Williams v. City of Emmett

• Decision Date: 23 December 1931
• Docket Number: 5692
• Citation: 51 Idaho 500,6 P.2d 475
• Parties: P. M. WILLIAMS, JAMES E. DAVIS, M. A. PORTLOCK, ADELAIDE BLISS, EDWARD ALLEN, SARAH ALLEN, E. S. STOWELL and H. D. BUYS, Respondents, v. CITY OF EMMETT, a Municipal Corporation, and FAGEOL MOTOR SALES COMPANY, a Foreign Corporation, Appellants
• Court: Idaho Supreme Court

6 P.2d 475

51 Idaho 500

P. M. WILLIAMS, JAMES E. DAVIS, M. A. PORTLOCK, ADELAIDE BLISS, EDWARD ALLEN, SARAH ALLEN, E. S. STOWELL and H. D. BUYS, Respondents, v. CITY OF EMMETT, a Municipal Corporation, and FAGEOL MOTOR SALES COMPANY, a Foreign Corporation, Appellants

No. 5692

Supreme Court of Idaho

December 23, 1931

MUNICIPAL CORPORATIONS - LIMITATIONS OF INDEBTEDNESS - LEASE - FUTURE PAYMENTS.

1. Agreement under which city should make payments for several years for use of street sprinkler held invalid as creating excessive liability (Const., art. 8, sec. 3).

2. Lease requiring payment in future years creates "present indebtedness or liability" within constitutional provision respecting limitation of indebtedness of municipality (Const., art. 8, sec. 3).

3. City's payment for use of street sprinkler held not merely pledging revenues from local improvement district, as regards excessive indebtedness of city.

4. City cannot pledge revenues from any source whatever without creating "indebtedness" within constitutional provision limiting indebtedness (Const., art. 8, sec. 3).

5. Agreement under which city should make payments for use of street sprinkler held not to evidence "ordinary or necessary expense" within constitutional provision limiting indebtedness (Const., art. 8, sec. 3).

6. One who seeks equity must do equity.

7. In taxpayer's action, court enjoining further execution of city's illegal contract to make payments for use of street sprinkler should not require return of payments already made.

APPEAL from the District Court of the Seventh Judicial District, for Gem County. Hon. Ed L. Bryan, Judge.

Action to restrain the city from proceeding under an agreement, and for the repayment of funds paid by the city upon execution of said contract in part. Affirmed in part and reversed in part.

Affirmed in part and reversed in part. No costs awarded.

Martin & Martin, George C. Huebener and T. L. Martin, for Appellants.

An obligation created by special assessments against the property benefited in a sprinkling and flushing district created under the laws of this state is not an indebtedness or liability within the meaning of section 3, article 8, of the Constitution, and an agreement to pay annual rentals upon property used for such sprinkling and flushing does not create an indebtedness or liability as used in said section of the Constitution. (C. S., sec. 3942, 1927 Sess. Laws chap. 257, p. 439; Thomas v. Glindeman, 33 Idaho 394, 195 P. 92; Dexter Horton T. & S. Bank v. Clearwater County, 235 F. 743; Sebern v. Cobb, 41 Idaho 386, 238 P. 1023.)

A contract of lease for personal property to be used by a city in carrying on its operations, or for personal services running for a period of years where the payment therefor is to be made when and for the services as rendered each year does not create a present indebtedness of the aggregate amount for the period of years, but only a yearly indebtedness accruing from year to year for the amount to be paid for the services rendered for such year. (28 Cyc. 1544; 44 C. J. 4063, 4064; 1 Dillon on Municipal Corporations, sec 196, p. 359; 5 McQuillin on Municipal Corporations, secs. 2232, 2233; Walla Walla v. Walla Walla Water Co., 172 U.S. 1, 19 S.Ct. 77, 43 L.Ed. 341; Doland v. Clark, 143 Cal. 176, 76 P. 958; McBean v. City of Fresno, 112 Cal. 159, 53 Am. St. 191, 44 P. 358, 31 L. R. A. 794.)

The fact that a lease containing an option to purchase the leased property contains a provision that in case of such purchase the rentals previously paid shall apply on the purchase price does not make it a contract of sale. (Compton Land Co. v. Vaughan, 33 Cal.App. 130, 164 P. 610; Foster v. Newport Nat. Bank, 31 Del. 237, 113 A. 908.)

Where a municipality enters into a contract and there is no bad faith or fraud on the part of the person with whom the contract was made, but the contract is void because the municipality has failed to comply with some law authorizing it to make the contract, it cannot retain the services or property which the other party delivered to it and recover its money paid out under the contract. (Vincennes Bridge Co. v. Board of County Commrs., 248 F. 93; State v. Fronizer, 77 Ohio 7, 82 N.E. 518.)

