O'Bryant v. City of Idaho Falls, 8501

• Decision Date: 24 October 1956
• Docket Number: No. 8501,8501
• Citation: 78 Idaho 313,303 P.2d 672
• Parties: W. J. O'BRYANT, Plaintiff-Appellant, v. The CITY OF IDAHO FALLS, Idaho, a municipal corporation, and its duly elected Mayor and Councilmen, namely Russell Freeman, George Patersen, Donald Foote, Vernon Johnson and John Rogers, Mayor, and Idaho Falls Cooperative Gas Association, Inc., a corporation, and its Board of Directors, namely, D. A. Thompson, D. F. Richards, Lynn Crandall, George Watkins and Hugh Benfer, Defendants-Respondents.
• Court: Idaho Supreme Court

Page 672

303 P.2d 672

78 Idaho 313

W. J. O'BRYANT, Plaintiff-Appellant, v. The CITY OF IDAHO FALLS, Idaho, a municipal corporation, and its duly elected Mayor and Councilmen, namely Russell Freeman, George Patersen, Donald Foote, Vernon Johnson and John Rogers, Mayor, and Idaho Falls Cooperative Gas Association, Inc., a corporation, and its Board of Directors, namely, D. A. Thompson, D. F. Richards, Lynn Crandall, George Watkins and Hugh Benfer, Defendants-Respondents.

No. 8501.

Supreme Court of Idaho.

Oct. 24, 1956.

Rehearing Denied Dec. 4, 1956.

O. R. Baum, Pocatello, for appellant.

A. L. Smith, Idaho Falls, Ben Peterson, Pocatello, and Oscar W. Worthwine, Boise, for respondents.

Claude V. Marcus and J. N. Leggat, Boise, and Harold L. Ryan, Weiser, amici curiae.

PORTER, Justice.

Appellant brought this action for declaratory judgment for the purpose of testing the validity of the ordinance of the City of Idaho Falls granting an exclusive franchise for a period of thirty yeas to respondent, Idaho Falls Cooperative Gas Association, Inc., hereinafter referred to as the 'Cooperative', to construct, maintain and operate a system for the distribution of gas to the residents of Idaho Falls and immediate vicinity. Appellant prayed for a judgment declaring such ordinance to be illegal and void. Trial of the cause was had before the court sitting without a jury, and resulted in a judgment in favor of respondents holding such ordinance to be legal and valid. From such judgment this appeal has been perfected.

The Intermountain Gas Company, a corporation, holds a certificate of convenience and necessity granted by the Public Utilities Commission for the distribution of natural gas in southern Idaho including the territory of Idaho Falls and vicinity. Such company made application to the City of Idaho Falls for a franchise to use the streets and alleys of such city for the construction and operation of a system for the distribution of natural gas. This application has been bypassed and not acted upon. The Intermountain Gas Company having an interest in the outcome of this litigation, its attorney, Mr. Claude Marcus, was permitted to appear in such cause in this court as amicus curiae. It also being made to appear that a suit similar to this action is now pending against the City of Weiser to determine the effect of a similar ordinance granting a franchise to a similar cooperative association, the attorneys for the plaintiffs in such suit, Messrs. J. N. Leggat and Harold L. Ryan, were permitted to appear as amici curiae.

Many attacks are made upon the validity of the franchise granted to the Cooperative, and many questions raised and discussed by appellant and amici curiae. These attacks fall generally into two groups. The first group of attacks is against the Cooperative. It is contended: That a cooperative cannot be organized for the distribution of gas under the provisions of Title 30, Chapter 10, I.C. That the Cooperative is a public utility subject to regulation by the Public Utilities Commission and is not a non-profit cooperative association exempted from the jurisdiction of the Commission by the provision of Section 61-104, I.C. That the Cooperative is not authorized to issue bonds for the construction and operation of a system for the distribution of natural gas. That the Cooperative is not a true non-profit cooperative association formed and operated without profit for the use and benefit only of its members. That it is not a separate entity from the City of Idaho Falls, but, as shown by its Articles of Incorporation and By-Laws and by the franchise in question, it is an arm or instrumentality of the City of Idaho Falls, controlled and brought into being by the City for the purpose of constructing and operating a system for the distribution of gas and the issuance of bonds for financing the same whereby the City is attempting to do indirectly what it is not permitted to do directly.

