July 22, 1868, Los Angeles City leased to Griffin and others for
a named sum its water works for a term of 30 years and granted them
the right to lay pipes in the street, and to take the water from
the Los Angeles River at a point above the dam then existing, and
to sell and distribute it to the inhabitants of the city, reserving
the right to regulate the water rates, provided that they should
not be reduced to less than those then charged
Page 177 U. S. 559
by the lessees. The lessees agreed to pay a fixed rental, to
erect hydrants and furnish water for public uses without charge,
and at the expiration of the term to return the works to the city
in good order and condition, reasonable wear and damage excepted.
This contract was procured for the purpose of transferring it to a
corporation to be formed, which was done. Subsequently the limits
of the city were extended as stated by the court, and the expenses
of the corporation were increased accordingly. The city
subsequently established water rates below those named in the
contract, and the company collected the new rates, without in any
other way acquiescing in the change. This suit was brought by the
company to enforce the original contract.
Held,
(1) That the power to regulate rates was an existent power, not
granted by the contract, but reserved from it with a single
limitation, the limitation that it should not be exercised to
reduce rates below what was then charged, and that undoubtedly
there was a contractual element, but that it was not in granting
the power of regulation, but in the limitation upon it.
(2) That the City of Los Angeles, by its solemn contract, and
for various considerations therein stated, gave to the party under
whom defendant claims, the privilege of introducing, distributing
and selling water to the inhabitants of that city on certain terms
and conditions, which defendant has complied with, and it was not
within the power of the city authorities, by ordinance or
otherwise, afterward to impose additional burdens as a condition to
the exercise of the rights and privileges granted.
(3) By acquiescing in the regulations of rates ever since 1880,
the company is not estopped from claiming equitable relief and is
guilty of no laches.
This suit involves the constitutionality of an ordinance of the
City of Los Angeles, adopted February 23, 1897, fixing the water
rates to be charged and collected by the Los Angeles City Water
Company for the year ending June 30, 1898.
It is claimed that the ordinance impairs the obligation of the
contract made with the grantors of the company on the 20th of July,
1868.
The facts were stipulated, and are substantially as follows:
On the 22d of July, 1868, the City of Los Angeles entered into a
contract with John S. Griffin, P. Beaudry, and Solomon Lazard,
whereby it leased its waterworks to the said persons and their
assignees for a term of thirty years, with the right to lay pipes
in the streets of the city, and to sell and distribute the water
for domestic purposes to the inhabitants of the city;
Page 177 U. S. 560
also with the right to take water from the Los Angeles River at
a point at or above the present dam, to be selected within sixty
days of the date of the contract. It was provided that no more than
ten inches of water should be taken from the river without the
previous consent of the mayor and common council.
The city bound itself not to make any other lease, sale,
contract, grant, or franchise to any person, corporation, or
company for the sale or delivery of water to the inhabitants of the
city for domestic purposes during the continuance of the
contract.
And it was provided
"that the mayor and common council of said city shall have, and
do, reserve the right to regulate the water rates charged by said
parties of the second part, or their assigns, provided that they
shall not so reduce such water rates or so fix the price thereof to
be less than those now charged by the parties of the second part
for water."
The said persons agreed to pay the city a rental of fifteen
hundred dollars for the waterworks; to lay down in the streets of
the city twelve miles of iron pipes of sufficient capacity to
supply the inhabitants with water for domestic purposes; to extend
the pipes as fast as the citizens would agree to take sufficient
water to pay ten percent upon the cost of such extension; to erect
one hydrant, as protection against fire at one corner of each
crossing of streets where pipes were or might be laid; to erect an
ornamental fountain on the public plaza at a cost not exceeding
$1,000; to construct and erect, within two years, such reservoirs,
machinery, ditches, and flumes as would secure the inhabitants with
a constant supply of water for domestic purposes; to furnish water
free of charge for the public schoolhouses hospitals, and jails; to
keep in repair all of said improvements at the cost and expense of
the parties of the second part, for said term of thirty years, and
to return said waterworks to said party of the first part at the
expiration of said term, in good order and condition, reasonable
wear and damage of the elements excepted, upon payment to said
parties of the value of the aforesaid improvements, to be
ascertained as provided for in the contract; to give a bond in the
sum of twenty thousand dollars for the performance of said
contract, and to pay all state and county taxes assessed upon the
waterworks during the period of thirty years.
Page 177 U. S. 561
And as the circuit court found:
"Griffin, Beaudry, and Lazard applied for and procured said
contract on behalf and for the benefit of themselves and other
persons, with the intention of forming a corporation to carry out
said contract, and afterwards, about the middle or latter part of
August, 1868, themselves and said other persons being the
incorporators, organized, under the laws of the State of
California, the Los Angeles City Water Company, for the purpose of
supplying the inhabitants of said city with water for domestic
purposes, etc., under the terms of said contract, and assigned all
their rights and franchises under said contract to said company by
a written instrument dated June the 12th, 1869, and recorded in the
office of the recorder of said County of Los Angeles, June the
15th, 1869."
"On April the second 1870, the legislature of California passed
an act hereinafter set forth, in terms ratifying and confirming
said contract."
"Griffin, Beaudry, and Lazard did nothing personally in carrying
out said contract or constructing or maintaining said waterworks,
but said company, after it was organized, took possession of said
waterworks, and has performed all of the above-mentioned
obligations of said contract, except the one providing for the
return of the waterworks at expiration of lease, and in such
performance has laid 320 miles of pipe, erected over 500 hydrants
for protection against fire, and constructed six reservoirs, with
an aggregate capacity of nearly sixty-six millions of gallons, and
is now, as it has been at all times since the contract was made,
furnishing the City of Los Angeles with water for the
extinguishment of fires and for the public schools, hospitals, and
jails in said city free of charge. The aforesaid extensions of the
waterworks were rendered necessary by the growth of said city,
whose population in 1868 was between 5,000 and 6,000, and is now
about 103,000."
