Leonard WRING, Vernon Ward, James Padgett, Arthur Hardy, Henry Rudin and James A. Davis, Respondents, v. CITY OF JEFFERSON, Missouri, John G. Christy, Mayor of the City of Jefferson, Missouri, Interco Incorporated, Stern Brothers & Co. and Glore Forgan, Wm. R. Staats, Inc., Appellants.
No. 52445.
Supreme Court of Missouri, En Banc.
March 13, 1967.
Rehearing Denied April 10, 1967.
413 S.W.2d 292
STORCKMAN, Chief Justice.
Finch, Eager and Donnelly, JJ., dissented.
Thomas P. Rose, City Atty., Jefferson, for appellants City of Jefferson, and John G. Christy, Mayor.
Robert B. Fizzell, Jr., Jerry T. Powell, Richard E. Petrie, Stinson, Mag, Thomson, McEvers & Fizzell, Kansas City, Henry P. Andrae, Alex G. Bartlett, Hendren & Andrae, Jefferson City, William H. Armstrong, Armstrong, Teasdale, Kramer & Vaughan, St. Louis, for appellants Interco Inc., Stern Bros. & Co. and Glore Forgan, Wm. R. Staats, Inc.
Amos Wight, City Counselor, City of Nevada, amicus curiae.
STORCKMAN, Chief Justice.
This is a suit for an injunction to restrain the City of Jefferson from carrying out a project of industrial development undertaken pursuant to
The facts of the case are not in dispute. The evidence on the more essential features is documentary and other evidence relates largely to the identity and status of the plaintiffs. At a special election held June 14, 1966, in the City of Jefferson, better known as Jefferson City, the following proposal was approved by a vote of 2732 to 86:
“Proposition to issue the industrial revenue bonds of the City of Jefferson, Missouri, to the amount of $8,500,000 for the purpose of purchasing and constructing an industrial plant to be leased to Interco Incorporated, a Delaware corporation, for manufacturing and industrial development purposes, including real estate, buildings, fixtures and machinery, said bonds to be payable solely from the revenues derived from a project for industrial development and not to be a general obligation of said City.”
The City Council had adopted a resolution approving the project on May 16, 1966.
The City and Interco propose to enter into an agreement providing in essence that the proceeds of the $8,500,000 revenue bonds will be used to pay the cost of constructing an industrial plant in Jefferson City which will be known as the International Shoe Company Distribution Center and which will be responsible for the distribution of shoes throughout the United States. The City will lease the industrial plant to Interco, Inc., at rentals sufficient to retire the bonds as they become due and to pay the interest thereon. The bonds will be payable only from rentals due under the lease and the City has no obligation or authority to levy taxes to pay principal or interest on the bonds. The City has entered into a contract to sell the bonds to the defendants, Stern Brothers & Co. and Glore Forgan, Wm. R. Staats, Inc., investment bankers of Kansas City and Chicago, respectively. The basic term of the lease is twenty-five years and six months. The lease grants Interco an option to purchase the industrial plant upon payment of the principal and interest due on all outstanding bonds and the sum of one dollar to the City. Other pertinent provisions of the lease will be discussed in connection with the questions presented. When the plant in Jefferson City becomes operative, which is estimated to be sometime in 1968, Interco proposes to close its warehouse in the City of St. Louis. Interco, in accordance with its agreement, paid all the costs and expenses of the election held in Jefferson City, at which the issue of revenue bonds was approved.
On July 8, 1966, the plaintiffs filed in the Circuit Court of Cole County their petition to enjoin the consummation of the project described. The plaintiff James A. Davis is a resident, a registered voter and a taxpayer of the City of Jefferson. The defendant City owns the land upon which the warehouse is to be constructed. The right of the City to dispose of the industrial plant including the land, the building to be constructed thereon and the machinery and equipment to be purchased is in controversy. In these circumstances the plaintiff Davis is qualified to maintain the action. Hight v. City of Harrisonville, 328 Mo. 549, 41 S.W.2d 155, 158 [1]; 64 C.J.S. Municipal Corporations § 2152.
On August 15, 1966, the trial court entered its judgment and decree dismissing the petition with respect to the members of the Industrial Development Commission of the Division of Commerce and Industrial Development. The judgment and decree restrained and enjoined the defendants City of Jefferson, Mayor Christy, and Interco, Incorporated, from entering into or giving effect to the proposed lease between the City and Interco, and restrained and enjoined the City, Mayor Christy, Stern Brothers & Co., and Glore Forgan, Wm. R. Staats, Inc., from issuing, or purchasing or arranging for the sale of the $8,500,000 issue of industrial bonds.
