Swanson v. The City of Ottumwa

• Decision Date: 25 October 1902
• Citation: 91 N.W. 1048,118 Iowa 161
• Parties: CHARLES SWANSON, Appellee, v. THE CITY OF OTTUMWA, Appellant
• Court: Iowa Supreme Court

91 N.W. 1048

118 Iowa 161

CHARLES SWANSON, Appellee, v. THE CITY OF OTTUMWA, Appellant

Supreme Court of Iowa, Des Moines

October 25, 1902

Appeal from Wapello District Court.--HON. ROBERT SLOAN, Judge.

ACTION in equity to enjoin the issuance of certain bonds, and to declare void a certain contract entered into by the defendant city for the construction of a system of waterworks. From the order of the district court granting an injunction as prayed the defendant appeals.

Reversed.

Jaques & Jaques and Mitchell & Hunter for appellant.

Seneca Cornell and Wm. McNett for appellee.

OPINION

WEAVER, J.

The facts upon which this litigation depends are not in dispute. The defendant city, being already indebted nearly or quite to the full constitutional limit of five per cent. of all its taxable property, and being desirous of constructing a system of waterworks, undertook to effect that purpose in the manner provided for in chapter 5 of title 5 of the Code, and to that end the city council enacted certain ordinances, the provisions of which, so far as material, are as follows (ordinance No. 566):

"Be it ordained by the city council of the city of Ottumwa, Iowa.

"Section 1. That the city accepts and elects to exercise the powers granted it by chapter 5, title 5, of the Code of Iowa of 1897, and amendments thereto, and to acquire by purchase or erection, under the provisions of said law, a system of waterworks for the purpose of supplying the city and its inhabitants with water.

"Sec 2. That for the purpose of creating a sinking fund to be used in the purchase or erection of a system of waterworks, there is hereby levied for the year 1899, and each year thereafter until the purchase price or contract price of said system of waterworks is fully paid, a tax of two (2) mills on the dollar upon all property within the corporate limits of the city of Ottumwa, excepting lots greater than ten acres in area used for horticultural or agricultural purposes. The proceeds of such tax levy shall be used exclusively to pay the purchase price or cost of construction of such system of waterworks, and any bonds, mortgages, or other obligations issued to pay such purchase price or costs of construction, as the case may be, and the interest thereon, and shall be collected, managed and disposed of as provided by law, and by ordinances not inconsistent therewith.

"Sec. 3. That there shall be levied each year upon all taxable property lying within the limits of benefit and protection of the waterworks purchased or constructed, from and after the purchase or construction of the same, by the city of Ottumwa a water tax of five (5) mills on the dollar, or so much thereof as may be necessary, together with the net proceeds of water rents collected from the consumers of water, to pay the cost of maintenance, repairs, and operation of said waterworks, and the cost of extensions thereof and additions, and improvements thereon, and to pay any of the purchase price, or cost of constructing said works, or bonds or mortgages issued therefor, or interest thereon, which shall not be paid from the proceeds of the two mill tax provided for in section two hereof."

Section four provides for negotiations for the purchase of the works of the City Water Supply Company.

Section five provides that upon failure to make such purchase the city engineer shall be directed to prepare plans and specifications for the erection of waterworks, and that the council, upon approval of such plans, proceed to advertise and let the contract for such improvement to the lowest bidder.

