Connor v. City of Marshfield

Dodge, J. 1. Tbe first field of discussion by counsel is-tbat of tbe apparently overlapping provisions of various statutes dealing witb tbe construction or purchase of waterworks and lighting plants by cities, which, it must be confessed, approximate closely to tbe chaotic condition of those regulating-the issue of bonds, commented on in Appleton W. W. Co. v. Appleton, 116 Wis. 363, 93 N. W. 262. One principally debated question in this connection is as to the degree in which sections 927 — 1 and 959 — 51, Stats. 1898, affect or control each other. Sec. 927 — 1 is substantially, with some slight modifications, a perpetuation of ch. 325, Laws of 1882, ch.. 165, Laws of 1883, and ch. 182, Laws of 1895. After providing for process of condemnation in aid of acquiring waterworks and lighting plants, it provides that: “Any [such] city or village, when authorized so to do by ordinance adopted by a vote of a majority of all the members of' its common council or board of trustees, after such ordinance has been submitted to a vote of the people and a majority have voted in favor thereof, may purchase or lease the waterworks or lighting works, or both, ownéd by any corporation in such city or village and having a contract therewith for public-service, or purchase or lease the interest of such corporation in such works, or obtain the control of such works by purchasing the stock of such corporation and keeping up its organization.” Such law, in addition to any general authority that may-have otherwise existed in municipalities, authorized a method of performing the municipal function to provide for protection — 286 — against fire and for street lighting, and doubtless subjected •that method to the prescribed restrictions and procedure. The legislature, in Laws of 1897, by ch. 361, made certain other provisions in regulation of the obtaining of water and light for cities. The first three sections are in the way of relieving cities and villages from certain then existing limitations upon their power to raise money to pay for water and light supplied by private companies. But the fourth section, now sec. 959 — 51, provided: “In all cases where any system of waterworks or lighting has been or may hereafter be constructed in any city or village by any person or corporation and such person or corporation shall have heretofore executed or shall hereafter execute any bond or bonds and secure the payment of the same by a mortgage upon or trust deed of such system of waterworks or lighting, such city or village may purchase of such person or corporation all of the interest and equity of redemption of such person or corporation in such system of waterworks or lighting, or both, and take possession thereof and operate the same. If it shall be necessary or desirable for such city or village, in making such purchase, to issue bonds, the proposition for the purchase of such interest and equity of redemption and the issuing of such bonds shall be submitted to the electors at a special election to be called for that purpose. . . . The purchase by any city or village of the interest and equity of redemption of any person or corporation in any system of waterworks or lighting, as above provided, shall not create any liability on the part of such city or village to pay, satisfy or discharge any bonds issued or any mortgage or trust deed upon such, system of waterworks or lighting executed prior to the purchase of such interest and equity of redemption by such city or village, nor shall the amount of such bonds and 'mortgage or trust deed or any portion thereof be or be deemed to be an indebtedness of or a liability against such city or village.” It will be observed that, while the procedure authorized and regulated by sec. 927 — 1 is limited to cases where there is an existing service contract between the city and the company, in — 287 — other respects it deals generally with aoiy method of acquisition of existing water and light works, whether of the whole title or of the interest of the corporation therein, whether by purchase or leasing, or by taking control and operation of the corporation by purchase of its stock, thus not transferring the plant to the city at all. On the other hand, sec. 959 — 51 is confined to the one transaction of purchase, and purchase only of an equity of redemption subject to an existing mortgage upon the premises, and, we think,-must be considered the more specific of the two. After careful consideration of these statutes we have reached the conclusion,-hardly to be aided by statement either of the general rules of law governing statutory construction or of the details of the comparison which have weighed with us, that the act of 1897 was intended to confer, a new and independent authority upon the city in a particular case; perhaps not merely authority to purchase an equity of redemption in a plant, for that may have existed before, but to acquire an equity of redemption without becoming liable upon the existing mortgage indebtedness secured upon the plant. Both statutes are