164 Wis. 471 | Wis. | 1917
Lead Opinion
The following opinion was filed November 14, 1916:
The fundamental question in this case is: What is the nature and effect- of the proceedings taken by the city of Kaukauna to acquire the property of the Kau-kauna Company? If the proceeding is purely contractual and is to be governed wholly by the law of contract, one result will follow; if, on the other hand, it is in the nature of a condemnation proceeding, it will be governed by the law of eminent domain and a different result will be reached. The solution of this question involves an examination of the Public Utilities Act, under which the proceedings-were had. No collateral questions are presented.
The city of Kaukauna is admittedly a municipality, the Kaukauna Company admittedly a public utility, and all the requirements of the law as it then stood were admittedly complied with; so that the sole question presented for solution is: What was the nature and effect of the proceedings had?
The provisions of the law so far as they are material to the solution of this question are as follows:
(1) An indeterminate permit is every grant from the state, to any corporation, of power to own, operate, manage, or control any plant for furnishing heat, 'light, water, or power to or for the public, which permit shall continue in
(2) Every license, permit, or franchise hereafter granted to any public utility shall have the effect of an indeterminate permit, subject to the provisions of this act and subject to the provision that the municipality in which the major part of the property is situate may purchase the property of such public utility at any time as provided herein, paying therefor just compensation to be determined by the commission. Any such municipality is authorized to purchase such property and every such public utility is required to sell such property at the value and according to the terms and conditions determined by the commission as herein provided. Sec. 1797??i — 76 (Laws 1907, ch. 499).
(3) Any public utility being at the time a corporation of the state of Wisconsin operating under an existing franchise shall on surrendering the same prior to <Tanuary 1, 1911, receive by operation of law in lieu thereof an indeterminate, permit, and shall hold such permit subject to all the terms, conditions, and limitations of this act. .Sec. 1797m — -77 (Laws 1909, ch. 180).
(4) Any public utility shall by acceptance of any such indeterminate permit be deemed to have consented to a future purchase of its property by the municipality for the compensation and under the terms and conditions determined by the commission, and shall thereby be deemed to have waived the right of requiring the necessity of such taking to be established by the verdict of a jury and to have waived all other remedies and rights relative to condemnation, except such rights and remedies as are provided by this act. Sec. 1797?» — 78 (Laws 1907, ch. 499).
A municipality may acquire a public utility in one of four ways:
2. Any municipality shall have the power, subject to the provisions of the Public Utilities Act, to purchase hy agreement with any public utility any part of any plant, provided that such purchase and the terms thereof shall be approved by the commission upon hearing.
3. Any municipality shall have the power, subject to the provisions of the Public Utilities Act, to acquire by condemnation the property of any public utility actually used and useful for the convenience of the public then operating under a license, permit, or franchise in existence at the time of the enactment of the Public Utilities Law or operating in any municipality without a permit or franchise.
4. Any municipality shall have the power, subject to the provisions of the Public Utilities Act, to acquire by purchase, in accordance with the provisions of this act, the property of any public utility actually used and useful for the convenience of the public operating under any indeterminate permit as provided by law. Sec. 1797m — -79 (Laws 1907, ch. 499).
In the instant ease the city elected to proceed under sub. 4 of sec. 1797m — 79. The proceedings to acquire an existing plant not operating under an indeterminate permit, under the law as it then stood, were as follows: Upon the determination by a municipality by a majority vote of its electors to acquire an existing plant,
“such municipality shall bring an action in the circuit court against the public utility as defendant praying the court for an adjudication as to the necessity of such taking by the municipality, in which action the complaint shall be served with the summons. The public utility shall serve and file its answer to such complaint within ten days after the service thereof, whereupon such action shall be at issue and stand*486 ready for trial upon ten days’ notice by either party. Unless the parties thereto waive a jury, the question as to the necessity of the taking of such property by the municipality shall be as speedily as possible' submitted to a jury.” Sec. (Laws 1909, ch. 213).
Upon the determination of a municipality to acquire an existing plant by a majority vote of its electors, if the public utility owning such plant shall have consented to the taking over of such plant by tire municipality by the acceptance of an indeterminate permit as provided herein, or, in case such public utility shall not have waived or consented to such taking, if the jury shall have found that a necessity exists for the taking of such plant, then the municipality shall give speedy notice of such determination and of such consent or such verdict of a jury to the public utility and to the commission. Sec. 1797 m — 81 (Laws 1909, ch. 213).
