Fairbanks, Morse & Co. v. City of Wagoner

• Decision Date: 10 November 1936
• Docket Number: 1244.,No. 1243,1243
• Citation: 86 F.2d 288
• Parties: FAIRBANKS, MORSE & CO. v. CITY OF WAGONER, OKL., et al. CITY OF WAGONER, OKL., v. FAIRBANKS, MORSE & CO.
• Court: U.S. Court of Appeals — Tenth Circuit

86 F.2d 288 (1936)

FAIRBANKS, MORSE & CO. v. CITY OF WAGONER, OKL., et al.

CITY OF WAGONER, OKL., v. FAIRBANKS, MORSE & CO.

Nos. 1243, 1244.

Circuit Court of Appeals, Tenth Circuit.

November 10, 1936.

Henry G. Snyder, of Oklahoma City, Okl., and Vincent L. Boisaubin, of St. Louis, Mo. (Snyder, Owen & Lybrand, of Oklahoma City, Okl., Jones, Hocker, Gladney & Jones, of St. Louis, Mo., and Poppenhusen, Johnston, Thompson & Cole, of Chicago, Ill., on the brief), for Fairbanks, Morse & Co.

Joseph C. Stone, of Muskogee, Okl. (John H. Scriba, of Wagoner, Okl., and D. H. Linebaugh, Charles A. Moon, and Francis Stewart, all of Muskogee, Okl., on the brief), for City of Wagoner.

Before PHILLIPS, McDERMOTT, and BRATTON, Circuit Judges.

PHILLIPS, Circuit Judge.

At the rehearing granted herein, counsel for the City presented the contention, not heretofore urged in this case, that the City was without authority to enter into a contract for the purchase of an electric power plant to be paid for out of the earnings thereof. In other words, that municipalities in Oklahoma are not authorized to enter into "special fund" contracts.

In Baker v. Carter, 165 Okl. 116, 25 P. (2d) 747, 756, the court quoted with approval from Graham v. Childers, 114 Okl. 38, 241 P. 178, as follows:

"An examination of the Constitution and statutes shows there is little, if any, analogy between the fiscal system of the municipal subdivisions of the state and that of the sovereign itself. This is true for what might be termed an axiomatic principle of the law, to wit, that the municipal subdivisions can, in the exercise of their contractual power, do only those things which incur an expenditure of public funds, which are expressly authorized by the Constitution and statutes of the state; whereas the rule governing the sovereign is entirely to the contrary. The sovereign speaks through its legislative body, and the legislative body determines the policy of the sovereign which has no limitation as to expenditures, save and except those which are expressly placed on its exercise by the Constitution of the state. So we find that municipal subdivisions must have express authority, while the sovereign, to be limited, must have express limitations."

In Zachary v. City of Wagoner, 146 Okl. 268, 292 P. 345, 349, the court said:

"If the city of Wagoner desires to purchase the property sought to be purchased, it may submit the question to the qualified property taxpaying voters of the city, and, upon the approval thereof by a majority thereof, the city may make the purchase without regard to any constitutional limitation, under the provision of section 27, article 10, of the Constitution. That section is placed in our Constitution for a distinct purpose. This court will not destroy the effect of that section by saying that municipal officers may evade its force by purchasing equipment for a public utility to be paid for out of the saving to the municipality from the use of the equipment so purchased."

The Oklahoma Court reiterated this view in Layne-Western Company v. City of Depew (Okl.Sup.) 59 P.(2d) 269, 271.

In State v. State Board of Equalization, 107 Okl. 118, 230 P. 743, 748, the court said:

"`Where the Constitution confers the power to do a particular act, and prescribes the means and manner of doing such act, such means or manner is exclusive of all others.' Sapulpa v. Land 101 Okl. 22 223 P. 640 35 A.L.R. 872."

Section 12 — 842, Kans.R.S.1923, authorizes a city to purchase or construct an electric-light plant to supply it and its inhabitants with electric energy for light, fuel and heat. Section 12 — 843, Kans. R.S.1923, authorizes a city, with the approval of a majority of its electors, to issue bonds to provide funds for purchasing or constructing an electric-light plant. In the recent case of Kansas Power Company v. Fairbanks, Morse & Company, 142 Kan. 109, 45 P.(2d) 872, the court held that section 12 — 843 provides the exclusive method for a city to finance the purchase or construction of an electric-light plant other than out of current revenue on hand, or to be presently available from a lawful tax levy already made; and that a city is without authority to enter into a "special fund" contract for the purchase of such a plant. See, also, Interstate Power Co. v. City of Ainsworth, 125 Neb. 419, 250 N.W. 649, 650; Van Eaton v. Town of Sidney, 211 Iowa, 986, 231 N.W. 475, 71 A.L.R. 820.

