Cawood v. Coleman

• Citation: 172 S.W.2d 548,294 Ky. 858
• Parties: CAWOOD v. COLEMAN, Mayor, et al.
• Decision Date: 25 June 1943
• Court: Court of Appeals of Kentucky

172 S.W.2d 548

294 Ky. 858

CAWOOD v. COLEMAN, Mayor, et al.

Court of Appeals of Kentucky

June 25, 1943

Appeal from Circuit Court, Franklin County; Wm. B. Ardery, Judge.

Action by George B. Cawood on behalf of himself and other citizens and taxpayers similarly situated, against C. T. Coleman Mayor, and the Board of Common Council of Frankfort Kentucky, to enjoin defendants from carrying into effect ordinances providing for purchase of the capital stock of Tri Cities Utilities, thereby acquiring the physical properties of the Frankfort Water and Electric system, creating an agency to operate the system and issuing bonds for payment. From a judgment of dismissal, plaintiff appeals.

Judgment affirmed.

S. H Brown, of Frankfort, for appellant

Marion Rider and Clifford E. Smith, both of Frankfort, for appellees.

MORRIS Commissioner.

This is an appeal from a judgment of the Franklin circuit court dismissing the petition of appellant, a citizen and taxpayer of Frankfort, suing on his behalf and persons similarly situated. Demurrer was sustained, and upon refusal to plead further petition was dismissed. Petitioner sought to enjoin appellees from carrying into effect ordinances providing for the purchase of the capital stock of Tri Cities Utilities thereby acquiring the physical properties of the Frankfort Water and Electric system, creating an agency to operate the system, and issuing bonds for payment.

As gathered from pleadings and briefs we find that Associated Electric Company owns the capital stock of Tri City Company, which is operator of the combined "Frankfort properties," the unified light, power and water systems. The Associated G. and E. Company is the holding company of Associated Electric, Ky-Tenn Light and Power Company, and other utilities. Tri City is successor to Ky-Tenn Power Company, formerly owning the Frankfort properties. The Associated G. and E. Company is now and has been for several years going through receivership in the New York court, and in this process the properties of Ky-Tenn, and its successor Tri City have been ordered sold or liquidated, and if the city becomes the owner of its stock Tri City will at once be dissolved.

In the contract for purchase, the Associated Electric Company is to indemnify the city against liability or obligation other than such as are assumed by the sale contract. The contract of sale was entered into between the city and owners June 4, and approved by the city officials. There is no criticism aimed toward the contract, either as to form or substance, which calls for a payment for the combined properties of $1,200,000. It is history that long prior to the passage of the ordinances the city, through its officers and a committee of citizens, appointed for the purpose, carried on negotiations looking to the purchase of the electric system. This plan failed because the owners of the combined system refused to consider an offer on the one unit. It appears that the proposed purchase of the stock of the unified system in the city will result in a considerable saving over what might have been demanded or paid if it had undertaken, or the seller had agreed to split the unit and make separate sales.

For many years, and since the water plant was sold, the two have been operated as a single system, having the same manager, same office and equipment manned by the same personnel, supplying customers with both commodities, and appellant and all consumers have paid their monthly bills to one collector. It may also be noted, if it has bearing, that both the contract and the ordinances in question, were given wide publicity in the local newspapers, with the result that no complaint has been registered except the present one, which does not question the propriety of the contract or the fact that the acquisition of the properties will redound to the benefit of the citizens. The sole objections presented are of legal nature, and may be evidenced by the objections of appellant advanced in the circuit court and reiterated here.

It was and is argued (1) that the city is limited in method of purchase by what is commonly called the T. V. A. Act, Ch. 18, Acts of 1942, with respect to acquiring by purchase operating electric systems, K.R.S. 96.550, et seq., (2) limited in respect of acquisition and operation of a water system by K.R.S. 96.350 et seq. (3) That § 179 of the Constitution prohibits the city from acquiring the combined capital stock of TriCity, even though it may be purposed to dissolve that corporation. (4) That the city does not under its general charter, possess the right to issue and sell revenue bonds, even though the principal and interest be payable solely from operating revenues. (5) The issuance and sale of bonds will constitute an indebtedness against the city in violation of §§ 157, 158 of the Constitution, and (6) that the delegation of power to manage and control by an appointed board is invalid.

Applying the process of elimination in order to reach what appears to be the chief controversial question, (1 and 2), we shall dispose of others. (3) Section 179 of the Constitution prohibits the General Assembly from giving authority to a municipality to become a stockholder in any corporation. The purchase of the Tri City stock will merely be the means of vesting the title to the Frankfort properties, whereupon the corporation will be contemporaneously dissolved. The objection is answered in Maysville & L. T. R. Co. v. Wiggins, 104 Ky. 540, 47 S.W. 434, and Long v. Mayo, 271 Ky. 192, 111 S.W.2d 633. (5 and 4) The bonds are to mature in 25 years; to bear not to exceed 3 per cent interest; only the revenues from operation of the properties are in lieu for interest and liquidations. By adopting this plan the city has avoided the creation of a lien, as is provided by 96.400, 96.410, K.R.S., which create a statutory lien against the physical property.

We see no reason why this provision, if applicable here, should not be waived by contracting parties. Purchasers of the bonds will be bound by the terms and conditions of the bond contract. If appellees are correct in their contention that general statutes later referred to authorize the city to purchase and operate, it would follow that the city has authority to provide means and method of acquisition. Reconstruction Finance Corp. v. Richmond, 249 Ky. 787, 61 S.W.2d 631, reaffirmed in State Bank & Trust Co. v. Madison County, 275 Ky. 501, 122 S.W.2d 99. As having bearing, but not decisive, see Olson v. Preston Street Road Water Dist. No. 1, 286 Ky. 66, 149 S.W.2d 766; Long v. Mayo, supra; Spahn v. Stewart, 268 Ky. 97, 103 S.W.2d 651; Webster v. City of Frankfort Housing Comm., 293 Ky. 114, 168 S.W.2d 344. These are conclusive of the contention that §§ 157 or 158 are violated.

(6) One ordinance created an "Electric and Water Plant Board of the City of Frankfort," to consist of five resident taxpayers and users of electric energy and water, possessing qualifications of council members, with no salary attached. It provided for secretary and treasurer of the board, the latter, as well as board members, to execute bonds, a plant manager and other necessary employees, with salutary limitations as to persons employed. The duties of the members and manager are fully set out, including specific duties of the board with respect of handling funds. K.R.S. 96.320 provides for the appointment of a Water Works Commission by the Mayor, and defines duties. K.R.S. 96.530 provides for the appointment by the council (ordinance) for a city utility commission of three members, and defines duties. K.R.S. 94.070(2) provides for the establishment of a board of public works, three freeholders to be selected by the Mayor. K.R.S. 94.110 gives this board control of water and electric power plants, except as provided by K.R.S. 96.530. K.R.S. 96.740 provides for electric power board.

These provisions present a striking example of the impracticability if not impossibility of compliance with all statutes under which appellant contends the maintenance and operation of the system should be conducted. The plan of control and management proposed seems a sensible and practical combination of the various provisions of the statutes referred to above, and comports with K.R.S. 96.740. A change in plans would require nothing more than action by the council.

(1 and 2) are approached with the realization that insofar as is evidenced by pleadings, briefs of counsel for appellant, and amicus curiae, and oral argument, there is no charge of ulterior motive or attempt to foist upon the public of Frankfort a white elephant, or in anywise involve the citizens in an enterprise which may result disastrously, or which under proposed plans may not be successfully carried out. Neither is it intimated that the plan of unifying the two projects was for the purpose of attempting...