A grant conferring a privilege is not necessarily a grant making
that privilege exclusive.
Grants by the state to municipal corporations, like grants to
private corporations, are to be strictly construed, and the power
to grant an exclusive privilege must be expressly given, or, if
inferred from other powers, must be indispensable, and not merely
convenient, to them.
Citizens' Street Railway v. Detroit,
171 U. S. 48.
The Kansas statutes for the government of cities, as construed
by the highest court of that state, do not confer on cities of the
second class the power to grant exclusive franchises, and, in the
absence of such power expressly conferred, the exclusive features
of an ordinance of such a city granting an exclusive franchise are
invalid.
Vicksburg v. Waterworks Co., 206 U.
S. 496, distinguished.
144 F. 256 affirmed.
144 F. 256, affirmed.
The ultimate question in these cases is the validity of
Ordinance No. 402 of the City of Hutchinson, which took effect
March 17, 1897, and by which the Water, Light & Gas Company
claims to have, for the period of twenty years from such date, the
exclusive right and privilege of supplying the city and its
inhabitants with water, and with light, heat, and power by means of
electricity and gas.
On the nineteenth of December, 1905, the city enacted and
published Ordinance No. 651, granting permits to Emerson Carey and
others, their successors and assigns, to construct and operate a
street railway in and along the streets of the city, and to
construct and operate electric and gas plants for the purposes for
which electricity may be used.
These suits were brought to command the city and those claiming
under Ordinance No. 651, to "desist from doing any
Page 207 U. S. 386
acts or exercising any pretenses of right to act" under the
ordinance which will in anywise affect the exclusive right of the
Water, Light & Gas Company
"to furnish the city and its inhabitants with electric or gas
light for lighting and heating purposes or power, except for street
cars and electric railways, and also from making or proceeding to
make any contract for furnishing light or gas to said city and its
inhabitants"
until the expiration of the "franchises and contracts" of that
company.
The cases went off on demurrers to the bills. The circuit court,
assuming that Ordinance No. 402 was exclusive in its terms and was
intended to be so by the city, held that the city did not possess
the power, either inherent or under the law of its creation, to
make a contract binding and exclusive of all others, and entered
decrees dismissing the bills. 144 F. 256.
The facts are: in 1885, the city granted to the Holly
Manufacturing Company, its successors and assigns, an exclusive
right to build and operate waterworks for twenty years. The company
erected and operated the works until the subsequent assignment of
its rights.
In the same year, the city granted to the Interstate Gas Company
the right to erect and maintain gas works for the period of
twenty-one years, and in 1886 granted to Drake and Orton the right
for the period of twenty years to construct and operate an electric
light plant. The latter right, and those granted to the two
companies, passed by successive assignments, with the knowledge and
consent of the city, to the Water, Light & Power Company, and
existed in that company at the time of the passage of Ordinance No.
402.
The various companies expended in the aggregate on the
construction of their plants and equipment $400,000, to secure
which the Hutchinson Water, Light & Power Company executed a
mortgage upon all the water, light, and gas rights and franchises
and properties.
Subsequently, the city became financially embarrassed, so
Page 207 U. S. 387
that, before the year 1897 it had become indebted for hydrant
rentals in the sum of $12,800 in excess of its ability to pay.
On account of this default of the city, the company became
embarrassed and hindered in the payment of interest on its
mortgage, and its mortgage bondholders took possession of its
property, and operated the plant during the year 1896 and until the
readjustment of its affairs in the spring of 1897, resulting in the
passage of Ordinance No. 402.
By reason of its embarrassment, the company found it expedient
to scale down its bonded indebtedness and secure a new franchise
from the city, and, in consideration of securing the same and the
readjustment of the contract obligations between the company and
the city, the bondholders agreed to reduce and scale down their
mortgage indebtedness from $400,000 to $212,500.
