The plaintiff took its charter with notice that it was not given
the exclusive right of supplying the City of Mobile with water, and
it had not at the time of the transactions referred to in the
pleadings, obtained that which its charter before amendment
purported to authorize it to obtain -- to-wit, an exclusive right
to all the sources of supply in the county.
The legislature had the right of revocation and amendment.
On February 21, 1899, the appellant, as complainant, filed its
bill in the Circuit Court of the United States for the Southern
District of Alabama to restrain the City of Mobile from building or
operating prior to July 1, 1908, or before the city should have
purchased the waterworks of the complainant, any system of
waterworks connected with or having for its source of supply any
stream of water in Mobile County. Upon answer and proofs, the
circuit court entered a decree dismissing the bill, whereupon an
appeal was taken directly to this Court.
Page 186 U. S. 213
The facts are these: in 1840, the City of Mobile made a contract
with Albert Stein, which was ratified by an act of the legislature
of the state, January 7, 1841. By this contract, Stein received the
exclusive right to supply the city with water from a stream called
Three Mile Creek, and the city the right to purchase his plant at a
price to be fixed by arbitration. Stein constructed his plant, and
it was for many years the sole source of supply. But it was not
satisfactory, and hence the charter to the appellant. This charter
was granted by two statutes, dated respectively February 19, 1883,
and February 14, 1885. By these statutes, the company was given all
the rights vested by contract or law in the city to purchase the
Stein franchise and plant, and for that purpose was to be
considered the assignee of the city; also generally the right to
acquire by contract with the owners any franchise and plant for
supplying Mobile with water, and in case of disagreement with the
owners as to price, the right to condemn and take the said
franchise and plant under the state's right of eminent domain. It
was given for twenty years, and until a purchase of its plant by
the city the exclusive right to supply the city with water from any
source in the County of Mobile, other than Three Mile Creek (the
Stein source of supply), and when it should acquire the Stein
franchise, the exclusive right from that creek also, subject to
this proviso:
"But nothing in this act shall be construed to prohibit the
organization hereafter of any company for the purpose of supplying
the City of Mobile or any other place with water which does not
interfere with the property rights or rights of obtaining water
pertaining to this company."
It was required to begin its work within four years and to
supply water within six years. It was also required to supply water
at a cost to the consumers, not exceeding certain maximum rates
fixed by the act, and to put fire plugs on any square at the
request of the owners of three-fourths of the improved property
thereon. After twenty years, the city was given the right to
purchase the plant of the company at a price to be fixed by
arbitration.
The owners of the Stein franchise endeavored by litigation to
prevent the erection of the appellant's plant, but a decree in
Page 186 U. S. 214
favor of the Bienville company was affirmed by this Court.
141 U. S. 141 U.S.
67.
Appellant constructed its plant and supplied the City of Mobile
with water under contracts, the last of which would not have
expired until July 1, 1900.
By an act of February 23, 1899 (Local Acts Ala. 1898-99, p.
1689), its charter was amended by striking out the word
"exclusive," thus leaving a grant, but not an exclusive grant.
By an Act of February 6, 1897, a new charter was granted to the
City of Mobile, and, by its terms, express authority was given to
the city to build or acquire public works, subject to the approval
of its citizens by a majority vote. On August 2, 1897, there was
submitted to vote and approved by a majority of citizens a
proposition that the city should purchase, build, or otherwise
acquire a system of sewerage to cost not exceeding $250,000, to be
paid for by bonds secured by a mortgage upon said public works.
By other statutes, the city was given power to issue bonds
secured by a mortgage on any plant which it should buy or
construct; also power to acquire or condemn made between the
plaintiff and the city, and in Mobile County excepting only Clear
Creek, the source of appellant's supply of water; and, third, to
condemn all interest, legal or equitable, not owned by the city in
the Stein plant.
Nothing had been done by the appellant under the right given it
to purchase or condemn the Stein franchise and property, although
its treasurer had in its behalf purchased interests in such
franchise and property amounting to 54 28/100 percent of the full
value thereof. On February 18, 1898, the city council passed a
resolution to purchase the Stein franchise and property. An
arbitration was held, and on its report, the city took possession
of the property and filed a bill against the treasurer of the
appellant to compel him to carry out the arbitration and purchase.
