Flottum v. City of Cumberland

• Decision Date: 07 May 1940
• Citation: 291 N.W. 777,234 Wis. 654
• Parties: FLOTTUM et al. v. CITY OF CUMBERLAND et al.
• Court: Wisconsin Supreme Court

234 Wis. 654

291 N.W. 777

FLOTTUM et al.

v.CITY OF CUMBERLAND et al.

Supreme Court of Wisconsin.

May 7, 1940.

Appeal from a judgment of the Circuit Court for Barron County; W. R. Foley, Judge.

Affirmed.

This action was begun on January 7, 1939, by Ole Flottum and W. T. Doar, as taxpayers of the City of Cumberland, on behalf of themselves and others similarly situated, plaintiffs, against City of Cumberland, a municipal corporation, Henry S. Rose, Mayor of the city of Cumberland, K. D. Cavanaugh, Clerk of the City of Cumberland, and A. H. Miller, Treasurer of the city of Cumberland, The Utility Commission and Alfred Neurer, M. W. Lerdall and Frank Hayes, as Members thereof, defendants, seeking to enjoin the city of Cumberland and its officers from expending additional funds on the projects described in the complaint; that they be restrained and enjoined from issuing certain bonds; that the expenditure of certain moneys be declared illegal and for other relief. The answer of the defendants was served January 27, 1939.

Upon the trial after bearing arguments, the court made and filed its findings of fact and conclusions of law and judgment was entered on October 11, 1939, dismissing the plaintiffs' complaint upon the merits with costs, from which judgment the plaintiffs appeal.

The facts will be stated in the opinion.

Doar & Knowles, of New Richmond, for appellants.

Daniel I. D'Amico, City Atty., of Cumberland, and Loomis, Roswell & Chambers, of Mauston (Orland S. Loomis, of Mauston, of counsel), for respondents.

ROSENBERRY, Chief Justice.

The plaintiffs bring this action as taxpayers of the city of Cumberland on behalf of themselves and all others similarly situated. The facts cannot be better presentedthan by repeating the findings of the trial court, which will be stated in a slightly abbreviated and supplemented form. The city of Cumberland, a city of the fourth class, has never granted an indeterminate permit to any private utility and has for thirty-three years owned and operated the only electric distributing plant within said city and until about the year 1918, generated its electrical energy by means of a steam plant owned, operated and located in the city; that since 1918, the defendant has purchased electrical energy at wholesale from the Wisconsin Hydro Electric Company under a contract that expired in April, 1938; that when the Wisconsin Hydro Electric Company asked for an increase in the rates of its wholesale contract the city utility commission, the city council and a citizens committee made an investigation, reported at public mass meetings and gave wide publicity to the matter of rebuilding the distribution system and installing a Diesel electric generating plant, the costs of which were to be financed by means of PWA grants and the proceeds of mortgage utility revenue bonds.

On October 7, 1938, the common council of the defendant city by resolution accepted an offer of the Public Works Administration to aid by federal grant in financing the construction and improvement of a street lighting system in the amount of 45% thereof but not to exceed the sum of $14,737. The city's share of the cost was to be paid out of the proceeds of mortgage utility revenue bonds payable out of the earnings of the municipal electric utility only; that on the same date the common council by resolution accepted an offer of the Public Works Administration to aid by way of federal grant in financing the construction of a Diesel electric generating plant in the amount of 45% of the cost thereof but not to exceed the sum of $42,075; the city's share of the cost was likewise to be paid out of the proceeds of utility revenue bonds payable out of the earnings of the municipal electric utility only.

On July 13 and August 6, 1938, the city employed the firm of G. L. Van Fleet Company, consulting engineers, to make certain surveys and prepare plans and specifications relating to the work of rebuilding and extending the electric utility plant of the defendant city. These contracts called for the performance of professional engineering services that required special skill and training and were entered into on behalf of the city pursuant to the authorization of the common council.

On November 19, 1938, there was filed with the city clerk a sufficient petition under sec. 10.43, Wisconsin Stats., and by her certified to the council, containing the following resolution:

“Section 1. That a referendum election be held ***:

“Shall the city of Cumberland install a Diesel Electric Generating Plant?