On March 5, 1897, at the earnest and repeated solicitation of
the city, and in consideration of its inability to discharge its
past indebtedness to the company and to pay the current
indebtedness thereafter, the company agreed with the city to remit
one-half of the indebtedness then due -- that is, to scale it down
to $6,400, and to reduce the sum thereafter annually payable for
hydrant rental from $12,800 to $6,000 for the years of the
contract, and to reduce the rental for hydrants thereafter located
from $60 to $36, and reduce the number of hydrants from twelve to
ten per mile. These concessions and abatements were made on the
condition of a renewal and extension of the franchise and contract
rights of the company. And the city was to have what it did not
have before -- the right to purchase or otherwise acquire the light
and gas properties at any time after ten years from the date of the
renewal and adjustment. In view of these considerations and in
pursuance of them, the city passed Ordinance No. 402, to take
effect March 17, 1897, and by that ordinance
"granted to the company, its successors and assigns, for the
period of twenty years from said date, the exclusive privilege of
supplying the city and its inhabitants with the public utilities
of
Page 207 U. S. 388
water, light, heat, and power by means of electric current and
gas."
But it was agreed that the right for furnishing electric current
or power should not be exclusive as to or for the operation of
street railways, nor exclusive as to any person residing in the
city, or any company doing business therein manufacturing gas or
electricity for his or its own use for light or fuel. A copy of the
ordinance was attached to and made part of the bill. The
concessions and abatements would not have been made by the company
except for the consideration of the exclusive rights and privileges
granted, and the total of the reductions of monetary demands made
for what was due and to become due for the period the water
franchise had to run amounted to $65,240, which the company
remitted from its contract rights and demands against the city. The
mortgage bondholders of the Water, Light & Power Company, for
the purpose of effectuating the promises and agreements between the
company and the city contained in Ordinance No. 402, scaled down
their indebtedness from $400,000 to $212,500, and cancelled their
mortgage, and accepted a substitute mortgage on the property,
franchise, and contracts and on its income of $212,500.
The Water, Light & Power Company, on the fourth of October,
1902, sold and transferred to the Water, Light & Gas Company,
the complainant, all of its property rights and franchise, and
complainant has since that date been in possession of the same, and
in the fulfillment of the duties and obligations imposed on it by
its purchase and said ordinance liabilities with the consent of the
city, and the city has ratified and approved the same, and
contracted and dealt with the complainant as the successor of the
Water, Light & Power Company. The Water, Light & Gas
Company has, since its purchase, expended large sums of money in
the improvement and enlargement of its properties and the service
rendered by it, and has, under the direction and order of the city,
extended its water mains and placed hydrants upon such extensions,
and, as agreed by it, has reduced the number of hydrants on
Page 207 U. S. 389
its extended mains from twelve to ten per mile, and generally
has complied with the orders and requests of the city, whether or
not, under the Ordinance No. 402, it was required to comply with
such orders, all of which was done in reliance on the obligations
of the city and its good faith in carrying out all the terms and
conditions and provisions of Ordinance No. 402; but the city,
notwithstanding, through its mayor and councilmen, on or about the
19th of December, 1905, enacted and published Ordinance No. 651, by
which it assumed to grant to Emerson Cary and others the right and
privilege, for the term of twenty years thereafter, of establishing
and operating in the city a plant and appliances for the
manufacture and sale to the city and its inhabitants of electric
light and power and manufactured and natural gas, with the right
and privilege to lay and construct gas mains and pipes and erect
poles and wires and all other things necessary to the maintenance
of said public service in the streets, alleys, and public places of
the city, in opposition to the business of complainant.
It is alleged that Ordinance No. 402 constitutes a contract
between the city and the complainant in respect to all the rights
secured, and in particular in respect to the exclusive rights and
privileges thereby conferred, and that the city, by and through
Ordinance No. 651, illegally and inequitably impairs the same, in
violation of the provisions of the Constitution of the United
States, which forbids the impairment of the obligation of contracts
by the several states of the Union.