The circuit court, however, held the arbitration illegal and
dismissed the bill.
On February 21, 1899, appellant brought in the circuit court of
the United States a suit in equity against the city. In
Page 186 U. S. 215
the bill was set forth the contracts of appellant with the city,
and it was contended that there was an implied agreement by the
latter not to enter into competition. This suit was dismissed by
the circuit court, and its decree was affirmed by this Court.
175 U. S. 175 U.S.
109. The present bill, filed on the same date, is based on the
rights given to the appellant by its charter, and it is contended
that any legislation authorizing the city to violate such charter
rights is in conflict with that clause in the first paragraph of
Section 10 of Article 1 of the federal Constitution, which
prohibits a state from passing any law impairing the obligations of
contracts.
The Constitution of Alabama (1875), which was in force at the
time of the transactions herein referred to, contained these
several provisions:
"Article I, section 23: That no
ex post facto law, or
any law impairing the obligation of contracts, or making any
irrevocable grants of special privileges or immunities, shall be
passed by the general assembly."
"Article XIV, section 1: Corporations may be formed under
general laws, but shall not be created by special act, except for
municipal, manufacturing, mining, immigration, industrial, and
educational purposes, or for constructing canals, or improving
navigable rivers and harbors of this state, and in cases where, in
the judgment of the General Assembly, the objects of the
corporation cannot be attained under general laws. All general laws
and special acts passed pursuant to this section may be altered,
amended, or repealed."
"Article XIV, section 2: All existing charters or grants of
special or exclusive privileges, under which a
bona fide
organization shall not have taken place and business been commenced
in good faith at the time of the ratification of this Constitution,
shall thereafter have no validity."
"Article XIV, section 10: The general assembly shall have the
power to alter, revoke, or amend any charter of incorporation now
existing and revocable at the ratification of this Constitution, or
any that may hereafter be created, whenever, in their opinion, it
may be injurious to the citizens of the state, in such manner,
however, that no injustice shall be done to the
Page 186 U. S. 216
corporators. No law hereafter enacted shall create, renew, or
extend the charter of more than one corporation."
MR. JUSTICE BREWER delivered the opinion of the Court.
There is such a similarity between the two suits commenced by
plaintiff on February 21, 1899, as suggests a question whether the
decision of the one should not be conclusive as to the disposition
of the other. The parties were the same. In each, the plaintiff set
forth its charter and its contracts with the city, and each prayed
a decree restraining the city from building or operating any system
of waterworks for supplying the city. It is true the bill in the
first case counted specially on the contracts made between the
plaintiff and the city, and sought a restraint of the city only
during the life of those contracts, while the bill in this case
sets up more at large the charter rights of the plaintiff as given
by the statutes of the state, contends that those rights are
infringed by the subsequent legislation of the state and the action
of the city thereunder, and seeks to restrain the city during the
twenty years named in the plaintiff's charter and until the city
shall buy the plaintiff's plant. But each of these seeks to
restrain the city from the time of filing the bill. All the rights
which the plaintiff had by virtue of its charter, and all the
violations of such rights caused by the legislation of the state
and the action of the city, existed at the time of the filing of
the bills and during the lifetime of the contracts with the city,
and could have been presented in the first suit and been among the
matters to be considered in determining whether the plaintiff was
entitled to the injunction sought. If the plaintiff was not
entitled to an injunction during the lifetime of the contracts with
the city, it is not entitled to any similar relief after the
expiration of those contracts. In other words, the plaintiff failed
to set up in the first suit all its
Page 186 U. S. 217
grounds of relief. Can it be permitted in this to set up
additional grounds and obtain the very relief sought in the prior
suit as well as additional relief, the same in kind though longer
in duration? Will the law permit the splitting up into separate
suits of different grounds for the same relief? Will not the
judgment or decree in the first be held a final adjudication of the
rights of the parties? It appears that the decree in the other suit
was rendered in the circuit and affirmed in this Court about seven
months before the decision of the present case in the circuit
court. As against this, it may be said that the decree in the other
suit was neither pleaded nor proved, and no question of
res
judicata can be considered unless the earlier decision is
formally presented on the hearing of the later case. This doubtless
is technically true, but we take judicial notice of our own
records, and, if not
res judicata, we may, on the
principle of
stare decisis, rightfully examine and
consider the decision in the former case as affecting the
consideration of this.
