City of Eastman v. Georgia Power Co.

1. Under the allegations of the petition the City of Eastman had authority to contract with the Georgia Power Company to furnish electrical power for street lighting on a yearly basis. Where the parties to such a contract attempted to extend it over a period of years for such purposes, and neither party repudiated the contract, but the power company furnished the electricity for street lighting, and the municipality accepted and used the services, the municipality is liable for the value (the contract price) for each year the current was received and used. The execution and delivery of a warrant covering the value of the amount so used over a period of years was not the creation of a debt prohibited by art. 7, sec. 7, per. 1, of the constitution of Georgia (Code, § 2-5501).

2. Where it appears that the municipality was authorized to contract with plaintiff to furnish water services for the benefit of the municipality, but no express contract was entered into between the parties, although the municipality over a period of years received such services for which it was authorized to contract, the municipality is liable for the reasonable value of such services so received for a period of years next preceding the filing of the suit, not barred by the statute of limitations. In such event, under what is generally known as "the common-honesty rule" the law implies a promise to pay for the reasonable value of the services received.

DECIDED FEBRUARY 8, 1943. REHEARING DENIED MARCH 26, 1943. The Georgia Power Company brought suit against the City of Eastman. The petition contained three counts. The allegations of count 1 are substantially as follows: The defendant is a municipal corporation with charter powers to operate a waterworks system for the benefit of its residents, with the management and control of the water system vested in a city manager. Under this charter power the city has authority to furnish all local municipal services of whatever kind, and to do all things necessary or needful for maintaining and promoting the peace, safety, good government, and general welfare of the defendant. The plaintiff for many years has owned and operated in the City of Eastman a local electric distribution system for the distribution and sale of electric power to its customers. Before November 27, 1934, the plaintiff and the defendant contracted, whereby the plaintiff agreed, for a specific amount on a yearly basis, to furnish electric services for overhead street lighting and white-way lighting in the city. The plaintiff, in pursuance of the contract, furnished the services not only for the overhead street and white-way lighting, but also certain electric service for a water-pump at defendant's waterworks plant. The defendant became in arrears in payment for this service. On November 27, 1934, the defendant executed to the plaintiff its interest-bearing warrant for the principal sum of $7284.65, covering the amount in arrears on account of electric power furnished for street lighting and water pumping. The warrant was executed by the proper officials, and bore interest from date at six per cent. per annum. Subsequently to the date of issuing said warrant the city paid divers sums to be applied on the same as directed by the city. On January 17, 1940, defendant paid to plaintiff $1157.19, the amount in arrears on account of electric services for water pumping. On November 25, 1940, the properly constituted authority of defendant adopted a resolution "recognizing the legality and validity of plaintiff's claim, and waiving any defense to said claim on the ground it was barred by the statute of limitations until the first day of January, 1941." After all payments were duly credited, defendant owed plaintiff to December 27, 1940, the principal sum of $3998.23 and interest of $744.07, aggregating $4742.30, for the recovery of which the allegations of this count are based. By amendment the plaintiff attached as exhibits, in support of its allegations in this count, two contracts under which the alleged indebtedness arose, with additional allegations to the effect that it was not contemplated by either party to the contract that the execution thereof would create any debt against the city in violation of the constitutional provision against illegal creation of a debt; that the contracts were for one year only, called for a cash consideration, and were fully performed by plaintiff and defendant for a period of years before defendant became in arrears in the payment of its street-lighting account; all of which was shown by a statement of the street-lighting account attached to the amendment as an exhibit. It was further alleged, that the indebtedness sued on grew out of the breach of the contracts, and not their execution; and that a sufficient sum to pay the amount for street lighting due monthly, in the performance of the contracts referred to, was raised by lawful taxation levied by the defendant in each and every year 1927 to 1934 inclusive.