The attorney general of Missouri represented the members of the Industrial Development Commission until they were dismissed from the case by the trial court. After the appeal was taken the attorney general applied to this court and was granted leave to file a brief as amicus curiae which we have before us in addition to the briefs of the parties.
The first issue presented is whether the City is authorized to sell the proposed industrial plant to Interco in accordance with the option granted by the lease, particularly Article XVII. The constitutional authority on which this project is based is
“Section 27. Any city or incorporated town or village in this state, by vote of four-sevenths of the qualified electors thereof voting thereon, may issue and sell its negotiable interest bearing revenue bonds for the purpose of paying all or part of the cost of purchasing, constructing, extending or improving any of the following: (1) revenue producing water, gas or electric light works, heating or power plants; [(2) plants to be leased or otherwise disposed of pursuant to law to private persons or corporations for manufacturing and industrial development purposes, including the real estate, buildings, fixtures and machinery;] or (3) airports; to be owned exclusively by the municipality, the cost of operation and maintenance and the principal and interest of the bonds to be payable solely from the revenues derived by the municipality from the operation of the utility [or the lease of the plant.]” Brackets and italics added.
The new section,
In support of this contention, the plaintiffs point out that
The first eight in the series of statutes,
Furthermore, the Constitution directly confers on the municipality the power to sell industrial plants financed by revenue bonds subject to appropriate statutory provisions safeguarding the exercise of the power. In State ex rel. City of El Dorado Springs v. Holman, Mo., 363 S.W.2d 552, 559 [7], this court held that the term “plants to be leased or otherwise disposed of pursuant to law” as contained in
We hold that the City was empowered by
A more troublesome question is whether the City is obliged by statutory law to become a party directly to the contract for the construction of the industrial plant and to let the contract to the lowest and best bidder. First it will be helpful to become acquainted with the extent and nature of the City‘s participation as provided by the lease agreement.
Article IV of the lease deals with the means by which the building will be erected and the machinery and equipment installed. In essence it provides that Interco shall construct the buildings and improvements on the land in accordance with the plans and specifications approved in writing by the City; that all contracts with contractors must likewise be approved by the City; that complete insurance coverage must be provided and a performance bond supplied; that Interco warrants that the buildings and improvements will result in a facility suitable for use by it; that changes in the plans
At this point it may be well to note that the completed facility will consist of about 40 acres of land, the building, and certain machinery and equipment. The term purchase would at least properly apply to the land and the machinery and equipment. The term construction would apply to the erection of the building. Hence, it was entirely proper to say as was stated in the proposal submitted to the voters that the revenue bonds were to be issued for the purpose of purchasing and constructing an industrial plant, and as was stated in similar terms in the City‘s application to the Di
There is authority to support the defendants’ contention that the essential nature of this transaction is a purchase of the building by the City on an installment basis as it is erected and payments made. See Green v. City of Mt. Pleasant, 256 Iowa 1184, 131 N.W.2d 5, 23, and Gregory v. City of Lewisport, Ky., 369 S.W.2d 133, 135. In holding that competitive bidding was not required, the Gregory case states, 369 S.W.2d loc. cit. 135, as follows: “Perhaps it would not be acceptable for a city to contract, before commencement of construction, to buy a building upon its completion, if the only purpose of the plan were to escape statutory regulations governing construction of buildings by cities. But here the plan has a legitimate purpose—to insure that the building will conform to the requirements of the lessee for whose use the building is designed. We think the statutes in question are aimed primarily at construction of buildings for public use, so when, as in the case here, a building is being acquired for use of private industry the courts should not search for possible motives of evasion in the plan for acquisition of the building if the plan does not literally violate the statutes and if it has an apparent legitimate purpose.”
There is also authority for the proposition that in the construction of an industrial facility financed by revenue bonds the municipality may act through an agent or representative as provided in the proposed lease agreement and that statutes such as
The plaintiffs discount the persuasive authority of the Green and Gregory cases by the assertion that neither Iowa nor Kentucky have legislation requiring municipal control of construction and competitive bidding on these industrial development projects. Even if this contention, so far as it goes, were sound, it does not take into consideration the force and effect of
Ordinarily a statute requiring competitive bidding on public improvements is applicable only to contracts whereby the city itself assumes an obligation or indebtedness. 63 C.J.S. Municipal Corporations § 1148, p. 814, n. 36.5 1966 pocket part. 63 C.J.S. Municipal Corporations § 1148, p. 814, states: “A statute requiring a call for bids in the case of improvements to be paid out of general funds of the municipality has been held inapplicable to improvements payable out of the revenues from the improvement or out of special funds provided therefor.” Supporting this statement are two cases dealing with funds from revenue bonds and applying what is sometimes referred to as the “special fund doctrine“. See Utah Power & Light Co. v. Provo City, 94 Utah 203, 74 P.2d 1191, cert. den. 305 U.S. 628, 59 S.Ct. 92, 83 L.Ed. 402, and Barnes v. Lehi City, 74 Utah 321, 279 P. 878. This doctrine is recognized and applied in Missouri. In Kansas City Transfer Co. v. Huling, 22 Mo.App. 654, it was held that a provision of the charter of Kansas City which required all city improvements to be let by contract to the lowest and best bidder was not violated since the provisions did not apply to work done at the expense of adjacent property holders.
