916
94 FEDERAL
CITY OF HELENAv. MILJ"S. , (Olrcuit Oourt of Appeals, Ninth Circuit. May 2, 1899.) No. 510. MUNICIPAJ,'CORPORATIONS,- CONSTITUTIONAL LIMITATION OF IliDEBTEDNESSCONTRACT FOR WA'l'ER SUPPLY.
Under the constitution of Montana, which limits the Indebtedness of municipal 'wrporatlons, and prpvidestba:t all obligations' in excess of the amount so limited shall be void, a city not authorized by. statute to levy and collect a Special tax for )Vater purposes, and which is already Indebted the constitutional limit, has no power to bind itself by a contract fora silpply of water to be furnished for municipal purposes;, and a claim accrned for water furnished under .such a contract Is ,Within theconstitutioWitprohibltlon, and cannot be enforced.
In Error to the Circuit Court of of Montaa'la.
United States for the District
It ISSQught by the writ of error In this case, to review a rendered by the cirCUit Court upon the pleadings In lin' action brougbt by tbe defendant inericir to recover for water furnlsbed to' the' City of Helena under a contract made in 'pursuance of an ordinance of the city approved by the mayor on August 17i ;],81i}7. ' : . Theord,inance provided, other tblIjlgs, that James H. Mills, as tbe receiver of tbeHelena Consolidate.d Water Company, should furnlsb un full, ample, sufficient supply of good, pure, wholesome and clear water through said plant and system and the bydrants thereto connected, to the city of Helena for fire, sewerage and other Illllnicipal purposes, for a peri<jdof five years from the fu:st day of August, A., D, 1897." The ordinance further provided that if, within 30 days after its passage, tbe receiver sbould file with the city clerk bis acceptance of its terms,ltsbould go into effect and operate as a contract between the parties. The receiver accepted the ordinance, and bas since supplied the. city witb water. Tn May, 1898, the city refused to pay tberefor. The complajnt alleged these facts,: and further stated that the water plant operated by the receiver is the one in the city of Helena, and was tp.e only one at the time of the passage of tbe ordinance; that no other person or corporation was able at the time when said ordinance was passed, or for a long time prior tbereto, or at any time since, to furniSb water to the city of Helena for the purposes specified inthe or4Inan.ce; that the city has since th.e passage of the .ordinance levied and. collected taxes sufficient to meet the amount provided for in the ordinance. answer admitted all of said facts, but alleged that at the time when the contract was entered into, and at all times since, the city of Helena could have entered into a contract with responsible parties to supply it with water within six Illonths from the making of such contract, and that within such period the city could have. been supplied with water from sources other than those controlled by the .defendant in error, and that the contract was entered into without advertising for bids, and that, had the city asked for bids, and offered to enter into a contract with tbe successful bidder to supply it with water within six months thereafter, responsible parties other than the defendant in error would have bid; that prior to the ordinance the receiver and the water company had for more than two years supplied the city with water without any express contract. The answer further alleged that the city is, and eyer since the passage of said ordinance.has been, indebted beyond the constitutl.onallimit; that during IJ,one of such time has the assessed value of property in the cityexceeded $12,656,783, nor the aggregate indebtedness been less than $559,704. A judgment was rendered upon the pleadings in favor of the plain"' tiff In the action. ,
T. J. Walsh and Edward Horsky, for plaintiff in error. Cla.rberg, Corbett & Gunn, for defendant in error.
CITY OF HELENA V. MILLS.
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Before GILBERT and ROSS, Circuit Judges, and HAWLEY, District Judge. GILBERT, Circuit Judge, after stating the facts as above, delivered the opinion of the court. , It is contended that the contract between the city of Helena and the receiver of the water company is void-First, because it was enteredinto without asking for bids, as required by section 4807 of the Political Code of Montana; and, second, because the city was indebted beyond the constitutional limit when the contract was made,and that, even if the contract is not void, the judgment could not law-, fully be rendered against the city, because it was indebted beyond the constitutional limit at the time when the indebtedness became due. The constitution of }fontana, which was in force when the contract was made, provides as follows (article 13, § 6): "No city, town, township or school district shall be allowed to become in·. debted in any manner or for any purpose to an amount, including existing indebtedness, in the aggregate exceeding three per centum of the value of the taxable property therein, to be ascertained by the last assessment for the state and county taxes previous to the incurring of such indebtedness, and all bonds or obligations in excess of such amount given by or on behalf of such city, town, township or school district shall be void."
