Columbia Ave Savings Fund, Safe Deposit, Title & Trust Co. v. City of Dawson

• Citation: 130 F. 152
• Parties: COLUMBIA AVE. SAVINGS FUND, SAFE DEPOSIT, TITLE & TRUST CO. v. CITY OF DAWSON et al.
• Decision Date: 03 August 1903
• Court: U.S. District Court — Northern District of Georgia

130 F. 152

COLUMBIA AVE. SAVINGS FUND, SAFE DEPOSIT, TITLE & TRUST CO. v. CITY OF DAWSON et al.

United States Circuit Court, N.D. Georgia, Western Division.

August 3, 1903

[Copyrighted Material Omitted]

The following is the report of the master:

Statement.

The original bill was filed on May 1, 1899, by the complainant as trustee for the bondholders, against the city of Dawson certain individuals in their representative capacity as officers of said city, and against the Dawson Waterworks Company. The bill alleged, in substance, as follows:

The Dawson Waterworks Company on September 1, 1891, created the complainant as trustee for 80 of its first mortgage bonds, in the denomination of $500 each, and executed to complainant its mortgage or deed of trust conveying, as security for the payment of its said bonds, all of its real and personal property, corporate rights, franchises, privileges, and appurtenances, together with all incomes, rents, earnings issues, and profits then or thereafter payable to the company, and in particular the income payable to the said company, or to the trustee for its bondholders, in virtue of the contract with the city of Dawson in that regard. Said bonds, aggregating $40,000 in amount, dated September 1, 1891, and payable September 1, 1916, with interest at the rate of 6 per centum per annum, payable semiannually, were duly issued and sold in open market to bona fide purchasers for value. The bonds were issued and sold in order to procure the money necessary to construct and equip a system of waterworks, as contemplated in a certain contract between the city of Dawson and the waterworks company. This contract is contained in an ordinance of the city of Dawson, acting in its corporate capacity, of February 21, 1890, whereby R. L. Bennett, his associates, successors, and assigns, were to become incorporated under the laws of the state of Georgia under the name of Dawson Waterworks Company, which company, within the time limited, was to construct, complete, and have in operation a thorough system of waterworks in accordance with the specifications and the plans of the contract, and was from time to time to extend its mains and pipes and enlarge its system to meet increasing demands consequent upon the growth of the city; and, in consideration of the company's agreeing to furnish a free and unrestricted use of its water for fire protection for the period of 20 years, the city of Dawson undertook and agreed to pay to the company, or to such trust company as might be chosen as trustee for the bonds to be issued, the sum of $2,000 annually for the period of 20 years; such payments to be made on the 1st days of January and July in each year. The ordinance provided that a tax sufficient to pay such rentals should be annually levied, specified the number of fire plugs to be established, and limited the price to be charged to private consumers.

The city of Dawson, on June 11, 1886, submitted to he qualified voters of the city, after publication of notice thereof for four weeks in the newspaper in which legal notices were published, the question whether the city should incur the expense of waterworks. The election was held, and more than two-thirds of the qualified voters cast their ballots in favor of incurring the expense of waterworks. The result of the election was declared to be in favor of waterworks. The contract entered into between the city of Dawson and R. L. Bennett, as above referred to, was published in full in the public gazette, and was acquiesced in by all of the citizens. The Dawson Waterworks Company was duly incorporated, and proceeded to construct a complete and thorough system of waterworks in accordance with the specifications and requirements of the said contract. The system was fairly and fully tested by the city, and was found to satisfactorily comply with all of the requirements of the contract. The city council of Dawson on August 12, 1891, adopted a resolution declaring that, after fully testing said system. It was accepted by the city as fully complying with the contract. The waterworks company has continued to maintain and operate its system in full compliance with the requirements of said contract continuously from that time, and the city has continuously enjoyed the fire protection contracted for, and for that purpose has continuously used the water so often as required.

