at the time the option agreement was delivered that the city should purchase the balance of the stock. If the ordinance of August 1, 1899, was not valid when made, it is not valid now, and we can not treat it as valid now unless we are prepared to admit that if the city had not elected to exercise the option that it afterwards received, the ordinance would still have been valid.

It is our conclusion that the city was not bound to take water from the water company under the terms of said ordinance. The court below should have enjoined the city from receiving water under said ordinance, and should have further enjoined the city from making payments out of its own revenues on account of said undertaking. Following the line of argument of appellants’ counsel, the constitutional question suggested during the course of this opinion should have been first decided.

As it is our duty, however, to avoid the consideration of a constitutional question where another ground is perceived on which the decision may rest, we have put our decision on the ground that the city exceeded its chartered powers in the particular mentioned. Judgment reversed, and a new trial ordered.