City of Ottumwa, Iowa, v. City Water Supply Co.

• Decision Date: 26 November 1902
• Docket Number: 1,658,1,712.
• Citation: 119 F. 315
• Parties: CITY OF OTTUMWA, IOWA, v. CITY WATER SUPPLY CO.
• Court: U.S. Court of Appeals — Eighth Circuit

119 F. 315

CITY OF OTTUMWA, IOWA, v. CITY WATER SUPPLY CO.

Nos. 1,658, 1,712.

United States Court of Appeals, Eighth Circuit.

November 26, 1902

W. H C. Jaques (Geo. F. Heindel and J. R. Jaques, on the brief) for appellant.

Wm McNett and Wm. A. Underwood, for appellee.

By Ordinance 566, passed by the city council of the city of Ottumwa August 21, 1899, it was provided and ordained that the city of Ottumwa accepts and elects to exercise the powers granted it by chapter 5 of the Code of Iowa of 1897, as amended, and to acquire by purchase or erection a system of waterworks for supplying the city and its inhabitants with water. To create a sinking fund for such purchase or erection, there was levied by said ordinance for the year 1899, and every year thereafter until the purchase or contract price for the waterworks should be fully paid, a tax of two mills on the dollar on all property within the corporate limits of the city, except lots greater than 10 acres, used for horticultural or agricultural purposes; the proceeds of such tax levy to be used exclusively to pay the purchase price or cost of such waterworks and any bonds, mortgages, or other obligations issued therefor, with interest; also that there should be levied every year on all taxable property within the limits of benefit and protection of the waterworks a water tax of five mills on the dollar, or so much as should be necessary, together with the net proceeds of water rents collected from consumers, to pay the cost of maintenance, operation, repairs, extensions, and improvements, and any of the purchase price or cost of construction, or bonds or mortgages issued therefor, or interest thereon, not paid from the proceeds of said two-mill tax. The ordinance, after some provisions for an effort to purchase the waterworks of the appellee, which need not be further noticed, provided that, if such effort failed, the city council should cause plans and specifications for waterworks to be prepared, advertise for bids, and contract with the lowest bidder; the contract to be subject to the approval of the electors of said city at a special election to be called. By an amendment to said ordinance, passed February 4, 1901, it was provided that, to create a special fund to pay the cost of erecting the contemplated waterworks in case the electors of the city should approve the contract for such erection, a sufficient number of bonds, enough, with the sinking fund on hand, to pay the contract price for the waterworks and connected expenses, should be issued in denominations not less than $100 nor more than $1,000, bearing semiannual interest not more than 4 1/2 per cent., and payable $5,000 two years from their date and $5,000 at the end of each year thereafter for 22 years, and then not less than $10,000 per year not exceeding 50 years from their date, such payment to be secured by a mortgage on the system of waterworks, and that to such payment should be pledged the entire proceeds of the two-mill sinking fund tax and so much of the water rates and rentals from consumers and of said water tax as might not be needed for maintenance, operation, repairs, extensions, and improvements; that said bonds should be sold for not less than par, and the money received therefor be held by said city as a special and trust fund to pay for the construction and completion of the waterworks; that the contract for the erection of the works should provide for payment out of said funds only; and that the city should 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 that the fund should be devoted to no other purpose; the bonds to be sold before the erection was begun, or during the progress of the work to pay monthly estimates, or turned over to the contractor to pay as the work progressed, should the city so contract. On March 30, 1901, in accordance with a bid accepted by said city council, said city, through its proper officers, entered into a written contract with the Fruin-Bambrick Construction Company for the construction by that company of such waterworks in accordance with plans and specifications mentioned for the sum of $398,991; the work to be begun within 60 days after the ratification and approval of the contract by the electors of said city at a special election to be called, or as soon thereafter as the city should succeed in negotiating and selling its bonds for the purpose of creating a trust fund; the work to be completed by June 25, 1902. Thereupon the appellee, a corporation of the state of Maine, filed its bill of complaint in the circuit court of the United States for the Southern district of Iowa, alleging that complainant owned a large amount of real estate and personal property in said city on which was expended more than $500,000, and which was mainly devoted to supplying said city and its citizens with water, under franchises derived from said city, and is a large taxpayer of said city, and that the annual tax charge and payment equals and exceeds $2,000. That the Iowa constitution provides that no municipal corporation shall be allowed to become indebted in any manner or for any purpose to an amount in the aggregate exceeding 5 per centum on the value of the taxable property within such corporation, as ascertained by the last state and county tax lists previous to the incurring of such indebtedness; and that the valuation of the taxable property within said city as ascertained by the last state and county tax list made for the year 1900 was $2,394,890. That the limit of indebtedness it could incur lawfully was $119,744.51, and that on the 30th and 31st days of March, 1901, it was already indebted more than $123,000. That a special election to ratify and approve said contract for the erection of waterworks had been called; and that such contract, if entered into and carried out, would increase the then existing indebtedness of said city $400,000. That the matter in dispute in the suit exceeded $2,000, exclusive of interest. And complainant prayed for decree enjoining the holding of the special election and the issuing of any bonds in accordance with said ordinances and contract, and for other relief, including a similar injunction pendente lite. The defendant city took issue by demurrer and plea to the allegations of the bill that the matter in dispute in the suit exceeds $2,000, exclusive of interest. Its answer, also filed, in effect admitted all the other facts above recited, and the allegations of the bill above stated, as to the existing indebtedness of the city and the value of the taxable property within the city as shown by the last state and county tax lists. Upon full hearing July 31, 1901, the