"During the whole of the year 1868, the territorial limits of
the City of Los Angeles were as follows: four square leagues in a
square form, the center of which was the center of the old pueblo
plaza."
"About 1872, the limits were extended 420 yards south of
Page 177 U. S. 562
the former south boundary, and within the past three years, and
prior to July, 1897, the limits were further extended so as to take
in between ten and fifteen square miles of additional adjoining
territory. Immediately after the extension of the said limits, the
Los Angeles City Water Company began to extend its pipes over the
said addition to the city as the same was settled up and improved,
and ever since has been and is now furnishing water to the people
in said district added to the original territory of the city, and,
upon the demands of the city council, erected fire hydrants within
the said additional territory and furnished water free of charge,
and has in all respects continued to lay pipes, erect fire
hydrants, and furnish the inhabitants with water for domestic uses
in like manner as it has conducted the same business within the
original limits of the city as established by the act incorporating
it, and so with the more recent extensions of the city limits,
to-wit, those made within the last three years, the company has
also extended its pipes in portions of those limits and furnished
water in the same way."
"The quantity of water required to supply the domestic wants of
the people of said city is one inch of water, measured under a
four-inch pressure, to every one hundred inhabitants. To meet the
increased demands upon it for water under said contract, said
company has, among other things, purchased the system known as the
'Beaudry System of Waterworks,' and also certain water rights in
the Arroyo Seco, and conducted water from the Arroyo Seco into the
city on the east side of the Los Angeles River, and has been
furnishing the inhabitants of that portion of the city with water
from said system, and also acquired the stock of the corporation
known as the East Side Spring Water Company -- the same mentioned
in paragraph 10 of the complaint."
"In the growth of the city, its settlement extended to
localities of higher elevation than those occupied by its
inhabitants at the time of said contract, and the point originally
selected for the diversion of the water of the Los Angeles River
for supplying the city and its inhabitants, as in said contract
provided, was so located in said river that it was impracticable
to
Page 177 U. S. 563
there maintain dams and diversion works that would not
occasionally be swept away or rendered useless by floods, and the
surface water of the river after severe storms became muddy and
unfit for supplying the inhabitants with water for domestic uses,
and in the year 1889, the Crystal Springs Land & Water Company
made excavations in the places referred to in the bill of
complaint, and laid the pipes therein as alleged, and the water
that has been used by the Los Angeles City Water Company for
supplying the city with water, as provided in said contract, has
ever since been obtained from that source, except that from time to
time a further supply of water has been taken from the Los Angeles
River in order to supply said inhabitants, which diversions have
been at or near the place where the said underground pipes are
laid, and that, by these means the water can be delivered to the
higher elevations, and the underground waters, as to quality and
amount, are thus protected against the influences of floods."
"The Los Angeles City Water Company ever since its incorporation
has taken more than ten inches of water, measured under a four-inch
pressure, from the Los Angeles River, and the amount taken has
increased with the increase of the population of the city and the
demands of the municipality itself for water for extinguishing
fires and the other public purposes referred to in the said
contract, and the amount has increased until now it requires from
1,000 to 1,500 inches of water, measured under a four-inch
pressure, for such purposes, and during the summer season the
amount of water used by the Los Angeles City Water Company for the
purposes aforesaid runs from 1,000 to 1,500 inches under a
four-inch pressure, inclusive of the water obtained by the
underground excavations, which latter furnish from 650 to 690
inches, measured under a four-inch pressure."
"The City of Los Angeles has always had flowing in the Los
Angeles River at the point from which said Los Angeles City Water
Company has always diverted water from said river a quantity of
water sufficient to have supplied said Los Angeles City Water
Company with all the water required to supply said city and its
inhabitants with water for domestic purposes and
Page 177 U. S. 564
municipal uses, and has never objected, up to October 20, 1896,
to said Los Angeles City Water Company's taking as much water from
said river as it might require for said uses, and during all of
said period said city has never objected to said company's taking
from the surface stream of said river at said point as much water
as said company needed for said uses."
"On October the 19th, 1896, the City Council of the City of Los
Angeles adopted a resolution requiring the Los Angeles City Water
Company to pay to the City of Los Angeles an amount of money equal
to forty percent of the gross rates received by said company from
the consumers of water as rental for all water taken by said
company from the Los Angeles River, and before the 21st day of
October, 1896, to attorn to the City of Los Angeles, as tenant of
said city, for all of the water so taken from said river, and to
agree to pay said rental to said city, and, in case of failure to
attorn and agree to pay said rental, to refrain from diverting,
taking, or interfering with any of the water mentioned in said
resolution, except ten inches after the 20th day of October,
1896."
"On October the 19th, 1896, the city attorney, in writing,
notified the Los Angeles City Water Company and the Crystal Springs
Land & Water Company of said resolution, and demanded
compliance therewith, delivering a copy of said resolution to each
of said companies. Neither of them ever attorned to said city for
said water or any part thereof, or ever agreed to pay any rental
for the same. After the passage of said resolution and ever since
said notification up to the present time, the Los Angeles City
Water Company has continually taken from the Los Angeles River at a
point above the northern boundary of said city for the purposes of
distribution and selling the same in said city a quantity of water
varying from 400 to 1,000 inches, measured under a four-inch
pressure."