Yes ? No ?

“Section 2. That the common council *** shall provide for holding such referendum election ***.

“Section 3. That the common council *** shall follow the wishes *** of the electors as expressed in such referendum election, and shall put into effect the policy decided by such election.”

The common council at a regular adjourned meeting on November 28, 1938, tabled the petition and passed a resolution calling for a special election on December 12, 1938, to submit to the voters the question whether the city should install a Diesel generating plant. The question was submitted in the following form: “Shall the City of Cumberland install a Diesel electric generating plant, and pay therefor by the issuance of Electric Utility Mortgage Bonds payable solely from the revenues of its electric system in the face amount of not exceeding $55,000, to be issued under the provisions of Section 66.06 of the Wisconsin Statutes, 1937, and from the proceeds of a grant from the Federal Emergency Administration of Public Works of the United States of America in approximately the sum of $40,000?”

The election was held and a majority voted in favor of the proposition, 609 legal votes having been cast, 355 of which were in the affirmative, 250 in the negative and 4 blank votes.

On December 22, 1938, Ordinance Number 146 was duly passed by a majority of the members of the common council of the defendant city; this ordinance provided for the issuance of $70,000 electric utility mortgage revenue bonds of the city of Cumberland to bear interest at the rate of 3 1/2% per annum, payable solely from revenues to be derived from the operation of the utility.

On January 16, 1939; Ordinance Number 147 was duly passed by a majority of the members of the common council of the defendant city. This ordinance appropriated and allocated the proceeds of the sale of $55,000 electric utility mortgage revenue bonds (being a part of the total issue of $70,000) as the maximum amount of such bond funds to be utilized in connection with the installation of the said Diesel electric generating plant project. The proceeds of the sale of the remaining $15,000 electric utility mortgage revenue bonds were appropriated to be used solely for the construction of the extensions, additions and improvements to the distribution system of the city electric utility, said sum being sufficient to defray the city's share of the cost of the project.

The electric utility mortgage revenue bonds were issued, sold and delivered on December 31, 1938, to Mairs-Shaughnessy Company of St. Paul, and before the commencement of this action said bonds were delivered to the purchasers pursuant to contract dated October 18, 1938, between the city and the said company. The ordinance authorizing the sale of the bonds ratified and confirmed the contract under which the bonds were purchased and directed their delivery to the purchaser as soon as might be and upon receipt of the purchase price, said bonds being sold at 97% of their par value, including the discount, the proceeds of the bonds represented an interest cost of slightly less than 4% per annum to the city.

The bonds were in the usual and customary form and mature serially on December 1 of 1940 to 1953. The said bonds did not constitute an indebtedness of the city of Cumberland and were payable solely from the revenues of the electric utility system and expenditures were made from the proceeds of the sale of the bonds before the commencement of this action.

For the year 1938, the assessed valuation of the city of Cumberland was $1,558,519. Prior to the issuance of the mortgage revenue bonds the city had a bonded indebtedness of $27,000, payable annually over a period of years.

On October 22, 1938, the city's electric distribution system was disabled by a severe sleet storm which endangered the life, property and welfare of the community, because of which work was begun on the distribution system and paid for from funds from the general utility fund, and the cash surplus and reserve from the treasury of the utility commission, all of which funds were fairly spent and for which the city has received full benefit and all of which were spent before the commencement of this action. There was no diversion or appropriation of any general city funds for any of the extensions, additions and improvements, including installation of the Diesel electric generating plant and all moneys appropriated and expended on said projects were authorized and appropriated by the city council from the funds of the utility commission.

On April 14, 1939, the records of the proceedings of the common council and the utility commission were amended, which amendments the trial court found did not contradict or vary any previous record which had been made but supplemented such record by showing action of the council and commission which had actually occurred at meetings but which, through oversight, the clerk had failed to record.

The trial court further found that such amendments were submitted by the clerk at later meetings and were adopted unanimously by the same members of the council and commission who were members at the time the meetings were originally held.

The court further found that all of the members of the council and commission were legally qualified members; that a majority of the members of the common council on December 20, 1938, passed the following...