Franklin Trust Co. v. City of Loveland, Colorado

• Decision Date: 03 December 1924
• Docket Number: No. 6710.,6710.
• Citation: 3 F.2d 114
• Parties: FRANKLIN TRUST CO. v. CITY OF LOVELAND, COLORADO, et al.
• Court: U.S. Court of Appeals — Eighth Circuit

3 F.2d 114 (1924)

FRANKLIN TRUST CO. v. CITY OF LOVELAND, COLORADO, et al.

No. 6710.

Circuit Court of Appeals, Eighth Circuit.

December 3, 1924.

Paul W. Lee, of Ft. Collins, Colo. (George H. Shaw, of Ft. Collins, Colo., on the brief), for appellant.

John H. Fry, of Denver, Colo. (James H. Pershing, of Denver, Colo., Ab H. Romans, of Loveland, Colo., and Robert G. Bosworth, of Denver, Colo., on the brief), for appellees.

Before LEWIS, Circuit Judge, and MUNGER and MILLER, District Judges.

LEWIS, Circuit Judge.

This suit was brought by appellant to enjoin the City of Loveland, Colorado, from issuing bonds for the construction of a municipal light and power plant, because, as alleged, the bonds would create an indebtedness of the city in excess of the amount permitted by the State constitution, which reads (Section 8 of Article 11):

"No city or town shall contract any debt by loan in any form, except by means of an ordinance, which shall be irrepealable, until the indebtedness therein provided for shall have been fully paid or discharged, specifying the purposes to which the funds to be raised shall be applied, and providing for the levy of a tax, not exceeding twelve (12) mills on each dollar of valuation of taxable property within such city or town sufficient to pay the annual interest and extinguish the principal of such debt within fifteen, but not less than ten years from the creation thereof, and such tax when collected shall be applied only to the purposes in such ordinance specified until the indebtedness shall be paid or discharged. * * * The aggregate amount of debt so created, together with the debt existing at the time of such election, shall not at any time exceed three per cent. of the valuation last aforesaid. * * * The valuation in this section mentioned shall be in all cases that of the assessment next preceding the last assessment before the adoption of such ordinance."

This limitation on amount of indebtedness is also statutory. The amount of the bonds authorized by the city is in excess of three per cent. of the assessed valuation. The right and power of the city to erect its own plant is not questioned or doubted; the restriction relates only to raising funds for that purpose. The ordinance authorizing the erection of the plant and the issuance of the bonds did not provide for a tax levy to meet payments of interest and principal or any part thereof. It sets out the form of the bonds, designating them as "Loveland Municipal Light and Power Revenue Bonds," each of which when issued should contain this in the body of the bond and as part thereof:

"This bond is issued for the purpose of acquiring a municipal hydroelectric light and power system by the City of Loveland, in full conformity with the constitution and laws of the State of Colorado and the ordinances and resolutions of said city, duly adopted and approved prior to the issue hereof, and is payable solely out of a special fund, designated the Loveland Electric Light and Power Fund, composed of the receipts derived by the City from the light and power system acquired as hereinbefore recited, and owned and operated by the city, and it is hereby certified, recited and warranted that for the payment of this bond, the City of Loveland will create and maintain said fund, deposit therein all receipts derived from such electric light and power system and, out of such receipts and as an irrevocable charge thereon, will pay this bond and the interest accruing thereon, in the manner provided by the ordinance, and amendments thereto, under which this bond is issued. And it is further certified and recited that all the requirements of the law have been fully complied with by the proper officers of said city in the issue of this bond."

Also each interest coupon attached to each of said bonds was to contain a clause that the city would pay the bearer the amount thereof "out of the Loveland Electric Light and Power Fund, but not otherwise." Section 8 of the ordinance provides that the bonds "shall be payable only out of the revenues derived from the municipal light and power system placed in a fund to be created as in this ordinance provided, to be known as the Loveland Light and Power Revenue Fund." Sections 11 and 12 of the ordinance read thus:

"Section 11. That there is hereby established and created a fund to be known and maintained as the Loveland Electric Light and Power Fund, to be derived as follows:

"(a) The City of Loveland hereby irrevocably covenants and agrees with each and every holder of Loveland Municipal Light and Power Revenue Bonds, issued under the provisions of this ordinance, that it will, through the appropriate action of its City Council, establish and enforce a schedule of charges for electric current sufficient, at all times punctually to pay the interest accruing upon said Revenue Bonds, to discharge the principal thereof at maturity, and to cover all operating expenses and maintenance and depreciation charges, all in accordance with such approved methods of operation and accounting as are usually applied in the operation of similar utilities by public and private corporations; and the minimum schedule of charges for current furnished shall be the following, to-wit:

"Metered lighting, minimum 9c per K. W. H.

"Unmetered lighting minimum 5c per K. W. H.

"Power, minimum 5c per K. W. H.

"Stoves, minimum 3¼c per K. W. H.

"(b) For street lighting purposes, the City of Loveland hereby irrevocably covenants and agrees with each and every holder of said Revenue Bonds issued under the provisions of this ordinance, that it will pay into said fund not less than five thousand dollars ($5,000) per annum."

"Section 12. That the Loveland Electric Light and Power Fund hereby established and created is hereby irrevocably pledged for the purposes and payments herein set forth, to-wit:

"(a) Out of such fund there shall first be paid the necessary costs and expenses of the efficient and economical operation of said municipal light and power system, and from such fund there shall be deducted annually a reasonable and suitable amount for the purpose of creating reserves for depreciation of obsolescence in buildings, machinery and equipment.

"(b) The balance of said fund, remaining after the payments and deductions hereinbefore provided for have been...