Underwood v. Fairbanks, Morse & Company

• Decision Date: 29 March 1933
• Docket Number: 25,929
• Parties: Underwood et al. v. Fairbanks, Morse & Company et al
• Court: Indiana Supreme Court

185 N.E. 118

205 Ind. 316

Underwood et al. v. Fairbanks, Morse & Company et al

No. 25,929

Supreme Court of Indiana

March 29, 1933

Rehearing Denied June 29, 1933.

1. MUNICIPAL CORPORATIONS---Light and Water Supply---Power to Purchase Equipment.---A town has an implied and inherent power, as well as statutory authority, to contract for new equipment for its light and water plant. p. 324.

2. MUNICIPAL CORPORATIONS---Light and Water Supply---Power to Furnish.---Unless restricted by law, towns may provide light and water for public purposes, even without statutory authority, either by contract or by erection and maintenance of its own plants. p. 325.

3. MUNICIPAL CORPORATIONS---Light and Water Supply---Indebtedness for New Equipment---Payable Out of Revenues.---Where a town contracted for new engines, pumps etc., for its light and water plant, pledge orders issued in payment therefor, which were payable only out of net revenues of the plant, were held not obligations of the town, and therefore, not an indebtedness subject to constitutional limitations. p. 326.

4. MUNICIPAL CORPORATIONS---Light and Water Supply---Contract Without Competitive Bids---Public Policy.---Town's contract for new engines, pumps, etc., for its light and water plant held not against public policy because made without notice and competitive bidding. p. 330.

5. MUNICIPAL CORPORATIONS---Light and Water Supply---Contract for New Equipment---Approval of Public Service Commission.---It was not necessary for a town to secure approval of the Public Service Commission before entering into a contract to purchase new equipment for its light and water plant providing for payment out of net revenues of the plant, to be evidenced by pledge orders to be issued upon installation of such equipment. p. 331.

6. MUNICIPAL CORPORATIONS---Light and Water Supply---Pledge Orders Against Revenues---Not Encumbrance of Plant.---Pledge orders against the net revenues of a town's light and water plant, issued in payment for new equipment therein, do not constitute an "encumbrance" against the plant within the meaning of 12761, Burns 1926 (90, Indiana Public Service Commission Act), requiring approval of the Public Service Commission to encumber its plant. p. 334.

7. TRIAL---Evidence---Fraud---Burden of Proof.---In an action by taxpayers to set aside a town's contract to purchase new equipment for its light and water plant, burden of proving alleged fraud of the seller was upon plaintiffs. p. 334.

From Newton Circuit Court; George A. Williams, Judge.

Action by Thomas D. Underwood and other, as taxpayers of the town of Oxford, against Fairbanks, Morse & Company and the town of Oxford.

From a judgment for defendants, plaintiffs appealed.

Affirmed.

Fraser & Isham, for appellants.

Ashcraft & Ashcraft, Carroll J. Lord, Sammons & Sammons, John R. Browne and Gemill, Browne & Campbell, for appellees.

OPINION

Hughes, J.

This is an action brought by appellants, as taxpayers of the town of Oxford, Indiana, against the appellees, Fairbanks, Morse & Company, and the Town of Oxford, Indiana, to set aside a contract entered into between said appellees.

By this contract the appellee, Fairbanks, Morse & Company, attempted to sell to the appellee town, certain engines, pumps, generators, and appliances and to install the same in the existing municipal light and water plant owned by said town, for the sum of $ 6,000 in cash and the said town agreed to issue to its co-appellee $ 36,006.00 in pledge orders, payable in sixty (60) equal installments of $ 600.10 each, in payment of the residue of the purchase price thereof.

The appellee town, at the time of entering into said contract, owned a municipal light and water plant which it had operated at a profit for many years. Said plant, immediately before the execution of said contract, was of the fair value of $ 50,000.00, and for the last four or five years had been earning a net income of $ 3,000 to $ 4,000 per year.

The contract was entered into on the 29th day of January, 1929. The taxables of said town amounted at said time to $ 812,025.00.

The entire net earnings of said plant, including the original plant then owned by the town and said new machinery sold to the town was pledged to the payment of said pledge orders.