We conclude that section 27 art. 10, of the Oklahoma Constitution, quoted in note 1 to our former opinion herein 81 F.(2d) 209, 212, provides the exclusive method by which a city may finance the cost of an electric power plant, other than from current funds on hand or presently to be available from lawful tax levies already made from current earnings, or from the proceeds of a bond issue authorized in accordance with section 26, art. 10, of the Oklahoma Constitution.

It follows that the City was unauthorized to enter into the special fund contract involved herein.

In Baker v. Carter, supra, the court quoted with approval from the opinion in Garrett v. Swanton, 216 Cal. 220, 13 P. (2d) 725, 729, as follows:

"The overwhelming weight of judicial opinion in this country is to the effect that bonds, or other forms of obligation issued by states, cities, counties, political subdivisions, or public agencies by legislative sanction and authority, if such particular bonds or obligations are secured by and payable only from the revenues to be realized from a particular utility or property, acquired with the proceeds of the bonds or obligations, do not constitute debts of the particular state, political subdivision, or public agency issuing them, within the definition of `debts' as used in the constitutional provisions of the states having limitations as to the incurring of indebtedness." (Italics ours.)

In Faught v. City of Sapulpa, 145 Okl. 164, 292 P. 15, 22, the court said:

"The `evident object and purpose' of the adoption of article 10 of the Constitution has been stated repeatedly. At an early date this court, speaking through Mr. Justice Williams, in Campbell et al. v. State ex rel. Brett, 23 Okl. 109, 99 P. 778, 784, * * * with particular reference to section 26, art. 10, supra, said: `The settled purpose has been to place restrictions and limitations upon the taxing power.'"

To the same effect, see Gentis v. Hunt, 121 Okl. 71, 247 P. 358, 361; O'Neil Engineering Co. v. Town of Ryan, 32 Okl. 738, 124 P. 19; Campbell v. State, 23 Okl. 109, 99 P. 778.

For the reasons stated in our former opinion, the contract in question did not impose a tax burden directly or indirectly on the taxpayers of the City and did not create a debt. Hence, it was not prohibited by section 26, art. 10 of the Oklahoma Constitution or by the provisions of the City's charter. But the contract being unauthorized, Fairbanks Morse is not entitled to the relief granted in our former opinion. We think, however, it is entitled to equitable relief, for reasons we shall undertake to state.

Section 6, art. 18, of the Okla. Constitution, provides:

"Every municipal corporation within this State shall have the right to engage in any business or enterprise which may be engaged in by a person, firm, or corporation by virtue of a franchise from said corporation."

Section 6350, Okla.St.1931, is to the same effect.

Clearly the City had authority to contract for the purchase of the power plant. The contract was not prohibited by law; nor was it contrary to public policy or public morals. The City simply was without authority to obligate itself to pay for the equipment in the manner provided in the contract. The illegality in the contract related not to its substance but only to a specific mode of performance by the City. Chapman v. County of Douglas, 107 U.S. 348, 2 S.Ct. 62, 27 L.Ed. 378. Fairbanks Morse acted in good faith.

When the City denied liability under the contract, it did not offer to make restitution of the power plant; and at the trial below, the City contended it was entitled to retain the power plant and recover back the payments made under the contract. In their brief on rehearing, counsel for the City abandoned that manifestly unjust position, saying:

"In case of conditional sales transaction of this sort, where payments are provided for out of anticipated special funds to accrue from the operation of the property sold, and provision is made in the contract for retaking the property conditionally sold, the vendor's sole remedy, in case of default, is to retake the property and recover only that portion of the special fund accrued to the seller's benefit up to the time of retaking. The contract, if sustainable at all, is on the theory of the exclusiveness of such remedy as provided in the contract. To enforce performance of the contract would be to fix on the City liabilities and obligations within the inhibition of the Constitution and statutes."

It is a well settled principle that the obligation to do justice rests upon all persons, natural and artificial, and if a municipality obtains the money or property of another without authority, the law, independent of any statute, will compel restitution or compensation.

Where a municipality enters into a contract for the purchase of property which it has the right to acquire, but undertakes to pay therefor in a manner not authorized by law, and the contract is not prohibited by law or contrary to public morals, the municipality will not be permitted to retain the property and deny its liability on the contract. If it asserts that the contract is ultra vires, it must make restitution or render an equivalent therefor.¹

In Chapman v. County of Douglas, 107 U.S. 348, 2 S.Ct. 62, 68, 27 L.Ed. 378, the county had entered into a contract with Chapman to purchase certain land for a poor-farm. The county agreed to secure and to make deferred payments for the land, in a manner not authorized by law. Chapman conveyed the land to the...