From the pleadings it appears that at the time of making the contract, and ever since, the actnal indebtedness exceeded $559,000, whereas the permitted indebtedness was no more than $379,703.49. Did the amount due, and for which judgment was recovered, consti· tute an indebtedness against the city, within the meaning of that term as it is used in the constitution? The question has heretofore been twice presented to the supreme court of Montana. The case of Davenport v. Kleinschmidt, 6 }Iont. 502, 13 Pac. 249, involved the validity of a contract for a water supply made by the city of Helena.. The charter of the city at that time prescribed "that said city shall not be authorized to incur any indebtedness on behalf of said city for any purpose whatever to exceed the sum of $20,000." At the time of making the contract the bonded indebtedness of the city was $19,500, and its floating debt, consisting of outstanding warrants, was $15,000. The court held that no further indebtedness could be incurred until some of the outstanding debt had been discharged. In reaelling that conclusion the court considered the nature of the obligation incurred by the city for its annual supply of water, and held that it was an indebtedness, within the meaning of the provision of the charter. It distinguished that case from cases in which a special provision had been made for levying a special tax to meet water rental, as in the case of "Yater Co. v. \Yoodward, 49 Iowa, 61, and said: "In all of the water cases arising in the state of Iowa, we are met with the general statute which authorizes all cities to contract for the erection of waterworks, and to pay for the water used by a special fund raised by a special annual tax not to exceed five mills ,on the dollar. Such contracts with water companies were held not to create a debt against the cities, because the water companies could never have a.ny general claim against cities, but were held tQ look to the special fund alone."
:i1ie/Ukdision was rendere(nri l 'acf ",ris passed by the legislature of Montana providing for the levy of a special tax of 1:i per cent. upQn the assessable property to a special fund for the payment of bills for fire arid water. While tnat,'statute was in force, and 'V,hile Montana was still a territory, of Great Falls a\contrad f,or the supply of water;i'wdin' the case of State Oity bf: Great.' Falls; 19 'MaJiit:. 518, 49 15,' the question arose whethet', the liability saiMttrfe(i was arl'indebtedness, within the,i:\iean:ing of the act of congress lim,iting the indebtedness of municipal in the territ';)ries. The act of congress provided "'. ' . ' "'l,'liat no politiCal or municipal corpo,tati<ln, county, or other subdivision in any' 'of' tM territories of' shall ever become indebted in any manner'or for any purpose to any amOUIl1i in the aggregate, !including existing property indebtedness, exceeding fOlj.r per centum on the value of:j:he. within such corporation, county, or subdivision, to be ascertained by the last assesslllent 'for territorial and county taxes previous to' the' in"Currlng of such indebtl!dtiess;"24 Stat. 171.' ' , : .' . ,. i " " .' "
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ThedOurt said: "The, dontract was entered into in contefuplatlon of aspecialfund being created 'bY 'tile city to meet liabilities incurred thereunder. and the legislature, in said act. contemplated at the time that cities of the'tllttitory should pay tor watE!r used by them for :rul'}loses fliOxn, ,taxes levied and collected ,f9r that specific purpose. ,TM: Qr, Kleinschmidt, supra; tloosnot disapprove the Iowa caSesi 'lii>lding tliat,"because a general Ulw provided 'for payment from a special·fund.,a liability Incurred by a city to supplY,1ts'inhabitants with'fater wllSuQta debt, in the Sense of the term as eJUplqyed in the constitution of Iowa:: · ' . . It follows, from this of tM case 'tIiatnelther under'the organic act: bt the territory of Montana nor the 1 cOMtitiItion of ,the state Of Montana is 'or was the liablllt:t incurred by the city of Great Falls under Ordinance 17 a debt; rin ,the sense prbbibited."
'But',wh'en' the Montana C9des adopted,in the year 1895, the statute whiqh the decjj;jipn in the (}reat .Falls.. Case was repealed.. , There 'no 'statute creating a special fund for' pl}yment of rentals. The conditions again e;xisted under which the had been mad,e in Davenport v. Kleinschmidt. the law which governed the city when the present indebtedneSS was incurred are the following (Pol. Code, § 4872): '" ', ', , "The counqlI must, on the second in Augustin eacb year. by resolution, determine the amount of city or town taxes for all purposes, to be levied and assessed on the taxable property in the town or city for the current year, and the city clerk must at once certify to the city treasurer a copy of such resolution, \LUll the city treasurer must COllect the taxes as in, t1:lis article provided."
