City of Enterprise v. State

• Decision Date: 15 June 1937
• Citation: 156 Or. 623,69 P.2d 953
• Parties: CITY OF ENTERPRISE v. STATE et al.
• Court: Oregon Supreme Court

69 P.2d 953

156 Or. 623

CITY OF ENTERPRISE v. STATE et al.

Supreme Court of Oregon

June 15, 1937

Department No. 2.

Appeal from Circuit Court, Wallowa County; J. W. Knowles, Judge.

Proceeding by the City of Enterprise against the State of Oregon and others. From the decree, the State of Oregon appeals.

Reversed.

This is an appeal by the State of Oregon, the State Bond Commission the State Treasurer, and three others, all of whom own or have the custody of bonds issued by the City of Enterprise petitioner in this proceeding. The proceeding was instituted by the city under the provisions of 1933 Session Laws, ch 433, p. 777, Municipal Administration Act, as amended by 1933 Session Laws, Second Special Session, ch. 62, p. 177, for the purpose of having a municipal administrator appointed for the city. The State, its officials, and the individuals above mentioned were made defendants. The relief sought was granted by the decree which is under attack.

A receiver is an officer of the court which appoints him.

Fred H Paulus, of Salem (I. H. Van Winkle, Atty. Gen., and Willis S Moore, Asst. Atty. Gen., on the brief), for the State of Oregon, State Bond Commission and Rufus C. Holman, as treasurer.

Roy F. Shields, of Portland (Maguire, Shields & Morrison, of Portland, on the brief), for H. F. Ong.

Fred S. Wilhelm, of Portland, for Oscar W. Nilsson.

Hallock, Donald & Banta, of Baker, for Bank of Haines.

Sylvester H. Burleigh, of La Grande (Burleigh & Burleigh, of La Grande, on the brief), for City of Enterprise.

The issues presented by this appeal concern primarily the validity of 1933 Session Laws, ch. 433, p. 777, as amended by 1933 Session Laws, Second Special Session, ch. 62, p. 177. To the City of Enterprise, which instituted this proceeding as petitioner, we shall refer as the plaintiff, and to the defendants, which are the State, the State Bond Commission (1935 Oregon Code Supplement, § 68-501), the State Treasurer, and the three individual owners of securities issued by the plaintiff, as the defendants. The State owns bonds issued by the City of Enterprise which are in the custody of its treasurer and bond commission. The provisions of 1933 Session Laws, ch. 433, p. 777, known as the Municipal Administration Act, may be summarized as follows: Any county, city, school district, port, or water district having a population of less than 100,000 inhabitants, that has defaulted for a period of six months in the payment of a judgment or any contractual indebtedness is subject to the act. A petition filed in the circuit court by the municipality's governing body, or by the owners of not less than 25 per cent. of its defaulted indebtedness, delineating the circumstances, and followed by service and proof of the facts averred, authorizes the court to appoint an administrator for the municipality. The individual appointed qualifies by taking an oath and furnishing a bond "in such amount as the court and the state treasurer shall determine, *** The compensation of said municipal administrator shall be fixed by the court with the approval of the state treasurer at an amount not to exceed $3,600.00 per annum, and in determining said compensation the court and said treasurer shall take into consideration ***." Section 6 provides: "Upon appointment, the said municipal administrator forthwith shall investigate the financial affairs of said municipal corporation, and shall report to the state treasurer and to the circuit court."

Section 7 provides: "Subject to the direction of said court, the said municipal administrator shall be and hereby is authorized and directed to assume complete control of the fiscal affairs of said municipal corporation, and during the incumbency of said administrator, no funds shall be expended or transferred without the written approval of said administrator."