permissive in form: the one permits a purchase by one method of procedure, the later permits one of the same acts to be done by another, and neither contains any prohibition, in terms, against the procedure authorized by the other; hence, strictly speaking, there is no necessary conflict in the two enactments thus permitting alternative methods of accomplishing the same result unless, indeed, legislative intention be apparent that the later and more specific statute shall exclusively control the situation it describes. The position seems to us closely analogous to that stated with reference to ch. 348, Laws of 1899, in Appleton W. W. Co. v. Appleton, 116 Wis. 363, 374, 93 N. W. 262, 266, and we think it was the plain intent of the legislature that this particular act authorized in 1897 might be done upon compliance with only such regulations and restrictions as were prescribed in that statute. In this view we cannot escape the conclusion — 288 — that the provision that the making of the contract of purchase and the issue of bonds must be submitted to popular vote only in case it is necessary to issue bonds in making such purchase clearly excludes any legislative intention that such submission is to be necessary in the absence of any bond issue. Nor can we doubt that the act of 1897, when incorporated in the Revision as sec. 959 — 51, continued unchanged in meaning. As a result, we must disagree with the trial court, and hold that the contract is not void for want of such popular vote if it was a mere purchase of the equity of redemption in the company’s plant and property as authorized by sec. 959 — 51. 2. The next question in order, therefore, is whether the transaction here criticised was such a purchase. The respondents vehemently contend that it was a purchase of the capital stock of the corporation, authorized only by sec. 927 — 1, and controlled, therefore, by the condition in that section for submission to popular vote. Of course, the fact that the city did receive, in form, transfer of all the stock of the corporation lends color to this contention, but the act of the city, being governmental, is entitled to at least a prima facie presumption that its officers were intending to act legally and within their powers. It must also be assumed, as has so often been said with reference to statutes regulating town and county procedure, that mere matter of form or irregularity need not obscure or defeat a good-faith attempt to do something which is authorized and which these public officers, in the exercise of the duty delegated to them, deemed to be for the welfare of the community. It is true that the preliminary negotiations were with Mr. Upham, who seems to have controlled, though perhaps not owned, all of the stock, and contemplated purchase of his interest; but preliminary negotiations are in no wise conclusive as to the terms of a contract; indeed, they are not admissible, unless there be such ambiguity in the contract-as to necessitate the consideration of the circumstances surrounding it in order to ascertain the intention of the parties. — 289 — The recommendation of the committee, upon which the final action by the council was taken, was for the purchase of the property subject to the incumbrances thereon; in other words, the equity of redemption. This would seem to indicate a departure from the conception which the parties had in the earlier negotiations, due, perhaps, to the fact that the city had obtained advice of counsel that' they had no power to acquire the control- of the corporation by purchase of stock without a vote of the people, nor, perhaps, without making the bonds of such corporation an additional municipal debt. The final ao tion of the council was a resolution to make a certain written contract then present before it. That contract required, primarily, a transfer of all the property of the corporation by the corporation and for a price to be paid to the corporation. All this is inconsistent, of course, radically, with the transaction mentioned in sec. 927 — 1 of the city’s taking control of the corporation by buying its stock, or, apparently, indeed a mere controlling majority thereof from the stockholders, thus leaving the plant itself still the property of the corporation. The conduct of all the parties was equally inconsistent with that view. The property itself was delivered over and surrendered by those who were the corporate officers and employees to the possession and management of city officers and employees chosen by the city government as such, and not at all through the medium of corporate action as would have been the method under a stock purchase as authorized by see. 927 — 1. Other clauses of the contract are also inconsistent with the conception of a continued ownership of the plant by the corporation,, such, for example, that until completed payment the city should pay the taxes, and should hold the premises as tenant at sufferance of the corporation; also, that the city should pay the operating expenses incurred by the company subsequent to March 1, 1904, which would