The Knoxville Water Company was incorporated to construct
waterworks near Knoxville with power to contract with the city and
inhabitants for a supply of water and "to charge such price for the
same as may be agreed upon between said company and said parties;"
the general act under which the company was incorporated provided
that it should not interfere with or impair the police or general
powers of the municipal authorities, and they should have power by
ordinance to regulate the price of water supplied by such company.
The company in 1882 contracted for an exclusive privilege for
thirty years to construct works, and after fifteen years to convey
to the city at a price to be agreed upon or fixed by appraisal, and
to "supply private consumers at not exceeding five cents per
hundred gallons." Subsequently the city passed an ordinance
reducing the price of water to private consumers below that rate.
In an action to enforce penalties for overcharging the later
that there was no contract on the part of the city
to permit the
Page 189 U. S. 435
charge named therein, and that the charter having been accepted
subject to the provision of the general act reserving the power in
the municipal authorities to regulate the price of water, the
subsequent ordinance was not void either as impairing the
obligation of a contract, or as depriving the company of its
property without due process of law.
The case is stated in the opinion of the Court.
MR. JUSTICE HOLMES delivered the opinion of the Court.
This is a complaint for a penalty against the Knoxville Water
Company for charging and collecting water rates in excess of the
rates fixed by the ordinances of the City of Knoxville. The water
company pleaded that the ordinances relied on violated the
obligation of contracts between the city and itself, and deprived
it of its property and liberty without due process of law, and so
was contrary to the Constitution of the United States. The case was
tried on appeal before a single judge, who made a special finding
of facts, on which the supreme court of the state entered a final
judgment for the plaintiff. 107 Tenn. 647. The company then brought
the constitutional questions here by writ of error.
The water company was incorporated in Tennessee in 1882 to
construct waterworks in or near Knoxville, with power to contract
with the city and inhabitants for the supply of water, and to
"charge such prices for the same as may be agreed upon between said
company and said parties." This incorporation was under a general
act which provides as follows:
"And this Act is in no way to interfere with or impair the
police or general powers of the corporate authorities of such city,
town, or village, and such corporate authorities shall have power
by ordinance to regulate the price of water supplied by such
Acts of 1877, c. 104, § 2. In the same year, 1882, the company
made a contract with the city by which it agreed to
Page 189 U. S. 436
construct its works and to furnish water, the city gave the
company exclusive privileges for thirty years and agreed to make
certain payments, etc., and it was mutually agreed, among other
things, that, after fifteen years, the city should have the right
to purchase the works at a price to be fixed by appraisers if not
agreed upon. The contract contained three distinct parts: first,
the promises of the company; next, those of the city, and last, the
mutual undertakings. In the first part, the company undertook as
follows: "Said company will supply private consumers with water at
a rate not to exceed five cents per one hundred gallons," subject
to an immaterial proviso. These are the words relied on by the
company. They are assumed to contain an implied undertaking on the
part of the city not to interfere with the company in establishing
rates within the contract limits.
After the contract was made, the company built its works and
furnished water. Later it took over contracts between two other
concerns and neighboring towns and consolidated with one of the
other concerns, which was a corporation. The towns, on their side,
were made a part of Knoxville, and the whole water supply was
brought under the original contract. But these facts do not alter
or affect the present case, and need not be stated in detail. The
company went on furnishing water and charging rates within the
contract limit, to the satisfaction of the city, it may be assumed,
until within a year or two, when the city passed an ordinance which
cuts down the rates which the company had been charging and asserts
its right to charge.
The trouble at the bottom of the company's case is that the
supposed promise of the city on which it is founded does not exist.
If such a promise had been intended, it was far too important to be
left to implication. In form, the words of this part of the
instrument are the words of the company alone. They occur in the
part of the contract which sets forth the company's undertakings,
not in the part devoted to the promises of the city or in that
which contains the still later mutual agreements. See Georgia
Railroad & Banking Co. v. Smith, 128 U.
; Ragan v. Aiken,
9 Lea, 609. They are
Page 189 U. S. 437
of a company which was notified by the act which called it into
being of the power expressly conferred upon the city "by ordinance
to regulate the price of water" which the company might supply.
People who have accepted, as experience shows that people will
accept, a charter subject to such liabilities cannot complain of
them or repudiate them, nor can the company which they have formed.
Rockport Water Co. v. Rockport,
161 Mass. 279. This
consideration answers a portion of the company's argument as to its
rights under the Fourteenth Amendment, and makes it unnecessary to
consider whether the regulation of water rates is properly to be
classed as a police power. It also reinforces our interpretation of
the instrument upon which the company founds its claim.
We do not mean that, under other circumstances, words which on
their face only express a limit might not embody a contract more
extensive than their literal meaning. Detroit v. Detroit
Citizens' Street Ry. Co., 184 U. S. 368
in that case, the rate was fixed by an ordinance which was the
language of the city, the ordinance was under a statute which
declared that the rates should be established by agreement between
the city and the railway company, and neither statute nor ordinance
reserved a power to the city to alter rates. In the present case,
it seems to us impossible to suppose that any power to contract
which the city may have had was intended to be exercised in such a
way as to displace the municipal power expressly reserved or given
by the general law under which the water company was created. It
would require stronger words than those used here to raise the
question whether, under the statutes in force, the city could do it
if it tried. The contracts fixing prices authorized by the statute
were contracts between the company and its customers, not, as in
the case of the railway company, a single contract between the
company and the city, and were subject to the power to regulate
them given to the city by the same statute. We assume that the
charter of the city authorized it to contract, but it was not so
specific as the statute which we have quoted, and added nothing to
the power conferred by that law.
With the construction which we give the contract between the
company and the city, the argument that the obligation of
Page 189 U. S. 438
that contract is impaired must fall. It is argued here that the
reduction of rates is not reasonable, and is or may be taking a
first step towards a compulsory purchase of the company's plant at
an unfairly low price, by cutting down its value. We may assume
with the Supreme Court of Tennessee that, if rates were reduced
unreasonably a judicial remedy would be found. We may assume
further that an attempt to affect the price of the company's plant
in that way, if the city should elect to purchase, would not be
allowed to succeed. But no such questions are before us. There is
no evidence and no presumption that the ordinance rates were
unreasonable, or were fixed with sinister intent. The judgment of
the Supreme Court of Tennessee states that the question was not
considered by it, and is expressed to be without prejudice to later
litigation concerning the reasonableness of the rates. If the
question is open here it is open only in form, and no error is
A part of the argument was directed against the validity of the
ordinance because of a failure to notify an alderman who was out of
the state, but we see no sufficient ground for undertaking to
revise the judgment of the state court on that point.
Some argument was attempted as to the ordinance impairing the
obligation of the contracts between the company and its consumers.
But such contracts, of course, were made by it subject to whatever
power the city possessed to modify rates. The company could not
take away that power by making such contracts. New Orleans v.
New Orleans Water Works Co., 142 U. S. 79
142 U. S. 91
Browne v. Turner,
176 Mass. 9, 15. The contracts recognize
the possibility of change, as the agreement is to pay for the water
in accordance with the rates "now or hereafter in force." This
constitutional objection hardly is open on the pleadings, but we
have given the company the benefit of the doubt so far as to
consider it. We discover no error in the record, and the judgment
of the Supreme Court of Tennessee must be affirmed.
MR. JUSTICE WHITE, MR. JUSTICE McKENNA, and MR. JUSTICE DAY, not
having been present at the argument, took no part in the decision
of the case.