Hunter v. Roseburg

Mr. Justice Bean

delivered the opinion of the court.

It is contended upon the part of the plaintiffs: (1) That the contract executed on July 15,1915, is not one authorized by the charter amendment. (2) That in order to comply with the charter the contract should provide that the city will construct and own by the issuing of bonds in the sum of not more than $300,000 a standard gauge railroad between the points of termini named. (3) That a grade for a logging road and some ties do not constitute a standard gauge railroad; that such a railroad between-given points requires that there be the right of way, the grade, the ties, the ballasting, the rails, the spikes, the plates con *598 necting the rails, the rolling stock, the depots, the repair-shops, and in fact everything that is necessary to a going operating railroad—citing 4 Words and Phrases (2 ed.), pp. 95-102; Thompson-Houston Co. v. Simon, 20 Or. 60, 68 ( 25 Pac. 147 , 23 Am. St. Rep. 86 , 10 L. R. A. 251); Oswego D. & R. Ry. Co. v. Cobb, 66 Or. 587, 592 ( 135 Pac. 181 ), and other authorities. (4) That the charter amendment and the contract are an attempt to evade, and are in conflict with, Article XI, Section 9, of the Constitution of Oregon, by providing a commingling of city and private funds into a partnership in a sawmill and logging railroad project for the benefit of the corporations.

It is pleaded and contended on the part of defendants that the contract in question was adjudicated in Pearce v. Roseburg, 77 Or. 195 ( 150 Pac. 855 ). They submit that the agreement executed by the city council is in conformity with the charter amendment, and is not repugnant to the Constitution; that the railroad is all owned in fee simple by the City of Roseburg, and that there is no mingling of private and public funds.'

1, 2. The case of Pearce v. Roseburg was decided upon a demurrer to the complaint; therefore the only matters that were determined were those contained in that pleading. The contract in question was not executed until after the former suit was instituted, and was mentioned therein only in a general way. But the material provisions which are opposed in the present suit were not set forth in the former. Naturally, the details of that instrument could not be given when it was not in existence. The contract is set out in haec verba in the complaint in this case, and there are many facts detailed which were not contained in the former adjudication.. Summarizing, this litigation may be distinguished from the former as follows: (1) *599 The parties are not the same; (2) The issues are not the same; (3) The subject matter of the suit, to wit, the contract of July 15, 1915, was not in existence at the time the former suit was begun nor when it was decided by the Circuit Court: See 23 Cyc. 1172. The case of Pearce v. Roseburg having been decided upon demurrer to the complaint, the decree therein is not res adjudicata of the present suit, wherein different facts are alleged, issues made up and testimony taken: O’Hara v. Parker, 27 Or. 156, 163 ( 39 Pac. 1004 ); Pruitt v. Muldrick, 39 Or. 353, 358 ( 65 Pac. 20 ); Hoover v. King, 43 Or. 281 ( 72 Pac. 880 , 99 Am. St. Rep. 754 , 65 L. R. A. 790); Burnett v. Marrs, 62 Or. 601 ( 125 Pac. 838 ); Gould v. Evansville & C. R. R. Co., 91 U. S. 526, 534 ( 23 L. Ed. 416 ); 23 Cyc. 1155; 24 Am. & Eng. Ency. of Law (2 ed.), p. 769).

3. It will be necessary, therefore, to consider the contract as set forth in the complaint and referred to in the answer. First, it should be noticed that by the language of the charter amendment the common council of the City of Roseburg is granted power to construct a standard gauge railroad which shall be a common carrier from the city to a certain point on the western boundary of the Cascade Range Forest Reserve, and for that purpose to issue $300,000 in 5 per cent bonds, payable in 30 years, and which may at the option of the city be paid in 10 years. The council is directed to enter into a contract for the construction of the railroad and permitted to lease the same. The charter authorizes the levy of an annual tax for the payment of the interest and principal of the bonds. It makes plain provisions for a public utility, that is, for a complete railroad to be owned by the city. It does not contemplate that the municipality shall own or lease a part of a railroad for the whole of the dis *600 tance, nor all of it for a portion of the distance. An examination of the different provisions of the contract executed by the city and the corporations discloses that the former is not to own all the railroad, and, except upon certain contingencies which may or may not arise, it is at least doubtful if it is intended by the terms of the contract that eventually, or at the end of the term of the lease, the municipality shall have the benefit of any considerable portion thereof other than the right of way and roadbed of an abandoned logging railroad.

