New Orleans Gas Co. v. Louisiana Light Co.
115 U.S. 650 (1885)

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U.S. Supreme Court

New Orleans Gas Co. v. Louisiana Light Co., 115 U.S. 650 (1885)

New Orleans Gas Company v. Louisiana Light Company

Argued March 27, 30, 1885

Decided December 7, 1885

115 U.S. 650

Syllabus

A gas company incorporated in 1835, with the exclusive privilege of making and selling gas in New Orleans, its faubourgs and Lafayette, up to April 1, 1875, and another gas company incorporated in 1870, with a like exclusive privilege in New Orleans on and after that day, could, just before that day, consolidate under the provisions of the Act of December 12, 1874, of the Legislature of Louisiana, which provided that

"Any two business or manufacturing companies now existing whose objects and business are in general of the same nature may amalgamate, unite and consolidate."

A legislative grant of an exclusive right to supply gas to a municipality and its inhabitants, through pipes and mains laid in the public streets, and upon condition of the performance of the service by the grantee, is a grant of a franchise vested in the state, in consideration of the performance of a public service, and, after performance by the grantee, is a contract protected by the Constitution of the United States against state legislation to impair it.

In granting the exclusive franchise to supply gas to a municipality and its inhabitants, a state legislature does not part with the police power and duty of protecting the public health, the public morals, and the public safety as one or the other may be affected by the exercise of that franchise by the grantee.

The prohibition in the Constitution of the United States against the passage of laws impairing the obligation of contracts applies to the constitution as well as the laws of each state.

The Louisiana Light and Heat Producing and Manufacturing Company, a corporation of Louisiana, was organized in the year 1881 by H. S. Jackson, W. Van Benthusen, and their associates, under a general law providing for the formation of corporations for certain purposes, among which are the construction and maintenance of works for supplying cities or towns with gas. These associates and their successors, transferees, and assigns had previously been authorized by an ordinance of the Common Council of New Orleans passed January 25, 1881, for the period of fifty years, and upon specified conditions, to lay mains, pipes, and conduits in the streets, alleys,

Page 115 U. S. 651

sidewalks, bridges, avenues parks, gardens, and other places in that city for the purpose of supplying the public with gas. Among the conditions was one to the effect that the rights and privileges defined in the ordinance were granted and accepted without liability upon the part of the city to any other gas company to which franchises had been granted by legislative enactment. The consideration to be paid for these privileges was the sum of $20,000.

The benefit of this municipal grant having been transferred to the Louisiana Light and Heat Producing and Manufacturing Company, and that corporation being about to proceed with the construction of its mains, pipes, and conduits, the present suit was commenced against it and its directors in the Civil District Court of the Parish of New Orleans by the New Orleans Gas Light Company, which had been created, as will be presently explained, by the consolidation of other corporations. The plaintiff claims to be entitled, for the term of fifty years from April 1, 1875, to the sole and exclusive privilege of manufacturing and distributing gas in that city, by means of pipes, mains, and conduits laid in its streets, to such persons or corporate bodies as may choose to contract for the digging up the streets, and other public ways or places of the city, for the purpose of laying pipes, conduits, or mains for supplying illuminating gas and from asserting any right to do so until after the lapse of fifty years from the latter date.

An application for an injunction having been denied, the suit was thereafter removed by the plaintiff into the circuit court of the United States. In the latter court a bill was filed, so as to conform to the general rules of equity practice.

A statement of the history of the corporations concerned in the before-mentioned consolidation is necessary to a clear understanding as well of the grounds upon which the court below proceeded as of the questions argued in this Court.

By an act of the Legislature of Louisiana passed April 1,

Page 115 U. S. 652

1835, the New Orleans Gas Light and Banking Company was incorporated, and was given

"the sole and exclusive privilege of vending gas lights in the City of New Orleans and its faubourgs and the City of Lafayette, to such persons or bodies corporate who may voluntarily choose to contract for the same,"

to which end it was authorized to lay pipes or conduits at its own expense in any of the public ways or streets of those localities, having due regard to the public convenience. The right was reserved to the city after the expiration of forty years, to buy such gas works as the company constructed, and pay for the same in city bonds. If the city declined to purchase, then its bonds which the company had received in payment of its subscription of stock were to be renewed for twenty years.