The proposition approved by the voters of Jefferson City places a limit of $8,500,000 upon the amount of bonds that can be issued. The construction fund is therefore limited to the proceeds of the revenue bonds. The lease agreement provides that if less than the total sum is needed to acquire the facility the remainder shall be used to retire bonds. If the facility costs more than $8,500,000, Interco agrees to pay the difference. All the constitutional and statutory provisions meticulously guard against the municipalities incurring any personal liability or obligation with respect to projects financed by revenue bonds.
Such a requirement would expose the municipality to the risk of incurring a general obligation, of undertaking to make an illegal contract, or reading into the statute exceptions and qualifications that its language does not permit. These examples demonstrate the possibilities. If we construe
If the contract price exceeds the debt limitation imposed by
On the other hand, if we construe
The construction of
In general a constitutional provision is subject to the same rules of construction as other laws with due regard being given to the broader scope and objects of the constitution. State ex rel. Curators of the University of Missouri v. Neill, Mo., 397 S.W.2d 666, 669 [2]. The general rule is that where an act is amended the parts retained are regarded as a continuation of the former law and are entitled to receive the same construction. State ex rel. Klein v. Hughes, 351 Mo. 651, 173 S.W.2d 877, 880 [4, 5]; State v. Ward, 328 Mo. 658, 40 S.W.2d 1074, 1078 [11]. Unchanged by the amendments are those parts of
Comparison of pertinent portions of
It should be further noted that this constitutional provision does not require the city itself to construct the building; the language of the constitution is that the funds derived from the sale of revenue bonds shall be used for the purpose of “paying all or part of the cost” of constructing the industrial plant. The language used imposes no such restriction. Legislation may be enacted to implement and facilitate the operation of a constitutional provision without impairing those parts which are self-executing, but all such legislation must be subordinate to the constitutional provision and in furtherance of its purposes and must not tend to narrow or embarrass it. State ex rel. Randolph County v. Walden, 357 Mo. 167, 206 S.W.2d 979, 986 [14]; State ex rel. City of Fulton v. Smith, 355 Mo. 27, 194 S.W.2d 302, 305 [5].
Our decision is limited to the factual situation before us. We do not decide that
The plaintiffs’ final contention is that the proposed lease “grants Interco immunity from taxation, is discriminatory against property owners and taxpayers of the City of Jefferson and constitutes an unlawful delegation of legislative authority to Interco.” Article V of the lease deals with what appears to be every conceivable tax or assessment that may be imposed upon or assessed against or payable for or in respect of the Facility; they are collectively referred to as “Impositions“. The part of which the plaintiffs specifically complain is the last sentence of the first paragraph of Article V which reads as follows: “Landlord covenants that without Tenant‘s written consent it will not unless required by law take any action which may reasonably be construed as tending to cause or induce the levying of assessment of any Imposition (other than special assessments levied on account of special benefits) which Tenant would be required to pay under this Article and that should any such levy or assessment be threatened or occur Landlord shall, at Tenant‘s request, fully cooperate with Tenant in all reasonable ways to prevent any such levy or assessment.”
The provisions of Article V do not grant, or purport to grant, Interco immunity from taxation; they are not discriminatory and do not constitute an unlawful delegation of legislative authority. At most the part complained of is an agreement to cooperate in resisting unlawful assessments. The first part of the first paragraph specifically binds Interco to assume and pay all Impositions against the property subsequent to the time the City acquires the land on which the facility will be constructed. The second paragraph of the article requires Interco to furnish the City with a photostatic copy of a receipted statement showing payment of any Imposition which Interco is obligated to pay within thirty days after the last day for payment. By the second paragraph of the article, the
We have examined all of plaintiffs’ contentions and find them to be without merit. The trial court erred in finding the issues in favor of the plaintiffs and against the defendants, City of Jefferson, John G. Christy, Mayor, Interco Incorporated, Stern Brothers & Co., and Glore Forgan, Wm. R. Staats, Inc., and erred in restraining and enjoining said defendants from entering into or giving effect to the lease by and between City of Jefferson, Missouri, and Interco Incorporated, which was submitted in support of the application by the City of Jefferson to the Division of Commerce and Industrial Development on May 17, 1966, for issuance of industrial revenue bonds in the amount of $8,500,000.