The commission shall thereupon, after public hearing and within three months from the receipt of such notice and upon notice to the municipality and the public utility interested, determine and certify the just compensation to be paid, together with all the terms and conditions of sale. Sec. 1797m — 82 (Laws 1907, ch. 499).
If either party to the proceeding is dissatisfied with the order, it may commence and prosecute an action to review it. Secs. 1797m — 83 to 1797m — 85 (Laws 1907, ch. 499).
It will be noted that the only difference between the proceeding under sub. 4 of sec. 1797m — -79, which is denominated a proceeding to acquire by purchase as provided under the Public Utilities Act, and the proceeding under sub. 3 of sec. 1797m — 79, which is denominated a proceeding to acquire by condemnation, is that in the one case the verdict of a jury as to necessity is required, and in the other it is deemed to have been waived by the fact that the utility has accepted an indeterminate permit.
Under the law, is the acceptance of an indeterminate per
Sec. 2, art. XI, Const., is as follows: “No municipal corporation shall take private property for public use, against the consent of the owner, without the necessity thereof being first established by the verdict of a jury.”
Clearly, if the owner consent, no verdict is required, and thereafter, under the statute, the proceedings are the same under both subdivisions. While the proceeding is denominated a “purchase” by sub. 4, and the relation of the parties is said to be to some extent contractual, it must be conceded that upon the acceptance of an indeterminate permit by a public utility the relationship between the municipality and the public utility is something more than contractual. If it were merely contractual the parties might, by contract, restore themselves to their original position. This they cannot do, the municipality having no power in the premises. The property of a utility by the acceptance of an indeterminate permit acquires a status which cannot be changed except through act of the legislature.
It seems to us that the acceptance of an indeterminate permit by a public utility amounts to this: that a verdict of necessity is thereby perpetually waived and the utility consents that proceedings to acquire its property may be initiated at any time by the municipality and it consents that its property may be acquired in the particular manner prescribed by the act. The municipality acquires the same rights when a verdict of necessity is rendered in proceedings under the act and the utility does not consent, the proceedings in both cases thereafter being identical.
A verdict of necessity may be and often is waived in condemnation proceedings, leaving the amount of compensation to be paid for the property taken the sole question for determination. Such proceedings are, however, condemnation proceedings. The damages are thereafter to be determined
We conclude, therefore, that tbe proceeding in tbis case is in the nature of a condemnation proceeding, and tbe effect of tbe proceeding is therefore to be determined in accordance witb tbe laws governing tbe exercise of tbe power of eminent domain. In arriving at tbis determination we have considered tbe fact that tbe proceeding is denominated a “purchase” in tbe act itself, and that in some aspects tbe rights of tbe parties are contractual and are thus spoken of in prior decisions of tbis court.
But it is said that tbe proceeding cannot be sustained as one in tbe nature of a condemnation proceeding, because as tbe law stood at tbe time there was no provision requiring that notice be given to lienholders, and Davis v. La C. & M. R. Co. 12 Wis. 16; Kennedy v. M. & St. P. R. Co. 22 Wis. 581; Wooster v. S. R. V. R. Co. 57 Wis. 311, 15 N. W. 401; and Stamnes v. M. & S. L. R. Co. 131 Wis. 85, 109 N. W. 100, 925, 111 N. W. 62, are cited to our attention as sustaining tbis proposition. While there is a remark in tbe Davis Case which tends to support tbe view that a valid condemnation can only be bad where tbe persons interested in tbe property, including mortgagees, are before tbe court, a study of all tbe cases convinces us that what was being dealt witb and what was in tbe mind of tbe court was tbe matter of condemnation by railroad companies under special charters or general laws, all of which contain provisions similar to tbe provisions of secs. 1846 and 1847, which require that notice be given to tbe owner and to persons interested in the premises. We think the decisions in these cases are referable to tbe statute law and do not decide that there can be no valid condemnation except upon notice to lienholders; especially so in view of tbe fact that other statutes relating to tbe exercise of tbe power of eminent domain which require notice to tbe
The owner in this case having consented, by the acceptance of an indeterminate permit, that its property be taken, the taking was not against the consent of the owner, and the verdict of a jury as to necessity was not required. Under the facts in this case the question of taking was a legislative one, and the power to make the determination of that question was vested in the electors of the municipality, whose decision was in that respect conclusive.
The consent of the owner to the taking being equivalent to
The property being appropriated by the municipality for public use, the law provided the means by which the amount of compensation to be paid therefor should be fixed, as follows : The commission was required to give notice of a public hearing within three months of the date of the notice of the municipality’s determination to take the property, to the municipality and the utility, and upon this public hearing the commission was required to fix the compensation and the terms and conditions of the sale and purchase, which were required to be reasonable. Sec. 1197m — 82 (Laws 1907, ch. 499).
