
    LIMITATIONS ON MUNICIPAL BONDING POWER..
    [Circuit Court of Mercer County.]
    J. F. Smith, a Tax-payer, v. The Village of Rockford et al.
    
    Decided, December 21, 1906.
    
      Corporations, Municipal and Village — Authority of, to Issue Bonds — For Street and Sewer Improvements — Limitation of Indebtedness tohieh may be Incurred in One Fiscal Tear — Without Authorization by the Electorate — Sections 2835 and 28356 — Auditor's Certificate not Ground for Reliance on Validity of Proceeding.s — Bonds under an Excessive Authorization Valid to What Extent.
    
    1. Bonds for payment of a municipality’s portion of street and sewer improvements are governed entirely as to the amount of issue by the provisions of Section 2835, Revised Statutes, et seq., and amendments thereto, and are subject to the limitations therein prescribed, and especially to the limitation for any one calendar year of one per cent, of the valuation of taxable property within the corporation and on the tax duplicate; and this limitation refers to the amount of bonds issued, and not to the amount becoming payable within any one calendar year.
    2. Bonds not authorized nor issued until after the date on which the amendments to Sections 2835, 28356, 2836 and 2837 went into effect, April 4, 1906, do not come within the curative provisions of Section 2837 as then amended, notwithstanding the ordinance providing for such issue of bonds directed that they be dated back to April 1st of that year, and further declared that the indebtedness so provided for was an existing, valid and binding obligation of the village.
    3. Persons contracting with a municipality for the construction of street or sewer improvements are bound to use reasonable diligence and business caution to ascertain the validity of the proceedings and authority of council to enter into such contracts; and where a gross disproportion is apparent between the amount authorized to be so expended and the amount legally applicable thereto in view of the taxable valuation of the property included within such municipality, such contracting parties can not rely merely on the clerk’s certificate that the requisite funds are in the treasury and unappropriated for any other purpose.
    4. Where the total amount of bonds authorized by council exceeds the one per cent, limitation, but the contracts entered into and partly executed on the faith of such issue will not require an amount in excess of that limitation, the issue, to the extent of the amount required to meet such contracts so in part executed, will be upheld as binding on the municipality.
    Hurin, J.; Norris, J., and Donnelly, J., concur.
    On appeal from Common Pleas Court of Mercer County.
    The plaintiff, a citizen and tax-payer of the village of Rockford, brings this action on behalf of the corporation of Rockford and prays for an injunction, restraining said village, its council and officers from executing and delivering certain bonds of said village for street and sewer improvements and from borrowing money and pledging the credit of the village for the payment thereof. He asks also that defendants be enjoined from tearing up the streets of said village in furtherance of said improvements.
    The case was- heard in the common pleas court and a permanent injunction granted as prayed for. The defendants thereupon appealed the ease to this court.
    We have heard the evidence and it thereby appears that on March 16, 1906, the village council passed certain ordinances for the improvement of Main and Market streets in said village by grading, draining, curbing and paving the same. These ordinances provided in the usual way for the assessment of the cost, less one fiftieth (1-50) part thereof and the cost of intersections upon the abutting property, and on or aboiit May 8, 1906, other ordinances were passed providing for issuing the bonds of the village in anticipation of the collection of these assessments and for the payment of the village’s share of the cost.
    The bonds so authorized for the Main street improvement amounted to eight thousand ($8,000) dollars. For the Market street improvement the bonds amounted to five thousand ($5,000) dollars. For the Main street sewer they amounted to two thousand ($2,000) dollars, and for the Market street sewer they amounted to two thousand ($2,000) dollars, making a total indebtedness thus created of seventeen thousand ($17,000) dollars.
    These ordinances passed May 8, 1906, declared that these various amounts of money were existing, valid and binding obligations of said village and provided that the bonds thus issued should bear date of April 1, 1906.
    