But, passing this matter, and leaving out of consideration the
special contracts directly between the plaintiff and the city, let
us inquire whether any contract rights given to plaintiff by its
charter have been violated by subsequent legislation of the state,
and the action of the city under such legislation. Plaintiff
contends that, under its charter, as created by the acts of 1883
and 1885, it acquired the exclusive right to supply the City of
Mobile with water from any stream in the County of Mobile except
Three Mile Creek, and the right to purchase or condemn the Stein
franchise and plant for supplying the city with water from Three
Mile Creek; that, by the later legislation, such exclusive right
was in terms taken away, authority given to the City of Mobile to
build waterworks and supply the city with water therefrom, and that
the city had taken possession of the Stein plant, was operating
that and was building a system of waterworks of its own, and that
thereby its contract right was impaired in violation of the
prohibition of the federal Constitution.
It becomes, therefore, necessary to see not only the extent of
the rights conferred upon plaintiff, but also under what
constitutional
Page 186 U. S. 218
conditions it received its grant, and what power was reserved to
the state to modify the terms thereof. In the first place, the
plaintiff did not receive the exclusive right to supply Mobile with
water. The proviso in the charter reserved to the state the power
to charter other companies for such purpose. Obviously the
legislature contemplated the fact that, in the future, other
sources of supply and other companies might be necessary in order
to furnish an adequate supply for the growing city, and reserved to
itself the right to make such provision as it should deem expedient
therefor. It is true the companies which might be chartered were
not to "interfere with the property rights or the rights of
obtaining water pertaining" to the plaintiff. But manifestly
"property rights" refer to rights in respect to tangible property,
and, thus construed, the proviso forbade any interference by any
new company with the plant of the plaintiff. In addition, it also
forbade interference with the "rights of obtaining water
pertaining" to the plaintiff. The plaintiff had not, at the time of
these transactions, obtained the Stein franchise for obtaining
water from Three Mile Creek, and could only claim an exclusive
right of obtaining water from other sources of supply within the
County of Mobile.
The plaintiff therefore took its charter with notice that it was
not given the exclusive right of supplying the City of Mobile with
water, and it had not, at the time of these transactions, obtained
that which its charter before amendment purported to authorize it
to obtain -- to-wit, an exclusive right to all the sources of
supply within the county. In reference to this, the Supreme Court
of Alabama, in an opinion filed on June 11, 1901,
Mobile v.
Bienville Water Supply Co., 30 So. 446, and since the decree
in the circuit court, used this language:
"It cannot be pretended that, in granting a charter to the
complainant company in 1883, the legislature conferred on that
company any exclusive privilege for supplying the City of Mobile
and its inhabitants with water. All rights not exclusively granted
to the complainant were reserved, and the rights thus reserved
included the granting of a franchise to another corporation to
carry on the same business in the same territory.
Page 186 U. S. 219
While the effect of granting such a franchise afterwards to the
city might be to impair, and possibly, by fair competition, to
ultimately largely destroy, the value of complainant's plant, it
would not be in excess of legislative power to grant the franchise
to the city, nor would it in anywise infringe the federal
Constitution, prohibiting a state legislature from passing laws
impairing its obligations. If there is no contract, there is
nothing in the grant on which the Constitution could act. The
element of a contract by the state with the complainant company did
not enter into the grant of its franchise to establish and operate
a system of waterworks in Mobile.
Stone v. Mississippi,
101 U. S.
814;
Skaneateles Waterworks Co. v. Skaneateles,
161 N.Y. 154;
Charles River Bridge v. Warren
Bridge, 11 Pet. 420;
State v. Hamilton, 47
Ohio St. 52;
Scranton Electric Light & Heat Co.'s
Appeal, 122 Pa. 154; 2 Beach, Priv.Corp. secs. 22, 27."
