Illinois Trust & Savings Bank v. Arkansas City Water Co., 314.

• Decision Date: 21 March 1895
• Docket Number: 314.
• Citation: 67 F. 196
• Court: U.S. District Court — District of Kansas
• Parties: ILLINOIS TRUST & SAVINGS BANK v. ARKANSAS CITY WATER CO. et al.

67 F. 196

ILLINOIS TRUST & SAVINGS BANK v. ARKANSAS CITY WATER CO. et al.

No. 314.

United States Circuit Court, D. Kansas, Second Division.

March 21, 1895

Rossington Smith & Dallas, for complainant.

Ady Peters & Nicholson and Eaton, Pollock & Love, for defendants.

WILLIAMS District Judge.

This is a suit in equity, brought for the purpose of accounting upon certain bonds and coupons issued by the defendant water company, and for the foreclosure of a certain deed of trust given to secure payment of the same. The facts, briefly stated, as gathered from the pleadings and evidence, are as follows:

The defendant the city of Arkansas City is a city of the second class, under the laws of the state of Kansas. The defendant the Arkansas City Water Company is a private corporation organized for the purpose of constructing and operating a system of waterworks in said city. On the 21st day of December, 1885, the defendant city undertook to confer a franchise upon the Interstate Gas Company, also a private corporation, whereby a system of waterworks was to be erected and maintained in said city for a period of 21 years providing for the construction of a plant, laying of pipes and the erection of certain fire hydrants thereon, and making of certain extensions from time to time thereon requiring of the said Interstate Gas Company that all such fire hydrants should have a certain standard of efficiency for the purpose of fire protection. Thereafter the plant was constructed, upon which were located 50 fire hydrants, being the number provided at the time such franchise and privilege were granted. Thereafter the defendant the Arkansas City Water Company succeeded by purchase to all of the rights, franchises, property, and duties belonging to and devolving upon the Interstate Gas Company. At the time of the construction of the original plant of 50 fire hydrants, the Interstate Gas Company issued bonds to the amount of $200,000, and executed a deed of trust upon the plant, property, and franchise and incomes of the system to secure payment of the same. And, after the transfer of the works to the defendant the Arkansas City Water Company, it executed its bonds in the sum of $150,000, and the deed of trust upon all of the property, rights, and franchises of said company to secure payment of the same, the said $150,000 of bonds and deed of trust being the same declared upon by the complainant in this suit. One hundred thousand dollars of such issue was used for the purpose of retiring the $100,000 in bonds issued by the said Interstate Gas Company. The proceeds of the remaining $50,000 in bonds was paid over to the defendant water company. Thereafter, from time to time, extensions were made to the original plant, and about 135 fire hydrants were added to the system, which extensions were made of four-inch mains. The said extensions were made upon application of the president of said water company, one J. B. Quigly, and were not made upon any formal resolution or ordinance of the defendant city. Afterwards, on the 16th day of September, 1891, the defendant the city of Arkansas City purchased from the Arkansas City Water Company said entire system of works, and all the property, rights, and franchise of the defendant the Arkansas City Water Company, taking therefor a deed of general warranty as evidence of said transfer of said property. The deed of trust hereinbefore mentioned was excepted from the covenant against incumbrances in said deed. No hydrant rental has been paid by the defendant city to the complainant or any one else for water furnished through said fire hydrants located upon said system since the 1st day of October, 1891. Upon the purchase of said system of waterworks, the defendant city, by ordinance duly passed and published, repealed the said former so-called ordinance of said city,-- No. 27. The complainant on the 18th day of October, 1892, the interest on said bonds being in default at said date, brought this suit for an accounting of the amount due on said bonds and coupons in default, for the purpose of foreclosing said deed of trust, and for the accounting with the defendant city, and also alleging in its bill of complaint that the transfer of said property to the defendant city was fraudulent, and was for the purpose of defeating the security of the complainant for the payment of said bonds and interest thereon, and praying a decree of this court that the defendant the city of Arkansas City, in the purchase of said works, had assumed all the debts, liabilities, and obligations of its grantor, the Arkansas City Water Company, and also asking the appointment of a receiver. The defendant the Arkansas City Water Company was not served with subpoena, and has entered no appearance in this action. The defendant city answered the complainant's bill, alleging that the contract claimed to exist between the city and the Arkansas City Water Company by reason of said Ordinance No. 27 is void, for the reason that it did not have, upon its passage, the number of votes required by law; that the several extensions of the waterworks, and the addition of 135 fire hydrants, and the rental therefor, did not constitute a binding obligation upon the defendant city; that the additional fire hydrants were erected upon a plant originally designed for but 50 fire hydrants; that such extensions were made of small pipe, in long lines, and that the hydrants placed thereon were inefficient for the purpose designed by said contract, and could not be made to comply with the requirements for such fire hydrants; that said extensions were unnecessary; that fire hydrants were located so closely together as to render a large number of them unnecessary for fire protection, or any of the public purposes mentioned in said Ordinance No. 27; that said contract was illegal, unreasonable, and extortionate. The defendant city also denied that it had in any way assumed or become liable for the principal and interest upon the bonds, as alleged in the plaintiff's bill of complaint, or for the interest thereon, or that it had in any way assumed or agreed to pay the indebtedness of the Arkansas City Water Company provided thereby, and prays that the alleged contract between the defendant city and the Arkansas City Water Company provided for by said Ordinance No. 27 be declared null and void, and that the city be relieved from the payment of all hydrant rentals for the extra hydrants placed upon the extensions to said works. The complainant thereafter, by amendment to its bill, avers that, notwithstanding the failure to enact said Ordinance No. 27 as required by law, the defendant city had long used and recognized the same as an existing contract between it and the Arkansas City Water Company; that by reason thereof it became and was a binding contract, notwithstanding the failure of said city to enact the same as required by its charter and the laws of the state,-- and also made due replication to the answer of the city. Upon issues so joined, evidence was taken, and the cause heard by the court.

The court having heretofore heard this cause, and decreed that the said city should pay hydrant rental for the original 50 fire hydrants located upon the works, as originally constructed, and...