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running for a period of years, and extending beyond the official term of the officers who authorized it, if, at the time of its execution, it was fair, just, and reasonable, and prompted by the necessities of the situation, or was in its nature advantageous to the municipality. Therefore a contract providing for the disposition of the sewage of a municipality for a period of five years is enforceable.
E. D. Edwards and W. C. Graves, for the appellant.
161 HENSHAW, J. The city of Fresno duly and regularly, 80 far as form and procedure are concerned, entered into a contract with plaintiff, by which plaintiff agreed to take care and dispose of the sewage of the city for the period of five years for the sum of four thousand nine hundred dollars per annum, payable quarterly. Plaintiff was required to give, and did give, a bond in the sum of ten thousand dollars, to which extent he agreed to reimburse the corporation for any liability or loss it 102 might incur or suffer by reason of a faulty performance of his contract. No natural means were available to Fresno for the disposition of its sewage. It had provided sewers, but had made no provision for the care of their contents. These were to be discharged beyond the city limits. But, before the sewers could be used, a sewer farm was necessary for the reception and treatment of the waste matter. The city had secured no such farm. Under these circumstances, the contract with McBean was entered into. He made the necessary expenditures, and year by year performed his contract according to its letter and spirit. Each year in turn the city levied, collected, and apportioned to the sewer fund a tax to cover the yearly amount due McBean, and duly audited and paid his demands on the fund. This continued for three years. During the fiscal year ending May 31, 1894, plaintiff performed his contract, but the city refused payment, upon the ground that the contract was void. McBean then instituted this action, charging in the first count for the value of labor and services furnished at defendant's request, and in the second, pleading at length and standing upon the contract in question. He also averred that there was in the sewer fund not otherwise appropriated and available for the payment of his demand, more than three thousand dollars, and such is the undisputed fact.
Indeed, none of these facts is disputed. Upon the trial, most of them were admitted under stipulation, and others proved without conflict. The court sustained a general demurrer to the second cause of action. At the close of plaintiff's case, a motion for a nonsuit upon the cause of action in assumpsit was made and granted. These two rulings are the errors complained of.
Against the validity of the contract the first objection urged is, that the city had no power to enter into this contract for the care and disposition of its sewage, because "it has no reference whatever to the sewage within the city, but provides for the care and disposal of the sewage from the outfall of the sewers some distance from 163 the city.” We see no force in this objection. Proper sewers are in this day 80 essential to the hygiene and sanitation of a municipality, that a court would not look to see whether a power to construct and maintain them had been granted by the charter, but rather only to see whether by possibility the power had been expressly denied. In the case of the city of Fresno, a city of the fifth class, the power is, however, expressly conferred. “The board of trustees shall have power to establish, construct, and maintain drains and sewers”: Municipal Corporation Bill, sec. 764, subd. 5. Disposition of the outfall is an essential part of the maintenance of a sewer system, and it must often be necessary for inland cities to arrange for that disposition without their corporate limits: Coldwater v. Tucker, 36 Mich. 474; 24 Am. Rep. 601.
But the controlling questions presented by this contract for determination are: 1. Does it violate the constitution or the charter of the city of Fresno? 2. Does it operate as a surrender or suspension of the legislative powers of the trustees of the city?
The constitution provides, article 11, section 18: "No .. city .... shall incur indebtedness or liability in any manner or for any purpose exceeding in any year the income and revenue provided for it for such year, without,” etc. “Any indebtedness or liability incurred contrary to this provision shall be void.”
The charter of the city of Fresno provides, in terms harmonious with those of the constitution: "The trustees shall not cre. ate, audit, allow, or permit to accrue, any debt or liability in excess of the available money in the treasury that may be legally apportioned and appropriated for such purposes,” etc.: Stats. 1883, p. 255.
The charter of the city of Fresno authorizes the levying and collecting of a tax not exceeding ten cents on each one hundred dollars for the sewer fund: Municipal Corporation Bill, sec. 763, subd. 3. No question is here presented but that the tax which may thus be 104 collected is ample for the payment of the sums due or to become due to plaintiff under his contract, and the
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question of the validity of the contract is free from any embarrassment from this consideration.
In the constitutional provision under consideration, the framers had in mind the great and ever growing evil to which the municipalities of the state were subjected by the creation of a debt in one year, which debt was not, and was not expected to be, paid out of the revenues of that year, but was carried on into succeeding years increasing like a rolling snowball as it went, until the burden of it became almost unbearable upon the taxpayers. It was to prevent this abuse that the constitutional provision was enacted. In San Francisco Gas Co. v. Brickwedel, 62 Cal. 641, and in Shaw v. Statler, 14 Cal. 258, the question is discussed, and the interpretation of the constitutional provision laid down, and the reasons for it given. Each year's income and revenue must pay each year's indebtedness and liability, and no indebtedness or liability incurred in one year shall be paid out of the income or revenue of any future year. The taxpayers of municipalities are thus protected against the improvident creation of inordinate debts, which may be charged against them and their property in ever increasing volume from year to year.