Secs. 1797m — 83 to 1797m — 85 (Laws 1907, ch. 499) provide the method for reviewing the order of the commission by appeal to the circuit court. Sec. 1797m — 83 was amended by ch. 662 of the Laws of 1911, in effect July 21, 1911, by the insertion of the italicised words, to read as follows :
“Any public utility or the municipality or any bondholder, mortgagee, lienor or other creditor of the public utility, being dissatisfied with such order, may commence and prosecute an action in the circuit court to alter or amend such order or any part thereof, as provided in sections 1797m — 64 to 1797m — 73, inclusive, and said sections so far as applicable shall apply to such action.”
The award of the commission was made December 26, 1911; so that at the time the award was made the law provided a method by which any bondholder might have the order of the commission reviewed. While sec. 1797m — 82 did not require notice to any one other than the municipality and the public utility, the hearing was a public one before an
While the determination in such a proceeding is of such a public character that every one affected by it may be chargeable with notice of it, we do not find it necessary to rest the decision in this case upon that ground.
It appears that in accordance with the statute as it stood prior to the amendment formal notice was given to the municipality and to the Kaukauna Company, but that no formal notice was given to the Trust Company. It does appear, however, that the officers of the Trust Company had actual notice of the proceeding. Thomas J. Pereles, at that time the president and managing officer of the Trust Company, and the owner or in control of practically all of the capital stock of the Kaukauna Company, directed that an appeal be prosecuted from the order of the commission. The attorneys who appeared at his direction and prosecuted the appeal entered their appearance in behalf of the Kaukauna Company, although at the time he was not an officer of the Kaukauna Company. It must be remembered that under the facts in this case there was but one interest, the Pereles firm, which was represented by the Kaukauna Company and the Trust Company. They owned all but one share of the capital stock of the Kaukauna Company and 2,560 shares of the 3,000 shares of the capital stock of the Trust Company. Each of these concerns derived all of its authority from one
The case might be very different if the Kaukauna Company and the Trust Company were in fact separate in interest and were managed and controlled and owned by different persons. It does not appear that any bondholder had actual notice of the condemnation proceedings. However, upon the whole record we must hold that the trustee, and through the trustee the bondholders, are bound by the judgment of the circuit court affirming the award of the commission. Formal notice to the trustee would have been sufficient under all the' authorities to bind the bondholders claiming under the trust deed. Iowa Co. v. M. P. r. Co. 24 Wis. 93; Swift v. State L. Co. 71 Wis. 476, 37 N. W. 441; Vetterlein v. Barnes, 124 U. S. 169, 8 Sup. Ct. 441.
The amount awarded as just compensation for the property of the Kaukauna Company was $50,000, and the award was affirmed November 21, 1914, by judgment of the circuit court. It being established that the trustee and the bondholders are concluded by the award, we come now to the distribution of the proceeds of the award, a difficult and disagreeable question. This court has well said:
“When one enjoying the confidence of the community in which he has acted as intermediary between investors and borrowers of money proves to have been both dishonest and insolvent, complications arise of the most serious character, in which the attempt to do justice must, of necessity, be pain*493 ful to the courts; for, whatever the result, one party or the other — and often both — must suffer injury; sometimes ruin. The strain upon the human sympathies is frequently such as to render difficult adherence to settled rules of law, which, in individual cases, may seem to cast the burden of the wrong on him who can least well bear it. Such rules, however, become established upon many and varied considerations as likely, in the long run, to approximate most nearly to justice, and to minimize the wrong as far as possible, and must be applied by a court until, if the desired results are not obtained, the lawmaking power shall readjust them.” Loizeaux v. Fremder, 123 Wis. 193, 197, 101 N. W. 423.
Whatever our personal inclinations may be, our duty is clear; it is to hew to the line, let the chips fall where they may; to apply the law to the facts as they appear, let the result be what it may. .In this case it appears without dispute that the amount of bonds outstanding at the time the award was made was $75,000, and there was retained by the city ont of the award of $50,000 the sum of $6,500, out of which a first lien on the property was to be liquidated, there being at the time a dispute as to its validity, it afterward being decreed a valid lien. Green Bay & M. C. Co. v. Kaukauna G., E. L. & P. Co. 157 Wis. 412, 147 N. W. 701. After the payment of the first lien out of the $6,500, the sum of $2,084.85 remained and still remains available. On July 11, 1912, the city paid to the Kaukauna Company $45,294.40, being the remainder of the award plus accrued interest to date after deducting $6,500. The Kaukauna Company in turn paid it to the Trust Company, which held it for some days and then, upon direction given by the Pereles firm through the Kaukauna Company, disbursed it in a certain specified way, and of the amount disbursed approximately $15,500 was paid the bondholders.
