Opinion
No. 5457.
November 5, 1928.
Appeal from the District Court of the United States for the Northern Division of the Western District of Washington; Frank S. Dietrich, Judge.
Suit by the Puget Sound Power Light Company against the City of Seattle and others. From an adverse decree, plaintiff appeals. Affirmed.
This suit is one of the many phases of litigation arising out of the construction of the ordinances and contracts pertaining to the purchase and sale of the municipal street railway in Seattle. Reference to the transaction and to many of the controversies in the federal and state courts will be found in City of Seattle v. Puget Sound Power Light Co. (C.C.A.) 15 F.2d 794.
In this latest litigation, instituted in January, 1927, the power company sued to enjoin the city and its officials from diverting to the payment of subordinate claims fixed amounts from the gross revenues of the municipal street railway system which the city of Seattle, by Ordinance No. 39025, and, by the bonds delivered to plaintiff pursuant to such ordinance, obligated itself to pay into a special fund and apply to the payment of the bonds. Plaintiff also prays that the city be required specifically to perform its contract with the plaintiff corporation under the terms of the ordinance and the bonds, and that the bonds held by plaintiff be adjudged secured by the gross revenues received and to be received by the city from the operation of the street railway system, and that such charge be held superior to all charges for operation and maintenance. Relief is asked against Von Herberg, enjoining him from suing or making plaintiff a party to a suit affecting plaintiff's bonds, and from asserting a claim upon the revenues.
Motion of the city to dismiss the complaint upon the ground that the questions were moot was granted. Plaintiff then, on May 2, 1927, filed an amended bill, to which defendants interposed separate motions to dismiss for want of equity. The city has moved to dismiss on the further ground that the question presented is moot, and to support the latter motion has filed an affidavit by the city treasurer, setting forth that more than one calendar month prior to March 1, 1927, there had been paid by the treasurer of Seattle into the municipal street railway bond fund of 1919, created by Ordinance 39025, funds sufficient to meet the installments of principal and interest due March 1, 1927, on the bonds held by the appellant corporation, and that the installments of principal and interest were fully paid on March 1, 1927, and that all installments of principal and interest due on the bonds subsequent to March 1, 1927, have been promptly paid on their respective due dates, and the funds for such payments have been paid into the street railway fund from the gross revenues of the street railway system one calendar month prior to the respective due dates, and that the city at all times has in all respects complied with all the obligations imposed upon it by the terms of the ordinance and the bonds issued pursuant thereto, and by the contract entered into pursuant to the ordinance.
Decree was rendered dismissing the suit, and plaintiff appeals.
The substance of the allegations of the complaint is as follows: Ordinance No. 39025 authorized the issuance and delivery of street railway bonds of the par value of $15,000,000, for the purpose of acquiring the street railway system of the plaintiff. On March 31, 1919, the company transferred the system to the city, and the city delivered the bonds in the form prescribed by the ordinance to the company. The bonds and ordinance provide that the bonds are payable only out of the special fund, and that the city obligates itself to pay into such special fund out of the gross revenues of such municipal street railway system certain fixed amounts equal to the semiannual installment of interest and the annual installments of principal of the bonds until March 1, 1939, at which time all of such bonds, with interest, shall be fully paid, and such fixed amounts out of gross revenues are pledged to such semiannual payments of interest and annual payments of principal, and such annual payments shall constitute a charge upon such gross revenues superior to all charges whatever, including charges for maintenance and operation. The ordinance and bonds contain a further provision that the city and corporate authorities irrevocably obligate the city to pay into the special fund created by the ordinance, and out of the gross revenues of such municipal street railway system, the fixed semiannual and annual amounts, even though the balance of such gross receipts thereafter remaining may be insufficient to pay the cost of maintaining and operating the system, etc. It is alleged that there will become due and payable into the special fund on February 1, 1927, out of the gross revenues so received by the city, over $1,100,000 to meet interest and installment of principal of such bonds, payable March 1, 1927, and that such sum will be payable on March 1, 1927, upon such bonds, otherwise they will become defaulted bonds, to the damage of plaintiff; that the city, instead of keeping intact sufficient gross revenues from the street railway system to meet its obligation on February 1 and March 1, 1927, has diverted the amount of such gross revenues which should have been kept intact for such purpose, so that, unless "daily revenues" from the street railway system are "daily deposited by the city" into said special fund, there will be, on February 1, 1927, a deficit in such fund for payment of plaintiff's interest and installment of principal due March 1, 1927, and there will be a default, and that it is necessary, from the time of the filing of the bill until March 1, 1927, that all of such "daily receipts" be "daily deposited to meet the principal and interest payable March 1, 1927"; that "there is danger" that the city will hereafter make similar diversions of such gross revenues to such an extent that gross revenues pledged to the special fund will not be available as installments fall due on the bonds, and that it is necessary to protect plaintiff and its bonds from such default that the city be required, as it collects such gross revenues, "to daily retain and set aside therefrom" such amounts as to make the aggregate amount thereof equal such installments of interest and principal when the same shall be payable into the special fund for their payment; that, unless the city shall be so required, there will be recurring danger of defaults in the payments of each semiannual installment of interest and each annual installment of principal up to and including March 1, 1939, and plaintiff will be obliged to institute a multiplicity of suits to prevent each such default; that the construction put upon the contract by the city is to the effect that there is not imposed upon the city the obligation to retain out of gross revenues of the street railway system, as such revenues are received, sufficient sums to enable it to pay the same into the special fund created by Ordinance No. 39025, and thereafter to apply the same to the payment of the plaintiff's bonds as therein provided, but only as imposing the obligation to pay into the special fund from some source amounts equal to the amounts of gross revenues pledged to the special fund, if gross revenues sufficient therefor shall be received by the city. Then follow further averments of the construction which plaintiff alleges the city has put upon the ordinances, the contract and the bonds, and of threatened diversions.