Under the first contract, dated January 10, 1927, the plaintiff and the defendant agreed: "The company agrees to install and maintain within the corporate limits 89 lamps of the following character, make and design: 13-250 CP; 76-100 CP. Said lamps to be furnished, installed, and maintained at their present location on the streets of the municipality for the term of one year, it being understood that the term of this contract is to begin on the 1st day of January, 1927, and shall end in one year from said date, and the city agrees to pay to the company for said lamps and their use the sum of $27.60-250 CP net, and $24-100 CP net, per year for each lamp. Said lamps to be so furnished shall be kept burning all night and every night, from dusk to daylight, during the term of this contract; and if at any time any of said lamps herein provided for are not kept burning and in accordance with the terms of this contract, unless from providential causes, there shall be deducted from the price to be paid for said lamps a proportionate part of the rate per lamp, herein agreed to, for and during the time such lamps are out of service. The company agrees to install and maintain additional lamps, where and whenever desired by the municipality, at and for the rate per lamp herein provided for; provided the cost of installation including the circuit required therefor is not in excess of $50 per lamp. The company further agrees to make any change in the location of any lamp or lamps upon the request of the municipality; provided all the necessary expense incurred in connection with such change or changes shall be borne by the municipality. All bills covering the use of said lamps herein provided for shall become due and payable on the 10th day of each month during the term of this contract or any renewal or extension thereof, as herein provided for. The municipality shall have the right and privilege of continuing this contract from and after the termination of the first-year period, from year to year, subject however to the right of either party to terminate same by giving the other written notice twelve months in advance of the time fixed for the termination of this contract, based upon the dates set out in paragraph numbered one, or any twelve-month period thereafter."

The other contract referred to in the amendment and attached as an exhibit, which was executed on May 30, 1927, provided: "The company agrees to install and maintain within the corporate limits 29 lamps of the following character, make, and design: 29-600 CP. Said lamps to be furnished, installed, and maintained at their present location on the streets of the municipality for the term of one year; it being understood that the term of this contract is to begin on the completion of installation, and shall end in one year from said date; and the city agrees to pay to the company for said lamps and their use the sum of sixty dollars net per year for each lamp." All other paragraphs of the contract of May 30, 1927, are identical with those of the contract of January 10, 1927. Evidently one of the contracts covered overhead lighting, and the other white-way street lighting.

Counsel in their brief expressly abandon count 2.

Count 3, after alleging the corporate existence and powers and privileges of both plaintiff and defendant as related in the preliminaries of count 1 herein before mentioned, further alleges: "On the 8th day of June, 1928, defendant purchased from plaintiff certain water-pumping equipment as follows: One 10-inch Layne-Southeastern pump; two 5x4-inch `SJ' Allis-Chalmers pumps; all pumps to be complete with motors and controllers; two FK-20 oil-circuit breakers; three 3-KVA 2200/220/110 V transformers; wiring and installation . . ." The agreed price was $9041.50, payable over a period of years. The defendant executed to the plaintiff ten retention-title notes dated June 8, 1928, for the principal sum of $904.15, with interest from date at six per cent. per annum, the first note due on December 8, 1928, and the balance every six months thereafter, the last note due June 8, 1933. The notes were numbered 1 to 10 inclusive. The plaintiff paid notes numbered 1 to 5 inclusive, and paid $471.32 on note number 6, under date of January 1, 1940. On December 27, 1940, the defendant was due to the plaintiff the principal sum of $4049.43 besides $3403.65 interest, aggregating $7453.08, balance due on purchase-price of water-pumping outfit. On November 25, 1940, the duly constituted authorities of said city passed a resolution recognizing the correctness of the plaintiff's claim with respect to balance due on the purchase-price of said equipment, and waiving any defense to said claim on the ground that it was barred by the statute of limitations until January 1, 1941. Good faith and performance on plaintiff's part of the contract, and lack of disaffirmance and repudiation on the part of defendant, is alleged. The payment by defendant and credits received therefor on the purchase-price of the equipment is $6381.26.