The trial court concluded as a matter of law that the Trust Company had under the terms of the trust deed “authority to receive the purchase money of the said plant as determined by the said railroad commission and apply the same or take
Appellant contends that this conclusion is erroneous. The trust deed was in the usual form of such instruments, and from the decision of the trial court it appears that the court based its conclusions upon article VI of the trust deed, which is as follows:
“In case default shall be made in the payment of any in-stalment of interest on any of the bonds issued hereunder, then and thereupon the principal of all the bonds secured by the mortgage shall, at the election of the trustee, become immediately due and payable; or in case any proceedings or action or any other steps be commenced or instituted for the foreclosure or enforcement of any second or subsequent mortgage by said company, against said property, or any portion thereof, then and thereupon the principal of all the bonds secured by this mortgage shall become immediately due and payable without notice.”
It appears without dispute that the instalment of interest due May 1, 1912, was advanced by the Trust Company and paid to the bondholders without knowledge on their part as to its source. The trial court says:
“Obviously the Trust Company did not make the payment of interest to the bondholders on May 1st in good faith, and could not have so made any interest payment after the proceedings for purchase were instituted by the city. It obviously advanced the interest at these times, particularly on May 1st, with a view of postponing the discovery by its customers, the bondholders, of its breach of faith with and duty*495 to them, in foisting upon them discredited and unsound securities, instead of the safe and interest-paying securities which it had been charged to procure with the funds left with it for investment. Under these circumstances it appears to me that there had in fact been a default of the Kaukauna Company in paying interest on the bonds in suit, although there had been none in form. The situation was such that the trustee would have been entirely justified on May 1, 1912, and at either interest-paying time in 1911, in exercising its option to declare the principal of the bonds due for default of payment of interest, which it had the authority to do under article VI of the trust deed.”
There can be no question but that the trial court was right in holding that the trustee would have been justified in declaring the whole amount secured by the trust deed due, instead of advancing the funds for the payment of the amount due. But the trustee did not exercise this option; on the contrary, it advanced the money with which to pay the interest due. Certainly after such interest was paid there was no default, and there existed at no time before November 1, 1912, such a default as would authorize the trustee to act under the provisions of article VI. After the Trust Company had paid the interest it could not by any action on its part withdraw payment and create a default. It cannot be held that it was unlawful for the Trust Company to advance this money for the Kaukauna Company, although it may well be true, as the court found, that its main purpose in doing so was to conceal from its customers the true situation. Whatever might have been done, the interest was in fact paid. The conclusion reached'by the trial court, therefore, that the Trust Company might have declared the whole of the bonds, principal and interest, due, and that it was therefore authorized to accept payment, does not follow. In any event, no sum would be due except the amount as to which there was a default until the trustee had in fact elected to declare the same due in accordance with the provisions of article VI.
The payment to the trustee not being authorized by the terms of the trust deed, it is clear that it had no authority to receive payment for the bondholders merely because it was trustee. It is true that the coupons and bonds were payable at the office of the Trust Company, but they were so payable only when due. The fact that the bonds and interest coupons were made payable at the office of the Trust Company did not mate the Trust Company the agent of the bondholders to receive payment. Money deposited with the Trust Company for that reason remained the property of the payor, and if lost it was the loss of the payor. Bartel v. Brown, 104 Wis. 493, 80 N. W. 801.
It is the established law of this state that payment of a negotiable instrument must be made to the party having possession of the same or to some person duly authorized by the payee to accept' payment, and that where the person to whom payment is made is not in possession of the negotiable instrument the burden is upon the party making the payment to show the agent’s authority by clear and satisfactory evidence. Bartel v. Brown, supra; Spence v. Pieper, 107 Wis. 453, 83 N. W. 660; Loizeaux v. Fremder, 123 Wis. 193, 101 N. W. 423; Marling v. Nommensen, 127 Wis. 363, 106 N. W. 844; Drake v. Drake, 142 Wis. 602, 126 N. W. 19.