be absurd if the corporation were to continue in the control and management, even though such corporation were to be dominated by representatives of — 290 — the city as stockholders. There is in this contract still another element entirely inconsistent with the idea that the city was to obtain ownership of the corporation by the transfer of the stock, for in that case the ostensible payment of $25,400 would be merely fictitious. The agreement is that it should be paid to the corporation, but what belongs to the corporation belongs equitably to its stockholders. Hence, the moment the city paid into the treasury of the corporation this money, it would have been under the control of the city as the holder of ■all the stock, and, in practical effect, would be payment by the ■city to itself. This, of course, was not the contemplation of the parties, but, on the contrary, they understood and acted upon the idea that this money, going to the corporation, for its property, was subject to distribution among its former stockholders, although they had, in form, completely divested themselves of their stock by assignment to the city. Reason enough can be found for insistence by the city that the evidences of all the outstanding stock should be delivered over to it, for there might be serious question whether a board of directors, ■or even the stockholders in meeting, could, against the wish of any one of them, dispose of all the corporate property in such a way as to put it out of business and disable it from performing its corporate function and duty. It is a very reasonable precaution that any peril of criticism or attack should be forestalled and excluded by requiring the corporation to procure from all its stockholders a delivery of their stock as an evidence of their assent to the transaction, and as a method of canceling all the corporate liabilities except the mortgage bonds, to more perfectly assure the title to the property acquired by the city. After weighing all these considerations, we cannot avoid the conviction that the contract in fact made was for purchase of the equity of redemption in the property of the corporation, and that the transfer of the corporate stock and unissued bonds was not a purchase of either to acquire control of the — 291 — corporation as contemplated by sec. 927 — 1, but merely a method of securing their cancellation; hence, that the transaction was such as sec. 959 — 51 authorizes without submission to popular vote. The respondents present several other theories upon which it is claimed the judgment should be affirmed even though it be ■determined that submission to popular vote was not required. Among these are the propositions that by the transaction the city becomes indebted beyond its constitutional limit of five per cent.: First, because the $125,000 outstanding bonds of the water company must be considered indebtedness; and, secondly, that by the purchase the city becomes obligated to the bondholders absolutely for at least $72,000 by reason of a provision in the ordinance contract with the water company that in case the company should at any time issue mortgage bonds the city would pay so much of the hydrant rentals as will discharge the interest upon such bonds as it may mature from time to time, direct to the trustees when and as such rentals are payable by the city, and that such payments shall be made so long as the interest on such bonds shall remain due and unpaid. It seems to be conceded by the appellants that ■the five per cent, limit would be exceeded if either $125,000 -or $72,000 of indebtedness is incurred by this contract. 3. The contention that, by purchasing this plant subject to the mortgage thereon securing payment of the $125,000 of the -company’s bonds, the ultimate payment of them by the city has become so unavoidable that for all practical purposes it is bound to pay them and must be held indebted for their amount, so as to infringe the constitutional prohibition against becoming indebted to an amount more than five per cent, of the assessed value of taxable property, is not without very persuasive authority, if the question can be considered an open one in this court. We do not think it can, however. In the Milwaukee park-land cases (Perrigo v. Milwaukee, 92 Wis. 236, 65 N. W. 1025; Milwaukee v. Milwaukee Co. 95 Wis. 424, — 292 — 69 N. W. 819, and Burnham v. Milwaukee, 98 Wis. 128, 73 N. W. 1018) this court fully considered whether, when a city purchased property, or acquired the right to purchase it, from the fact that rights in or burdens upon that property were held by others, so that the city, to hold it and protect the interest acquired in it, must pay large sums of money, the city thereby became indebted for such sums in the constitutional sense. We reviewed the conflicting array of decisions, and, rejecting the reasoning of those the respondents now cite, we decided the question in the negative. The distinguishing element, as then defined, consisted in the fact that the city could not be coerced by the creditor of its grantor into applying to