And Pol. Code, § 4814: "The amount of taxes to be assessed' and levied for general municipal or administrative purposes must not exceed one per centum on the as_sed value of the taxaO,le property o,t the city or tQwn, and the council may distribute the money,iutosuch funds Mare, prescribed,by ordinance,"
Recrirl'ing to the two ,decisions of the Montana courts, it may be said, in brief, that Davenport v. Kleinschmidt is authority for the proposition that a liability incurred for water rental is a debt, within the prohibition of the statute, for it is payable out of the
919
general taxes levied and collected for the current expenses of the city, and that the Great Falls Case is authority for the proposition that such liability is not such an indebtedness, if express authority has been given the city to levy a special tax, and thus create a separate fund for the payment thereof. The defendant in error contends that the provisions of the general law of Montana governing cities at the time when the contract involved in the present case was entered into are equivalent to a provision for a special tax, and the creation of a special fund for the payment of water rental, for the reason that the 'council is given the authority to estimate the current expenses of each year, and to raise a general tax sufficient to meet them all, which would, of course, include rent for water, and because the ordinance under which the contract was made appropriates out of such general fund each year an amount sufficient to pay the annual sum which was agreed to be paid for water. It is argued that there is no difference between a fund arising from the levy of a special tax for fire and water purposes, and a fund appropriated for those purposes out of moneys received from taxes levied for general purposes. The same argument was applicable to the case 9f Davenport v.Kleinschmidt. The city of Helena, at the time when the contract was made in that case, had the po;wer-as, indeed, have cities generally-to estimate its current expenses, and to include therein a tax for water and fire purposes. It also had the authority by ordinance to appropriate out of sucb taxes a sum sufficient to meet its contracts for such purposes. ,But those facts, in the opinion of the court, created no exception to the limitation of the charter. In the later case of the City of Great Falls the doctrine of Davenport v. Kleinschmidt was not questioned, but was approvep. The Gi'eat Falls Case was distingu'ished from the former case on the groulld which we have just indicated. Both cases are in harmony with the general doctrine established b,y the decided weight the contract of a nnmicipal corporation. for a. useflU alld necessary thing, such water or light, which is to be paid for annually as furnished, does not create an indebtedness for the aggregate sum of all the yearly payments since the debt of each year comes into existence only when the annual compensation has been earned, but that, if the amount agreed to be paid in any instaLlment in compliance with such contract transcends the amount of permitted indebtedness; the city is not liable therefor. City of Walla Walla v.Walla Walla Water Co., 19 Sup. Ct. 77; Grant v. City of Davenport, 3G 'Iowa,396; City of East St. Louis v. East St. Louis Gaslight & Coke Co., 98 III. 415; Merrill Railway & Lighting Co. v. City of Merrill, 80 Wis. 358, 49 N. W. 965; Prince v. City of Quincy, 105 Ill. 138; Foland v. Town of Frankton, 142 5·16, 41 N. E. 1031; Smith v. D'edham, 144 Mass. 177, lON. E. 782; Wade v. Borough of Oakmont (Pa: Sup.) iW Atl. 959. Such was the tlecision of this court, also, in the case of Keihl v. City of South Bend, 22 C. C. A. 618, 16 Fed. 921, where it was held that a contract entered into by a city at a time when the full amount of its permitted indebtedness had been incurred did not of itself an indebtedness in con-
statecons'titution, but created i condition upon which: 1stlclla debt might arise, and that the city was not liable foran:allnual installment thereunder which came due at a time when the Hty:was taxed beyond the limit. In: the case of City Of 'WaHa Walla v. Walla Walla .Water Co., 19 Sup. Ct. 77, the suprenie;court had, litlder consideration a provision of the charter of the city of Walla Walla,in the state Of Washington, which limited the indebtedness of, the city to the sum of $50,000. On March 15, 1887, an ordinance was passed granting to the water company for the period of 25 years the right to place and maintain mains and pipes in the streets of the city for the purpose of furnishing the inhabitants with water; the city to pay therefor each year the sum of $1,500. After the contract had 'been in force for about six years an ordinance· was passed to provide for the construction of a system of waterworks to supply the city and its inhabitants with water: The water company' brought suit to enjoin the infringement of its rights, and in. its answer to the bill the city set up the defense that its contract with the water company was void because it 'created an indebtedness in excess of the charter limitation. The supreme court, after reviewing the authorities, said: "But we think the weight of authoritY,as well as of reason, favors the more liberal' construction that a municipal corporation may contract for a supply of water orgAS, or a like necessary, and may stipulate for the payment of an annual rental f.or the gas or water fUl'nislled each J'ear, notwithstanding the aggregate of its rentals during the life the contract may exceed the amount of the indebtedness Hmlted by tbe charter. There is a distinction between a debt and a contract for a future indebtedness to be incurred provided the contracting pal,'ty perform the agreement out of which the debt may arise. * * * The obvious .llurpose of Umitatlons of this kind in municipal charters is to prevent the improVident contracting of debts for other tban the ordinary current expenses of the municipallty. It certainly has no reference to debts incurred for the salaries of municipal officers, members of the fire and police departments, school teachers, or other salaried employ(\s, to whom the' city necessarily becomes indebted in the ordinary condl,lCt of municipal affairs, and for the discharge of which money is annually raised by taxation. IJ'or purposes D,ecessary to the exerelse of their corporate powers, they are at Uberty to make contracts, regardless pf the statutory lllilltatlon,-provided, at least, that the amount to be raiSed year does not exceed the indebtedness allowed by the charter. Among thelle purposes is the prevention of fires, the purchase. of fire engines, the pay of firexpen, and the supply of water by the payment annual rentals therefor." .'