Paragraphs 15, 16, 17, and 18 we quote verbatim: "The defendant has received and enjoyed substantial benefits from the use of plaintiff's equipment, in that, in the first place, this equipment replaced worn-out machinery then in use in defendant's waterworks plant; and in the second place, in that the economy of operation of said equipment in defendant's plant has been profiable and productive of substantial net earnings in the carrying on of the business of defendant in pumping, selling, and distributing water to the citizens and residents of the City of Eastman. The net earnings from operations were in fact more than sufficient to cover their reasonable annual rental value to defendant of said pumping equipment. In the event the court should determine that the contract of purchase of said water-pumping equipment is invalid for any reason, then plaintiff avers that in all equity and good conscience the common-honesty rule should be invoked and applied to the facts of this case as herein set out, and defendant should be required to pay to plaintiff such sum as will reasonably measure the benefits flowing to defendant from the use of plaintiff's equipment over a period of twelve and a half years. Plaintiff shows that the reasonable value of the use of plaintiff's equipment is $873.25, or other substantial sum, per annum, for a period of twelve and a half years. The amount heretofore paid by defendant to plaintiff on account of said water-pumping equipment is $6381.26, leaving the amount due by defendant to plaintiff for the use of said equipment $4097.75, and leaving plaintiff with an equity in said equipment of the value of $3508.16."

The prayer is that the plaintiff have judgment for such sum as may be determined reasonable and just for the use of the equipment from the date of installation to the date of the filing of this suit.

The defendant demurred to count 1, because the allegations do not set forth a cause of action; because it appears from the allegations that the indebtedness is legally void and unenforceable; because there was an effort on the part of plaintiff and defendant to create a debt in violation of art. 7, sec. 7, par. 1, of the constitution of Georgia; because there is no allegation that at the time the alleged warrant was issued or the power bills were incurred there was a sufficient sum in the treasury of the defendant which might be lawfully used to pay the same, or that a sufficient sum to discharge such warrant or power bills could be raised by taxation during the current year; because it is not alleged that at the time the warrant was issued special provisions were made in order that the same might be paid; because it is not alleged for what years or what amounts the alleged past-due bills are unpaid.

The attack on count 3 is as follows: That it sets forth no cause of action; because the allegations are in contravention of article 7, § 7, paragraph 1 of the constitution of Georgia; that, since the contract of sale is void and unenforceable, the law does not imply an undertaking to pay for the use thereof or the purchase-price therefor; because there is no agreement express or implied on the part of the defendant to pay plaintiff any rental on the equipment alleged to have been purchased; that any rental, if any is due for use of the equipment, is barred by the statute of limitations except for four years immediately before the filing of the petition; because plaintiff is seeking to collect rental on equipment sold to defendant and which therefore does not belong to plaintiff; because the allegations plainly show that the plaintiff has not been injured or damaged, for it is alleged that plaintiff still has an equity of $3508.16 in said equipment which is more than the rental of such equipment for four years (not barred by the statute of limitations) at $873.25 per year.

The court overruled the demurrer to count 1, and sustained the demurrer to count 3. The defendant assigned error on the overruling of its demurrer. The plaintiff in a cross-bill of exceptions, assigned error on the sustaining of the demurrer to count 3. 1. We have set out the pleadings somewhat fully, for the reason that we feel they settle the contentions without requiring extended comment. The gist of the argument in behalf of the city is that the debt declared on is in violation of art. 7, sec. 7, par. 1, of the constitution (Code, § 2-5501). It is well settled that a municipality, under the authority of its charter provisions similar to those here involved, has authority to contract for street lighting yearly. It is equally as well established that for such purpose the city is not authorized to contract beyond the current year. If a contract for street lighting is attempted in such way as to bind the municipality for a year or a number of years beyond the current year, the city is not bound beyond the year or years in which it used the current contracted for; but it is bound to pay for the electricity for each year in which the current was used to light the streets. Under such a contract the city may decline to use the service beyond the current year; but if it does not so decline, and uses the service beyond the current year, it can not refuse to pay therefor simply because provisions of the contract attempted to bind it beyond the current year. The contract in the instant case provides for payment per month on a yearly basis. Thus the breach of the contract by failing to pay yearly created the debt, and not the making of the contract. In Ford v. Cartersville,84 Ga. 213 (10 S.E. 732), it was ruled as follows: "Under its charter, the mayor and aldermen of Cartersville have a right to make an annual contract to supply the city with water and gas, provided they make provision for the payment of the same. If a contract for a longer space of time is illegal, yet where the water and gas companies have complied with their part of the same, by erecting their plants at great expense in order to furnish the city with gas and water, and the city has received the benefits thereof for a year, it should pay for the gas and water consumed and used during that time." In McMaster v.Waynesboro, 122 Ga. 231 (50 S.E. 122), it was stated: "If a city should make a ten-year lighting contract without a popular vote authorizing the same, there would be no creation of a debt. Such an agreement would only be operative so long as neither party renounced or repudiated it." The above principle is based on the ruling in City Council of Dawson v. Dawson WaterworksCo., 106 Ga. 696 (32 S.E. 907). See City of Conyers v.Kirk, 78 Ga. 480 (3 S.E. 442); Lott v. Waycross,84 Ga. 681 (11 S.E. 558); Cartersville Improvement c. Co. v.Cartersville, 89 Ga. 683 (16 S.E. 25); Mayor c. ofHogansville v. Planters Bank, 147 Ga. 346 (94 S.E. 310);City of Abbeville v. Eureka Fire Hose Mfg. Co., 177 Ga. 204 (170 S.E. 23). We might cite many other authorities to sustain this principle.