"On the 19th day of April, 1870, the Common Council of the City
of Los Angeles accepted, and the mayor approved, the following
report:"
"To the Honorable the Mayor and Common Council of the City of
Los Angeles and the Los Angeles City Water Company:"
"The undersigned commissioners, duly appointed on behalf
Page 177 U. S. 565
of your honorable bodies to adjust, fix, and establish the rates
and charges of the Los Angeles City Water Company (a corporation
duly incorporated under the laws of the State of California for the
purpose of supplying the inhabitants of Los Angeles City with pure,
fresh water), respectfully report that they have established water
rates and charges for domestic purposes, taking as a guide, as near
as can be, the charges and rates for domestic purposes charged in
July, 1868; that your committee have also fixed the rates and
charges for other reasonable objects and purposes, and report as
follows, to-wit:"
"[Then follow the rates agreed upon.]"
"The commissioners referred to in said report had been
previously selected, two by the city and two by the Los Angeles
City Water Company."
"In June, 1871, the city council, on a report of a committee
constituted similarly to the one above mentioned, established the
same rates as those established in April, 1870."
"On the 13th of August, 1874, a committee constituted in the
same manner and for the same purposes as the committee already
mentioned reported that they had established water rates and
charges for domestic purposes, taking as a guide, as near as
possible, the charges and rates for domestic and other reasonable
objects and purposes charged in July, 1868. The report was adopted
and a committee appointed in conjunction with the city attorney to
draft an ordinance embodying the rates fixed in said report, and
thereafter, on August the 20th, 1874, an ordinance so drawn was
adopted by the council of said city, and the rates established by
said ordinance were the same as those established in 1870 and
1871."
"Since and including the year 1880, the City Council of the City
of Los Angeles has, in February of each year, passed an ordinance
fixing the rates to be charged by all corporations and persons
within said city supplying water to the inhabitants thereof, to be
in force for one year from and including July the 1st, which rates
have been less than the rates charged in 1870, as contained in the
ordinance hereinbefore mentioned, and the Los Angeles City Water
Company has collected the rates thus fixed by the City of Los
Angeles, and no more, but in
Page 177 U. S. 566
the year 1896, the Council of the City of Los Angeles passed an
ordinance fixing the rates to be charged for water for the year
commencing July the 1st, 1896, and ending June 30, 1897 at less
than they had ever been fixed before, and a suit was then brought
by the complainants herein in this Court against the City of Los
Angeles to set aside the said ordinance, and in February of the
year 1897, the City of Los Angeles passed the ordinance which is
assailed in this suit, making a still further reduction in the
rates."
"The action of the Los Angeles City Water Company in collecting
the rates fixed by said several ordinances constitutes the only
acquiescence (if it be an acquiescence) in the action of said
council."
"If the rates established in 1870 were collected for the year
beginning July the 1st, 1897, and ending June the 30th, 1898, the
revenues received by the Los Angeles City Water Company from said
rates would be more than $50,000 in excess of the amount which
would be received under the rates named in the ordinance of
February, 1897."
"In January, 1882, the Los Angeles City Water Company furnished
to the Council of the City of Los Angeles a statement of its
transactions for the preceding year, protesting at the same time
against the establishment of any rates less than those which were
in force at the date of the lease hereinbefore mentioned, to-wit,
July the 22d, 1868."
"In January, 1883, said company again furnished said council
with a statement showing the names of the consumers of water, the
rates paid during the year preceding the date of the statement, and
also an itemized statement of the expenditures made for supplying
water during the year preceding, but expressly denying any legal
right on the part of the council to demand said statement or to fix
any rates less than those which were in force in July, 1968."
"Similar statements, accompanied by similar protests, were made
annually thereafter up to and including the year 1889, and since
that time unverified statements or reports showing its receipts and
expenditures have been made by said company to the city council
each year. "
Page 177 U. S. 567
"Article XIV of the present Constitution of California, adopted
in 1879, is as follows:"
"
ARTICLE XIV"
"
Water and Water Rights"
" SEC 1. The use of all water now appropriated, or that may
hereafter be appropriated, for sale, rental, or distribution, is
hereby declared to be a public use, and subject to the regulation
and control of the state in the manner to be prescribed by law:
Provided, that the rates or compensation to be collected by any
person, company, or corporation in this state for the use of water
supplied to any city and county, or city or town, or the
inhabitants thereof, shall be fixed annually by the board of
supervisors, or city and county, or city or town council, or other
governing body of such city and county, or city or town, by
ordinance or otherwise, in the manner that other ordinances or
legislative acts or resolutions are passed by such body, and shall
continue in force for one year, and no longer. Such ordinances or
resolutions shall be passed in the month of February of each year,
and take effect on the 1st day of July thereafter. Any board or
body failing to pass the necessary ordinances or resolutions fixing
water rates, where necessary, within such time, shall be subject to
peremptory process to compel action at the suit of any party
interested, and shall be liable to such further processes and
penalties as the legislature may prescribe. Any person, company, or
corporation collecting water rates in any city and county, or city
or town in this state, otherwise than as so established, shall
forfeit the franchises and waterworks of such person, company, or
corporation to the city and county, or city or town, where the same
are collected, for the public use."
" SEC. 2. The right to collect rates or compensation for the use
of water supplied to any county, city and county, or town, or the
inhabitants thereof, is a franchise, and cannot be exercised except
by authority of and in the manner prescribed by law."
"To carry out these provisions of the Constitution, the
Legislature of California passed an act entitled 'Act to Enable
Page 177 U. S. 568
the Board of Supervisors, Town Council, Board of Aldermen,'
etc., which was approved March the 7th, 1881. (Statutes of
California 1881, page 54.)"
"In the year 1888, the electors of the City of Los Angeles,
pursuant to provisions of the Constitution of said state
authorizing them so to do, adopted a charter for said city, which
charter was, under the provisions of said Constitution, submitted
to the legislature of said state for its approval, ratification,
and adoption, and the said charter was, on the 31st day of January,
1889, adopted by said legislature, and thereupon became and ever
since has been the Charter of the said City of Los Angeles, and by
the said charter it is provided, in section 193 as follows:"
" The rates of compensation for use of water to be collected by
any person, company, or corporation in said city shall be fixed
annually by ordinance, and shall continue in force for one year,
and no longer. Such ordinance shall be passed in the month of
February of each year, and take effect on the 1st day of July
thereafter. Should the council fail to pass the necessary ordinance
fixing the water rates within the time hereinbefore prescribed, it
shall be subject to peremptory processes to compel action at the
suit of any party interested."