Accordingly the judgment of the trial court is reversed.
This court further finds the issues in favor of the said defendants and against the plaintiffs and orders, adjudges and decrees that said lease as proposed is not invalid and that plaintiffs’ petition be dismissed at plaintiffs’ cost.
HOLMAN, HENLEY and SEILER, JJ., concur.
FINCH, J., dissents in separate dissenting opinion filed; EAGER and DONNELLY, JJ., dissent and concur in separate dissenting opinion of FINCH, J.
FINCH, Judge (dissenting).
I respectfully dissent from the majority opinion herein. I would hold that
The principal opinion assigns several reasons for holding that the City was not required to be a party to the construction contract or to let the same on competitive bidding as required by
The first basis advanced in the principal opinion for upholding the lease agreement between the City and Interco is that this transaction did not involve construction by the City at all but rather was simply an installment purchase by the City of the facility “as it is erected and payments made.” This portion of the opinion is couched in language that “there is authority to support the defendants’ contention” that this was a purchase by the City of the building on an installment basis. I interpret this as a holding that this was an installment purchase, not a mere discussion of what it might have been. If it were the latter, of course, it would not provide any basis for the result reached.
Is this an installment purchase of a building by the City? I think not. A purchase by the City involves a sale by someone and requires that there be a seller as well as a buyer. Supposedly, this holding would treat the City as an installment purchaser, but nothing is said as to who would be the seller or what such seller would have to sell. It is recognized in the majority opinion that title to the real estate is to be in
The second ground relied on in the majority opinion is that “there is also authority for the proposition that in the construction of an industrial facility financed by revenue bonds the municipality may act through an agent or representative as provided in the proposed lease agreement and that statutes such as
Cases cited in support of this second proposition are Green v. City of Mt. Pleasant, 256 Iowa 1184, 131 N.W.2d 5, 23, and Gregory v. City of Lewisport, Ky., 369 S.W.2d 133, 135. It should be observed that in neither Iowa nor Kentucky was there any statute comparable to
The majority opinion cites no Missouri decision or statutory authority which recognizes or grants to a city of the third class the right to act through an agent or representative (instead of itself being a party to the contract) to build and equip an industrial plant with municipal funds. Such cities are established by authority of the state. They do not possess residuary or reserve powers. Rather, they have the authority conferred on them by statute or constitutional provision.
In its discussion of this second proposition, the majority opinion states that “in the present case the Division of Commerce and Industrial Development has determined that the safeguards and supervision retained by the City under the plan submitted and approved are sufficient to satisfy the public interest.” Apparently, the opinion is accepting the contention advanced by defendants in their briefs that
As a matter of fact, I find no language in the plan submitted to the Division or in the attached lease between Interco and the City which would indicate to the Division that there would be no advertisement for bids or that contracts would not be let on the basis of competitive bidding. In the very first paragraph of the application by Jefferson City to the Division of Commerce and Industrial Development the City applies “for approval of the Project for industrial development herein described, to be carried out pursuant to
Even if such provision had been included in the plan and had been approved by the Division, I am of the opinion that such action would not have been authorized under
I cannot agree that there is incompatibility in financing a project with revenue bonds and requiring the City itself to contract for construction on the basis of competitive bids, or that such procedure “would be contrary to the central purpose of permitting the issuance of this kind of bonds.”
The difference in revenue and general obligation bonds is not in how contracts are awarded or who is the contracting party, but rather in the source of funds from which the bonds are retired. General obligation bonds are payable out of tax revenues and general funds. They are general obligations of the city or other issuing agency. Revenue bonds are payable solely and exclusively from revenue received from the project and are not debts or general obligations of the city or issuing agency.
Likewise, I cannot agree that the City would risk a general obligation or be in danger of violation of
The principal opinion, in presenting this matter of the possibility of the City incurring a general obligation and possibly violating
“3. Source of Funds to be Expended for the Project. The source of funds to be expended for the project will be the proceeds of $8,500,000 principal amount of industrial revenue bonds to be issued pursuant to the statute aforesaid and
Section 27 of Article VI of the Constitution of Missouri, 1945 , as amended August 17, 1965. The bonds will mature over approximately a 25-year period.”
