City of Frostburg v. Jenkins, 24

• Decision Date: 12 December 1957
• Docket Number: No. 24,24
• Parties: The CITY OF FROSTBURG, etc. and Board of Supervisors of Elections for City of Frostburg, v. William S. JENKINS.
• Court: Maryland Court of Appeals

Page 9

215 Md. 9

136 A.2d 852

The CITY OF FROSTBURG, etc. and Board of Supervisors of Elections for City of Frostburg, v. William S. JENKINS.

No. 24.

Court of Appeals of Maryland.

Dec. 12, 1957.

Edward J. Ryan, Cumberland, for appellants.

William C. Walsh and William Walsh, Cumberland (Miles, Walsh & Stockbridge, Cumberland, on the brief), for appellee.

Before BRUNE, C. J., and HENDERSON, HAMMOND and PRESCOTT, JJ.

HENDERSON, Judge.

This appeal is from a decree of the Circuit Court for Allegany County, restraining the appellants from holding a special election for the purpose of obtaining authority to issue municipal bonds and devote the proceeds to acquiring a site and contributing to the cost of constructing a building to be used by a privately owned manufacturing company. On a bill for declaratory decree filed March 28, 1957, by taxpayers and voters of Frostburg, the Chancellor held that the enabling act and City ordinance were invalid and unconstitutional, on the ground that they authorized the use of public funds for a private purpose.

The Code of Public Local Laws of Allegany County, Art. 1, Sec. 248 (Everstine Ed. 1955), as enacted by Chapter 662, Sec. 103, Acts of 1953, provides:

'Industrial Development. In order to encourage industrial development in the City of Frostburg, the City of Frostburg shall have the power to purchase property and to construct or reconstruct buildings or other structures to be used by manufacturing companies agreeing to locate in Frostburg. The city shall enter into an agreement with any such manufacturing company which shall provide that the company shall purchase the land and buildings and structures by means of installment payments over a period of years not to exceed twenty-five. Until the entire purchase price has been received by the city, the land, buildings, and structures shall remain the property of the City of Frostburg. For the purposes only of this section, the City of Frostburg shall have the power to issue bonds or other certificates of indebtedness, subject in each instance to receiving the prior approval of the voters of the city in a referendum vote. Not more than $100,000.00 in bonds or other certificates of indebtedness may be issued and outstanding at any one time under the provisions of this section.'

On March 4, 1957, the City passed Ordinance No. 488, providing for a special election on March 30, 1957, pursuant to the enabling act, to authorize the City to issue bonds in an amount not to exceed $100,000, for the purpose of acquiring a site and contributing to the construction of a building to be used by the Cumberland Undergarment Company for the manufacture of lingerie and other garments and articles of a like nature, and providing for the cost of said special election. The Ordinance recited that the Company had agreed to operate a factory in Frostburg, if a suitable building were erected for it, to contribute to the cost of said building in excess of $100,000, to have the title to said building held in the name of the City until fully paid for, to enter into a contract to purchase the building within twenty-five years, 'and to make annual payments under said contract which will total $100,000.00 in twenty-five years, plus interest on deferred payments'. The Ordinance contained the usual provisions for notice by the Supervisors of Election, and the manner of holding the election.

The answer admitted the facts alleged in the bill, and further alleged that the issuance of the bonds 'will be for the benefit of the citizens and residents of the City of Frostburg and that the issuance of such bonds are for a public purpose and are necessary to obtain industrial sites for the purpose of giving employment to the residents of the City of Frostburg and that by so doing, the said city will obtain income from its taxing authority and the economy of the city will be vitalized by the employment which is given to the residents thereof.' It was further alleged that 'without this authority being granted, the said city will not be able to compete with other localities to obtain manufacturing sites for employment of the residents of the city who own properties therein and without such employment would become public charges and would not be able to make payment of the taxes which is the lifeblood of the city.' The case was submitted upon bill and answer, and a restraining order was passed on March 27, 1957. Thereafter, the bill was amended to pray a permanent injunction against the holding of any election under the enabling act, the answer was amended accordingly, and the Chancellor issued a permanent injunction. Under these circumstances, although the time for the election has expired and the question of the validity of this Ordinance is moot, we think the validity of the enabling act under the amended bill for declaratory relief may properly be considered. Cf. Lloyd v. Board of Supervisors of Elections, 206 Md. 36, 111 A.2d 379, and Commissioners of Vienna v. Philips Packing Co., 207 Md. 12, 19, 113 A.2d 89.