The authority of the trustee to act for the bondholders is prescribed and limited by the terms of the trust deed, and a payment to the trustee merely as trustee cannot be held to be payment to the bondholders, unless made when and as prescribed by the terms of the deed. Miller v. Mitchell, 58 W. Va. 431, 52 S. E. 478; Kransz v. Uedelhofen, 193 Ill. 477, 62 N. E. 239; Fortune v. Stockton, 182 Ill. 454, 55 N. E. 367; Schroeder v. Wolf, 227 Ill. 133, 81 N. E. 13.
It appears without dispute that the city, through its offi
At tbis point, as elsewhere during tbe course of tbe proceedings, tbe Pereles interests took tbe case in band in their own behalf and in disregard of their duty to the city as well as to their clients. It appears, however, without dispute that tbe entire amount of $45,294.40 was paid to tbe Trust Company by tbe Kaukauna Company. It also appears that tbe Pereles brothers, either personally or as managing officers of tbe Trust Company, represented certain of tbe bondholders as their general agents for investment purposes, with power to accept payment on outstanding securities, to substitute one security for another, and generally to control the investment of tbe funds of such clients, and, in some cases at least, bad tbe bonds of their clients in their possession. Therefore when tbis fund reached the hands of the Trust Company it was as to some bondholders in tbe bands of a general agent, authorized, not by tbe terms of tbe trust deed, but by the direction of these bondholders, to deal generally wfitb their
As to those bondholders who had not constituted the Trust Company or the Pereles interests their general agents for the purpose of dealing with their funds and securities and who retained possession of their own securities and managed and controlled them themselves, it is clear that the fund was not in the hands of one authorized to receive payment, and consequently as to such bondholders there was no payment.
The trust deed was for the pi'o rata benefit of all of the bondholders, and upon the making of the award and the ascertainment of the first lien thereon — now established by decree of the court — each bondholder became entitled to receive his pro rata share thereof. The court did not find the facts relating to the authority of the Trust Company to represent the several bondholders. Further proceedings in that ro-spect are therefore necessary. Neither does it definitely appear to what bondholders the $15,500 was paid.
The trial court held that the trustee was restricted from pursuing any other remedy than that “of impressing said purchase money with the lien of the trust deed.” If payment to the Trust Company was not a sufficient impressment, it is difficult to understand how the Trust Company could impress funds in its own hands. The holding in effect amounts to this: that the plaintiff trustee has no other remedy than to pursue the funds in the hands of the Trust Company. This proposition rests primarily upon the conclusion that the Trust Company was authorized to accept payment. The Trust Company not being so authorized, the conclusion of course does not follow.
It appears that the plaintiff trustee demanded payment to him of the amount remaining in the hands of a third party after the satisfaction of the first lien, being the $2,084.85 hereinbefore referred to. In making this demand the trustee was acting under the trust deed, having been duly authorized
It was further held that the plaintiff trustee was barred by laches and estopped from claiming a foreclosure of the trust deed by reason of the acquiescence of the bondholders in the position of the city and permitting the city without objection or notice of adverse claim to expend a large amount in betterments after November 1, 1912, when the bondholders had notice of the facts by reason of the default in the payment of interest.
In our view of the case there was no estoppel or waiver. The amount of the award in this case was paid some months before there was any default in the payment of interest and at a time when the bondholders had no actual notice of the proceedings. The bondholders had a right to stand upon the terms of the trust deed, and could not be required to accept the amount of the award except in accordance with its terms, unless and until they chose to do so, and it was the duty of the city to preserve the fund until that time for their benefit or to pay it into court.
The bondholders not represented by the Pereles firm or the Trust Company are entitled to a foreclosure decree, unless their claims as determined in this action shall be paid by the city. The city being charged with the duty of'seeing that the pro rata amount of the award was applied to the ex-tinguishment of their claims, and having failed in that duty, and their claims not having been so extinguished, the property may be charged equitably with its payment, the amount, however, being limited to their pro rata share of the award.
We therefore conclude (1) that the proceedings by which the city acquired title to the property are valid; (2) that the interest of the bondholders was limited to the amount of the award made by the commission as affirmed by the circuit court, less the amount of the first lien for rentals; (3) that the Trust Company or the Pereles firm were general agents of some of the bondholders with authority to accept payment
By the Court. — Judgment reversed, and cause remanded for further proceedings in accordance with this opinion.
Rehearing
The respondent City of Kaukauna moved for a rehearing. The following opinion was filed January 16, 1917:
It is suggested that the third provision of the mandate, when taken in connection with the statements made in the body of the opinion, is ambiguous. It
By the Court. — Motion for rehearing denied, with $25 costs.