Neither the city nor any of the grantees in Ordinance No. 651
have paid or tendered complainant the monetary abatement, or the
reductions and concessions paid or secured to the city in
consideration of the enactment of Ordinance No. 402, or to secure
complainant from loss from the competition of the rival public
service association or company. At the time the public service
enterprises were undertaken by the grantors of complainant, the
City of Hutchinson had about 5,000 inhabitants, and at the time
complainant succeeded to their rights, about 10,000, and at both of
said times it would have been
Page 207 U. S. 390
impossible, and is now impossible, to maintain rival or
competing companies in the city so as to enable either to earn a
fair and reasonable income on the cost of their respective
properties, and at none of the times when the complainant or its
grantors undertook the work of furnishing said public necessities
would it or they have done so without being secured in the
enforcement thereof for a reasonable time against the competition
of rival companies, nor could the large sums of money have been
obtained therefor except under like security. The company has not,
up to this time, and will not for many years to come, have secured
the repayment of the purchase price of said public service and the
cost of the betterments, extensions, and improvements.
The company alleges that it does not seek to prevent the
granting by the city of a franchise or contract for the erection
and maintenance of an electric railway in the city or
elsewhere.
An injunction was prayed against the doing or exercising any
pretenses of right under Ordinance No. 651 which would in any way
affect the exclusive rights of the company to furnish electricity
and gas for lighting and heating purposes.
Page 207 U. S. 392
MR. JUSTICE McKENNA delivered the opinion of the Court.
The circuit court assumed that Ordinance No. 402 was in terms
exclusive, and was intended to be made so by the city. We shall
assume the same thing. Indeed, it would be impossible to decide
otherwise. It recites that the Hutchinson Water, Light & Power
Company "is the owner of certain exclusive franchises and contracts
with the City of Hutchinson," under which it has expended large
sums of money, and that the city
"is desirous of modifying and changing said franchise and
contracts to the advantage of said City of Hutchinson without
cancelling or abridging any of the rights or privileges vested in
said company,"
and that therefore, in consideration of the surrender of all
existing contracts and franchises except as therein specified,
"there is hereby given and granted" to the company,
"its successors or assigns, the exclusive right and privileges
for the term of twenty years from the date of the passage and
approval of this ordinance, of
Page 207 U. S. 393
supplying the City of Hutchinson, Reno County, Kansas, and the
inhabitants thereof, by a system of waterworks, with water . . .
with electric current for electric light and power, and for all
other purposes for which electric current may be used, except power
for the operation of street railways."
The city, it is clear, in express terms and for consideration
received, granted exclusive rights. The power of the city to do
this is denied, and this makes the question in the case. The
circuit court ruled against the existence of the power, applying to
the statutes conferring power upon the municipalities of the state
the rule of strict construction. The ruling is challenged by
appellants, and it is contended that the general welfare clause
and
"the municipal power to furnish light carries with it the
obligation to enter into all contracts and to exercise all
subsidiary powers which the circumstances of the case require."
And it is further contended that, in Kansas, statutes delegating
to cities the power to furnish light and water have been liberally
construed by the supreme court of the state.
That grants to municipal corporations, like grants to private
corporations, are subject to the rule of strict construction, was
announced by this Court in
Citizens' Street Railway v. Detroit
Railway, 171 U. S. 48,
following and applying the doctrine of previous cases. It was said
that the power to grant an exclusive privilege must be expressly
given, or, if inferred from other powers, must be indispensable to
them, and that this principle was firmly fixed by authority.
See also Dillon on Municipal Corporations, § 80 fourth
edition. The case was concerned with a grant to a street railway,
and, in the argument of the cases at bar, a distinction is asserted
between an exclusive privilege to occupy the surface of streets and
interfere with "a matter of common right" and a privilege to use
the streets below the surface "as incidental only and subsidiary to
the performance of a contract pertaining to another matter," and on
this distinction, it is argued, the "first must show an express
grant of authority" to make the right exclusive,
Page 207 U. S. 394
but that the second is not limited by such requirement. The
distinction is only one of degree, and has not been considered as
varying the application of the rule of construction announced. In
Freeport Water Co. v. Freeport, 180
U. S. 598, a statute of Illinois was considered which
gave power to cities and villages to provide for the supply of
water at such rates as might be fixed by ordinance and for a period
not exceeding thirty years. And, passing upon these provisions as
constituting a contract precluding a change of rates from time to
time, we said:
"The rule which governs interpretation in such cases has often
been declared. We expressed it, following many prior decisions, in
Citizens' Street Railway v. Detroit Railway, 171 U. S.