his claim either its general revenue or property owned by it at the time of the contract, but was free at its election to abandon the plan of acquiring or holding that which, prior to the contract, it did not own. This distinction between conferring upon another power to take, in invitum, either general municipal revenue or property owned by the city prior to the contract, and a right merely to retake the property which is acquired by the contract or the earnings or proceeds thereof, is sustained in many decided cases, of which the following are illustrative: Kelly v. Minneapolis, 63 Minn. 125, 131, 65 N. W. 115; Windsor v. Des Moines, 110 Iowa, 175, 182, 81 N. W. 476; Joliet v. Alexander, 194 Ill. 457, 464, 62 N. E. 861; Winston v. Spokane, 12 Wash. 524, 41 Pac. 888; Faulkner v. Seattle, 19 Wash. 320, 53 Pac. 365; State ex rel. Port Townsend v. Clausen (Wash.) 82 Pac. 187. We can discover no valid distinction between the park-land cases and the present situation. In both the legislature had, to the extent of its power, authorized the transactions, had declared that the city should be under no legal liability, and that the burden on the property should not be deemed indebtedness within the constitutional limitation. Under no circumstances could the holders of these bonds recover any money judgment against the city for their principal. Nor is any — 293 — property formerly owned by tbe city subjected to seizure by tbe bondholders. True, by enforcing their right to take away the water and lighting plant they may deprive the city of so much of its money as up- to that time has been paid upon the purchase, but the same was true as to the park lands. We cannot, without repudiation of principles now established in our jurisprudence, hold the amount: of these bonds to have be■come indebtedness of the city within the constitutional inhibition. 4. As to the hydrant rentals, respondents concede that this ■court has adopted the doctrine that a promise to pay for prospective services as they are performed, or instalments of interest for future forbearance of money, does not constitute any indebtedness until each instalment becomes due, and has repudiated the contrary view, in support of which, nevertheless, they cite numerous eases. That such concession is well justified we cannot doubt, nor are we at all inclined to question or re-examine the arguments deliberately approved in Stedman v. Berlin, 97 Wis. 505, 73 N. W. 57, and Oconto City W. S. Co. v. Oconto, 105 Wis. 76, 80 N. W. 1113. But, argue counsel, though we adhere to- those decisions, the situation here is changed by the fact that the city had agreed to pay these hydrant rentals to a third person, to wit, the trustee in the mortgage, and could not by any act of the company be released from such obligation, and that by purchasing the works and thus, by complicity between the company and city, disabling the former from earning such rentals, the city became bound not only to p-ay such rentals as should be earned, but also, equitably at least, to see to it that enough are earned by the plant to pay the interest on the bonds, which amounts to an absolute promise to pay the money. Counsel for appellants argue with much force that the doctrine of several of the state courts and the federal courts, adopted in Enos v. Sanger, 96 Wis. 150, 70 N. W. 1069, and Tweeddale v. Tweeddale, 116 Wis. 517, 93 N. W. 440, that a promise by — 294 — one upon a good consideration from another to pay money to a third is, from the moment it is made, irrevocable and impossible of change by the original parties, has no application to-contracts wholly executory on both sides, for there no consideration moves to the promisor until the promisee performs his part of the contract, and, since it is always in the power of the promisee, by breaching the contract on his part, to prevent any obligation ever to arise on the part of the promisor, no right is conferred on the beneficiary third person until the promisee does perform and thus supply the consideration essential to impose a duty on the promisor under the rule of the cases-above referred to. Also, that there can be no objection to doing by consent of both that which one can do of his own will-,We shall not deem it necessary to decide upon this contention, for another more directly brings us to the same conclusion as to the effect of the transactions here presented. Olearly that the hydrant rentals, or part of them, were to be paid to a third person did not render inapplicable the reasoning of the 'Berlin and Oconto Gases. The rentals were to be paid only as the service should be rendered. The consideration for each instalment was the performance of the service, not the company’s promise to perform it, and the city did not become indebted in the constitutional sense until such performance'. So by the original ordinance-contract, and until the purchase of the works, the prospective obligation for hydrant rentals was not indebtedness. No argument advanced, or which occurs to us, serves to show any new obligation assumed by that purchase. Nowhere