Stated in the briefest way, the argument of the company is that fixed amounts of gross revenue are pledged to the payment of the bonds of the plaintiff and constitute a trust fund of which the city is trustee, and for which it is liable for diversions said to have been already made, and that the city is subject to be enjoined to prevent diversions which there is danger it will make in the future.
James B. Howe, Edgar L. Crider, and Emory E. Hess, all of Seattle, Wash., for appellant.
Thomas J.L. Kennedy, Corp. Counsel, and Arthur Schramm, Jr., Asst. Corp. Counsel, both of Seattle, Wash., for appellees City of Seattle et al.
R.P. Oldham, Jay C. Allen, and D.G. Eggerman, all of Seattle, Wash., for appellee Von Herberg.
Before RUDKIN and HUNT, Circuit Judges, and NORCROSS, District Judge.
In our opinion, plaintiff has failed to show itself entitled to relief. By section 5 of the ordinance, authorizing the bonds and the acquisition of the street railway system, the city obligated itself to pay into the special fund out of the gross revenue of the railway system, one calendar month prior to the due date of any installment of principal or interest, sufficient sums to meet such installments, and to pay such installments when due. City of Seattle v. Puget Sound Power Light Co. (C.C.A.) 284 F. 659. Section 4 of Ordinance 39069, authorizing the execution of the purchase contract, provided that forthwith, upon delivery of the deed and bill of sale to the city by the company, the city could enter into possession of the property and operate the same, and could receive all of the revenue "arising therefrom with no obligation whatever to account to the company for the same or any part thereof, save and except to provide therefrom for the payment of the interest and principal of the utility bonds authorized by Ordinance 39025, as therein provided, subject to the terms and conditions of this agreement." Inasmuch as it appears that the city has paid into the special fund one calendar month prior to due dates sufficient sums to meet the maturing payments, the question narrows to determining whether the bonds operate to create a lien in gross upon all of the revenues of the railway system, and whether all of such revenues must be set aside as received and held inviolate until all of the bonds held by plaintiff are paid. There is no allegation that there is a failure with respect to the payment due March 1, 1927, or that moneys of the requisite amount from some source were not seasonably paid into the special fund, but it does appear that all obligations maturing on that date were promptly paid. In the absence of a clear showing of fact, it is not for the court to draw an inference that the payment made on March 1, 1927, came from any source other than the street railway revenues.
Nor do the allegations stated impress us as a justification for the opinion of the plaintiff that the city construes the contract in a way other than as its terms require. The presumption that the city will be governed by the true chart of its duty far outweighs the conjecture that it will do otherwise; hence we see no present necessity for judicial interference. The agreed-upon method of protection of the priority of right of plaintiff's bonds is provided for by the requirement that a sufficient amount shall be placed in a particular fund and there conserved for the payment of the bond moneys one calendar month prior to the due date of the obligation next to mature. Not a word is to be found in the ordinance or contracts which obligates the city to set aside daily a portion of the revenues from the operation of the system, and, as was held by the District Court, the express provision made for a specific fund must be regarded as exclusive. The principle to be invoked was well stated by Chief Justice White in Sun Printing Publishing Co. v. Moore, 183 U.S. 642, 22 S. Ct. 240, 46 L. Ed. 366, wherein he said: "A court of law possesses no dispensing powers; it cannot inquire whether the parties have acted wisely or rashly, in respect to any stipulation they may have thought proper to introduce into their agreements. If they are competent to contract within the prudential rules [that] the law has fixed as to parties, and there has been no fraud, circumvention or illegality in the case, the court is bound to enforce the agreement."
As against Von Herberg, the plaintiff's complaint is that he has brought a suit in the state court seeking to declare warrants held by him to be a charge upon the gross revenues of the railway system superior to the charges from such gross revenues secured to the power company, and that he has asserted in "the press of the city" that warrants issued by the city for expenses of operation and maintenance of the railway system were superior charges upon the gross revenue, and that he would continue so to assert.
In accordance with the view expressed by the court at the time of the argument of the present case, our opinion is that, inasmuch as it appears that Von Herberg has brought suit in the state court in his capacity as a private citizen, and is not in collusion with any of the officials of the city, plaintiff in this proceeding is entitled to no relief as against him.
The decree is affirmed.