48, to be that the power of a municipal corporation to
grant exclusive privileges must be conferred by explicit terms. If
inferred from other powers, it is not enough that the power is
convenient to other powers; it must be indispensable to them."
See also Rogers Park Water Company v. Fergus,
180 U. S. 624;
Joplin v. Light Co.,191 U.S.
150, and cases cited;
Owensboro v. Owensboro Waterworks
Co., 191 U. S. 358. The
doctrine was recognized as existing in
Walla Walla v. Walla
Walla Water Co., 172 U. S. 1, and in
Vicksburg v. Vicksburg Waterworks Co., 202 U.
S. 453. In the two latter cases, the power of the
respective cities to make a contract precluding them from building
waterworks and operating their own water systems was declared. In
the
Vicksburg case, it was pointed out that the power of
the city to exclude itself from building waterworks of its own was
recognized to exist by the Supreme Court of Mississippi.
In
Vicksburg v. Vicksburg Waterworks Co., 206 U.
S. 496, a contract of the city fixing a maximum rate was
sustained upon the authority of the decisions of the supreme court
of the state, holding that, under a broad grant of power
conferring, without restriction or limitation upon the city, the
right to make a contract for a supply of the water, it was within
the right of the city council, in the exercise of that power, to
make a binding contract fixing the maximum rate at which the
water
Page 207 U. S. 395
should be supplied to the inhabitants of the city for a limited
term of years.
This case is especially relied on by appellant as establishing a
right in the City of Hutchinson to grant an exclusive franchise
under the statutes of the state, both from their letter and as
construed by the supreme court of the state. A consideration of the
statutes and decisions therefore becomes necessary. Those quoted by
the circuit court in its opinion are inserted in the margin.
* They confer
power to provide for the general welfare, and enable a city to
construct water and lighting plants of its own or "to make
contracts with any person or company for such purposes," and give
such person or company "the privilege of furnishing light for the
streets, lanes, or alleys of said city for any length of time not
exceeding twenty-one years."
In addition to these sections, appellant cites others,which give
to the city the power to make all contracts in relation to its
property and affairs necessary to the exercise of its corporate
Page 207 U. S. 396
or administrative powers, the power to open and improve streets,
purchase or condemn land for hospital and waterworks, to make
regulations to secure the general health of the city, to enact
ordinances for any of the above-mentioned purposes, and "for
maintaining the peace, good government, and welfare of the city,
and its trade and commerce." Also a section which gives to gas and
water companies the power to manufacture and furnish gas and water
and to lay down pipes and mains in the streets "with the consent of
the municipal authorities thereof and under such regulations as may
be prescribed," and a section giving power to such authorities
"to contract with any such corporation for the lighting or
supplying with water the streets, lots, lanes, squares, and public
places in any such city, town, or village."
It is from these provisions that the water company deduces the
power of the city to make the privileges granted exclusive, and
special stress is put upon the provision of § 65, which we have
quoted. Counsel say:
"Language more explicitly expressing an absolute measure of
power could hardly be framed. The power is given to light the
streets, to make contracts for the lighting of the streets, and to
confer the privilege of lighting the streets for a specific term of
years."
And, further counsel say:
"It will be observed that the grant of power is to confer 'the
privilege of furnishing light.' The definite article 'the' is used.
Power to confer the privilege implies
ex vi termini, the
exclusive privilege, not a fractional or communal privilege. The
privilege conferred exists as a concrete and integral whole, and
therefore, when conferred, must pass in its entirety. The city
possessed the privilege of lighting its own streets as a function
of its municipal authority. It was that privilege in its integral
and exclusive form which the legislature authorized the city to
confer."
We cannot concur. The kind of privilege is defined, not the
extent of it. It is exclusive of some persons, but not of all. It
is exclusive of those who have not a grant from proper authority.
There are privileges which may exist in their full entirety in more
than one person, and the privilege
Page 207 U. S. 397
or franchise or right to supply the inhabitants of a city with
light or water is of this kind. A grant of power to confer such
privilege is not necessarily a grant of power to make it exclusive.