in the contract is there any agreement by the city to pay interest or to so operate the plant as to earn hydrant rentals, any more than there is an agreement to pay the principal of the bonds. True, the properly is subject to the right of the bondholders to collect from it their interest,, but only to the same extent as their principal; but it is just this kind of a burden which the statute permits to exist without constituting any general liability of the city capable of be — 295 — ing enforced by the creditors of the company against either the general property or the general revenues; hence not indebtedness such as the constitution prohibits in excess of five per cent. 5. A further ground on which it is contended the judgment should be sustained is because the contract is so unreasonable and improvident that it must be held void. With reference to this subject the court found that the value of the plant, franchises, existing contracts, lands with water rights, going value, and all rights possessed by the company was $100,000; but that, taking into consideration the value of the plant, the amount the city was paying for light and water, and the necessity for better fire protection as well as the demand for better service in both electric light and water supply, and all other circumstances then existing, the purchase of the plant was not an unreasonable exercise of power. It also found that there was no fraud, misrepresentation, or corrupt acts or practices or improper influences in any wise entering into or inducing the transaction. Numerous witnesses were examined varying widely in their opinions as to specific values and as to practical business values resulting from the existence of an established business situation and relations with patrons. The questions of policy which the council had before it were also presented, relating to the prospective growth of the city, the effect thereon of water and light supply, the obstacles to and expense of providing therefor under the existing contract, the difficulties, legal, financial, and businesswise, in the way of any method of making provision for needs of the community otherwise than by contractual adjustment with the company, the experimental character of any other scheme of water or light supply and great uncertainty as to pecuniary results, and the legal complications to be anticipated with resulting certain expense and probable confusion of public affairs and possible irreparable injuries to municipal prosperity. All these considerations seem to have been weighed with great care by the — 296 — trial court, and we do not find any reason to conclude that the evidence is clearly or at all preponderant against the finding that the terms of purchase were not so unreasonable as to transcend that very broad discretion over questions of policy which is vested in municipal governments, and which, under all ordinary circumstances, will better promote the local welfare than opinions of courts formed under the serious limitations upon their means of ascertaining and appreciating all the elements involved. Oconto City W. S. Co. v. Oconto, 105 Wis. 16, 89, 80 N. W. 1113; Linden L. Co. v. Milwaukee E. R. & L. Co. 107 Wis. 493, 506, 83 N. W. 851; Stafford v. Chippewa Valley & E. R. Co. 110 Wis. 331, 351, 85 N. W. 1036; Hurley W. Co. v. Vaughn, 115 Wis. 470, 476, 91 N. W. 971; Schneider v. Menasha, 118 Wis. 298, 306, 95 N. W. 94; Le Feber v. West Allis, 119 Wis. 608, 613, 97 N. W. 203. 6. Complaint is made of the fact that, after the contract between the company and the city, the former made a warranty deed to one Reese of all its plant, franchises, etc., subject to the purchaser’s rights under the land contract. This is claimed to be void as against public policy, because it disables the corporation from its corporate duty to serve the public. If this were conceded, we perceive no relevancy to the already completed contract with the city. That, if valid when made, could not be invalidated by subsequent dealings between the grantor and third persons. Apart from this, however, it cannot be doubted that the legislation which authorized a city to purchase a water or lighting plant in order to perform for itself and its citizens the services agreed to be performed by means of such plant by its former owner authorized as well such former owner to sell and so disable itself from such services. That act was accomplished before the deed to Reese. The company had already become relieved, because disabled, from performing the duty imposed upon it by the original franchise contract. No public policy could be affected by a — 297 — transfer of its mere legal title, which it held solely as security for the purchase price. We reach the conclusion that the contract assailed in this action was within the authority of the defendant city, acting by its common council, and that plaintiffs are not entitled to any relief preventive of full performance. By the Court. — Judgment reversed, and cause remanded with directions to enter judgment dismissing the complaint. Cassolay, C. J., took no part.