"The ordinance of 1897 now sought to be annulled was passed
pursuant to the foregoing constitutional and statutory
provisions."
A decree was entered for complainants (appellees), adjudging
that that part of the contract entered into between the City of Los
Angeles and Griffin, Beaudry, and Lazard, insofar as said contract
provides that the city shall not reduce the water rates below those
charged on the date of said contract, is valid, and that the
ordinance of February 23, 1897, reduced the water rates below those
so charged, and
"impaired the obligation of such contract, and said ordinance is
null and void, and it is further ordered, adjudged, and decreed
that the said ordinance be, and the same is, hereby vacated and set
aside and held for naught."
From the judgment, this appeal is taken.
The assignments of error present the contentions discussed in
the opinion.
Page 177 U. S. 569
MR. JUSTICE McKENNA, after stating the case, delivered the
opinion of the Court.
The circuit court decided that the provision of the contract
executed by the city and Griffin, Beaudry, and Lazard constituted a
contract, and the ordinance of the city regulating the rates of
appellees impaired it. Against this conclusion the appellant
contends: (1) the contract only purports to bind the city in its
corporate capacity -- the city as landlord and owner, and not as a
governmental agent of the state; (2) the city did not have power to
bind the state; (3) the provision of the contract, restraining the
city from granting any other franchise, if it created an exclusive
franchise, invalidated the whole contract; (4) the act of 1870,
purporting to ratify the contract of 1868, is unconstitutional and
void; (5) the water company has no power under its charter to
collect water rates, except as prescribed by the Constitution and
statutes of the state; (6) by acquiescing in the regulations of
rates ever since 1880, the company is estopped from claiming
equitable relief, and is guilty of laches; (7) water rates
established by the ordinance are not shown to be lower than those
charged in 1868, or, if lower, that the revenue of the company is
reduced; (8) if the ordinance is invalid, it is void on its face,
and there is therefore no cloud on the company's title; (9) the
company violated the contract by taking water from the Los Angeles
River, and therefore is not entitled to specific performance.
We all consider these contentions in their order.
1. The contract only purports to bind the city in its corporate
capacity -- the city as landlord and owner, and not as governmental
agent of the state.
The argument to support the contention, succinctly stated, is
that the right to regulate rates came from the contract, not from
the law. In other words, it was reserved from the contract, and was
a virtual granting back by the lessees of the proprietary
Page 177 U. S. 570
right, which would have otherwise passed by the lease, leaving,
however, all municipal powers intact.
The provision of the contract is as follows:
"Always provided that the mayor and common council of said city
shall have, and do reserve, the right to regulate the water rates
charged by said parties of the second part, or their assigns,
provided that they shall not so reduce such water rates, or so fix
the price thereof, to be less than those now charged by the parties
of the second part for water."
The municipal powers of the city provided in the act of
incorporation, among others, were: "To make bylaws or ordinances, .
. . to make regulations to prevent and extinguish fires, . . . to
provide for supplying the city with water."
It is not denied that the city had power to regulate rates.
Indeed, it is insisted that it was so constantly its duty that it
could not be contracted away. It was not a power therefore
necessary to be granted by the contract, and the distinction
between the proprietary right and the municipal right, made by
appellants would have been idle to observe. To have limited the
right of regulation to the city in one capacity and left it
unrestrained in the other would have been useless, and such
intention cannot be attributed to the parties. We think, therefore,
the power to regulate rates was an existent power not granted by
the contract, but reserved from it, with a single limitation -- the
limitation that it should not be exercised to reduce rates below
what was then charged. Undoubtedly there was a contractual element;
it was not, however, in granting the power of regulation, but in
the limitation upon it. Whether the limitation was and is valid is
another consideration.
2. The city did not have the power to bind the state.
This contention as expressed is very comprehensive, and seems to
deny the competency of the state to give the city the power to bind
it. We do not, however, understand counsel as so contending, nor
could they.
Walla Walla v. Walla Walla Water Co.,
172 U. S. 1.
See
also People v. Stephens, 62 Cal. 209. We understand the
argument to be that the power, if not expressly given, will not be
presumed unless necessarily or fairly implied in or incident to
other powers expressly given -- not
Page 177 U. S. 571
simply convenient, but indispensable to them. In other words,
the rule of strict construction is invoked against the grant of
such power to the city.
The rule is familiar. It has often been announced by this Court,
and quite lately in
Citizens' Street Railway v. District
Railway, 171 U. S. 48.
The effect of the rule in the case at bar we are not required to
determine if the act of 1870 ratifying the contract is valid.
It reads as follows:
"An Act to Ratify Certain Acts and Ordinances of the Mayor and
Common Council of the City of Los Angeles."
"The people of the California, represented in senate and
assembly, do enact as follows:"
"SECTION. 1. The following acts, contracts, and ordinances of
the mayor and Common Council of the City of Los Angeles are hereby
ratified and confirmed: the contract and lease for the care and
maintenance of the Los Angeles City Waterworks, entered into and
made between the Mayor and Common Council of the City of Los
Angeles, on the one part, and John S. Griffin, Prudent Beaudry, and
Solomon Lazard, on the other part, dated the twentieth (20th) day
of July, eighteen hundred and sixty-eight (1868), and also the
ordinance confirmatory of the same, passed July the twenty-second
(22d), eighteen hundred and sixty-eight, which contract and
ordinance are recorded in the office of the County Recorder of Los
Angeles county, in book one of miscellaneous records, pages four
hundred and twenty-eight (428) to four hundred and thirty-one
(431); [here follows certain other ordinances and deeds not
affecting the contract in question]."
