Hughes v. Micka

• Decision Date: 04 September 1964
• Docket Number: No. 39414,39414
• Citation: 269 Minn. 268,130 N.W.2d 505
• Parties: Henry HUGHES et al., Appellants, v. S. R. MICKA, C. H. Fish, John Fotopolous, Water, Light, Power and Building Commission of Village of Hibbing and Village of Hibbing, Respondents.
• Court: Minnesota Supreme Court

Page 505

130 N.W.2d 505

269 Minn. 268

Henry HUGHES et al., Appellants, v. S. R. MICKA, C. H. Fish, John Fotopolous, Water, Light Power and Building Commission of Village of Hibbing and Village of Hibbing, Respondents.

No. 39414.

Supreme Court of Minnesota.

Sept. 4, 1964.

Syllabus by the Court

1. Under the statutes governing the water, light, power and building commissions of certain villages, including the village of Hibbing, such commissions have broad and flexible powers in the financial administration of their utilities. There is no precise line of demarcation between the uses of the 'Reserve for Replacement Fund' and the 'Water and Light Fund' provided for in L.1951, c. 680; but the former is essentially intended to maintain the adequate functioning of the existing system, while the latter may be used to expand the scope of operations.

2. New generating equipment may properly be considered a replacement, even though it substantially increases the capacity of a plant if it takes over the function of older units, serving the same market rather than allowing expansion into new areas.

3. Although leave to amend pleadings should ordinarily be freely granted, as provided in Rule 15.01, Rules of Civil Procedure, there was no abuse of discretion in not allowing an amended complaint involving a new and complicated cause of action, with possibilities of delay prejudicial to the other party.

Mulvahill & Mulvahill, Hibbing, Sullivan, McMillan, Hanft & Hastings, Edward T. Fride and C. Byron Holje, Duluth, for appellants.

Naughtin & Naughtin, David Naughtin, C. G. Anderson, I. R. Galob and Hultstrand, Abate & Wivoda, James V. Abate, Hibbing, for respondents.

MURPHY, Justice.

This is an appeal from a judgment dismissing with prejudice an equitable action to restrain performance of an alleged illegal contract by municipal officials of the village of Hibbing. The Water, Light, Power and Building Commission of the village of Hibbing proposes to purchase a new 7,500 kilowatt generator and auxiliary equipment, costing in the neighborhood of $700,000, and pay for it out of the commission's Reserve for Replacement Fund. Appellants contend that the proposed acquisition is an 'expansion, extension, addition, change, modification or improvement' of the existing electric light plant and must be financed by the sale of revenue anticipation certificates with approval of a majority of voters of the municipality. The trial court agreed with the commission that the acquisition represented a 'replacement' which may be legally financed out of the Reserve for Replacement Fund.

In considering the issue presented we must examine the various statutory provisions as they relate to the establishment and management of the utility. By L.1951, c. 680, § 4, a general fund designated as 'Water and Light Fund' is authorized. The applicable portion of that statute provides:

'The commission shall collect all water, light, gas, heat, steam and power charges from patrons including the village, and pay the same into a fund to be known and designated as the 'Water and Light Fund'. * * * except as hereinafter otherwise provided, all moneys paid into the water and light fund shall be available for the making of expenditures, and may be pledged for the repayment and security of money borrowed, for any purpose for which the commission is authorized to expend or borrow money on behalf of the village.'

By L.1951, c. 680, § 10, the legislature provided for a reserve fund designated as a 'Reserve for Replacement Fund.' That section, so far as applicable here, provides:

'It shall be the duty of the commission on or before the 20th day of each month to set aside into a reserve for replacement fund, a sum equal to not less than 10 per cent of the gross receipts collected by the commission during the preceding month, provided that such sum shall be so set aside only out of moneys remaining in the water and light fund after payment of all amounts then due for expenses of operation and maintenance of the utilities, and after setting aside all amounts required for the payment and security of any revenue anticipation certificates issued pursuant to Section 5 hereof, as provided in the proceedings authorizing the issuance of such certificates. This reserve for replacement fund shall be used by the commission only for the purpose of replacing existing buildings, plants, systems, equipment and other fixed assets as carried on the books of the commission. No replacement of any of the foregoing from said fund shall be made if the cost of such replacement is less than $2,000. The commission is hereby prohibited from using the reserve fund for any other purpose except the commission may resolve to use any part thereof to retire revenue anticipation certificates when and as the same become redeemable by their terms or by the consent of the holders thereof, and any moneys in said reserve fund shall be used to pay principal and interest when due on revenue anticipation certificates to the extent such certificates shall represent cost of replacements, if other moneys then in the Water and Light Fund are insufficient for such purpose.'

The legislature provided by L.1953, c. 655, § 2, for the financing of expenses incurred by 'expansions, extensions, additions, changes, modifications and improvements' by issuance of revenue anticipation certificates. This provision also permits payment for replacements when the reserve fund is inadequate. The applicable portion provides:

'The commission is hereby authorized to issue revenue anticipation certificates to pay for expansions, extensions, additions, changes, modifications and improvements of any or all of the utility plants and systems under its jurisdiction, and to pay for replacements of parts of any and all of said plants and systems when the reserve for replacement fund is determined by the commission to be inadequate to pay for all replacements immediately required and for anticipated emergencies. * * * Such revenue anticipation certificates shall be issued only with the approval of the majority of the voters of the municipality voting upon the question of such issuance at any general or special village election; except that such certificates for replacement of the existing plants and systems or any part thereof in an aggregate amount outstanding not exceeding $250,000 and such certificates for expansion, extension, addition, change, modification or improvement of the existing plants and systems or any part thereof in an aggregate amount outstanding not exceeding $100,000 may be issued by the commission without the necessity of an election thereon. The determination of the commission shall be conclusive, in favor of the holders of all revenue anticipation certificates at any time outstanding, as to the amount thereof which represents replacement, and as to the adequacy or inadequacy of the reserve for replacement fund for any replacements financed by such revenue certificates.'

1. From an examination of these statutes certain general observations may be made. The Water and Light Fund is a general fund available for the payment of current expenditures, out of which the commission is to set aside 10 percent of the gross receipts to be placed in the Reserve for Replacement Fund. This fund may be used by the commission to replace 'existing buildings, plants, systems, equipment and other fixed assets.' The act comprehends that the commission may expend large amounts from this fund. The maximum amount which they may disburse from it is not fixed, but the minimum is placed at not less than $2,000. When the commission determines to finance costs of 'expansion, extension, addition, change, modification or improvement' of the utility, and to pay for replacements when the replacement fund is inadequate, revenue anticipation certificates may be issued with the approval of the majority of the voters of the municipality. ¹ The line of demarcation between...