The engines sold were Diesel engines and said contract contemplated the removal of the present steam engines and boilers in said plant and their replacement by the new Diesel engines. Certain new pumps, electric generators, machinery and appliances to supplement or replace certain of the old machinery then owned by the town in said plant was to be furnished to the town under said contract.

The buildings housing the present plant were to be used to house the new additions to the plant. The existing wells, water mains, pipes, poles, wires, transformers and the like were not to be materially affected by the new supplies furnished and installed under the terms of said contract.

The court, by request, made a special finding of the facts and stated its conclusions of the law thereon.

The errors assigned and relied upon for reversal are as follows: (1) That the court erred in each conclusion of law; (2) that the court erred in overruling appellant's motion for a new trial.

We will set out the substance of some of the special findings of the facts as we deem necessary.

Finding No. 1 found that the plaintiffs were taxpayers, residents and citizens of the town of Oxford; that Oxford is and was an incorporated town; and that the defendant, Fairbanks, Morse & Company, is a corporation organized under the laws of Illinois.

Finding No. 2 found that for some years prior to October 8, 1928, that the town of Oxford was the owner and was operating a light and water plant and was selling light and water to said town and its inhabitants; that said plant was then being operated by steam power by means of two engines, one having been installed in 1902, and the other in 1914; by two boilers, one of which was installed in 1902, and the other in 1911; by generators installed in 1902 and 1914 and by other machinery and equipment installed at different times since 1902; that on October 8, 1928, and thereafter, one of said boilers was in a dangerous condition; that said plant at said time was not in proper condition and it would have cost the town at least $ 10,000 to $ 12,000 or more to have repaired said plant and put in proper condition; that said plant was not of sufficient capacity to furnish said town and its inhabitants with an adequate supply of electric energy and water.

Finding No. 4 found that on January 28, 1929, there was cash in the water and light sinking fund of said town in the sum of $ 17,000, all of which had been derived from the operation of said plant and was then and there available for the use of said town in either repairing said plant or replacing with new machinery; that no part of said fund was derived from taxation; that the average net earnings of said plant was between $ 3,000 and $ 4,000 per year, and such earnings were deposited in and kept with said light and water and sinking funds as a part thereof.

Finding No. 5 found that the net taxable valuation of the property of said town for the year 1928 was $ 870,365; for the year 1929 it was $ 812,025; and for the year 1927 it was $ 975,525.

Finding No. 6 found that on January 28, 1929, the board of trustees of Oxford met and passed ordinances for the execution of a contract with Fairbanks, Morse & Company for the sale and installation of Diesel engines, machinery and equipment to replace like units of the old machinery.

Finding No. 7 found that an ordinance was passed on January 28, 1929, directing and authorizing a contract to be entered into with Fairbanks, Morse & Company for the equipment specified in the proposal of said company and directing and authorizing the president of the board of trustees to execute and deliver pledge orders to said company in accordance with its proposal upon the completion of the installation of the equipment purchased; that the treasurer of the town or custodian of the funds be directed and authorized to pay to said company $ 3,000 upon the arrivel of the engines and $ 3,000 upon the installation of the equipment.

Finding No. 8 found that on January 28, 1929, the board of trustees passed and adopted an ordinance relating to the payment of said pledge orders; that the town was to pay Fairbanks, Morse & Company the sum of $ 42,006 for the equipment, which includes interest. Said ordinance provided that all money received by the municipality for services for light and water shall be deposited in a separate or special fund; that the municipality shall pay the legitimate and necessary expense of the operation of said plant from the special fund and then they shall pay the company from said fund $ 600.10 each 30 days until the purchase price of the equipment is paid for.

Finding No. 10 found that on January 28, 1929, the board of trustees of Oxford passed and adopted an ordinance appropriating the funds from the municipal light and water revenue to be used in the improvement, renewal and extension of the water and light utilities of said town and in payment for the same section 3 of said ordinance being as follows: "Now, therefore, the sum of $ 42,006 be and the same is hereby set aside from the net revenues of the said municipal utilities and the said net revenues shall be set aside and applied monthly until the said sum is fully retired in the said manner. The net revenues shall be deemed to represent the balance of the pass receipt of the said light and water plant after the payment solely of the legitimate and necessary expenses of the operation of said plant, being operated in an efficient and...