The voters of the City approved construction from industrial revenue bonds in the amount of $8,500,000, as shown by the proposal quoted in the majority opinion. The plan and the proposed lease specifically provided that Interco would pay any costs above those taken care of by the proceeds of the $8,500,000 revenue bond issue and would hold the City harmless therefrom.
Where is there any basis for assuming that the construction contract entered into by the City would obligate the City beyond what the plan provided?
The same argument regarding exposure to additional liability, advanced in the principal opinion with respect to revenue bonds, could be advanced if general obligation bonds were being used, if it be assumed that the City, in contracting for the facility, would not limit its obligation to the receipts of the bonds approved by the voters and approved in a plan submitted to the Division.
The principal opinion relies on the case of Sager v. City of Stanberry, 336 Mo. 213, 78 S.W.2d 431, and earlier cases cited therein. Actually, that case supports the position taken in this dissent. I will not lengthen this opinion by reviewing the facts. Those interested may read the case where it is reported. The opinion does include the following pertinent statement, l. c. 438: “The special fund doctrine is recognized in this state, i. e., that a city does not create an indebtedness within the contemplation of the constitutional proviso by obtaining or purchasing property which is to be paid for solely and exclusively from a special fund derived from the income of the property with no liability on the part of the city to pay such purchase price or any part thereof directly or indirectly with funds raised by taxation or from a fund which must be replenished by funds raised by taxation. State ex rel. City of Hannibal v. Smith (Mo.Sup.) 335 Mo. 825, 74 S.W.2d 367; Bell v. City of Fayette, 325 Mo. 75, 28 S.W.2d 356; Hight v. City of Harrisonville, supra; Hagler v. City of Salem, supra.”
The “special fund doctrine” was not applied in that case because the city by its contract had obligated itself to supplement the special fund from general or other revenues and the purchase, therefore, was not to be made with income coming exclusively from the property.
In the case of Grossman v. Public Water Supply Dist. No. 1 of Clay County, 339 Mo. 344, 96 S.W.2d 701, 706, this court again said: “It has been held repeatedly in this state that the constitutional limitation imposed by section 12, article 10 of the Missouri Constitution on the indebtedness a political corporation may incur, contemplates a debt which must be paid directly or indirectly by resort to taxation. State ex rel. Smith v. City of Neosho, 203 Mo. 40, 82, 101 S.W. 99, 109; Bell v. City of Fayette, 325 Mo. 75, 91, 28 S.W.2d 356, 361; Hight v. City of Harrisonville, 328 Mo. 549, 558, 41 S.W.2d 155, 158; Hagler v. City of Salem, 333 Mo. 330, 336, 62 S.W.2d 751, 754; State ex rel. City of Hannibal v. Smith, 335 Mo. 825, 833, 74 S.W.2d 367, 371; Sager v. City of Stanberry, 336 Mo. 213, 227, 78 S.W.2d 431, 438.”2
The court then went on to say, l. c. 706: “It is likewise well established that the ‘special fund doctrine’ prevails in Missouri, and that an indebtedness of a city or other like political corporation payable only out of income derived from the property purchased is not a debt within the meaning of the above provision of the Constitution. State ex rel. City of Excelsior Springs v. Smith, 336 Mo. 1104, 1112, 82 S.W.2d 37, 40; State ex rel. City of Hannibal v. Smith, supra, 335 Mo. 825, loc. cit. 834, 74 S.W.2d 367, loc. cit. 371.”
In my judgment, requiring the City in this instance to be a party to the construction contract and to advertise and award contracts on a competitive basis to the lowest and best bidder does not violate
Finally, the principal opinion concludes that
It is true that in the Fulton case this court in 1946 held that the new
In 1960 the people amended
In the case of State of Missouri ex rel. City of Charleston v. Holman, Mo., 355 S.W.2d 946, this court was asked to mandamus the state auditor to register general obligation bonds issued by the City of Charleston to erect an industrial plant, pursuant to
Monroe City also acted at about the same time to issue industrial bonds, but it sought to issue both general obligation bonds under
In the Monroe City opinion, l. c. 710, Judge Leedy recognized that in Fulton this court “held
I am of the opinion that the majority opinion clearly overlooks what this court held in Monroe City when it now asserts that “unchanged by the amendments are those parts of
The majority opinion would hold that with reference to industrial projects,
There is no inconsistency between the requirements of
The result I would reach does not mean that the City could not build an industrial plant for Interco financed by revenue bonds.
There is no occasion to consider the other questions raised by plaintiffs because I would affirm based on failure of the defendants to comply with
I cannot conclude this opinion without expressing apprehension about possible effects of the majority opinion. I have mentioned the fact that it leaves cities free to contract privately through agents without the necessity for advertisement or competitive bidding. I call attention to