City of Win. v. Win. Water Works Co.

• Decision Date: 20 June 1912
• Parties: City of Winchester v. Winchester Water Works Co.
• Court: Kentucky Court of Appeals

149 Ky. 177

City of Winchester v. Winchester Water Works Co.

Court of Appeals of Kentucky.

Decided June 20, 1912.

Appeal from Clark Circuit Court.

PENDLETON, BUSH & BUSH, HAZELRIGG & HAZELRIGG, F. H. HAGGARD and J. SMITH HAYS for appellant.

JOUETT & JOUETT, HINES & NORMAN and H. H. MOORE for appellee.

OPINION OF THE COURT BY WILLIAM ROGERS CLAY, COMMISSIONER — Affirming.

Subsection 15 of section 6 of "An Act to amend and reduce into one the several acts relating to the charter and amendments thereto of the town of Winchester," Vol. 1, p. 350, Acts of 1881-2, reads as follows:

"The Board of Councilmen of said town, and their successors in office, shall have power to contract debts by borrowing money or otherwise, for municipal purposes, to be used within said town, in any sum not exceeding one thousand dollars, and to give their corporate obligations to pay the same, which shall be enforceable as other similar corporate obligations, never, however, to bear a greater rate of interest than ten per cent; provided, however, that whenever said board shall desire to create a debt, or borrow money in any amount exceeding one thousand dollars, they shall have power by submitting it to a vote of the qualified voters of said town; and if a majority of those voting shall direct such loan to be created or debt incurred, then the Board of Councilmen are authorized to act; and to ascertain the will of the voters, a poll may be opened in the same way as if for the election of mayor and board of councilmen, and under similar notice."

By an act of April 22, 1882 (Vol. 2, p. 824, Acts of 1881-2), subsection 15 of section 6, Act of February 2, 1882, was amended by substituting the words "five thousand dollars" for the words "one thousand dollars" wherever the last named words occurred in said section.

By an act of the General Assembly, approved May 3, 1890, it was provided:

"That subsection fifteen of section six of said act be, and it is hereby, so amended as to authorize the Board of Councilmen of said town to contract with any person, company or corporation to supply said town with water for all purposes, and to incur a debt or liability to pay for same, as provided in said subsection; and to levy and collect a tax on the citizens and property of said town sufficient to discharge said indebtedness or liability as taxes are now levied and collected in said town.

"That the action of said board in submitting the question as to whether it shall be authorized to contract for a water supply for said town to the voters of said town, at an election to be held on the twenty-sixth day of April, one thousand eight hundred and ninety, or at such times as shall hereafter be fixed by said Board, as provided in said subsection fifteen, and the election held in pursuance thereof, shall be valid and binding to the same extent as if it had been ordered after this act takes effect and in pursuance and by virtue of its authority."

Section 8 of the act incorporating the Winchester Water Works Company (Chap. 1413, Acts of 1890), provides, that the corporation

"Shall furnish water to the city of Winchester for the extinguishment of fire, cleaning streets and other purposes, upon such terms as may be agreed upon by said city and said corporation."

On April 11, 1890, the General Council of the city of Winchester, passed the following resolution:

"On motion it is ordered that there be submitted to the qualified voters of the town of Winchester at an election to be held on the 26th day of April, 1890, at the usual voting places, to be opened and held in the same manner as elections for councilmen, and under similar notices, the question as to whether the Board of Council of said town shall be authorized and empowered to incur a debt or liability of not exceeding $3,000.00 per annum, and to enter into a contract for any number of fire plugs with any corporation, company or individual that will undertake to build an approved system of waterworks, in said town, and to supply said town and the citizens thereof at all seasons of the year with an abundant supply of pure, wholesome water for city, domestic and manufacturing purposes; provided, that any such contract entered into shall contain a provision allowing said town to purchase said waterworks at an appraised value at intervals of not more than ten years."

Pursuant to the above resolution, an election was held on April 26, 1890, which resulted in a vote favorable to the proposition embodied in the resolution.