By article I, section 23, of the Constitution of Alabama, the
legislature is prohibited from "making any irrevocable grants of
special privileges or immunities."
The significance of this provision was considered by the Supreme
Court of Alabama in
Birmingham & Pratt Mines Street Railway
Company v. Birmingham Street Railway Company, 79 Ala. 465, in
which case it appeared that the City of Birmingham had given what
was in terms an exclusive right to the plaintiff to construct a
street railway along certain streets, and afterwards had given to
the defendant the right to occupy the first grant by the city, the
supreme court said:
"If the power to grant such a franchise resided in this
municipality . . . , there can be no doubt either of the
jurisdiction or of the duty of a court of equity to protect the
invasion of the right. . . . If, however, the power in question did
not exist, then the grant would be void so far as it purports to be
exclusive in its nature,"
and it was held that the city authorities had no power to grant
the exclusive right claimed by the plaintiff. In the discussion of
the question the court further used this language:
"What, it may be asked, is the nature of these special or
exclusive privileges, which are thus prohibited to be granted
by
Page 186 U. S. 220
the legislature? It seems plain from the very terms used that
the evil intended to be specially prevented was the granting of
exclusive privileges in the nature of a monopoly by the legislative
creation of corporate franchises. Monopolies were void at the
common law, and are not commonly conferred by legislative grant,
and need no special prohibition in the organic law of a free
republic."
"
* * * *"
"The policy of the law, as now declared by our Constitution, is
as clear in the condemnation of the grant of irrevocable exclusive
privileges conferred by franchise as that of the common law was in
the reprobation of pure monopolies, which were always deemed odious
not only as being in contravention of common right, but as founded
in the destruction of trade by the extinguishment of a free and
healthy competition.
Case of The Monopolies, 11 Rep.
84."
"The exclusive right of the appellee to the privilege claimed,
in our opinion, cannot be sustained. The general assembly would
itself have no power under the Constitution to make such a
grant."
It is true that this case was not decided until the December
Term, 1885, which was after the passage of the last of the two
statutes granting the charter to the appellant, and it is also true
that, in considering questions of an alleged state infringement of
a contract, we are not concluded by the exposition by the courts of
the state of the terms of the contract or the effect of the
legislation. At the same time, the opinion of the highest court of
the state, even in contract cases, is entitled to most respectful
consideration, and should not lightly be ignored.
It is contended by the appellant that section 23 of article I
must be considered as qualified by section 10 of article XIV, the
section which gives the general assembly power to alter, amend, or
revoke a charter "whenever, in their opinion, it may be injurious
to the citizens of the state, in such manner, however, that no
injustice shall be done to the corporators." It is said that while,
under this provision, the judgment of the general assembly upon the
question whether the charter is injurious to the citizens of the
state may not be subject to judicial examination,
Page 186 U. S. 221
yet whether injustice has been done to the corporators is, in
the very nature of things, a judicial question, and one which no
action of the legislature can preclude the courts from considering.
As a corollary from this, it is argued that if, in the opinion of
the courts, the attempted revocation works injustice to the
corporators, it will be adjudged an invalid exercise of legislative
power. This section is a new one in this Court. It is found in the
constitutions of more than one state, and has been reviewed in some
state courts. So far as they have expressed themselves, the
expressions have been in favor of the right of a judicial review.
Wagner Institute v. Philadelphia, 132 Pa. 612, is cited by
the appellee, but that case simply holds that whether the charter
is injurious to the citizens is a question of legislative
determination. Further than that the opinion does not go.
Leep
v. Railway Company, 58 Ark. 407, is also cited. In that case,
a statute which in effect amended railroad charters was sustained.
In the opinion, the propriety of the amendment was discussed, a
limitation to its scope declared, and in reference to a possible
construction thereof, the court observed (p. 436):
"An amendment to that extent would be manifestly unjust to the
companies and violative of the Constitution, which, while it grants
the right to amend when in the opinion of the legislature the
charter is injurious to the citizens, limits the right to do so to
amendments that are just to the corporators."
Subsequently, in
St. Louis, Iron Mountain & Southern
Railway Company v. Paul, 64 Ark. 83, another section of the
same statute was presented and sustained,
Leep v. Railway
Company being cited with approval. This case was brought to
this Court on error, and affirmed.