Upon the other hand, the correlative rights of a creditor of the city under these circumstances, and under this law, have been recently set forth with exactness and clearness by Mr. Justice Harrison in Weaver v. San Francisco, 111 Cal. 319: "Whoever deals with a municipality does so with notice of the limitation of its powers, and with notice also that he can receive compensation for his labor and materials only from the revenues and income previously provided for the fiscal year during which his labor and materials are furnished; and with the knowledge, too, that all other persons dealing with the municipality have the same rights to compensation, and are subject to the same limitations, as he is. Even though at the time of making his contract there are
165 funds in the treasury sufficient to meet the amount of his claim, he is charged with notice that these funds are liable to be paid out for municipal expenditures before his contract can mature into a claim against the city, and if others whose claims have accrued subsequent to his are able to intercept these funds, he is in the same condition as any creditor who has dealt with one whose assets are exhausted before he presents his claim. He acquires no claim in the nature of a lien upon these funds for the amount of his demand, nor is there any legal obligation upon the municipality any more than upon any other
debtor, to pay the claims against it in the order in which they are incurred, unless they are presented in that order, and in such condition and with such formalities as entitle the claimant to immediate payment. In dealing with the municipality, he must rely upon the integrity of its officers that they will not incur any liabilities during the year in excess of the income and revenues provided for that year, and, as a prudent man, he will ascertain, not only the amount of that income, but also the amount of the claims already existing, and of those that are likely to be incurred.”
In the case of contracts extending over a period longer than one year, it may be readily seen that the municipality is abundantly protected, and that it is the contractor therewith who subjects himself to peril and risk of loss. If there are not revenues for any given year sufficient and available for the payment of his claims for that year, those claims become waste paper, and are not carried over as a charge against the income and revenue of a succeeding year.
This construction of the law in our state removes a potent objection found by the supreme court of Michigan to sustaining a contract under a law similar to our own, where the life of the contract was for several years. Says the court: “There can be no doubt, in our opinion, that this whole contract obligation is a liability to the full extent of the thirty years' rental, and it is equally clear that all unpaid sums will be aggregated until 166 paid": Niles Water Works v. Mayor etc. of Niles, 59 Mich. 312. In this state, such a rule would not obtain, and the contract under consideration is left with its validity to be determined primarily as the question is answered, Does it or does it not create a debt or liability for a given year exceeding the revenues of that year?
And upon this it may be said at the outset that there is a contrariety of opinion in the courts of the states which have been called upon to interpret constitutional or charter provisions similar to or identical with our own. The state of Michigan, as will be observed from the case last cited, holds such contracts to be void, for the reason above quoted. Ohio, New Jerbey, Montana, and Oregon have reached the same conclusion, and perhaps other states: State v. Medbery, 7 Ohio St. 526; Davenport v. Kleinschmidt, 6 Mont. 502; Salem Water Co. v. Salem, 5 Or. 29; Atlantic City Water Works Co. v. Read, 50 N. J. L. 665. Upon the other hand, in Illinois, Pennsylvania, Massachusetts, New York, Iowa, Indiana, and Oklahoma (and it may be in
others which have not come beneath our notice), it is uniformly held that contracts such as these are not violative of the constitutional inhibition: East St. Louis v. East St. Louis Gas Light etc. Co., 98 Ill. 415; 38 Am. Rep. 97; Appeal of Erie, 91 Pa. St. 398; Smith v. Inhabitants of Dedham, 144 Mass. 177; Weston v. Syracuse, 17 N. Y. 110; Grant v. Davenport, 36 Iowa, 396; Valparaiso v. Gardiner, 97 Ind. 1; 49 Am. Rep. 416; Indianapolis v. Indianapolis Gas Light etc. Co., 66 Ind. 396; Territory v. Oklahoma, 2 Oklahoma, 158.
In a certain very restricted sense it may be said that a liability is created by a contract such as this, but to call it a present liability for the aggregate amount of the payments in the contract contemplated thereafter to be made is not legally permissible. A liability to the city would arise upon breach of contract, but the constitution never meant to protect the city from the consequences of its own willful and tortious acts. A liability might arise against the city for the negligence of its 167 officers, and the damages due to an individual who had suffered therefrom might be great, but such liability for a municipal wrong the constitution never meant to protect against. When it is come to consider the contractual relations between the city and appellant, it is at once seen that the city cannot be liable in any one year for more than four thousand nine hundred dollars, an amount far within the revenue derived to the sewer fund; and, futher, that it cannot become liable for this amount at all until faithful service rendered by the contractor each year. If the city in any one year should fail to collect into its sewer fund moneys sufficient to pay the just claims of the contractor, then, as above said, it would be the contractor's loss, the city would be chargeable with no financial responsibility therefor, and the result at the most, so far as it was concerned, would be a failure upon the part of its officers to observe good faith in their dealings.
There need be here no struggles with the niceties of definitions to be given to debt or liability. An able discussion of those questions will be found in the case of Valparaiso v. Gardiner, 97 Ind. 1; 49 Am. Rep. 416. We base our views upon the conviction that, at the time of entering into the contract, no debt or liability is created for the aggregate amount of the installments to be paid under the contract, but that the sole debt or liability created is that which arises from year to year in separate amounts as the work is performed.
These views find abundant support in the adjudicated cases in this state. Article 8 of the former constitution of California