court ordered the temporary injunction as prayed, except that the proposed special election was not enjoined, and from this order the defendant appealed to this court. Afterwards, on November 25, 1901, upon leave of the court duly obtained, the complainant filed its supplemental bill in said cause, reciting the original bill and proceedings thereunder, and that at a special election held in said city September 7, 1901, the canvass of the votes showed that said contract between said city and the Fruin-Bambrick Construction Company was approved by the electors, and that said city threatened and was about to carry out said contract and incur indebtedness in excess of the constitutional limit; and upon said supplemental bill, and the answer of the city thereto, and further showing, the court, on December 21, 1901, ordered a further temporary injunction, enjoining and restraining said city and its officers from issuing or causing to be issued, executed, or negotiated any bonds or other obligations of said city pursuant to said ordinances, and from doing any act under said contract with said Fruin-Bambrick Construction Company. From this order the second appeal to this court is taken. Pursuant to stipulation, the two appeals were consolidated and heard together in this court.

Before SANBORN and THAYER, Circuit Judges, and LOCHREN, District Judge.

LOCHREN District Judge, after stating the case as above, .

1. The amount in dispute in this suit, if only measured by the injury to the complainant from the increased taxation of its property in the city of Ottumwa necessary to provide for the payment of bonds proposed to be issued for the construction of the new waterworks, was more than sufficient to sustain the jurisdiction of the circuit court. Whether we consider the proportion of the $398,991-- the cost of the proposed waterworks-- which would rest on the complainant's property as part of the taxable property of the city, or the two-mill tax thereon during the period of 50 years provided for, the burden or incumbrance which would be made to rest on the property of complainant would considerably exceed the sum of $2,000.

But the city of Ottumwa was about to enter into the proposed contract for the erection of waterworks, and issue and negotiate bonds of the city as proposed to the amount of $398,900 to procure money to pay for the same. Complainant contends that the city, being already indebted beyond the constitutional limit has no right or power to enter into such contract or issue such bonds. Whether it has or has not such power to issue and negotiate that large amount of bonds is certainly the matter in dispute in this suit, brought to restrain and prohibit the city from taking such action. Johnston v. City of Pittsburg (C.C.) 106 F. 753; Rainey v. Herbert, 5 C.C.A. 183, 55 F. 443; Market Co. v. Hoffman, 101 U.S. 112, 25 L.Ed. 782; Railroad Co. v. Ward, 2 Black, 485, 17 L.Ed. 311; stinson v. Dousman, 20 How. 461, 15 L.Ed. 966; Scott v. Donald, 165 U.S. 107, 114, 17 Sup.Ct. 262, ...