"Sec. 6. (As amended by Ordinance No. 594.) That for the purpose of creating a special fund to be held by the city in trust for the sole purpose of paying the cost of erecting a system of waterworks as contemplated by Ordinance No. 566, in the event that the electors of the city of Ottumwa shall, at a special election called for that purpose, cast a majority of their votes in favor of the approval of a contract by the city entered into for the construction of such waterworks, the city shall issue, in the manner prescribed by chapter five of the Code of Iowa of 1897, a sufficient number of bonds, which, together with the sinking fund on hand, will be sufficient to pay the contract price for the erection and completion of said system of waterworks and all other expenses connected with the completion of said waterworks and all other expenses connected with the completion and the putting of said plant into successful operation. Said bonds shall be issued in denominations of not less than one hundred ($ 100) dollars, nor more than one thousand ($ 1,000) dollars, each to bear interest at a rate not exceeding four and one-half per cent. per annum, interest payable semiannually. The bonds shall be payable as follows: Five thousand ($ 5,000) dollars, at the end of two years from the date thereof; five thousand ($ 5,000) dollars at the end of each succeeding year thereafter for a period of twenty-two (22) years, and at the end of which time the city reserves the right to refund all of the outstanding bonds; and after a period of twenty-two (22) years from the date thereof said bonds shall be payable in the sum of not less than ten thousand ($ 10,000) dollars per year for not exceeding fifty years from the date thereof, unless there shall be a fraction thereof only left, in which event bonds shall only be issued for such fraction. The payment of said bonds and the interest thereon shall be secured by a mortgage on said system of waterworks, and to the payment thereof shall be pledged the entire proceeds of the two mill sinking fund tax provided for in section two of said Ordinance No. 566, and so much of the proceeds of the water rates and rentals collected from consumers and of the water tax provided for in section three of said Ordinance No. 566, as shall not be needed for the maintenance and operation, repairs and proper and necessary extensions, additions and improvements of said waterworks. Said bonds to be sold in the market for not less than par, and the money received therefrom shall be held by the city of Ottumwa as a special and trust fund for the sole purpose of paying expenses of the construction and completion of said waterworks plant. The contract for the erection of the same shall specifically provide that the payment for said plant shall be made out of said funds only and out of the two per cent. sinking fund on hand at the time the contract is made, and that the city will assume no other obligation than that of negotiating and selling said bonds and holding said fund for the purpose of paying for said plant, and said fund shall not under any circumstances be devoted to any other purpose than the payment for said waterworks. Said bonds may be negotiated and sold either as a whole prior to the commencement of said work and after the ratification of the contract by the city entered into for the construction of said waterworks by the electors of said city, or they may be negotiated and sold as the work progresses in sums sufficient to pay the monthly estimates on said work, or they may be turned over to the contractor in payment for the work as it progresses if the contract for the works shall so provide and the city shall have the right to so contract.

"Sec. 7. No part of the cost of said waterworks, or any of the bonds issued therefor as hereinbefore provided for, or of the interest thereon, shall ever be paid out of the general funds of said city, or out of any fund or the proceeds of any tax, other than the property and funds specifically named and pledged in section six hereof, and this provision and limitation shall be recited in said bonds."

Pursuant to said ordinances the council caused the necessary plans and specifications to be prepared, and thereafter entered into a contract with the Fruin-Bambrick Company for the construction of a system of waterworks at an expense of about $ 400,000. The provisions of said contract, so far as pertinent, are as follows: "This article of agreement, made and entered into by and between the city of Ottumwa, Iowa * * * party of the first part, and the Fruin-Bambrick Construction Company, * * * as party of the second part witnesseth: That for and in consideration of the sum of three hundred and ninety-eight thousand nine hundred and ninety-one ($ 398,991.00) dollars, to be paid by the party of the first part at the time and in the manner provided for by the plans and specifications and by the ordinances and resolutions passed and adopted by the city of Ottumwa in relation to the construction of said waterworks, second party hereby agrees to erect for the city of Ottumwa, Iowa and complete and put into successful operation in all its parts and all of its details, a complete system of waterworks according to the plans and specifications heretofore adopted by the city council, together with the amendments thereto. Said plant to be paid for in detail according to the bid of the said party of the second part as accepted by the city council. [Here follow the various items making up the entire work to be performed, and the separate prices or values attached to each, making up the aggregate of $ 398,991.] The city, on its part, agrees to pay the sum above mentioned to the party of the second part at the time and in the manner provided for in the plans and specifications out of a trust fund to be created therefor by mortgaging said plant and pledging the two-mill water levy for sinking fund, the regular water levy and the surplus, if any, of the earnings of said plant, as provided for in chapter five of the Code of Iowa 1897, to secure the payment of waterworks bonds in the sum of not exceeding four hundred thousand ($ 400,000) dollars. Said mortgage and...