By amendments of its charter made in 1845 and 1854, the company's right to engage in banking was, by its consent, withdrawn, and the remaining rights granted by the original act were continued to the corporation under the name of the New Orleans Gas Light Company, to be enjoyed until April 1, 1875, when its corporate privileges were to expire. This change was made subject to the condition that the company should assume all the debts and engagements of the original company, release its claims against the charity hospital, and, during the continuance of its charter, furnish that institution with necessary gas and fixtures free of charge. By amendments made in 1860, its charter was extended to April 1, 1895, the exclusive privileges granted by the original charter not, however, to exist be yond the time fixed in the act of incorporation.

By an act approved April 20, 1870, another company, under the name of the Crescent City Gas Light Company, was incorporated. The charter provided that that company, its successors and assigns, should, for fifty years from the expiration of the charter of the New Orleans Gas Light Company, have the sole and exclusive privilege of making and supplying gas lights in the City of New Orleans, by means of pipes or conduits laid in the streets, to such persons or bodies corporate as might voluntarily choose to contract for it. By a subsequent enactment in 1873, it was given authority to issue bonds

Page 115 U. S. 653

to an amount not exceeding $1,000,000, secured by mortgage of its works and property, and it was declared that the charter of the New Orleans Gas Light Company should expire on April 1, 1875, from which latter date, and for the term fixed in the act of 1870, the franchise and privileges granted to the Crescent City Gas Light Company were confirmed.

By a judgment rendered February 1, 1875, in a suit brought by the Crescent City Gas Light Company against the New Orleans Gas Light Company, and which involved their respective rights to manufacture and sell gas in New Orleans, the supreme court of the state held that the former company "has the sole and exclusive privilege to make and sell illuminating gas in the City of New Orleans for fifty years from first April, 1875;" also that the Act of March 1, 1860, extending the charter of the New Orleans Gas Light Company from April 1, 1875, until April 1, 1895, "is unconstitutional and void" as having a title that did not declare the object of the act. The latter company was also enjoined from conducting business after April 1, 1875, while the other company was confirmed in its exclusive right, after that date, to manufacture and distribute gas in New Orleans. Crescent City Gas Light Co. v. New Orleans Gas Light Co., 27 La.Ann. 138.

The bill sets out the foregoing facts and alleges that during February and March, 1875, the directors of the two companies, by means of conferences with each other and with their respective stockholders, concluded to consolidate the two corporations under the name of the New Orleans Gas Light Company, which should hold and enjoy the rights, privileges, franchises, and property of each; that they determined the amount of its capital, the number of directors, and the persons to compose a board before an election; that the two boards made an agreement in writing to which the owners of all the stock of either company have assented; that there has been no contestation by any stockholder of either of the two corporations of the consolidation or consolidation agreement; that

"there was a formal vote, comprising more than three-fifths of all owners of stock, ratifying and confirming the articles, and the agreement and certificate of consolidation

Page 115 U. S. 654

have been filed and recorded in the office of the Secretary of State;"

that

"the corporation thus organized and conducting business, from the 29th of March, 1875, has manufactured and sold gas throughout New Orleans without question or opposition,"

supplying the city, its officers, the officers of the state, and the public generally, and collecting its monthly bills; that there has been no suit by the state or the city questioning its capacity as a corporation, or its title to all the franchises, privileges, rights, or property in its possession; that its possession of "the sole and exclusive right aforesaid has existed from the agreement of the 29th of March, 1875;" that the state regularly assessed the property of the corporation and its franchise for taxation, and compelled it by suit to pay such taxes on property amounting to $3,750,000, of which the franchise is charged to be worth $1,250,000, and that the City of New Orleans in like manner assessed the consolidated company, and required from it the performance of the obligations of its charter in supplying gas throughout the city and on the public streets and in public buildings ever since the before-mentioned consolidation.

The defendants filed a demurrer and plea to the bill. The case was determined upon the demurrer, which was sustained and the bill dismissed without any mention's being made of the plea. The circuit court was of opinion that the consolidation was entirely without legal authority, and consequently that there is in law no such corporation as the one which instituted this suit. Upon that ground alone the bill was dismissed.

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