Lake Superior Dist. Power Co. v. City of Bessemer

• Decision Date: 04 April 1939
• Docket Number: No. 74.,74.
• Citation: 285 N.W. 20,288 Mich. 455
• Parties: LAKE SUPERIOR DISTRICT POWER CO. v. CITY OF BESSEMER et al.
• Court: Michigan Supreme Court

288 Mich. 455

285 N.W. 20

LAKE SUPERIOR DISTRICT POWER CO.

v.CITY OF BESSEMER et al.

No. 74.

Supreme Court of Michigan.

April 4, 1939.

Suit by the Lake Superior District Power Company, a Wisconsin corporation, against the City of Bessemer, Gogebic County, State of Michigan, and others, to restrain the defendants from proceeding with the construction and financing of an electric plant and distributing system in the City of Bessemer. From the decree, the plaintiff appeals.

Affirmed as modified.

Appeal from Circuit Court, Gogebic County; George O. Driscoll and John G. Stone, Judges.

Argued before the Entire Bench.

Charles M. Humphrey and Charles M. Humphrey, Jr., both of Ironwood (Oxtoby, Robison & Hull, of Detroit, and Allan T. Pray, of Ashland, of counsel), for appellant.

Michael E. Nolan, of Bessemer (Charles P. O'Neil and Edmund J. Stafford, both of Detroit, of counsel), for appellees.

BUSHNELL, Justice.

Plaintiff, a utility corporation, engaged in the business of generating and distributing electrical energy, filed a bill of complaint to restrain the City of Bessemer, its common council and officers, from proceeding with the construction and financing of an electric plant and distributing system in the City of Bessemer. Plaintiff's complaint was based upon its rights as the holder of a non-exclusive franchise and as a taxpayer; being required to elect at the trial, it stood upon its rights as a taxpayer. The case was tried before the late Hon. George O. Driscoll, Circuit Judge, who filed a written opinion. The decree was entered by Judge Stone after Judge Driscoll's death in conformity with his opinion. The decree dismissed plaintiff's bill of complaint without costs and continued the temporary injunction previously issued, pending appeal to this court.

On September 13, 1932, there was submitted to the electors of the City of Bessemer a proposition for the issuance of first mortgage bonds in a sum not to exceed $135,000 for the purpose of constructing a municipal light plant and distributing system. See Art. 8, § 24 of the Constitution, and 1 Comp.Laws 1929, §§ 2690 to 2702, inclusive, as amended (Ann.Stat. secs. 5.3171 to 5.3183). There were 1,547 votes cast at the city election, 1025 of these being ‘yes' votes and 522 ‘no’ votes. The proposition was, therefore, not approved by a two-thirds vote but only by a three-fifths vote. See 1 Comp.Laws 1929, § 2102 (Stat.Ann. § 5.1897), and Michigan Gas & Electric Co. v. City of Dowagiac, 278 Mich. 522, 270 N.W. 772. On September 19, 1932, the common council adopted a resolution authorizing an application to the Reconstruction Finance Corporation for a loan not to exceed the above amount. The application remained in abeyance from 1932 until it was acted upon it 1937 by the Public Works Administration.

The original application recites that: ‘The site for the Power Plant to be erected is now owned by the City and the present water pumping plant is located thereon. It is proposed to enlarge the present building and house both plants under the structure as shown in blue prints in Exhibit 2. The location is ideal and has the further advantage that the same operators can operate both pumping and power plant, and further the water supply is located on the same premises.’

The application proposed that: ‘Full and adequate security for the loan will be given through the first mortgage bonds which will be issued, which bonds will be secured by the plant, distribution system and a twenty year franchise stating the terms upon which the mortgagees can operate in case of foreclosure.’

Under date of October 1, 1937, the city clerk of Bessemer was advised in a letter signed by the state director of the Federal Emergency Administration of Public Works that the United States offered ‘to aid in financing the construction of the above project by making a loan and grant’.

The government offered to aid the city by making a grant in the amount of 45 per cent. of the cost of the project upon completion, as determined by the administrator, but, in any event, not to exceed the sum of $84,500, and by purchasing ‘negotiable, special obligation, first mortgage electric light system, revenue, serial, coupon bonds' in the aggregate principal amount of $103,000. The offer provided that these bonds were to be ‘secured by a closed first mortgage upon the real estate and chattel property of said system including a franchise to the purchaser at foreclosure to operate said system for a period of twenty years after date of the sale of the system upon foreclosure of said mortgage.’

Attached to the offer was a document entitled, ‘Terms and Conditions (PWA Form No. 230),’ dated September 15, 1937, and consisting of 41 printed pages in the record before us. This document contains many detailed restrictions upon the construction, use of the money, etc., to the extent that plaintiff characterizes its proposed acceptance as an ‘unlawful delegation of its legislative powers by the city.’

Plaintiff argues that the application to the Reconstruction Finance Corporation and the proposal by the Public Works Administration must be read together and that they evidence an intent by the city to mortgage its present waterworks plant as part of the security for the bonds to be issued in connection with the municipal light plant project. Defendant city categorically denies such an intent.

The decree contains a finding that the city, on the affirmative vote of three-fifths of its electors, was and is authorized by the Constitution and statutes to acquire, own and operate a public utility for supplying light, etc., and issue bonds therefor beyond the general limits of its bonded indebtedness, provided ‘that such bonds do not impose any liability upon such City but are secured solely by a mortgage on the property and investments of the said public utility; that the proposed acquisition of said lighting plant by defendant, City of Bessemer, has been approved by the vote of more than three-fifths of the electors of said City but not by the vote of twothirds of said electors; that said proposed mortgage will not cover any property now owned by the City of Bessemer, nor will there be any pledging or investing of any previously owned City assets; that the mortgage bonds proposed to be issued by the defendant, City of Bessemer, in payment for said plant will be secured solely by the property and revenue of said plant and will not impose any liability on said defendant, City of Bessemer, and that if the mortgage securing said mortgage bonds shall cover any property now owned by the City of Bessemer, or if there shall be any pledging or investment of any previously owned City assets, plaintiff will hereafter have ample opportunity to complain thereof; * * *.’

In the record is a sketch showing the ‘proposed municipal power plant’ which, if adhered to, would include the use of a portion of the present water pumping station building. The original applicating to the Reconstruction Finance Corporation provided for the issuance of first mortgage bonds on the ‘plant’. The use of this word ‘plant’ without...