Appellants assert that the act violates the following provision
of the constitution of the state:
"Corporations may be formed under general laws, but shall not be
created by special act, except for municipal purposes. All general
laws and special acts passed pursuant to this section may be
altered from time to time, or repealed."
At the time of the passage of the act of 1870, the contract of
1868 had been assigned to the water company, and the facts show
that it was applied for and procured on behalf of Griffin,
Page 177 U. S. 572
Beaudry, and Lazard and other persons, with the intention of
forming a corporation to execute its provisions, and for such
purpose they and other persons organized under the laws of the
state the Los Angeles City Water Company, the appellee. It is hence
argued that the act of 1870 confers franchises on the company by a
special act, instead of by a general law, and thereby infringes the
constitutional provision, and against the existence of such power
in the legislature the following cases are cited;
Low v. City
of Marysville, 5 Cal. 214;
San Francisco v. Spring Valley
Waterworks, 48 Cal. 493;
Orville & Virginia Railroad
Co. v. Plumas County, 37 Cal. 354;
Spring Valley
Waterworks v. Bryant, 52 Cal. 132;
San Francisco v. Spring
Valley Waterworks, 53 Cal. 608;
San Francisco v. Spring
Valley Waterworks, 48 Cal. 493.
Of these cases, only
Low v. City of Marysville and
Orville & Virginia Railroad Co. v. Plumas County were
decided before the passage of act of 1870.
It was held in
Low v. City of Marysville that the
legislature was prohibited from conferring upon a municipal
corporation powers other than governmental by a special act. Chief
Justice Murray said:
". . . for as it would have been a violation of the Constitution
to create an incorporation by special act for any other than
municipal purposes, it follows that it would be equally
unconstitutional to confer special power on a corporation already
created. In other words, it would be doing by two acts that which
the legislature could not do by one, and corporations for almost
every purpose might to created by special act by first
incorporating the stockholders as a municipal body."
But in
California State Telegraph Co. v. Alta Telegraph
Co., 22 Cal. 398, decided at July Term, 1863, a contrary
doctrine was announced. It was held that the legislature could
grant exclusive franchises and privileges to persons or
corporations; that, if granted to a person, they could be assigned
to a corporation, and that a corporation could receive from the
legislature a direct grant of special privileges and franchises.
The case necessarily involved all of those propositions.
The right and privilege passed on were granted by an act of
Page 177 U. S. 573
the legislature, and consisted of the exclusive right to O. E.
Allen and Clark Burnham to construct and put in operation a
telegraph line from San Francisco to the City of Marysville. They
assigned the right to the California State Telegraph Company. The
court said:
"The case presents the following questions for our adjudication:
1st, is the Act of May 3, 1852, granting certain exclusive
privileges to Allen and Burnham, constitutional?; 2d, have the
plaintiffs the power or right to purchase, hold, and enjoy these
exclusive privileges?"
Both propositions were answered in the affirmative. Of the
second, the court said:
"The next and most important question is whether the plaintiff,
a corporation, had the power to purchase and hold the special
privileges granted by the act to Allen & Burnham. It is not
disputed that those grantees had power to sell and convey, for the
act specially makes the grant to them or 'their assigns,' thus
clearly making the privileges assignable. But it is urged that the
clause in the Constitution which prohibits the legislature from
creating a private corporation by special act equally prohibits
them from conferring any powers or privileges of a corporate
character by special law, and that all the powers and privileges
which a corporation can exercise or hold must be derived from a
general law, applicable alike to all corporations."
"It is clear that the Constitution prohibits the legislature
from 'creating' corporations by special act, except for municipal
purposes, and it is equally clear that this prohibition extends
only to their 'creation.' There is nothing in the language used
which either directly or impliedly prohibits the legislature from
directly granting to a corporation already in existence and created
under the general laws, special privileges in the nature of a
franchise, by a special act, or prohibiting a corporation from
purchasing or holding such franchises which may have been granted
to others. To give the constitution any such effect we would be
compelled to interpolate terms not used, and which cannot be
implied without a perversion of the language employed. To give it
such a construction we would have to make it read thus:"
"Corporations may be formed,
and other franchises
Page 177 U. S. 574
and special privileges granted, under general laws, but
shall not be created
or granted by special act except for
municipal purposes."
If such had been the meaning intended by the framers of the
constitution, they could have easily expressed it in apt words. The
language used by them is clear, and they well knew that it included
but one of a numerous class of franchises, the subjects of
legislative grant, and that a regulation of one could not by any
reasonable implication be extended to others not mentioned.
And the learned justice who delivered the opinion of the court
concluded the discussion by saying:
"I hold, then, that the plaintiffs, as a corporation, were
capable of receiving a grant of these special privileges directly
from the legislature, and of purchasing them from the
grantees."
There was an implied recognition of the same doctrine in
Spring Valley Waterworks v. San Francisco, 22 Cal.
434.
But it is urged by appellants that
Orville & Virginia
Railroad v. Plumas County (decided in April, 1869) held
"that the legislature could not authorize the county to grant
special privileges to a private corporation, and this was confirmed
in
Waterloo Turnpike Co. v. Cole, 51 Cal. 384 (decided in
1876)."
The latter case we may disregard, as it was decided subsequently
to the act of 1870. The former case did not decide as contended,
nor was the point involved in it. The action was mandamus to compel
the county to subscribe to the capital stock of the railroad
company under an act of the legislature directing the supervisors
of the county to meet at a designated day and take and subscribe to
the capital stock of the railroad company.