4. Viewing the matter in the light most favorable to the city, we find that after the road is completed the railroad company has the right to purchase its interest in the road at any time within 60 years for the sum of $300,000. This option is subject to the right of the city, in case it has an opportunity to sell the road and after 90 days’ notice to the railroad company, that company failing to exercise its option, to sell to any purchaser “subject to the right of the contracting parties as herein defined.” It is mutually understood that in case of sale by either of the contracting parties during the term of the lease, any sum realized in excess of the cost of constructing and equipping, and any deficit incurred in operating and maintaining the railroad, shall be divided between the city and the railroad company in proportion to their investments therein. (No provision appears to be made in case of loss or sale for less than cost.) This stipulation clearly shows that the railroad company owns an interest in the road. The contract provides that in case of sale by either party the interest of both shall be carefully guarded so as to secure to the lumber corporation the delivery of sawlogs at its mills upon just and equitable rates. It stipulates that:

*601 “The lumber corporation may have the right to use said railroad to skid and load logs and other timber and transport them in its own cars and with its own locomotives or other power to its own mills on or along said railroad constructed at the time of said sale upon payment of a reasonable compensation for such privilege.”

It is clear that the city’s interests are closely entwined with those of the other two contracting parties. A sale cannot be made by the municipality without amicable arrangements being made with the other parties. Its funds are proposed to be commingled with other private funds. The interests of the city and the railroad company are interdependent. The city stands sponsor for the payment of the principal and interest of the bonds, and its credit and funds would certainly be utilized for the benefit of the railroad company. The project , may be well described as a partnership transaction.

The evidence in the case shows that the estimated cost of the railroad is between $600,000 and $750,000. The contract as executed is not one authorized by the charter as amended by the legal voters. • In other words, the legal voters of Eoseburg did not vote to issue bonds either partially or wholly for the benefit of any persons or corporations other than the city. Article XI, Section 9, of the Constitution of Oregon is as follows:

“No county, city, town, or other municipal corporation, by vote of its citizens or otherwise, shall become a stockholder in any joint stock company, corporation, or association whatever, or raise money for, or loan its credit to, or in aid of, any such company, corporation, or association.”

Section 5 of the same article emphasizes this provision. It directs that:

*602 “Acts of legislative assembly incorporating towns and cities shall restrict their powers of taxation, borrowing money, contracting debts, and loaning their credit. ’ ’

The cases are not numerous in which the courts have considered the question of the right of a municipality to have a part ownership of property. That of Alter v. Cincinnati, 56 Ohio St. 47 , 60 (35 L. R. A. 737, note), plainly lays down the rule that:

“There can be no union of public and private funds or credit nor of that which is produced by such funds or credit.”

The basis of this doctrine is the provision of the Ohio Constitution, Article VIII, Section 6, which is as follows:

“The G-eneral Assembly shall never authorize any county, city, town, or township, by vote of its citizens or otherwise, to become a stockholder in any joint stock company, corporation, or association whatever; or to raise money for, or loan its credit to, or in aid of, any such company, corporation, or association.”

This language is practically identical with Section 9, Article XI, of our Constitution. This constitutional provision of Ohio was interpreted in Walker v. Cincinnati, 21 Ohio St. 15 ( 8 Am. Rep. 24 ), as follows:

“The mischief which this section interdicts is a business partnership between a municipality or subdivision of the state, and individuals, or private corporations or associations. It forbids the union of public and private capital or credit in any enterprise whatever.”