It is the general rule that the public funds of municipalities cannot properly be devoted to private use, even when expressly authoritized by the legislature. 15 McQuillan, Municipal Corporations (3rd ed.), § 39.19, p. 33. The exact constitutional source of the prohibition is somewhat obscure. It was once supposed to reside in the Fourteenth Amendment to the Federal Constitution, because of the broad language of Loan Association v. City of Topeka, 20 Wall. 655, 87 U.S. 655, 22 L.Ed. 455. In that case the court affirmed a judgment in favor of the city, in a suit on its bonds, which had been donated to a manufacturer to induce it to locate in the city, pursuant to statutory authorization. But Mr. Justice Holmes, in his dissent in Madisonville Traction Company v. Saint Bernard Mining Co., 196 U.S. 239, 260, 25 S.Ct. 251, 49 L.Ed. 462, observed that the decision in the Loan Association case was not, and could not have been, rested on the Fourteenth Amendment. In Albritton v. City of Winona, 181 Miss. 75, 178 So. 799, 115 A.L.R. 1436, the state court had before it the validity of a statute authorizing the use of municipal funds to finance a private manufacturing corporation. The court distinguished the case of Carothers v. Town of Booneville, 169 Miss. 511, 153 So. 670 on the ground that the legislative policy had not been clearly established in the earlier case. In squarely held that the statute did not violate the Fourteenth Amendment. An appeal to the Supreme Court of the United States was dismissed for want of a substantial federal question, 303 U.S. 627, 58 S.Ct. 766, 82 L.Ed. 1088. In support of the dismissal the Supreme Court cited, among other cases, Green v. Frazier, 253 U.S. 233, 40 S.Ct. 499, 64 L.Ed. 878, and Carmichael v. Southern Coal Co., 301 U.S. 495, 57 S.Ct. 868, 81 L.Ed. 1245. In those cases the Court had intimated that, except in the most extreme cases, it would not override the judgment of the state courts and the state legislature as to what is a public, as distinguished from a private purpose. In the Carmichael case, supra, 301 U.S. at page 515, 57 S.Ct. at page 875, the Court said: 'Whether the present expenditure serves a public purpose is a practical question addressed to the lawmaking department, and it would require a plain case of departure from every public purpose that could reasonably by conceived to justify the intervention of a court.' Another decision holding that the Fourteenth Amendment is not applicable in a situation like that in the instant case, is Miller v. Police Jury of Washington Parish, 226 La. 8, 74 So.2d 394. There a similar scheme for financing new industry was put into effect after an amendment to the state constitution had removed a prohibition against lending credit.

We have noted that the phrase 'Law of the Land' in Article 23 of our Declaration of Rights expresses the same concept as 'due process of law' in the Fourteenth Amendment, and that decisions of the Supreme Court in this field are 'practically direct authorities.' Home Utilities Co. v. Revere Copper and Brass, Inc., 209 Md. 610, 614, 122 A.2d 109, 111.

Although Sections 34 and 54 of Article III of the Maryland Constitution were not relied upon below or in this Court, it was suggested in argument that they might bar the extension of credit in the instant case. The prohibition in Section 34, in terms, runs only against the State, and this construction would seem to be supported by the qualified prohibition in Section 54 in the case of the counties. See also Article XI, Section 7, applicable to Baltimore City. But in any event it seems clear since the decisions in Johns Hopkins University v. Williams, 199 Md. 382, 86 A.2d 892, and Melvin v. Board of County Com'rs of Anne Arundel County, 199 Md. 402, 86 A.2d 902, that the prohibitions of those sections do not bar the use of the State's or a county's credit to obtain funds to be used for gifts to private corporations that serve a public purpose, such as an educational institution and a hospital, respectively. We think it is also significant that in Finan v. Mayor & City Council of Cumberland, 154 Md. 563, 141 A. 269, this Court, in approving the extension of municipal credit to a private hospital, did not refer to Sections 34 or 54, although these sections were discussed in the briefs. See also, Board of Education v. Wheat, 174 Md. 314, 199 A. 628, and Adams v. County Com'rs of St. Mary's County, 180 Md. 550, 26 A.2d 377, where local laws authorizing the counties to transport children to private schools were sustained without reference to Sections 34 or 54. This Court simply held there was no violation of Articles 15 or 23 of the Declaration of Rights, or of the Fourteenth Amendment 'by taking money of the taxpayers for the use of private institutions', under the circumstances. Board of Education v. Wheat, supra, 174 Md. at page 319, 199 A. at page 630; Adams v. County Com'rs of St....