The defense was not want of power in the legislature to direct
the subscription, not want of power in the company to receive it
because it was a corporation, but want of power to receive because
it was not a corporation. Against this it was urged that the act of
the legislature recognized the company as a corporation. To the
contention, the court replied:
"But it is claimed that the existence of the corporation is
recognized by the act requiring the county to subscribe to the
stock of the company. Admitting such to be the case, that will not
overcome the difficulty, for a corporation of this character
cannot
Page 177 U. S. 575
be created by legislative recognition; the constitution (art.
IV, sec. 31) prohibiting the creation of corporations, except for
municipal purposes, otherwise than by general laws."
It follows, therefore, that at the time of the contract of 1868
and of the passage of the ratifying act of 1870, it was established
by the decision of the highest court of the state that the
constitution of the state permitted a grant of special franchises
to persons and corporations, and permitted the latter to receive
assignments of them from such persons, or grants of them directly
from the legislature. This law was part of the contract of 1868, as
confirmed by the act of 1870, and could not be affected by
subsequent decisions.
Rowan v.
Runnels, 5 How. 134;
Ohio Life
Ins. & Trust Co. v. Debolt, 16 How. 416;
Havemeyer v. Iowa
County, 3 Wall. 294;
Chicago v.
Sheldon, 9 Wall. 50;
Olcott v.
Supervisors, 16 Wall. 678;
McCullough v.
Virginia, 172 U. S. 102. Nor
by the new Constitution of 1879.
New Orleans Gas Co. v.
Louisiana Light Co., 115 U. S. 650;
Fisk v. Jefferson Police Jury, 116 U.
S. 131;
St. Tammany Waterworks v. New Orleans
Waterworks, 120 U. S. 64.
The subsequent decisions of the supreme court of the state have
not been uniform.
San Francisco v. Spring Valley
Waterworks unqualifiedly overruled
California State
Telegraph Co. v. Alta Teleg. Co., but
People v.
Stanford, 77 Cal. 360, restored its doctrine to the extent, at
least, of holding that the constitutional provision that
"corporations may be formed by general laws, but shall not be
created by special act" only prohibits the creation of corporations
and conferring powers upon them by legislative enactment, and does
not prohibit "the assignment of a franchise to a legally organized
corporation by persons having the lawful right to exercise and
transfer the same."
See also San Luis Water Co. v.
Estrada, 117 Cal. 168.
There are expressions in the latter case which, it is urged,
notwithstanding the modification by it and by
People v.
Stanford of the doctrine of
San Francisco v. Spring Valley
Waterworks, make that doctrine applicable to the case at bar.
The San Luis Water Company was a corporation, and was formed for
the purpose of furnishing the Town of San Luis Obispo and the
inhabitants thereof with pure fresh water.
Page 177 U. S. 576
By an act of the legislature entitled "An Act to Provide for the
Introduction of Good and Pure Water into the Town of San Luis
Obispo," approved March 28, 1872, a franchise was granted for that
purpose to M. A. Benrimo, C. W. Dana, and W. W. Hays. The San Luis
Water Company claimed to be the assignee of the franchise. The
assignment was attacked on the ground that it was invalid under the
constitution of the state. The court said:
"The precise point made is that the power to supply a city with
water cannot be conferred, directly or indirectly, upon a private
corporation by special act."
And further:
"The grant to Benrimo and his associates was also to their
assigns. There can be no doubt but that they might, by the terms of
the grant, sell or assign the franchise. It seems to me too plain
to require argument that the purchase by the plaintiff was strictly
and directly within its powers, and contributed necessarily and
directly to its objects and purposes."
But the learned commissioner who delivered the opinion also
said:
"If any connection could be traced between the plaintiff and the
passage of the special act of 1872, or it appeared that the act was
obtained for the purpose of evading the constitutional inhibition,
I could see how the case of
San Francisco v. Spring Valley
Waterworks, 48 Cal. 493, might apply. But in view of the facts
in this case, I cannot regard the article of the constitution
mentioned or the case last cited as having any application
here."
But this is not a decision that the case would apply. And if it
is a concession of strength in the argument, it is not a concession
of conclusive strength.
We are not concerned, however, to reconcile the cases decided
since 1870, and we have only mentioned them to present fully the
contention of appellants. The cases prior to that time, as we have
seen, made the obligation of the contract of 1868, and determined
the power of the legislature to ratify it. And there seems to have
been no question of this power. Besides legislative recognition,
besides recognition by many acts of the city, the contract has
received judicial recognition. Taxation upon the property acquired
to execute it has been sustained. 49 Cal. 638. It was interpreted,
and under its provisions, the company denied compensation
Page 177 U. S. 577
for water used in sprinkling the streets of the city. 55 Cal.
176. An ordinance was declared void imposing a license upon the
company for doing business in the city. 61 Cal. 65. Its right to
take more than ten inches of water from the river was sustained in
124 Cal. 368.
The case in 61 Cal. 65 was heard in department and in banc, and
the contract received careful consideration. The judgment of the
trial court was for the water company, and department 2 of the
supreme court, affirming it, said:
"The court was correct in its judgment. The plaintiff had
already reserved a sum to be paid by defendant for the privilege of
vending water for domestic purposes, and it could not change its
contract in the manner proposed. The privileges granted by the
lease and the ordinance of 1868 were already vested in the
defendant as strongly as they could be by a license under the
ordinance of 1879. A license is a grant of permission or authority.
The defendant already had permission and authority granted by
ordinance and ratified by the legislature. The city cannot, during
the term of the lease, of its own motion, increase the amount to be
paid for the privileges granted."
"It is hardly necessary to say that the point made by the
appellant, that neither the city nor the legislature can grant or
alienate any of the rights of sovereignty, has no application to
this case."