The statute under consideration in that case was held constitutional because the court did not consider that it violated the Constitution as thus interpreted. In later cases in that state, however, statutes have been held unconstitutional by application of the same *603 doctrine: Taylor v. Ross County Commissioners, 23 Ohio St. 22; Wyscaver v. Atkinson, 37 Ohio St. 97 . Pleasant Township v. Aetna Life Ins. Co., 138 U. S. 74 ( 34 L. Ed. 864 , 11 Sup. Ct. Rep. 215), is a case where the prohibition of the mingling of public and private funds is approved.

The written Constitution of Oregon is the most solemn declaration of the people in regard to the powers of the state and its agencies or municipalities. It has their unqualified approval. The authorized officers in the state are required to take an oath to support it before they are qualified to enter upon their work. It is not a pleasurable duty to curb the action of the municipal officers of an enterprising city when they transcend the limits of their municipal charter or of our organic law, yet the courts cannot shirk such duty when the case demands. In determining a question under the Constitution, the scope and effect of an act or contract' are proper for consideration. The view of the court is never limited to the mere letter. The agreement above noted is inimical to Article XI, Section 9, and should be so declared.

There are some phases of the contract, the preamble and other provisions, which strongly indicate that the main purpose thereof on the part of the municipal officers is to obtain the location and operation of sawmills near the city and to accelerate the general business of the community, with little, if any expectation by them of any other return of the funds to be invested. The agreement that in case of the sale of the railroad the lumber corporation shall have the right to use the road for the transportation of its timber on cars and with engines of its own would, under ordinary business conditions, prevent any such sale. The lumber company appears to be the principal pros *604 pective user of the road. There are no provisions as to fixing rates so that the city could reasonably expect that the lumber corporation, or its ally, the railroad company, would so adjust the rates for carrying logs that there would be any “net profits” to aid the municipality in liquidating the interest on the bonds. The time of the operation of the proposed railroad and sawmill is not definitely agreed upon, but is left to the good faith of the Kendall brothers in a general way, as are many other essential arrangements. Whatever their intentions may be, their stock in the corporations is subject to transfer at any time. In short, the whole scheme seems to contemplate a temporary utility such as logging railroads usually are. With the timber transported, and the leased rails and the equipment belonging to the corporations removed, the city would have a roadbed, some old ties, and a fenced right of way left which, under ordinary conditions would be of but little value, a mere shell: See Avery v. Job, 25 Or. 512, 525 ( 36 Pac. 293 ).

5, 6. Another phase of the proposition is that if the road should he somewhat permanently constructed and equipped, the interest on $300,000 at 5 per cent per annum for 60 years would be treble that amount, or $900,000. Immediately before the end of that period the company would have the right to purchase from the city for the smaller figure named, while the latter might be required to pay approximately the larger amount. Under such circumstances, can it he said that the city is not attempting to raise money for, or loan its credit to, or in aid of, the corporations? Viewed from any standpoint indicated by the contract it is a plain violation of our organic law. The funds of a municipality are for public purposes. There is the inherent condition attached to all public utilities *605 constructed at the expense or on the credit of a municipality that they shall he public in their character: 3 Dillon, Mun. Corp. (5 ed.), § 1293. At the close of this section it is stated thus:

Mr. Carl E. Wimberly, Mr. Albert Abraham, Messrs. Rice £ Orcutt and Mr. Oliver P. Coshow, for the petition.

Mr. Ralph R. Rumway, contra.

In Banc.

“If the enterprise is of such a character that it may justly be described as indicating an underlying purpose different from the city’s use and convenience, and creates in the impartial mind a conviction that the use and benefit of the city are but pretexts disguising some foreign and ulterior end, the attributes of a city purpose must be denied to it.”

It follows that the decree of the lower court must be reversed and one entered here declaring the contracts mentioned void, enjoining the enforcement thereof, and inhibiting the issuance of the $300,000 in bonds. It is so ordered. Reversed. Rehearing Denied.

Mr. Justice Eakin took no part in the consideration of this case.