Village Of Brewster v. Hill

• Decision Date: 11 April 1934
• Docket Number: 24511
• Citation: 190 N.E. 766,128 Ohio St. 343
• Parties: Village Of Brewster Et Al. v. Hill, A Taxpayer.
• Court: Ohio Supreme Court

190 N.E. 766

128 Ohio St. 343

Village Of Brewster Et Al. v. Hill, A Taxpayer.

No. 24511

Supreme Court of Ohio

April 11, 1934

Municipal corporations - Contract with private corporation for purchase of machinery invalid, when - Municipality cannot own or unite property with private enterprise -Lending public credit to private corporation - Section 6, Article VIII, Ohio Constitution.

A village owning a distribution system for electric current contracted with another to supply generating machinery for its system for the sum of $24,960.00, payable partly in cash and partly in deferred installments from the net revenues derived from the plant's operation. The title to the machinery was Co remain in the seller until paid for, but the purchase price installments were not to be the general obligation of the village or payable from taxes. Upon its part the village agreed to provide housing for the machinery to pay $5000.00 in cash upon arrival of the equipment and to pay the deferred installments out of the net revenues in sixty consecutive installments after erection. Held: The foregoing transaction between the village and the seller of the machinery contemplates the union of the property of the village with that of the seller in a common pool, from which the net earnings of the joint enterprise would be paid to the seller. To the extent that the village devoted the whole of its own property to secure the seller, to that extent did it loan its financial credit to and in aid of the seller in violation of Section 6, Article VIII, of the Ohio Constitution.

In the course of this opinion, for the purpose of brevity Fairbanks, Morse & Co., an Illinois corporation, will be referred to as the contractor, and the other defendants, the village of Brewster, the board of trustees, and the treasurer, will be referred to as the village.

This action originated in the Court of Common Pleas, and was brought by Hill, as a taxpayer, against the defendants seeking to enjoin them from doing any acts in pursuance of a certain contract between the village and the contractor calling for the furnishing of machinery and equipment for the construction and operation of an electric light plant in the village. The Common Pleas Court denied the injunction and dismissed the taxpayer's petition. Appeal was taken to the Court of Appeals, which heard the case de novo and granted the taxpayer's injunction as prayed for.

The history of the case is largely comprised of the resolution and ordinances of the village council, together with a certain contract entered into between the village authorities and the contractor. On December 13, 1932, the village board of trustees passed a resolution declaring it necessary to erect, construct and operate an electric light and power plant in the village, the power to be supplied to the village and its inhabitants, and declaring it necessary to purchase machinery for that purpose. The resolution further provided that the entire cost was to be paid solely from the revenues derived from the utility's operation above the legitimate and necessary expense of operation, and that it should not become a general obligation of the village. The resolution passed by a vote of two to one. On the same date, to-wit, December 13, 1932, the village council adopted an ordinance, called Ordinance No. 217. This ordinance, after reciting the aforesaid resolution, provided that, for the purpose of constructing and operating a power plant, it was necessary to purchase and install certain machinery.

Section 3 of the ordinance is as follows: "Section 3. That the entire cost thereof shall be paid solely from the revenue of said utility after the payment of all legitimate and necessary expenses of the operation thereof, but not from any other fund whatsoever nor shall the obligation become a general obligation of the village of Brewster except to pay for said machinery from the revenues as herein set forth, and the sum of Thirty Thousand Dollars ($30,000.00) being the amount estimated as necessary for' such purposes, as weil as a sufficient amount to take care of the interest on the deferred payments herein referred to, be and are hereby appropriated from the Electric Light and Power Fund and from the revenues from said utility after the payment of the legitimate and necessary expenses of the operation thereof."

Under this ordinance the deferred payments were to bear 6 per cent. interest from the date of the completion of the installation of the machinery, the interest to be paid semi-annually and evidenced by coupon revenue certificates signed by the village, and expressly providing that the certificates should be payable "only from the revenues of the Electric Light and Power System of the Village of Brewster, Ohio, after the payment of the legitimate and necessary expenses of the operation of said plant and not from any other fund whatsoever." The village ordinance directed its trustees to advertise for bids and authorized the trustees to enter into a contract with the lowest and best bidder. Bids were advertised for, and that of the defendant contractor was declared to be the lowest and best bid and was accepted. The board of trustees authorized its president and clerk to enter into a contract for the furnishing of the electrical machinery and equipment. On April 12, 1933, this contract was signed by the parties. The contract is lengthy and we shall refer only to its material points.

The contractor proposed to furnish the machinery for the sum of $24,960, the sum of $1500 was payable in cash with the order, and $3500 upon the arrival of the principal parts of the equipment at the village; the balance, $19,960, was payable in sixty equal consecutive monthly installments; payments to begin thirty days after installation. By the terms of the contract it was agreed that the "Municipality shall erect the proper and necessary foundations and buildings and shall furnish all needed common labor," etc., that the deferred installments of the purchase price, and the revenue certificates, were not to be "general obligations of the said Municipality payable from taxes or its general funds but only special obligations payable from the net revenues of the * * * plant of the Municipality." The revenues were defined as representing the balance of the gross receipts of the plant "after the payment solely of the legitimate and necessary expenses of the operation of said plant." Under the contract the village covenanted to operate the plant in an efficient manner, and so far as it was permitted by law to maintain rates of service which would provide sufficient revenues for the payments called for by the contract, the village also agreeing to operate its plant until all the obligations due under the contract had been discharged, and "until such time shall not dispose of said plant in any manner so as to deprive the Company of its title to or interest in said machinery or materials without providing for the payment to the Company of all amounts then unpaid under this contract." The contract further provided that the title to the machinery should remain in the contractor until final payment of all sums due which had not been paid. It also provided that in the event there were any outside deferred payments unpaid, or in the event any judgment should be taken on account of said sums, the title of the machinery should not pass until such revenue certificates or judgment were fully paid in money and satisfied.

On April 12, 1933, the village Council passed Ordinance No. 220. This ordinance was in substance a ratification of its previous Ordinance No. 217, and it authorized the village and contractor to enter into the contract aforesaid. Ordinance No. 220 also required the revenue from the plant to be kept in a separate fund which should be applied exclusively to the payment of the legitimate, necessary expenses for its operation and to the payment of the purchase price of the machinery and the deferred payments thereon. It also provided that until such payments and interest thereon were made a sinking fund should be established therefor.

There is an agreed stipulation stating that at the time the village ordinances were passed and the contract entered into there was between nine and ten thousand dollars in the electric light fund of the village; and that on April 12, 1933, the village treasurer delivered to the contractor a check drawn upon the fund for $1500 as an initial payment on the contract.

Mr. C. B. McClintock, for the village of Brewster and its officials.

Messrs. Bulkley, Hauxhurst, Inglis & Sharp; Messrs. Andrews, Hadden & Burton and Messrs. Poppenhusen, Johnston, Thompson & Cole, for Fairbanks, Morse & Company, plaintiffs in error.

Messrs. Hart, Drukenbrod & McHenry and Mr. Charles N. Hostetter, for defendant in error.

JONES J.

The village of Brewster is a small village embracing between fifteen hundred and two thousand inhabitants. At...