52 F. 29 | U.S. Circuit Court for the District of Eastern Wisconsin | 1892
The conceded facts upon which the present application for a receiver and for an injunction are based, so far as now necessary to state them, are these: The complainant on the 2d day of January, 1892, recovered judgment in this court in an action at law against the Oconto Water Company for $24,250.04 damages and costs, and, upon return of execution nulla bona, filed this bill against the judgment debtor and others to subject its property to the payment of the judgment. The Oconto Water Company was incorporated under the Revised Statutes of Wisconsin, on the 8th day of July, 1890, for the purpose of constructing and operating a system of waterworks within the city of Oconto, and of supplying the city and its inhabitants water for protection against fires, and for domestic, manufacturing, and other purposes. On the 9th day of July, 1890, the city of Oconto adopted an ordinance whereby it was ordained “that the Oconto Water Company, its successors and assigns, be and are hereby authorized, subject to the limitations herein or by law provided, to construct, own, maintain, and operate waterworks in the city of Oconto; to lay pipes for the carrying and distributing of water in any of the streets, avenues, alleys, lanes, bridges, or public grounds of the city, as now or may hereafter be laid out; to acquire and hold, as by law authorized, any and all real estate, easement, and water rights necessary to that end and purpose, with all necessary and proper buildings, wells, conduits, or other means of obtaining water supply, with all necessary machinery and attachments thereto, to supply the city and the inhabitants thereof with good and
The debt of the complainant, for which it recovered its judgment, was for iron pipes furnished, to be used, and which were used, in the construction of the waterworks plant, under a contract therefor dated August 28, 1890. The pipe was delivered during the months of September, October, and November of that year, and laid in the streets of the city. On the 13th day of September the defendants Andrews & Whit-comb entered into an agreement with the water company, by which Andrews & Whitcomb agreed to loan to the company a sum not exceeding •$40,000, upon interest, to be furnished between that date and January 1, 1891. The Oconto Water Company, in consideration of the premises, agreed to make immediate transfer in trust to Andrews & Whit-comb “of the Oconto waterworks franchise as issued to said Oconto Water Company,” together with the entire issue of stock of the company, .amounting to $100,000, and further agreed to issue immediately $100,000 in the first mortgage bonds of the company, to be secured on the entire Oconto waterworks franchise, and all the rights and privileges of said companj'; the deed of trust to be made to some trust company thereafter to be agreed upon by the parties. The stock and bonds were to be delivered to Andrews & Whitcomb as collateral security for the money to
At a meeting of the directors held October 29, 1890, action was had, authorizing the issue of first mortgage gold bonds of the company, to the amount of $125,000, in sums of $1,000 each, numbered consecutively from 1 to 125, both inclusive, payable in 25 years, with interest coupons attached; 100 of such bonds to be negotiated and sold, to provide funds for the completion of the system; the remaining bonds to be negotiated and sold, to provide funds for the extension of the system as-may thereafter be deemed advisable; such bonds to be secured by trust deed to the Minneapolis Trust Company upon the franchises and rights of the company. The action of this meeting of the board of directors was confirmed at a meeting of the stockholders held subsequently on the same day. The bonds and the trust deed w'ere prepared and executed, and bore date November 1, 1890. The trust deed was recorded in Oconto county, November 13, 1890, in volume 52 of Deeds, p. 394. On the 18th day of November, 1890, the officers of the company delivered to Andrews & Whitcomb 100 of such bonds as security, in accordance with the agreement of September 13, 1890; the other 25 bonds being lodged with the trust company. The sum of $40,000 mentioned in the agreement of September 13, 1890, was actually loaned to the •company by Andrews & Whitcomb on or prior to December 23, 1890, the last sum of $5,000 being advanced on that day, and they received the notes of the company for the total loan pursuant to the terms of the agreement. On March 13, 1891, the company contracted with Andrews •& Whitcomb for a further loan of an amount not to exceed $12,000, to •complete the work; they to hold the security then held by them as col