      The question of issuing said bonds was never submitted to the vote of the qualified electors of said village. It appears further that on June 5, 1906, other bonds of the village amounting to two thousand ($2,000) dollars were issued and sold for the purpose of improving the water works plant of the village, and these bonds are now outstanding obligations of the village; and that the income from the water works plant is not sufficient to cover the costs of all operating expenses, interest charges, and to place a sufficient amount to the credit of the sinking fund to retire said bonds as they become due; that on June 12, 1906, the contract for the water works improvement was let to Earl Lewis for three thousand and ninety-four ($3,094) dollars, being one thousand and ninety-four ($1,094) dollars in excess of the amount of bonds sold for that purpose (it appears, however that this excess was paid out of the revenue for 1905); that the total value of all property listed and assessed for taxation in the village of Rockford, Ohio, is three hundred and eighty-one thousand ($381,000) dollars, of which one per cent, amounts to three thousand eight hundred and ten dollars ($3,810); that the bonds for said improvement have been sold to the firm of Briggs & Company, but have not yet been executed or delivered.
    That the village’s portion of the cost of said improvements is as follows:
    For the Main street paving ...................... $8,605.87
    For the Market street paving ................... 4,471.66
    For the Sewer No. 1 ............................ 557.53
    For the Sewer No. 2 ............................ 768.65
    $14,403.72
    Making a total village indebtedness in excess of the amount to be raised by special assessment of fourteen thousand four hundred and three dollars and seventy-two cents ($14,403.72).
    That there is no money in the treasury of said village with which to pay the indebtedness thus sought to be created, except certain funds which appear to have been borrowed on the credit of the village in anticipation of the bonds for said improvements which have been enjoined in this case,- but that the clerk of the village certified in due form that the money required for said improvements was in the treasury of said village to the credit of the fund from which it was to be drawn and not appropriated for any other use. ,
    That at a public letting of the contracts for said improvements the defendant firm of IToagland & Gibney obtained the contracts for the paving of the two streets, and that the defendant firm of Campbell & Ausman obtained the contracts for the sewers on these streets, and that the latter firm have entered upon 'the execution of its contract and has completed a portion of said sewers and torn up the streets of said village for a considerable distance.
    It further appears that the contracting firms entered upon their respective contracts and attempted to execute them in reliance upon the regularity and validity of the proceedings of the village council and upon the certificate of the village clerk that the’ money was in the treasury applicable to these purposes and unappropriated for any other purpose, and by reason of these facts the firm of Campbell & Ausman pleads an estoppel and claims the right to proceed with the construction of the sewers in accordance with its contracts.
    The power of a'municipal corporation to make improvements of the kind here to be considered is purely statutory, and the Legislature at its last session materially changed the statutes, Sections 2835 to 2837, inclusive, which control in this case.
    Section 2835 as now. amended provides that the council of any municipal corporation of the state of Ohio shall have power to issue and sell bonds for certain specified purposes, among which are enumerated the construction of sewers and the improving of streets, and it further provides that “the bonds herein authorized may be issued for any and all purposes enumerated herein, but the total bonded indebtedness hereafter created in any one fiscal year under the authority of this act by any township or municipal corporation shall nol exceed one per cent, of the total value of all properly in such township or municipal corporation, as listed and assessed for taxation except as otherwise provided in 'this act.”
    Then follows a provision for assessment of more than one per cent, of such total value of property after a submission of the question to a vote of the qualified electors of such township or municipal corporation.
    