Continuing, the section vests in the administrator authority to employ assistants and to sign all of the municipality's checks and warrants; it provides that no future contracts involving the payment or receipt of money shall be valid unless bearing his written approval; it invests him with power to sue and to be sued; and it authorizes him to adjust or liquidate "by and with the approval of the court and the governing body of said municipal corporation, any of the current or fixed obligations of such municipal corporation. *** Said administrator shall have charge of the hiring and discharging of all persons other than elective officers employed by said corporations, and shall have authority to fix their salaries as well as the salaries of said elective officers. No levies of taxes for the payment of fixed and current obligations and operating costs of said municipal corporation shall be valid unless approved by such administrator." The section directs that the administrator shall collect all rentals, delinquent taxes, accounts receivable, etc., and outlines a method for the foreclosure of tax and other liens possessed by the municipality. Section 8 provides that if the municipality's revenues prove to be insufficient to discharge operating expenses, the administrator may employ "such amount of bond principal and interest funds in his hands as may be necessary to defray the balance of such operating charges for the remainder of the fiscal year." Section 9, after providing that refunding bonds cannot be issued unless 80 per cent. of the holders of the defaulted issue consent to receive them, outlines a method whereby presumptive consent of the remaining 20 per cent. may be obtained. Section 10 provides: "Except as herein provided, all other powers conferred and imposed by law or charter of the particular municipal corporation shall not be affected or curtailed, and the authority of the municipal administrator herein granted shall be limited to the management and control of the fiscal affairs and the liquidation and refinancing of the indebtedness of said corporation, pursuant to the provisions of this act. The laws pertaining to the debt limitation of municipalities shall not apply to any municipalities that shall fund, refund, compromise or adjust their fixed obligations under the provisions of and in the manner as provided by this act."

Section 11 directs that after the administrator has completed his work he "shall file with the circuit court with which the original petition *** was filed a sworn statement of the existing financial condition of said corporation," and that if the statement satisfies the court that the municipality "is in such financial condition as no longer to require the services and financial supervision of the said municipal administrator" it may discharge him. The following is section 12, the concluding part of the act: "If any section, sentence or clause in this act shall be held invalid or unconstitutional, such fact shall not affect the validity of the remaining portion of the same. That all laws or parts of laws in conflict with the provisions of this act hereby are repealed."

Nineteen Thirty-three Session Laws, Second Special Session, ch. 62, p. 177, amends this act by including within its purview drainage and irrigation districts. We pass by all arguments based upon procedure, and proceed to a consideration of contentions that attacked the validity of the act.

It will be observed that the statute authorizes the appointment of an administrator for defaulting municipalities, and that the appointment is made by the circuit court which determines the amounts of his undertaking and compensation. It will be further observed that the appointee is "subject to the direction of said court" in pursuing his task of assuming "complete control of the fiscal affairs of said municipal corporation." His reports are filed with the circuit court. His efforts to "adjust, compromise, settle or liquidate" the municipality's indebtedness are made "by and with the approval of the court and the governing body of said municipal corporation." His final discharge, when his duties have been completed, is made by the circuit court. While the administrator's duties are confined to management of the fiscal affairs of the city, his power is, nevertheless, great. He possesses the sole authority to sign its checks, warrants, etc. He possesses a veto power over its contracts. While he has no authority to discharge an elective official, he, nevertheless, has the power to fix the salary of such individual as well as authority to hire, discharge, and fix the salaries of all other city employees. Thus, all of its activities that contemplate the expenditure of money are subjected to his control. By way of illustration, we add that if the municipality has an appointive municipal judge, the tenure of the latter as well as his salary is subject to the administrator.

The act clearly contemplates equity receiverships for insolvent municipalities. It employs the term municipal administrator, but includes within that term all of the power usually possessed by a receiver. Ordinarily, a receivership (1) places a court officer in charge of the assets of the insolvent; (2) creates concerted action in behalf of all of the creditors, thereby avoiding action by one at the expense of the others; (3) finally concludes with a sale of the assets of the insolvent; and (4) brings about ratable realization by all of the creditors.

As already indicated, a receiver is an officer of the court which appointed him, and the assets of the insolvent, upon appointment of the receiver, are in custodia legis. In the present instance, the third element may be missing because, ordinarily, municipalities possess no property not devoted to public uses which is for sale. But likewise, many insolvent persons possess nothing available for sale by the receiver. Again, our act...