It was understood and contemplated by the city of Dawson at the time of entering into the contract that the money required to construct the system of waterworks was to be procured in whole or in part by the issuance and sale of the bonds of the water company; and, in order to render the bonds more salable, the city, by said contract, agreed and promised to pay to the trustee for the bondholders the annual rental stipulated in the contract, thus inviting investors to become purchasers of the bonds upon the faith that the city would observe its obligations as therein contained. The bonds were negotiated and sold upon the faith that the city of Dawson would pay said rentals, to be applied to the liquidation of the principal and interest of said bonds, and the proceeds of said bonds were used in the construction of the waterworks system.

After using the water without objection or complaint for several years, the city council on June 27, 1894, adopted a resolution declining to further carry out its contract with the waterworks company; assigning as the reason therefor that the contract created such an indebtedness as was forbidden by the Constitution of the state of Georgia, and was therefore not binding upon the city. The waterworks company had in no way failed to comply with its contract, nor had any complaint been made as to the character of the service, the pressure, or the quantity of the water furnished. At the time of the passage of the resolution, the city of Dawson was considering the question of purchasing the waterworks, and it is charged that the purpose of the city in repudiating the contract was to destroy the value of the property, by withdrawing the revenues necessary to its existence, and forcing the company to sell at such price as would be satisfactory to the city. In pursuance of this scheme on the part of the city, an equitable petition was on June 29, 1894, brought in the state court, in the name of certain taxpayers, against the city and the waterworks company, seeking to enjoin the city from paying the rentals accruing to the waterworks company, on the ground that the contract in that regard was void under the Constitution and laws of Georgia. It is charged that this suit was instituted at the instance of the city for the purpose of having its contract with the waterworks company declared void. Upon the hearing the injunction prayed for was denied, and the suit was subsequently dismissed. Prior to that time the city had recognized said contract as valid and subsisting, and had levied and collected the taxes required to meet the annual rentals. The rental accruing for the year 1894 was paid, less a deduction on account of taxes which it was claimed were due the city by the waterworks company as an ad valorem tax on its property therein. Since December 31, 1894, the city has refused to pay or make provision for the payment of the annual rentals due the water company under the contract. In December, 1894, the city, through its mayor, notified the waterworks company that a resolution had been adopted declaring that the city would not be liable on the contract after January 1, 1895, notwithstanding which the city has continuously, since January 1, 1895, availed itself of the fire protection afforded by the waterworks company; thereby intending to take the benefit, though declining to carry out the obligations, of the contract. The public ordinances of the city providing for the use of the water by the fire department were never repealed, the fire companies were not forbidden to further use the water, and no other means of fire protection was provided the city. Apparatus was furnished by the city to its fire department for the use of the water, and members of the fire companies were given tax exemptions by the city in consideration of their services as firemen. The mayor and members of council, as well as other citizens, subsequently assisted in the use of the water on the occasion of various fires. The waterworks company declined to acquiesce in the repudiation of the contract by the city, and gave notice that it would continue to furnish water with the required pressure for the use of the city for fire protection. The waterworks company has observed the requirements of the contract, has maintained the pressure called for, and has furnished the city at all times with the free and unrestricted use of its water in cases of fire. The waterworks company has at all times held itself in readiness to furnish the water contracted to be supplied in lieu of city taxes to all municipal buildings and for the fountains as specified, notwithstanding which the city of Dawson has assessed, levied, and attempted to collect municipal taxes against the company for the year 1895. An execution for such taxes has been issued and placed in the hands of the city marshal for collection by seizure and sale of the waterworks property.

The city of Dawson called an election for December 12, 1894, to determine whether the city should issue bonds in the sum of $35,000 to erect or buy waterworks and electric lights for the city. The result of the election was declared by council to be in favor of issuing the bonds. Bonds in the amount of $10,000 have been, pursuant to said election, issued and sold, and with the proceeds the city has erected an electric light plant. The remainder of said bonds, amounting to $25,000, have...