On the 17th day of June, 1891, the loans remaining unpaid, Andrews & Whitcomb instituted suit against the Oconto Water Company in the circuit court of Oconto county, and on the 13th day of August, 1891, upon default of appearance to the suit, a decree was rendered that they recover of the Oconto Water Company the sum of $63,887.23, the amount of the loans, with interest, and the costs of the action, which amount was declared to be a lien upon “all the rights, privileges, immunities, franchises, and powers, of whatsoever name or nature, which were granted the said defendant in and by a certain ordinance passed by the common council of the city of Oconto, Wis., and approved by the mayor of said city, July 9, 1890, said ordinance being ordinance No. 153 of said city, and being entitled ‘An ordinance providing for a supply of water to the city of Oconto and its inhabitants, and authorizing the Oconto Water Company, its successors and assigns, to construct, operate, and maintain waterworks therein,’ and upon $100,000 in the capital stock of the defendant, now held in pledge by the plaintiffs, and upon $100,000 in the first mortgage bonds of the said defendant, now also held in pledge by the plaintiffs.” The decree provided for a sale of the property upon which a lien was declared, which was had, Andrews & Whitcomb becoming the purchasers. The sale was confirmed by the court on the 29th September, 1891, and an instrument was executed by the referee, conveying to Andrews (¿Whitcomb the property mentioned, and in the language of the decree, under which they took actual possession of the waterworks system, and have since retained possession, claiming to own the same, upon the ground that by the sale they acquired title to the franchises of the Oconto Water Company, and that the title to all tangible property essential to the use and enjoyment of the franchise passed to them therewith.
At the threshold of the inquiry, the court is confronted with the question as to what rights Andrews & Whitcomb acquired under the agreement of September 13,1890, the instruments executed pursuant thereto, and the foreclosure of the rights thereby acquired. The grant to them was of “all the rights, privileges, immunities, and powers, of whatever name or nature, which were granted unto the said Oconto Water Company” by the ordinance of the city of Oconto. What rights could the city lawfully grant, and what were granted? The solution of the questions depends upon the powers conferred upon that municipality. The
It may be difficult to enumerate the common-law powers of a municipal corporation. It is certain, however, that the conferring of franchises upon other corporations is not one of them. Under its charter, by a well-known principle of law, it can exercise no power not expressly granted, or fairly to be implied. It may be that, by virtue of its duty to care for the public health and safety, a city has the power to contract for a supply of water; but it cannot, without express legislative authority, construct, maintain, or operate waterworks. Dill. Mun. Corp. (4th Ed.) § 27. Without like authority it cannot grant exclusive right to use the streets, and a distributing plant located in the streets is essentially a monopoly. The right to use the public highways for gas pipes or water mains rests in legislative authority directly granted or delegated to municipalities. So, likewise, the right to operate waterworks is of legislative origin, and can only be conferred by a municipal corporation
Whence came that power? I find no legislative warrant for it. The charter of the city does not confer it. No general law applicable to the city of Oconto grants it. The chapter entitled “ Of Cities” (Sanb. & B. St. c. 40a) was enacted in 1889, (Laws 1889, c. 326.) It provides that no city then incorporated shall be affected by the provisions of the act, unless it shall adopt the same for its government in the manner provided. (Sanb. & B. St. § 925cL) The present charter of the city of Oconto was enacted in 1882. (Laws 1882, c. 56.) There is no suggestion in the record that the city of Oconto has ever adopted the provisions of the general law, and we are not at liberty to assume that it has. Failing such adoption, the city is not affected by, and derives no powers from, that general law, assuming that the chapter has relation to waterworks owned and operated by a corporation other than the municipality, which may be doubtful. The city is therefore only authorized to permit the laying of pipes in the streets, and their maintenance and'use. (Section 930a.) That is not a grant of power to bestow a franchise, but permission to suffer an easement. The law of its incorporation confers upon the Oconto Water Company its franchise (1) to own and operate the waterworks; and (2) to use the streets of the city. •Sanb. & B. St. § 1780. The former power is without condition; the latter is subject to the assent of the municipality. The practical effi■cacy of the franchise may depend upon the discretionary act of the city. The franchise is not, however, derived from that discretion, but from the will of the legislature. The law authorizes the city to assent to the •exercise of a power granted by the statute. The grant of power to the water company—as to the use of the streets—becomes operative only upon the happening of that contingency of municipal assent. That is not a grant of power to a city to confer a franchise. Sims v. Railway Co., 37 Ohio St. 556. The matter is somewhat analogous to the case