173 U. S. 173 U.S.
404. In
Macon &c. Railroad Company v. Gibson, 85 Ga.
1, the application of a similar constitutional provision was
considered, and upon it the court observed (p. 16):
"No constitutional principles are infringed by exercising a
reserved power to revoke special privileges or immunities unless
the provision of our own Constitution is violated which forbids
doing it in such manner as to work injustice to the corporators or
creditors of the corporation. Whether the mode adopted
Page 186 U. S. 222
by the legislature in a given instance is just in this respect
or not, whilst primarily a legislative question, may, if palpably
decided wrong, become a judicial question."
It does not appear that the Supreme Court of Alabama has passed
upon this specific question. We do not think it necessary to
determine absolutely the precise meaning of this section or the
limits of judicial inquiry under it. It may be simply declaratory,
for courts have often held that it was beyond the power of the
legislature, under the guise of an act amending or repealing a
charter, to take away the property of the corporation. Clearly the
question is, in the first instance, presented for the consideration
of the legislature, and a presumption of validity attends its
action.
Obviously, from the several constitutional provisions which are
quoted in the statement of facts, it was intended that the
legislature should have the right of revocation and amendment, and
that whoever took a charter should take it subject to that right.
To what could such revocation or amendment extend? The possible
rights of a corporation group themselves into three classes: first,
the right to the tangible property which it may acquire, second,
the right to do the specific things which are named in the charter,
and, third, the right to exclude others from doing like things. It
has been held that the right of revocation or amendment carries
with it no right to appropriate the tangible property belonging to
the corporation. As said by Chief Justice Waite, speaking of the
power of amendment in
Sinking-Fund Cases, 99 U. S.
700,
99 U. S.
720:
"All agree that it cannot be used to take away property already
acquired under the operation of the charter, or to deprive the
corporation of the fruits actually reduced to possession of
contracts lawfully made."
Nothing of this nature was, however, attempted by this
legislation. The plaintiff was left in undisturbed possession of
its tangible property. So we need not stop to consider what
protection could be afforded if the attempt had been made to take
away its property.
The second class includes the powers of action granted to the
corporation -- in other words, the right to use the tangible
property for the purposes of the charter. But none of these powers
were taken away from the plaintiff. It was left free to use
Page 186 U. S. 223
its plant in supplying the citizens of Mobile with water, and to
charge and collect pay for its services. Hence, no inquiry is
pertinent in respect to the limitations, if any there be, on the
right of the legislature to take away such powers.
The remaining class is of those rights which flow from exclusive
provisions in the charter -- the right to prevent others from doing
the same things. It cannot be doubted that such a right is
valuable; that, for instance, it would be worth something to the
plaintiff to have not only the right of supplying Mobile with
water, but also the right to exclude others, and thus prevent all
competition. That which gives to a government patent for an
invention its chief value is not the right to manufacture and sell
the thing invented, but the right to exclude others from so doing
-- the monopoly for the prescribed term of years. But the grant of
a monopoly is forbidden by the Alabama Constitution. As said by its
supreme court in the quotation just made: "The general assembly
would itself have no power under the constitution to make such a
grant."
By a separate section of the Constitution, it is affirmatively
declared that the legislature shall pass no act "making an
irrevocable grant of special privileges or immunities." While that
body may grant special privileges and immunities, grant franchises
to build waterworks, construct railways, or other works of public
utility, and, by a failure to duplicate a grant, make it in effect
for the time being exclusive, yet no one legislature can forestall
action by a succeeding legislature or bind the state by making the
grant in terms exclusive. As much force and effect must be given to
section 23 as to any other, and it was obviously the intent that,
even if exclusive privileges were granted, the monopoly feature
thereof should always be subject to revocation. In this section,
there is no suggestion of amendment or alteration. That which is
distinctly provided is the absolute power of revocation. To hold
that the exclusive feature of plaintiff's grant could not be
revoked because thereby injustice might be done to the corporators
is simply to nullify section 23.
For these reasons, we are of the opinion that the decree of the
circuit court was right, and it is
Affirmed.