J. P. Reed and Finley Monroe, for Respondents.

The limitation upon indebtedness imposed by section 3, article 8, of the Constitution applies to any liability or indebtedness, whether to be paid by general taxation or by special assessments or from a special fund. (Const., art. 8; sec. 3; Feil v. City of Coeur d'Alene, 23 Idaho 32, 129 P. 643, 43 L. R. A., N. S., 1095; Boise Dev. Co. v. Boise City, 26 Idaho 347, 143 P. 531; Miller v. City of Buhl, 48 Idaho 668, 72 A. L. R. 682, 284 P. 843.)

When a contract is entered into requiring a city to make payments of money in instalments, as services are rendered or as supplies are furnished, a present liability to pay the entire aggregate of the instalments arises immediately upon the execution of the contract. This proposition is supported by a long line of well-reasoned authority, and is the doctrine which prevails in the state of Idaho. (1 Dillon on Municipal Corporations, sec. 196, p. 359 et seq.; Niles Water-Works v. City of Niles, 59 Mich. 311, 26 N.W. 525; Earles v. Wells, 94 Wis. 286, 68 N.W. 964; Beard v. Hopkinsonville, 95 Ky. 239, 44 Am. St. 222, 24 S.W. 872, 23 L. R. A. 402; City of Covington v. O. F. Moore Co., 218 Ky. 102, 290 S.W. 1066; O'Neil Engineering Co. v. Town of Ryan, 32 Okla. 738, 124 P. 19.)

Those who deal with a municipal corporation do so with notice of the limitations on its powers, and if they go beyond the limitations imposed, they do so at their peril. (Deer Creek Highway Dist. v. Doumecq Dist., 37 Idaho 601, 218 P. 371; Weaver v. San Francisco, 111 Cal. 319, 325, 43 P. 972, 974; O'Neil Engineering Co. v. Town of Ryan, supra.)

When a city has entered into a contract in the form of a lease of property, which lease contains an option to purchase, and it is manifest that the failure to exercise the option to purchase will entail a loss upon the city, the courts will construe the contract as a contract of purchase and not as a lease. (San Francisco v. Boyle, 195 Cal. 426, 233 P. 965; Mahoney v. City and County of San Francisco, 201 Cal. 248, 257 P. 49; California Pacific Title & Trust Co. v. Boyle, 209 Cal. 398, 287 P. 968.)

MCNAUGHTON, J. Lee, C. J., and Budge, Givens and Varian, JJ., concur.

OPINION

MCNAUGHTON, J.

On the tenth day of May, 1928, the City of Emmett entered into an agreement with the Fageol Motor Sales Company whereby, in consideration of the terms and conditions of the agreement, the Sales Company delivered a street sprinkler to the city on May 3, 1928, and received $ 1141.31 cash, termed rental until June 30, 1928, and the city agreed to pay $ 2,174.68 on or before July 3, 1928, as rental from July 1, 1928, until December 31, 1928, and agreed to pay $ 2,445.05 on or before May 1, 1929, as rental from January 1, 1929, until December 31, 1929, and agreed to pay $ 2,306.71 on or before May 1, 1930, as rental from January 1, 1930, to December 31, 1930. The total amount of rentals stipulated was $ 8,067.75 and the city was to have the sprinkler from May 1, 1928, every day until December 31, 1930. The city was to pay taxes, insurance, license fees, cost of repairs, upkeep and housing. The city agreed to pay these rental sums out of special assessments collected out of its sprinkling and flushing districts to be created in 1928, 1929 and 1930.

It is provided:

"If said Lessee (city) shall fail to do and perform any of the acts or things required to be done by it under any of the terms of this lease, the said Lessor (Sales Company) may at its option terminate said lease and without notice or demand take possession of said personal property wherever and whenever found and with or without notice or demand may elect to treat the Lessee in default, and in such event all rights of said Lessee in said personal property shall immediately cease and terminate and the said Lessor shall be released from all obligations to allow said Lessee to use said personal property and all sums theretofore paid as rental for the use of said personal property shall remain and be the property of the Lessor and shall be considered compensation for the use, wear, tear and depreciation of the same. . . .

"It is further agreed that the Lessor hereby gives and grants unto the Lessee the option and privilege to purchase the above described personal property at any time during any period that it has said property rented for the sum of $ 8050.15 or for such lesser sum as the parties hereto may agree upon, it being understood that in the event the said Lessee shall so exercise this option to purchase said personal property from the Lessor that such rental payments as have theretofore been made by said Lessee shall be credited upon the purchase price therefor and be deducted therefrom."

It is quite apparent from the record that the necessary revenue to meet the total indebtedness undertaken or liability of this contract was not provided for in the year in which it was contracted, pursuant to any bond election or otherwise.

Section 3, article 8, of the Idaho Constitution provides:

"No county, city, town, township, board of education, or school district, or other subdivision of the state shall incur any indebtedness or liability in any manner, or for any purpose exceeding in that year, the income and revenue provided for it for such year, without the assent of two-thirds of the qualified electors thereof, voting at an election to be held for that purpose, nor unless, before or at the time of incurring such indebtedness, provision shall be made for the collection of an annual tax sufficient to pay...