On September 19, 1890, Messrs. Wheeler and Parks, doing business in Boston, in the State of Massachusetts, their associates, successors and assigns, entered into a contract with the city of Winchester, by which they were granted the privilege of building, maintaining and operating a system of water works for the purpose of supplying the citizens of Winchester with water suitable for fire, domestic, municipal and other purposes, and also the privilege of laying and maintaining water pipes in the streets of the city. This contract provided for 65 hydrants, for which the city was to pay an annual rental of $3,000. The contract also contains numerous other provisions which it will be unnecessary to set out.

Section 16 of the contract is as follows:

"For the consideration, specially mentioned in this section, to furnish water for five watering troughs, one trough to be located near the courthouse, and so arranged as to be supplied by a constant stream of water, and four watering troughs at such points on the line of piping as may hereinafter be designated by the city council, said troughs to be supplied by self closing faucets.

"All the above described troughs to be furnished by and at the expense of the city, and the use of said water at said troughs to be so controlled by ordinances of the City Council as to prevent any persons from carrying water away for use elsewhere. It is agreed to furnish a supply of water for all public buildings and school houses owned by the city; also water for sprinkling the streets, the same to be taken from suitable standpipes erected for the purpose; also water for flushing gutters, said flushing to be done by some responsible person to be appointed by the city council; also use of water for the use of the fire department for practice and drill.

"All the connections for the above uses to be made at the expense of the city. The above water to be furnished for such amount annually as shall equal the amount assessed by the city in taxes upon said system of water works and the franchises relating thereto."

By assignment regularly made, appellee, Winchester Water Works Company, succeeded to all the rights and privileges conferred by the contract in question.

During the year 1891, another vote of the people was had, by which the further sum of $280 per year was authorized to be expended for additional fire plugs.

In conformity with the contract, the Winchester Water Works Company erected a plant, and since that time has performed all services contemplated by the contract.

On September 4, 1908, the city of Winchester brought this action against the Winchester Water Works Company to recover taxes for the year 1905, amounting to the sum of $782.65. The Winchester Water Works Company filed an answer, set-off and counterclaim, and after setting forth the 16th section of the contract between it and the city, pleaded that for every year since the assignment of the contract to it, and for the year 1905, it had furnished to the city of Winchester the water required by section 16, which water was accepted by and used by the city, and that it had thereby paid to the city the full amount of the taxes due for the year in question. It further pleaded that if the contract in question was not enforceable, that it had furnished to the city for the year 1905 water of the value of $1,123.91, and prayed judgment for the difference between that sum and the amount of taxes claimed, or the sum of $341.41. A demurrer to the answer was overruled. The city filed a reply, denying that the Winchester Water Works Company had furnished water for the year 1905 of the value of $1,123.91, or of any sum in excess of $300. It further pleaded that the city was not authorized to incur an indebtedness for water service in excess of $3,280, and that the contract, in so far as it imposed an indebtedness in excess of that sum was ultra vires and void. By paragraph 3, it pleaded that by section 16 of the contract, it was attempted to exempt and release the Water Works Company from taxation, and that such exemption was contrary to the Constitution and laws of the State. A demurrer to the reply was sustained, and the petition then dismissed. From that judgment, the city of Winchester appeals.

The contract in question was made before the adoption of the present Constitution, and if valid under the old Constitution, none of its obligations could be impaired either by the present Constitution or any laws enacted after the contract was made. Slade v. City of Lexington, 141 Ky., 214.

Section 1, Article 13, of the old Constitution, provided:

"That all freemen, when they form a social compact, are equal, and that no man, or set of men, are entitled to exclusive, separate public emoluments or privileges from the community, but in consideration of public services."

Under this section, an exemption from taxation, except in consideration of public services, is an exclusive and separate privilege, and is therefore condemned. City of Dayton v. Bellevue Water & Fuel Gas Light Company, 68 S. W., 142. The question before us, then, is does the contract in question exempt the Water Works Company from taxation?

In Maine Water Co. v. Waterville, 93 Maine, 586, 49 L. R. A., 294, the court had under consideration a contract between the water company and the city, by which the city agreed to pay the water company for certain water services "a sum of money annually which shall be equal to the taxes annually...