Brockway v. Roseburg
79 P. 335
Or.
1905
Check Treatment
Mr. Justice Bean

delivered the opinion of the court.

1. This is a suit by a resident and taxpayer of the City of Eoseburg to' cancel and annul a contract between the city and the defendant, the Eoseburg Water & Light Co., by which the city agreed to pay the latter for supplying it with light from January 1, 1902, to December 31,1911, $125 a month, in “valid warrants,” on the ground that the contract is illegal and void because it creates an indebtedness or liability against the city in excess of the limitation contained in its charter, without making any special provision for meeting the monthly payments as they become due. The charter adopted in 1895 provides in section 33, subd. 34, that the city “shall not create any debts or liabilities which together in the aggregate shall exceed five thousand ($5,000) dollars, which indebtedness is hereby authorized,” and, by section 133, that, except certain specified obligations, the indebtedness of the city “must never exceed in the aggregate ten thousand dollars”: Laws 1895, pp. 523, 533, 553. The latter section was amended in 1901 (page 41) so as to reduce the limitation from ten to five thousand dollars, so that, at the time the contract between the city and the defendant light company was made, the charter provided that the indebtedness of the city, except certain specified indebtedness, “must never exceed in the *82aggregate five thousand dollars.” These several provisions of the charter are a limitation upon the power of the municipality to become indebted.' They were inserted in obedience to the requirements of the constitution (Art. XI, §5), and are for the benefit and protection of the taxpayer, by requiring the municipal authorities to conduct its affairs substantially within the current revenues. The state constitution prohibits a county from “creating” an indebtedness in excess of a certain amount, and does not' apply to involuntary indebtedness thrust upon it by operation of law: Grant County v. Lake County, 17 Or. 453 (21 Pac. 447); Burnett v. Markley, 23 Or. 436 (31 Pac. 1050); Municipal Security Co. v. Baker County, 33 Or. 338 (54 Pac. 174). But the language of the restrictive clause in the charter of Roseburg is that the indebtedness of the municipality “must never exceed” a certain amount, and the uniform holding of the courts is that any-liability not arising from tort, by virtue of Avhich the municipality is required to pay money, is within a prohibition of that kind, and void, if in violation thereof, without regard to the purpose for which it was incurred or contracted: 20 Am. & Eng. Enc. Law (2 ed.), 1172; Eaton v. Mimnaugh, 43 Or. 465 (73 Pac. 754), and authorities cited.

The aggregate amount to be paid under the contract between the City of Roseburg and the defendant corporation is $15,000, and at the time it was made the city was indebted over and above the cash on hand, not including the excepted indebtedness, in the sum of about $14,000, evidenced by divers and sundry outstanding warrants issued from time to time since June, 1898, and presented.to the treasurer, and indorsed, “Not paid for want of funds.” Under these facts, the contract is clearly void, within the doctrine of this court in Salem Water Co. v. Salem, 5 Or. 29. That was an action to recover a quarterly installment alleged to be due the water company under a contract for supplying the city with water for seventeen years at the rate of $1,800 a year, payable quarterly. The charter prohibited the city from contracting “any debts or liabilities which either singly or in the aggregate exceeded the sum of $1,000,” and the court held that the contract created a present obligation on the part of the city to pay money *83amounting in the aggregate to the sum of $30,600 to the water company at future periods, and was therefore void, under the charter, inasmuch as no provision was made for the payment of the installments as they became due. The fact that the contract provided for a yearly rate of $1,800 — an amount in excess of the.indebtedness limitation in the charter — does not distinguish the case from the one in hand, because the payments were to be made quarterly, and in amounts less than the indebtedness clause. "Unless, therefore, the contract, in the opinion of the court, created a debt or liability in excess of the quarterly payments, it would not have been held void. Throughout the entire opinion the court proceeds upon the theory that the contract created a debt or liability against the city in violation of its charter, because the aggregate amount to'be paid to the water company thereunder was in excess of the power of the city to contract. It is argued with much force that the decision is not in harmony with modern authorities, and that the better doctrine, and the one supported by the great weight of authority, now is that a municipality may contract for a term of years for light, water, gas, and the like, at an annual or periodical rental, notwithstanding the aggregate amount to be paid during the life of the contract may exceed the amount of the indebtedness limitation in the charter. This rule proceeds on the theory that under such a contract there is in fact no debt until the services are rendered, and the amount to be paid becomes due: Walla Walla City v. Walla Walla Water Co. 172 U. S. 1 (19 Sup. Ct. 77, 43 L. Ed. 341); Valparaiso v. Gardner, 97 Ind. 1 (49 Am. Rep. 416); McBean v. City of Fresno, 112 Cal. 159 (44 Pac. 358, 31 L. R. A. 794, 53 Am. St. Rep. 191); East St. Louis v. East St. Louis G. & C. Co. 98 Ill. 415 (38 Am. Rep. 97). In all these cases, however, it is either stated or clearly intimated that a contract as suggested is void unless the municipality can make the payments as they become due without exceeding its charter limits. At the time the contract now in suit was made, the City of Eoseburg •was indebted in a sum largely in excess of its charter limits, and therefore it could not issue a warrant in payment of the first month’s rent without exceeding the limit of its indebtedness, and *84lienee the contract would be void under the doctrine invoked: Prince v. City of Quincy, 128 Ill. 443 (21 N. E. 768). It is therefore unnecessary to consider at this time whether the Salem "Water Company Case should be overruled.

2. A claim’is also1 made that, since the contract between the city and the defendant corporation provides that the monthly payments shall be made in "valid warrants/'’ it contemplates that the city will provide a special fund for the payment of the warrants as issued, and therefore they are not to be considered as an indebtedness, within the meaning of its charter. Under the contract the monthly payments were to be made in warrants, and they would be no less the debt or obligation of the city when issued because the contract stipulated that they 'should be valid, than if it made no such provision. In either event, they would be the general obligation and debt of the city, to be paid'out of money arising from taxation, or from other revenues applicable to such purposes. In Eaton v. Mimnaugh, 43 Or. 465 (73 Pac. 754), the act of the legislature under consideration required Union County to build a courthouse, and to levy a tax annually for five years for the payment thereof. The court held that the obligation thus sought to be imposed would nevertheless be the debt of the countjq and void under the constitution. As suggested in that case, there are decisions holding that where, at the time a contract is made by a municipality, a fund on hand is appropriated for its payment, or where a fund has been provided for such payment, although not collected, or an appropriation has been made of an. anticipated revenue, and the contract is made payable out of such fund or revenue, it does not create an indebtedness, within the meaning of the constitution or charter. In such case there is no general liability against the municipality, but the holder of the warrant or other contracting party agrees to look to the special fund for payment. There is no such provision in the contract before us, and certainly none can be inferred.

And finally, it is claimed that the contract sought to be avoided is in fact a mere modification of a previous contract between the city and the predecessor in interest of the defendant company, *85made some j'ears before. Such a defense is pleáded in the answer, but it is not, we tbinlc, sustained by the evidence. The present contract makes no reference to the former, and does not appear to he a modification or change thereof. It is a separate and independent contract, with different terms, provisions, and duration, and its validity must be determined by the conditions at the time it was made.

It follows that the judgment of the court below must ■ be affirmed, and it is so. ordered. ' Aeeirmed.