The court in banc, through its chief justice, approved this
language, and, after quoting cases, said:
"The authorities of the City of Los Angeles, by a contract (the
validity of which has not been challenged by either party) and for
certain valuable considerations therein expressed, granted to the
defendant's assignors the privilege of supplying the City of Los
Angeles and the inhabitants thereof with fresh water for domestic
purposes, with the right to receive the rents and profits thereof
to their own use,"
and after citing cases to show that the exaction of the license
would impair the obligation of the contract, concluded as
follows:
"The principles enunciated in the foregoing cases are
eminently
Page 177 U. S. 578
sound and just, and are directly applicable to the case we are
now considering. The City of Los Angeles, by its solemn contract
and for various considerations therein stated, gave to the party
under whom defendant claims the privilege of introducing,
distributing, and selling water to the inhabitants of that city on
certain terms and conditions which defendant has complied with, and
it was not within the power of the city authorities, by ordinance
or otherwise, afterward to impose additional burdens as a condition
to the exercise of the rights and privileges granted."
3. The provision of the contract restraining the city from
granting any other franchise if it created an exclusive franchise
invalidated the whole contract. 4. The act of 1870, purporting to
ratify the contract of 1868, is unconstitutional and void. 5. The
water company has no power under its charter to collect water
rates, except as prescribed by the Constitution and statutes of the
state.
These contentions are dependent upon the same reasoning as the
preceding one, and do not require a separate discussion.
6. By acquiescing in the regulations of rates ever since 1880,
the company is estopped from claiming equitable relief and is
guilty of laches.
There was no such acquiescence as estopped the water company
from contesting the ordinance of the city. The facts are that, in
1880, the city passed an ordinance, to be in effect one year,
establishing water rates, and passed one every year thereafter,
including 1897, when the one in controversy was passed. The rates
established by the ordinances were less than those adopted in 1870,
and the latter are claimed to have been not higher than the rates
charged in 1868. The company collected the rates established by the
ordinances, except those established in 1896 and 1897. A suit was
brought by the company to set aside the ordinance of 1896, and that
of 1897 is assailed in the case at bar. These ordinances fixed the
rates at less than they had been fixed before. The company has also
every year since 1882 filed a statement with the city council
showing the names of the consumers of water, the rates paid, and
the expenditures made for supplying water for the preceding year.
The company
Page 177 U. S. 579
always protested against the right of the city to demand
statements, and claimed to make them solely for its information.
The company also, in 1882, protested against the power of the city
to fix rates on any other basis than that of the contract of 1868.
The city therefore cannot claim to have been deceived by the action
of the company in collecting the rates established prior to 1896.
They were less, it is stipulated, than those of 1870, but how much
less we are not informed. It is true we are not informed how much
less those fixed in 1896 and 1897 are than those of the prior
years. They are less, "less than they had ever been fixed before,"
is the stipulation, and they will, according to the stipulation,
produce more than $50,000 less revenue than those of 1870.
Acquiescence in a regulation which, all things considered, may
not have been injurious, does not preclude a contest of that which
is injurious. It must be remembered that the contract did not
forbid all regulation, but only regulation beyond a certain limit.
There was no concession of a power to go beyond that limit, but
constant protest against it, and when its exercise did go beyond
that limit, producing injury not balanced by other considerations,
the right to restrain it would naturally be, and we think could
legally be, exerted. As we have said, there was no concealment, no
misleading, no injury, no change of condition, no circumstance
which could invoke the doctrine of estoppel or of laches.
Appellants, however, assert there was, and claim that the
acquiescence of the water company was induced by the fear that the
city would prevent the unlimited use of the river water -- a use
beyond the ten inches claimed to be allowed by the contract, and a
use against other and proprietary rights of the city. Of the latter
the record does not enable us to form a judgment. Of the former the
supreme court of the state (124 Cal.,
supra) has decided
against the contention of the city. We approve the decision and
hereafter quote its language. The appellants' inference, therefore,
is without the support of anything in the record.
7. The water rates established by the ordinance are not shown to
be lower than those charged in 1868, or, if lower, that the revenue
of the company is reduced.
Page 177 U. S. 580
To sustain this contention, it is claimed by appellants that
there is no testimony in the record to show that the rates
established in 1897 were lower than those charged in 1868.
Appellants say:
"The only thing which complainants rely on to establish this
fact is the recital in the report of a committee of the council
appointed in 1870 for the purpose of agreeing with the water
company upon a schedule of water rates to be charged, in which it
stated (by the joint committee)"
"that they have established water rates and charges for domestic
purposes, taking as a guide, as near as can be, the charges and
rates for domestic purposes charged in July, 1868. That your
committee have also fixed the rates and charges for other
reasonable objects and purposes, and report as follows."
It is urged this is not a statement that the rates fixed in 1870
were equal to those of 1868 -- indeed, that they may have been
higher. And it is also urged there is a distinction made between
rates for domestic purposes and rates for "other reasonable objects
and purposes," which may mean not domestic purposes, and as to
these it does not appear upon what they were based.
We are not disposed to dwell long on these claims. It is
incredible that the city should have demanded statements from the
company yearly, have passed ordinances yearly, and provoked and
endured an expensive litigation to establish rates higher than or
the same as those which already existed. If statements and
ordinances were necessary in fulfillment of the duty of the city
under the constitution of the state, neither controversy nor
litigation was necessary, nor would either have ensued.
It is urged under this head that it is not shown that the income
of the water company is less under the rates fixed by the city than
under those of 1868. The showing would be irrelevant. The contract
concerns rates, not income, and the power of the city over them
under the contract.
8. If the ordinance is invalid, it is void on its face, and
there is therefore no cloud on the company's title.
The contention is that,
"if the contract of 1868 is valid, and the ordinance of 1897
reduces the income of the company below
Page 177 U. S. 581
that which it should receive, the ordinance is void on its face
as being in conflict with the federal Constitution, and is no cloud
on complainants' title."