The city contends that since the warrant declared on for the yearly service for electricity used evidences an aggregate amount covering several years, it is in effect a contract of accord and satisfaction, and therefore the creation of a debt prohibited by the constitution. We do not think this position is tenable. Under the facts of this case the warrant is but a recognition of a debt already due by the failure of the city to pay yearly for the service of electricity used. It can not, as we see it, under the facts of this case be considered as the creation of a debt prohibited by our constitution. Counsel for the city cite the Code, §§ 20-1201, 20-1203, in support of this proposition. It may be true that the execution of the warrant was a new promise to pay, and there might have been some elements of accord and satisfaction involved in the issuing of the warrant; but the consideration was the same subject-matter — the furnishing of the service. It was merely a new promise to pay the same old debt, and not the creation of a debt prohibited by the constitutional provision referred to. The court did not err in overruling the demurrer to count 1.

2. Count 3 alleges an agreement between plaintiff and defendant, wherein plaintiff was to sell to defendant certain water-pumping equipment for $9041.50, to be paid for over a period of years, the plaintiff retaining title to the property, the defendant executing and delivering its notes therefor. It is recognized by both parties that such agreement is an attempt to create a debt, in violation of the provision of the constitution, supra. The plaintiff contends, although the contract for the purchase of the equipment was void under the constitutional provision, that nevertheless the city is legally bound to pay the reasonable value for the use of the equipment for the years during which it received the use of the same. This contention is based on the principle that there is an implied contract on the part of the city to pay the reasonable value of the service of the water-pumping equipment, since the city was authorized, under its charter powers, to contract with the plaintiff to furnish its reasonable needs of water, for the use of the city, at reasonable prices. Therefore, since the city received the service for which it had authority to contract, it is bound under an implied contract to pay therefor, even though there is no valid express contract. On the other hand it is contended that since the contract for the sale of the equipment is void, and there is no contract as to the value of its reasonable use, the plaintiff is not entitled to recover for the use of the equipment, under an implied contract. The learned trial judge adopted the view of the city, and on demurrer dismissed this count.