To hold otherwise would impugn the cited cases and their reasoning.
It would destroy the rule of strict construction. The foundation of
that rule requires the grant of such power to be explicit --
explicit in the letter of the grant -- or, if inferred from other
powers or purposes, to be not only convenient to them, but
indispensable to them. And these conditions are imperative -- too
firm of authority to be disregarded upon the petition of equities,
however strong.
It is, however, contended that the statutes of Kansas fulfill
the rule by the construction put upon them by the supreme court of
the state, and the case is therefore brought, it is further
contended, within the rule of
Vicksburg v. Vicksburg Waterworks
Co., 206 U. S. 496. The
Kansas cases relied on are
Eureka Light & Gas Co. v.
Eureka, 5 Kan.App. 669;
State v. Topeka, 68 Kan. 177;
Cherryvale Water Co. v. Cherryvale, 65 Kan. 219. In those
cases, the court did say, in determining what duties were imposed
or powers conferred upon the city, that the statute should be
liberally construed to effectuate the general purpose of the
legislature, but the powers under consideration were different from
the powers herein involved, otherwise those cases would not be
reconcilable with
Paine v. Spratley, 5 Kan. 525, 545, and
Mining Gas Company v. Gas Mining Company, 55 Kan. 175,
178. In
Paine v. Spratley, the general principles
respecting the power of municipal corporations were said to be
those which we have expressed. In
Mining Gas Company v. Gas
Mining Company, one of the companies, claiming an exclusive
right, sought to test the validity of two city ordinances, granting
the other the use of the streets, and to restrict it from using the
privileges granted. For this purpose, the court said the plaintiff
company clearly had no standing in court, because the city
authorities alone were charged with the duty of preventing
encroachment on the
Page 207 U. S. 398
streets, and they alone could test the validity of the
ordinance. The court said further:
"The city did not, in terms, attempt to give the plaintiff
company a right to the exclusive use of the streets and alleys for
the purpose of laying its pipes. If it had attempted to do so it
could not, for want of power."
The conclusion from these cases is reinforced by a change in the
statutes conferring power upon the cities of the state. Section 65,
supra, was § 30 of the statutes of 1868, and as such gave
to a city the power to make the contracts therein expressed, and
give "the exclusive privilege of furnishing gas to light the
streets, lanes, and alleys of said city for any length of time, not
exceeding twenty-one years." This provision was repeated in § 59 of
the statutes of 1872. But in 1885, that section was amended, so as
to omit the words "the exclusive privilege." Statutes 1885, p. 147,
§ 7. And, as thus amended, it was reenacted in 1901. Section 1000,
General Statutes of 1901.
Decrees affirmed.
*
"SEC. 35. The mayor and council of each city governed by this
act shall have the care, management, and control of the city and
its finances, and shall have power to enact, ordain, alter, or
repeal any and all ordinances not repugnant to the Constitution and
laws of this state, and such as it shall deem expedient for the
good government of the city, the preservation of the peace and good
order, the suppression of vice and immorality, the benefit of trade
and commerce, and the health of the inhabitants thereof, and such
other ordinances, rules, and regulations as may be necessary to
carry such power into effect."
General Laws of 1901, p. 225.
"SEC. 65. The council may provide for and regulate the lighting
of the streets, and the erection of lamp posts, and the numbering
of the buildings in the city, and the construction of sewers, and
the council shall have power to make contracts with any person,
company, or association for such purposes, and give such person,
company, or association the privilege of furnishing light for the
streets, lanes, or alleys of said city for any length of time not
exceeding twenty-one years."
General Laws of 1000, p. 232.
"SEC. 83. That cities of the second class of the State of Kansas
are hereby granted full power and authority, on behalf of said
cities, to purchase, procure, provide, and contract for the
construction of and construct waterworks, electric light, and gas
plants for the purpose of supplying such cities and the inhabitants
thereof with water, light, and gas for domestic use and any and all
other purposes."
General Laws of 1017, p. 237.