It is hence deduced that the water company has adequate legal
remedies, and cannot resort to an equitable one.
We concur with the learned trial judge that the ordinance is not
void on its face. As said by him:
"In the case at bar, however, the ordinance upon its face is
valid, and its invalidity appears only when considered in
connection with the contract of July the 22d 1868, and evidence
showing what the water rates were at that date. While the court
takes judicial notice of the ratifying Act of April 2, 1870, still,
since the provisions of the contract of July the 22d 1868, are not
embodied in said act, I am not sure that said provisions are
matters of judicial knowledge, although such seems to be the ruling
of the court (one of the justices dissenting) in
Brady v.
Page, 59 Cal. 52. Conceding, however, that the court will take
judicial notice of all the provisions of said contract, still the
one in question simply provides that water rates shall not be
reduced below the rates then charged, without indicating what those
rates were, and therefore the invalidity of the ordinance appears,
not upon its face, but only in connection with extraneous evidence
of what the rates were in July, 1868, and for this reason
complainants have adduced that evidence in the present case."
And further:
"The complainants must either submit to the terms of the
ordinance or incur unusually onerous expenditures. It is reasonably
certain that if, with the ordinance standing, they were to
undertake the collection of rates in excess of those prescribed in
the ordinance, they would be resisted at every point by the
consumers of water, and thus be driven to innumerable actions at
law. Besides, should they in any instance succeed in collecting,
without an action, a higher rate than the ordinance prescribes, it
is equally certain that they would thereby bring upon themselves
protracted and heavy litigation having for its object forfeiture of
their entire system of works. Surely these injuries are
irreparable, and actions at law, so far from being adequate
Page 177 U. S. 582
to the exigencies of the situation, are, as complainants in
their brief forcibly put it, mere mockeries of a remedy."
9. The company violated the contract by taking water from the
Los Angeles River, and therefore is not entitled to specific
performance.
In reply to this contention, we may adopt the language of the
Supreme Court of the State of California, used on behalf of the
court by Mr. Justice McFarland, in
Los Angeles v. Los Angeles
City Water Company, 124 Cal. 377.
The contract of 1868 and the right of the water company to take
water from the river were considered and decided. The learned
Justice said:
"Before considering the main questions in the case, it is proper
here to notice a preliminary point made by the city, and somewhat
insisted on; to-wit: that the only quantity of the water of the Los
Angeles River to which the water company is entitled under the
contract is ten inches under a four-inch pressure. This contention
cannot be maintained. The words of the contract on this subject are
simply that the company shall not take from the river 'more than
ten inches of water without the previous consent' of the city;
there is nothing in the contract about 'four-inch pressure,' nor is
there any intimation as to what the parties meant by 'ten inches'
of water. But, looking at the context and the subject matter of the
contract, it is quite evident that the parties did not mean only
ten inches under a four-inch pressure. If that had been the
meaning, there would have been no sense in the other important
covenants. At the time of the contract, it would have taken many
times ten inches under a four-inch pressure to furnish water for
domestic purposes to even the few thousand people who were then
inhabitants of the city, and much more than that amount was
necessary to supply free water under the contract, and a solemn
covenant to supply a growing city with sufficient water for
domestic and municipal purposes for thirty years from a flow of ten
inches under a four-inch pressure would have been absurd. The
company, immediately after the date of the contract, commenced to
use an amount of water greatly in excess of ten inches under a
four-inch pressure; soon after the execution
Page 177 U. S. 583
of the contract, the company was using three hundred inches
under a four-inch pressure, and from that to the present time they
have been using, with the knowledge and consent of the city, from
three hundred to seven hundred inches so measured. Therefore,
whatever (if anything) was meant by the simple words 'ten inches,'
the contract was immediately, and has been continuously, construed
by the action of the parties as meaning more than ten inches
measured under a four-inch pressure. There is no pretense that the
city ever objected to the use of this water by the water company
until 1896, when an ordinance was passed by the city government
undertaking to withdraw the city's consent to the taking of more
than ten inches from the river. It is difficult to imagine how this
ordinance was passed seriously, for if the water company had been
prevented from taking from the river at that time more than ten
inches of water under a four-inch pressure, there certainly would
have been a water famine in the city, for the city had no works of
its own and no means whatever for supplying water for either
domestic or municipal purposes. But the city, having allowed the
water company for nearly thirty years to divert the quantity of
water above mentioned and to expend vast sums of money upon the
faith of a continuance of the right to take said water, could not
withdraw its consent within the period of the contract."
The learned Justice then quoted and approved the following
remarks of the circuit court in the case at bar:
" If it be conceded, as claimed by defendants (which, however, I
do not decide) that the provision of the contract, limiting the
quantity of the water to be taken from the river without previous
consent of the city is sufficiently certain for enforcement, or,
more specially, that said quantity is ten inches measured under a
four-inch pressure, still, the consent of the city to the taking of
a larger quantity, once given, cannot be withdrawn during the life
of the contract, for the reason that large expenditures have been
made by complainants in reliance upon such consent."
"The court cites as authorities to the point:
Rhodes v.
Otis, 33 Ala. 600;
Woodbury v. Parshley, 7 N.H. 237;
Lacy v. Arnett, 33 Pa.
Page 177 U. S. 584
169;
Russell v. Hubbard, 59 Ill. 339;
Beall v.
Marietta Paper Mill Co., 45 Ga. 33;
Veghte v. Raritan
Water Power Co., 19 N.J.Eq. 153;
Williamston &c. R.
Co. v. Battle, 66 N.C. 546;
Flickinger v. Shaw, 87
Cal 126;
Grimshaw v. Belcher, 88 Cal. 217;
Smith v.
Green, 109 Cal. 228, all of which sustain the point."
Decree affirmed.