The case of State v. Madison St. Ry. Co., 72 Wis. 612, 40 N. W. Rep. 487, is not in conflict. The ruling there was to the effect only that, considering the terms of Rev. St. Wis. § 1862, the provisions of the ordinance there under review, by force of the statute, became part of the law of the incorporation of the railway company, and for violation of such provision an action could be maintained by the attorney general to vacate the charter or annul the existence of the railway company, under the provisions of Rev. St. Wis. § 3241. Applying the doctrine of that case to the one in hand, the most that can be said is that the conditions of the assent of the city to the use of its streets inhere in and are part of the law of incorporation of the defendant water company. None the less, however, are its franchises derived from the legislature, and not from the municipality. It is also to be noticed that there is a marked difference in the statute under consideration in that case and those in question here. Section 1862, there considered, provides that “any municipal corporation * * * may grant to any such corporation ”—a street railway corpotion—“ such use, and upon such terms as the proper authorities shall determine, of any streets or bridges. * * * Every such road shall be subject to such reasonable rules and regulations * * * as the proper municipal authorities may by ordinance from time to time determine.” There the legislation does not directly grant to the railway corporation any power to use the streets, but delegates to the municipality the right to grant the power. Here the power is in terms conferred by the legislature upon the water company, subject to the assent of the municipality. There the street railway is subject to constant municipal control. Here the water company is independent of municipal direction except in the use of its streets. It is, I think, clear that the power possessed by the city of Oconto was only to yield its assent to a legislative grant of the use of its streets, and to contract for a supply of water. The franchises of the water company were conferred by the legislature of the state, and not by the ordinance of the city.
The question then recurs, what rights passed to Andrews & Whitcomb under the instruments of transfer and their foreclosure ? By their terms they convey or assign only such rights and privileges as were granted to the water company by the ordinance of the city. No other franchise or rights are attempted to be conveyed. If the right to the use of the streets may be said to have proceeded from the municipality, it was, standing alone, a mere easement. The transfer of such naked right could not carry with it the ownership of the mains, nor the title to the plant as an
2. The water company, in fulfillment of its agreement, issued to Andrews & Whitcomb $100,000 of its bonds as collateral to loans made and to be made, to the amount of $40,000. These bonds had not previously been issued. The law of Wisconsin provides (Rev. St. Wis. § 1753) that “no corporation shall issue * * * any bonds * * * except for money * * * actually received by it, equal to seventy-five per cent, of the par value thereof, and all * * * bonds issued contrary to the provisions of this section * * * shall be void.” These bonds were issued in defiance of the statute. That they were pledged, not sold, cannot avail to give them validity in the hands of the pledgee. The term “issue” is here used in the sense of “deliver” or “put forth.” They were delivered and put forth, by the act of pledging, as binding obligations of the company. If the pledge were valid, —if bonds not issued may be used as collateral for a debt less than 75 per cent, of their par value,—the pledgee could, upon default of the company in payment of the loan, lawfully dispose of them for any price obtainable, and they would become, in the hands of a bona fide holder for value, lawful obligations of the company for the full amount expressed, thus defeating the statute, which forbids their issue at less than 75 per cent, of their par value. The statute is its own interpreter. These bonds are void. They are of no binding force for any purpose in the hands of Andrews & Whitcomb. Whether a bona fide purchaser for value from Andrews & Whitcomb could assert the bonds against the company need not be considered. It is the province of a court of equity to prevent such a contingency.
The motion for a receiver and injunction is allowed; the injunction to provide for the deposit of the bonds with the clerk of this court for safe keeping pending this suit, or until further order of the court.