The second group of challenges to the franchise is directed against the City. It is contended: That the City was obligated to grant a franchise to the Intermountain Gas Company, the holder of the certificate of convenience and necessity. That the City is not empowered to construct and operate a system for the distribution of gas. That the City cannot issue bonds for the construction of such a system. That the City cannot issue bonds for the construction of such a system without first submitting the question to a vote of the electors and providing for an annual tax to retire same. That the City cannot grant an exclusive franchise. That the City cannot grant a franchise for a private use of its streets and alleys. That the amount equal to three percent of the gross receipts to be paid to the City under the franchise is a revenue raising measure and not a regulatory measure under the police power. That the actions of the City amount to the incurring of an indebtedness and assumption of a liability, contrary to the constitution, in excess of the current annual revenues of the City without a vote of the qualified electors and without provision for an annual tax to retire the same. That it is an extension of the faith and credit of the City contrary to the constitution. And that the City is attempting to do indirectly what it cannot do directly, that is, to construct and operate a system for the distribution of gas and to issue bonds in payment therefor, by creating an instrumentality or agency of the City for such purposes.

We do not deem it necessary, expedient or practicable to discuss and determine all such questions. Some of such questions are hypothetical, some premature and some based upon an interpretation of the constitution and statutes. We will only discuss and consider those questions which we deem necessary to a disposition of this cause.

Article VIII, Section 3, of our Constitution provides:

'Limitations on county and municipal indebtedness.--No county, city, town, township, board of education, or school district, or other subdivision of the state, shall incur any indebtedness, or liability, in any manner, or for any purpose, exceeding in that year, the income and revenue provided for it for such year, without the assent of two-thirds of the qualified electors thereof voting at an election to be held for that purpose, nor unless, before or at the time of incurring such indebtedness, provision shall be made for the collection of an annual tax sufficient to pay the interest on such indebtedness as it falls due, and also to constitute a sinking fund for the payment of the principal thereof, within twenty years from the time of contracting the same. Any indebtedness or liability incurred contrary to this provision shall be void; provided, that this section shall not be construed to apply to the ordinary and necessary expenses authorized by the general laws of the state.'

Article XII, Section 4, of the Constitution provides as follows:

'Municipal corporations not to loan credit.--No county, town, city, or other municipal corporation, by vote of its citizens or otherwise, shall ever become a stockholder in any joint stock company, corporation or association whatever, or raise money for, or make donation or loan its credit to, or in aid of, any such company or association: provided, that cities and towns may contract indebtedness for school, water, sanitary and illuminating purposes: provided, that any city or town contracting such indebtedness shall own its just proportion of the property thus created and receive from any income arising therefrom, its proportion to the whole amount so invested.'

Sections 50-2801 to 50-2811, I.C., inclusive, dealing with municipal bonds, do not provide for the issuance of municipal bonds for the construction and operation of a system for the distribution of gas. Likewise, Sections 50-2812 to 50-2825, I.C., inclusive, containing the Revenue Bond Act, do not authorize the issuance of such bonds for the construction and operation of a gas distribution system.

In I Dillon, Municipal Corporations, (5th Ed.), paragraph 237, it is stated:

'It is a general and undisputed proposition of law that a municipal corporation possesses and can exercise the following powers, and no others: First, those granted in express words; second, those necessarily or fairly implied in or incident to the powers expressly granted; third, those essential to the accomplishment of the declared objects and purposes of the corporation,--not simply convenient, but indispensable. Any fair, reasonable, substantial doubt concerning the existence of power is resolved by the courts against the corporation, and the power is denied.'

Neither the constitution nor statutes of this state expressly grant to municipalities the right to construct, operate and maintain a gas distribution system; or to issue bonds in payment for the construction thereof.

The contemplated system to be constructed by the Cooperative for the distribution of gas in the City of Idaho Falls provides for the laying of a pipeline from Pocatello to Idaho Falls for a distance of approximately fifty miles. It is conceded that the City of Idaho Falls does not have sufficient funds and annual revenues to pay for the construction of such a system.

The Cooperative was organized by five residents of the City of Idaho Falls as an ostensible non-profit cooperative association under the provisions of Chapter 10, Title 30, I.C. Thereafter, on March 2, 1956, the gas franchise ordinance in question was adopted and approved by the City of Idaho Falls. Such ordinance provides for the execution and filing of a contract by the Cooperative. Such contract was filed on March 16, 1956. Under date of March 6, 1956, the Cooperative entered into an agreement with R. E. Schweser & Company, a co-partnership, for the purchase by the co-partnership of bonds to be issued by the Cooperative to raise funds to construct its distribution system, such bonds to be a first lien...