      There is a further provision that the net indebtedness incurred by any township or municipal corporation after April 29, 1902, shall never exceed four (4) per cent, of the total value of all property in such township or municipal corporation unless such excess is authorized by vote of the qualified electors of the township or corporation. And it is provided by Section 2835Z), that the limitations of one per cent, and four per cent, provided in Section 2835 shall not be construed as affecting bonds issued under authority of said Section 2835 upon the approval of the electors of the corporation, nor shall bonds which are to be paid for by assessments specially levied upon abutting property, nor bonds issued for the purpose of constructing, improving and extending water works when the income from such water works is sufficient to cover the cost of all operating expenses, interest charges, and to pass a sufficient amount to a sinking fund to retire such bonds when they become due; nor shall any bonds issued prior to the passage of Section 2835, Revised Statutes, as amended April 29, 1902, be deemed as subject to the provisions and limitations of said section or be considered in arriving at the limitations therein provided.
    There is a further provision contained in that act (98 O. L., 66), and that is that—
    “No township or municipal corporation shall hereafter create or incur a net indebtedness under the authority of this act in excess of eight per cent, of the total value of all property in such township or municipal corporation as listed and assessed for taxation. ’ ’
    And finally there is added to this section a curative provision ■that—
    “All bonds heretofore issued in good faith under the authority of Section 2835, Revised Statutes, as amended April 29, 1902, and April 23, 1904, which at the time of issue were within the limitation provided, shall be valid obligations of the township, city, village or other-municipal corporations which issued them, and in arriving at the limitations of eight per cent, herein provided, and of 4 per cent, in Section 2835, Revised Statutes, provided, all such bonds, except those excluded by the provisions of Section 2835b, Revised Statutes, shall be considered.”
    This act was passed March 22, 1906, but was not signed by the governor or by him returned to the house where it originated within ten days, but was filed with the secretary of state April 4, 1906, and took effect on that date.
    It will be observed that the date of the ordinances involved in this case are of importance in determining the laws applicable.
    The original ordinances passed March 16, 1906, provided for the improvements and approved the plans, profiles and specifications, determined how the assessments should be made and how paid and that bonds should be issued for the payment of the cost of the improvements, but did not authorize the issuing of the bonds. This was done by separate ordinances passed May 8, 1906, which declared that the indebtedness so provided for was an existing, valid and binding obligation of the village, and provided further, that these bonds should be dated April 1, 1906.
    The statutes which we have recited went into effect April 4, 1906, and were -therefore in full force at the times these bonds were authorized, and as the bonds had not been issued or authorized at the time these statutes went into effect they are not within the curative provisions of Section 2837 as thus amended, notwithstanding the fact that the ordinances provided for dating them back to April 1, 1906, and declared that the indebtedness so provided for was an existing valid and binding obligation of the village. As no contract had at that time been entered into and no bids had been authorized or received, we are unable to see how a binding indebtedness could be held to exist.
    It also appears that they have never been authorized by a vote of the qualified electors of the village, and are not therefore within the exception- made by the statute in favor of such bonds as are thus voted for; nor are the bonds under discussion in this case, at least such of the bonds as are authorized to be issued to pay the village’s portion of the indebtedness to be incurred, within the other exceptions to the statute provided for in Section 2835b, for they are not to be issued for the purpose of constructing, improving or extending the water works -of the village, nor were they issued prior to the amendment of April 29th, 1902. Such of the bonds, however, as were to be paid for by assessments specially levied upon abutting property would of course come within the protecting limits of this section provided they were not in excess of the eight per cent, limitation of Section 2837. It is evident then that these bonds for the costs assessed against the village must be governed entirely by the provisions of Section 2835 and subject to its limitations, and especially to the limitation of one per cent, of the total value of all property in such municipal corporation.
    If it be urged that as all of the bonds are not payable in one year, the net indebtedness for that year may not exceed one per cent, of the total property valuation, it is a conclusive answer that the statute expressly provides that the total bonded indebtedness hereafter created in any one fiscal year shall not exceed the one per cent, limit.
    The indebtedness to be evidenced by these bonds was all created at one time, and that time we must conclude was not when the ordinance was passed declaring that there should be improvements made, but when the bonds were authorized and the contract, signed, and hence that this indebtedness was all created within the fiscal year 1906, and that all this occurred after the passage of the new statute, Section 2835, and after it was in force. The total valuation of the property of the village was found to be three hundred and eighty-one thousand dollars ($381,000). One per cent, of that amount is $3,810. Four per cent, of that amount is $15,240.
    The bonds authorized to pay the proportion of the cost of said improvements assessed against the village amounted to seventeen thousand ($17,000) dollars, an amount greatly in excess of both the ione per cent, limitation and the four per cent, limitation, and it therefore follows that their issue was totally unauthorized.
    If it be urged that the village clerk had, by his certificate, declaring that the money for the payment of the contracts was in the treasury and unappropriated for any other purpose, caused the contractors to rely on this as a fact, we must say in reply, that that alone was not sufficient to justify such a reliance.
    The contractors were bound to examine into the facts and especially where there is so great a disproportion between the amount of the contract price and the amount legally applicable thereto under the property valuation of a village of the size of Rockford, the contractors were bound to use due business caution and such reasonable diligence as would have disclosed to them the facts of the case.
    But 'there is a difference in the position of the two contracting firms. Each one of the contracts taken for the paving improvement exceeded the one per cent, limit, and was therefore illegal.
    But the total cost of the two sewer improvements did not together equal the one per cent, limit.
    The sewer No. 1, contract called for................ $557.53
    The sewer No. 2, contract called for................ 768.65
    Total......................................$1,326.18
    An amount considerably less than one per cent, of the total valuation.
    While the total amount of four thousand ($4,000) dollars authorized to be issued for sewer construction would have exceeded the one per cent, limit, yet as this was not all needed for the construction of the sewers as shown by the contracts, these contracts being kept within the one per cent, limitation were valid, and to the extent of the amount thus called for the bond issue is valid.
    The finding of the court will therefore be in favor of the plaintiff as to all except the amount of bonds necessary to be issued in payment of the two sewer contracts, and in favor of the defendants Campbell & Ausman as to the bonds for such amounts.
    A perpetual injunction will be allowed restraining the defendants from executing and issuing' all bonds for the paving improvements and from tearing up the streets and alleys of Rockford for such paving improvement.
    The injunction heretofore granted as to the bonds to be issued for the sewer improvements will be dissolved.
    Judgment against the defendants, the council and officers of the village of Rockford for costs. Execution awarded and cause remanded for execution.
    
      Layton & Son and John W. Loree, for plaintiff.
    
      JS. E. Jaclcson, J. T). Johnson, C. S. Maulc and Conn & Balyeat, for defendants.
    
      
       Affirming Smith v. Rockford, 4 N. P.—N. S., 476, and Smith v. Rockford, 4 N. P.—N. S., 513.
    
     