We have been unable to find any case of our appellate courts dealing directly with this question. In City of Jeffersonville v. Cotton States Belting Supply Co., 30 Ga. App. 470 (7) (118 S.E. 442), the court held: "Where one delivers the physical possession of property to a municipality in pursuance of an executory conditional contract of sale, his right of action to recover the property or to enforce the payment of the contract price by the city is necessarily dependent upon the agreement by which the title was reserved in him; and if the agreement, under the existing facts, is contrary to the provisions of the constitution as stated in paragraph 4 above, the consideration is illegal, and the contract will not be enforced. If such fact appears, the court will leave the parties exactly where it found them. McCrary v. City of Glennville, 149 Ga. 431 (3) (100 S.E. 362), and cases there cited." In Board of Lights Waterworks v. Niller, 155 Ga. 296 (6) (116 S.E. 835), the court said: "When property is received by a municipality or its commission under a contract which is void and unenforceable under the constitution, the law does not raise an implied undertaking to pay therefor." Compare Citizens Bank v. Ludowici, 24 Ga. App. 201 (100 S.E. 229); Town of Wadley v. Lancaster,124 Ga. 354 (52 S.E. 335). It will be noted that in each of the above cases the petition sought to enforce an illegal contract, by petition to collect the purchase-price of the subject-matter. Of course the cause of action alleged failed. Such is not the question presented here. The petition in the instant case admits that the contract of sale, so far as the subject-matter is concerned (the water-pumping equipment), is unenforceable; but it is contended in this count that the reasonable value of the use of the water-pumping equipment, for the time the city used it, is enforceable. Let us inquire as to this. We have many cases touching on the question. See Butts County v. Jackson BankingCo., 129 Ga. 801 (60 S.E. 149); Board of Education ofCandler County v. Southern Michigan National Bank, 184 Ga. 641 (192 S.E. 382), in addition to cases cited in the first division of this opinion. We find the question closely approached in Wallace Tiernan Co. v. Williams,192 Ga. 149 (14 S.E.2d 747). In that case the first count was based on a contract, where the city was sued for an alleged indebtedness due on a series of promissory notes executed for the purchase-price of a "chlorinator complete, with other goods, wares, and merchandise." The due date of some of the notes extended beyond the current year when the purchase was made. The second count sought to recover for the use of the articles purchased. As to the first count the court held that the contract was unenforceable, because it created a debt beyond the current year. As to the second count the court said: "The second count was based upon the theory that the city was liable to the plaintiff for the value of goods furnished by it to the city and used by the latter for a beneficial purpose. The notes referred to above were introduced in evidence for purpose of proving such value. Held, that the notes were no evidence of value of benefit received by the city; and no other evidence of such value having been introduced, the court did not err in granting a non suit." It will thus be seen that the court strongly indicated that if the evidence had shown the value of the benefit received by the city, it would have been responsible therefor; but since the notes were not evidence of such value, and there was no evidence of such value introduced, the court correctly granted a non suit.

Mayor c. of Hogansville v. Planters Bank, 27 Ga. App. 384 (108 S.E. 480), was a case where the city was sued for beneficial services of electric lights alleged to have been furnished by a corporation in which members of the mayor and council were stockholders and had a pecuniary interest. The charter of the city provided that any contract made with such a corporation, or any concern in which a member of the council was pecuniarily interested, was void. The lower court ruled, since the city had received the benefits of the lights so furnished, that it should pay the reasonable value of the benefits thus received. The Court of Appeals reversed the judgment, on the ground that since that city was prohibited by its charter from making a contract with the corporation to furnish street lighting, because of the pecuniary interest of certain city officials, no implied contract to pay for the use of the beneficial service received could arise. In passing on this question the court said: "The municipality, however, would be liable to the plaintiff for the reasonable value of the services rendered and applied by the municipality to its benefit in the exercise of a lawful corporate function. when accepted by it during the period when a contract with the municipality by the corporation furnishing the services could be legally entered into and not be invalid upon the ground that an officer in the municipality was pecuniarily interested therein, provided however, that such liability does not constitute such a debt against the municipality as is prohibited by the constitution." It will be noted that the court held that the city would have been liable if the contract "could be legally entered into." We do not think, under the facts of the instant case, that it could for a moment be successfully contended that the City of Eastman could not have entered into a valid contract with the Georgia Power Company, yearly, to furnish the water service which it received. Since the city could have legally contracted for the service it received, it would seem that an implied contract would arise to pay a reasonable value for such beneficial service. We find no decision in Georgia to prohibit it; and the many cases hereinabove cited and others, under the "common-honesty rule," intimate the liability of the city. The plaintiff seeks, however, to recover for the service from the date of the void contract. The only amount that can be recovered under this count is a reasonable amount for the years not barred by the statute of limitations. Code, § 3-706. It follows that the court erred in sustaining the demurrer to count 3.

Judgment affirmed on the main bill of exceptions, andreversed on the cross-bill. MacIntyre, J., concurs. Broyles, C.J., disqualified.