In that decision the supreme court construed no more liberally the powers Af municillal corporations to enter into contracts for supplies of necel'lsaries than did this court in Keihl v. City of South Bend.. It will be in the language of the opinion so quoted a limitation is placed upon the extent of the indebtedness face of the statutory prohibition. which may be incurred in Cities are declared to be at liberty ,to make certain kinds of contracts, regard,less of the limWttion, provided "that the amount to be each' year d()es not exceed .the indebtedness allowed by the charter." The present' case d{)es not meet the requirement of the test so established. The amount to be raised each year under the contract between the city and the, receiver exceeded the t()tal indebtedness, allowed by the.law of Mo'niana. At the time when the debt for which this suit was brought was contracted, and when
HOWARD INS. CO. V. SILVERBERG.
921
it fell due, the city was indebted in an amount largely in excess of the statutory limit. As the judgment must be reversed upon this ground, it becomes unnecessary to consider the other question which the record presents. The judgment is reversed, and the ('ause ill remanded for further proceedings not inconsistent with the forl'going opinion.
HOWARD INS. CO. DE' NEW YORK v. SILVERBERG et'al. (Circuit Court of Appeals, Ninth Circuit. No. 490. An undertaking on appeal given to stay proceedings pending the appeal is not delivered, so as to become effective, until filed, and hence, though signed in another state, is "executed" in the state where filed. 2. LI M(TATION OF ACT IONS-ApPEAL U NDERTAKING-EFFECT OF FURTHER ApPEAl,. The running of the statute against an action on an appeal undertaking gi\'en on appeal to the general term of the superior COUl't of the city of New York is not affected by the taking of a further appeal from the judgment of the general term to the court of appeals. 1. ApPEAl, BOND-PI,ACE OF EXECUTION.
May 2, 1899.)
In EnOl' to the Circuit Court of the United States for the Northern ] listrict of California. This action was commenced in the circuit court of the Northern district of California to recover upon an undertaking on appeal which had been executed the defendants in error on August 9, 1892, in a case then pending in the superior COUl't of the city of New York, in which the Howard Insurance Company of ]'I;ew York lVas the plaintiff, and Julius Jacobs and George Easton were the defendants, and in which a judgment had been rendered for the plaintiff in the sum of $i,485.83. A condition of the undertaking on appeal was that the defendants in the action should pay all costs and damages which might be awarded upon the appeal, and that, if the judgment appealed from should be amrmed. they would pay the amount thereof. The appeal was taken to the gpneral term of the superior court of the city of l'\ew York. On January 15, 1894, the appellate court affirmed the jUdgment. 26 N. Y. Supp. 1133. On December 13, 1894, Jacobs and Easton appealed from the judgment of affirmance to the court of appeals of the state of New York, and in 1896 the latter comt affirmed the judgment so appealed from. 45 N. E. 1132. On December :.!:.!, 1897, the present action was brougbt against the sureties on the appeal bonel. The circumstances under which the undertaking was executed, as they are sN forth in tile complaint, are as follows: Jacobs and Easton, the defendants in the actiOn In the superior court, desiring to appeal from the judgment of that ('OUrt, requested the plaintiff in the action to accept a bond on appeal, to be signed by Silverberg and Pease, who were, residents of California, as sureties. The plaintiff acceded to the request, an undertaking was signed by Silverberg and Pease in San Francisco on August 9, 1892, and on the following day both sureties verified the undertaking before a commissioner for New York in San Francisco. before whom, on tlle same day, they also acknowledged the instrument. On September 10, 1892, the undertaking was filed in the superior court {)f the city of New Yorl;:, together with a written stipulation between the parties to the actioil to the effect that the plaintiff would not except to the sureties on said undertaking, and that such undertaking might be filed, and that no ('xeeption should be taken to its form, or to the time of its filing, or to the justification of its sureties. and that such undertaking should operate as a stay ()f proceedi)lgs. The parties were permitted to enter into such a stiplllatiO"l IIIH]er section 1305 of the Code of Civil Procedure of New York. A deumrrer