Mercantile Trust & Deposit Co. v. Columbus - 203 U.S. 311 (1906)
U.S. Supreme Court
Mercantile Trust & Deposit Co. v. Columbus, 203 U.S. 311 (1906)
Mercantile Trust & Deposit Company of Baltimore v. Columbus
Argued October 22, 23, 1906
Decided December 3, 1906
203 U.S. 311
Where the bill of the trustee of bondholders of a water company, claiming an exclusive contract with a municipality, shows that an act of the legislature and an ordinance of the city have been passed under which the city shall construct its own water works, and that, during the life of the contract, the source of the ability of the water company to pay interest on, and principal of, its bonds will be cut off, a case is presented involving a constitutional question, and irrespective of diverse citizenship, the circuit court of the United States has jurisdiction to determine the nature and validity of the original contract and whether the subsequent legislation and ordinance impaired its obligations within the meaning of the federal Constitution.
The appellant filed its bill in this case in the United States Circuit Court for the Northern District of Georgia to obtain an injunction restraining the City of Columbus, in the State of Georgia (one of above defendants) from the construction of waterworks for the supplying of water to the defendant city and its inhabitants. Judgment was entered by the circuit court dismissing the bill for the want of jurisdiction, and the question of jurisdiction alone was certified to this Court under sec. 5, c. 517, of the Acts of Congress of 1891.
The complainant based the jurisdiction of the circuit court on the ground of diverse citizenship, and also upon the existence of a federal question. An amended bill was filed and a motion made for an injunction pendente lite enjoining the city from issuing bonds or doing any work towards the construction of the waterworks. The motion was granted, and a demurrer to the amended bill having been overruled, and issue having been joined by the service of an answer and replication, the
case was referred to a master. Evidence was taken before him, and a report thereafter filed, to which exceptions were duly taken by both parties and an argument had thereon before the court. The judge certifies that, before a decision had been made by the court on the questions of law raised by the exceptions, the defendant filed a motion to dismiss the bill on the ground that, if the parties to the suit were properly placed, there was no such diversity of citizenship as was required to sustain the jurisdiction of the court, and also on the ground that there was no federal question involved. The court granted the motion on those grounds and made its certificate, as stated.
The suit was brought by the appellant, a citizen of Maryland, against the City of Columbus, a municipal corporation created by the State of Georgia, and its mayor and aldermen, all of them citizens of the State of Georgia, and against the Columbus Waterworks Company, a corporation also created by the State of Georgia.
It appears from the averments contained in the bill that the complainant is trustee for the bondholders in a certain mortgage executed by the waterworks company in January, 1891, to complainant, as trustee, to secure the payment of certain bonds, and to raise money for the purpose of making improvements and additions to the waterworks which were to supply the City of Columbus with water, and for providing for future extensions and improvements thereof. The mortgage is upon all of the company's property, and also upon all contracts made, or thereafter to be made, between the waterworks company and the City of Columbus for the supplying of water by the company to the city, or any public institution of public office. The mortgage also included all the water rents, etc., and all the income whatsoever of the mortgagor, due or to grow due, arising from its business of supplying water within the city, or within its vicinity or elsewhere, during the continuance of the lien under the mortgage.
It also included therein a contract, which had been entered
into in October, 1881, between one Thomas R. White, of the City of Philadelphia, and the Mayor and Council of the City of Columbus (defendant herein) for the construction and operation of an effective system of waterworks for the supplying of the city with water for the various uses required. This is the contract in question in this suit. Provision for a corporation was made in the contract, to which it was to be assigned; the corporation was subsequently created, and such contract was assigned by White to the water company, and the assignment was assented to by the city. The contract provided in great detail for the erection of a water system for the city and for private consumers, and it contained all the usual provisions for that kind of a contract.
It was, among other things, provided in the contract that the city should grant a franchise to the other party named therein, for the exclusive privilege of maintaining and operating the waterworks for a period of thirty years, or until they might be purchased by the city, as provided in the contract.
The work under the contract was completed and accepted by the city November 6, 1882, and the company then commenced to, and did, for some years, furnish water under its provisions to the city and its inhabitants.
Thereafter, disputes and differences arose between the parties regarding the sufficient supply of water for the city and its inhabitants, the city contending that the water company had entirely failed to satisfactorily fulfill the contract in that respect. The company contended, on the other hand, that it had done all that possibly could be done under the circumstances of an extraordinary and unprecedented drought, and was willing to spend more money for the purpose of enlarging its field of supply if the city would not, by its proposed action, defeat such purpose. The differences continued until finally, on the fourteenth day of September, 1902, the city passed an ordinance for submitting to the voters of the city the question of issuing $250,000 of bonds of the city, to be used for the purpose of building and operating and owning a system of
waterworks by the city. A special election was called for the fourth day of December, 1902. The ordinance opened with the statement that the water company had totally failed to supply the City of Columbus and its inhabitants with a sufficient quantity of pure and wholesome water, and that the public health of the city was of paramount importance to every other consideration, and the city therefore proposed an ordinance (which it set forth for the approval of the electors) for the issuing of bonds for the building of a separate system of works to be owned and operated by the city. It was provided in the proposed ordinance that, if the electors assented to the issue and sale of the bonds to be used for the purpose of building and operating the waterworks, that thereafter bonds of the city should be issued upon certain conditions, and an annual tax should be levied for the payment of the interest on the bonds and a certain proportion of the principal every year. The proposed ordinance also provided that, in the event of the assent of the voters at the election and the issuing of the bonds when the same should have been validated as by law required, thereafter the waterworks were to be considered a separate and distinct department of the city government, and a water commission was to be created for the government and control and operation of the waterworks. Other provisions were contained in the proposed ordinance, regulating the doing of the work and the operation of the constructed work.
On the third day of December, 1902 (the day before the election under the city ordinance), the legislature at the request, as it may be presumed, of the city, passed an act to amend its charter so as to confer power and authority upon the city to construct, maintain, and operate a system of waterworks of its own. The act gave power to the city to appropriate private property and to lay its pipes through its streets, either within or without the corporate limits of the city, and the city was given power and authority generally to do and perform all things necessary to carry the object and purposes of the act into effect. Sec. 7 of the act expressly conferred
upon the city the right to issue and sell its bonds for the purposes of building and operating the waterworks. Provision was also made in the act for the appointment of a board of water commissioners, who should have the supervision and control of the construction, operation, and management of the waterworks. This board was to regulate the distribution and use of water in all places, it was to fix the price for the use thereof and terms of payment therefor. The moneys coming into the hands of the board for water rents and the sale of any apparatus or other property, or from any other source connected with the waterworks, were to be paid to the treasurer of the city, and were to be used by him only for the purpose of paying any principal and interest becoming due on the bonds issued by the city. The board was to be regarded as a subordinate branch of the city government.
The ordinance above mentioned and this act of the Legislature of Georgia having been passed subsequently to the execution of the contract, are asserted by the complainant to be acts which impair the obligation of such contract.
Proceedings were taken under the ordinance, and the election was held pursuant to its provisions on the fourth of December, 1902, and resulted in the assent of the requisite number of electors to the issuing of the bonds and the use of the proceeds in the erection of a water system, to be owned and controlled by the city.
A board of water commissioners was thereupon appointed, under the provisions of the ordinance and the act of the legislature, and on the sixth of May, 1903, the Common Council received a communication from the board, through its secretary, wherein the board requested the Common Council to invite bids for the bonds of the city for the purpose of constructing the system of waterworks, which bids were to be opened on the first of August, 1903. Thereupon the Common Council, on the same day, complied with the request, and directed the publication of a notice for receiving bids for the bonds up to August 1, 1903.
On the thirtieth of July, 1903, the complainant filed this bill against the parties named. It is contended in the bill that, as trustee for the bondholders, the complainant can maintain this action on the ground of an impairment of the obligation of the contract already mentioned, and that, as the water company has mortgaged to the complainant the benefits of its contract with the city, together with the other property of the water company, as security for the payment of its bonds, any such action as proposed by the city will destroy the value of the bonds of the water company, and will amount to the taking of complainant trustee's property without due process of law, and will deprive it of the equal protection of the laws. The water company is made a defendant for the purpose of binding it, as averred in the bill, by the judgment and decree that may be rendered in this cause, so that the right and equity of subrogation, or other rights and equities set up, may be enforced and decreed against the water company, and that the water company may be held and decreed, on its part, to specifically perform all the obligations of such contract. An injunction was asked for and granted, as stated, pendente lite. It was also asked that the defendant city might be enjoined from refusing to carry out the contract with the waterworks company, and from placing any obstacle in the way of the due performance thereof, according to its terms.