Under the then Constitution of Kentucky, in 1886, the
legislature had the sole right to create corporations and grant
franchises to use the streets of municipalities; a charter granted
by the state, subject to conditions to be imposed by the
municipality, became, after the acceptance of the conditions, a
grant not of the municipality, but of the state, and one which
cannot be impaired by an ordinance made by the municipality.
The new constitution of 1891, conferring upon municipalities the
right to grant street franchises, and the later statute repealing
special corporate privileges, did not and could not repeal rights
vested in corporations nor relieve them of the burdens imposed by
prior charter contract.
The Constitution of Kentucky of 1891, while limiting the power
to sell franchises in the future, distinctly protected previously
granted charter rights under which work had in good faith been
begun.
While franchises to be are not transferable without express
authority, franchises to have and to hold and to use are
contractual and proprietary, and can be transferred, and
held in this case that the franchise granted to a
telephone company was property, taxable and alienable under the
conditions on which it was granted, and, under the contract clause
of the Constitution, could not be abrogated as against a transferee
whose rights had been recognized by the municipality.
Permitting the transferee of a franchise to act thereunder and
expend large sums of money and exacting from it a bond to comply
with the conditions of the franchise will operate to estop a
municipality from denying that the franchise was transferable and
the transferee had succeeded to all the rights of the transferring
corporation.
Where the state, and not a municipality, has granted an
assignable right in perpetuity to use the streets of that
municipality, the grant
Page 224 U. S. 650
is not affected by the status of the city being changed so to
give it the greater rights than when the grant was made.
In construing the duration of a telephone franchise, the nature
of the system to be operated must be considered as well as the
facts that the necessary structures are permanent in nature and
require large investments, and that revocation of the franchise at
will would operate to nullify it and defeat the purpose of the
state to procure the system desired, and so
held that the
legislative grant made prior to the adoption of its present
constitution by the State of Kentucky to a telephone company to use
the streets of Louisville was one in perpetuity, was assignable,
and could not be revoked by a subsequent ordinance of the City of
Louisville as against the assignee of the original corporation.
On April 3, 1886, the Legislature of Kentucky chartered the Ohio
Valley Telephone Company, fixing no limit to its corporate
existence. Its principal office was to be at Louisville, but the
company was empowered to construct and maintain within the state
and elsewhere telephone lines, exchanges, and systems, and
authorized
"to purchase or to acquire and dispose of real estate,
apparatus, patents, licenses, rights, and franchises relating to
such business; to borrow money, and to issue and sell bonds, and to
secure the payment of the same by a mortgage on all the property of
the company, and on any of its . . . franchises, easements, rights
of way, privileges. . . ."
In § 5 it was enacted that
"the said company may construct, equip, and maintain said
telephone systems and exchanges, erect poles and string wires
thereon, and operate its telephone lines over, along, or under any
highway, street, or alley in the City of Louisville, with and by
the consent of the General Council of said city."
On August 17, 1886, the city council passed an ordinance which,
after reciting this section of the charter, ordained that the act
of the legislature above mentioned, so far as it refers to the use
of the streets of Louisville,
"is hereby ratified and confirmed, and the right is hereby
granted and confirmed to the said Ohio Valley
Page 224 U. S. 651
Telephone Company, its successors and assigns, to maintain a
telephone system, and to erect poles and string wires thereon; . .
. and to operate its telephone lines over, along, or under any
street, avenue, alley, or sidewalk in the City of Louisville."
There were also provisions in this ordinance regulating the
manner of erecting poles and stringing wires in the street, and
requiring the company to carry the fire and police wires of the
city free of charge, and to give a bond in the sum of $50,000, with
surety, to save the city harmless against any damage caused by the
opening of any street for telephone purposes. This bond was to be
renewed from time to time as required by the city. It was declared
that nothing in the ordinance should be construed to give the Ohio
Valley Telephone Company, its successors or assigns, any exclusive
right in the streets.
The ordinance was accepted, the $50,000 bond was given, and the
Ohio Valley Telephone Company erected poles, strung wires, and
maintained a telephone exchange in the City of Louisville until
January 27, 1900, when it consolidated with the Cumberland
Telephone & Telegraph Company. By virtue of the Kentucky
statute then of force, a new corporation was created under the name
of the Cumberland Telephone & Telegraph Company, and the
appellee was thereafter vested with all the "property . . . of the
constituent companies, without deed or transfer, and bound for
their debts and liabilities." The statute at that time was silent
as to the transfer of "franchises," but in 1902 (Ky.Stat. § 556),
it was amended so as to provide that, upon the filing of the
certificate, the consolidated company should be vested "with all
the rights, privileges, franchises, exemptions, property, assets,
and effects of the constituent companies."
Upon this consolidation, on January 27, 1900, the Cumberland
Telephone & Telegraph Company entered into
Page 224 U. S. 652
possession of all the property of the Ohio Valley Telephone
Company, and operated the plant, poles, and wires in Louisville
until April 7, 1902, when the city council passed an ordinance that
the Cumberland Company should execute a bond for $50,000, as
required of the Ohio Valley Telephone Company under the ordinance
of August 17, 1886. This was done, and, on June 2, 1902, the
council passed a resolution that
"the bond of the Cumberland Telephone & Telegraph Company,
successor of the Ohio Valley Telephone Company, principal, and the
American Bonding Company, of Baltimore city, as surety, be and the
same is hereby accepted and approved, and the Ohio Valley Telephone
Company and its sureties are hereby relieved from all liability
under their bond of August 28, 1886."
The Cumberland Company fully complied with the agreement as to
carrying the police and fire wires of the city free of charge,
greatly enlarged the telephone system in the city, and at an
expense of more than a million dollars, improved the plant and
trebled the number of subscribers, although there was in the city
another telephone company with a large number of patrons.
In 1908, a difference arose between the city and the company,
the city claiming that the company's methods were dictatorial and
oppressive, that it rendered poor service at high rates, and was
guilty of discrimination among its patrons. This the company
denied, claiming that its service was good, its rates were low, and
that what was called discrimination consisted in different rates
for different classes of service, open on equal terms to all
members of the public alike.
No proceedings of any sort were instituted to decide the merits
of this controversy or to secure appropriate relief if, after a
hearing, the charges were found to be true. But, apparently with
the view of having only one telephone system, an ordinance was
submitted to the City Council
Page 224 U. S. 653
of Louisville in 1908 providing for the creation of a
comprehensive telephone system, repealing all existing rights, and
granting a new franchise, which was to be sold to the highest
bidder.
The Cumberland Company gave notice that it would rely on its
existing contract to use the streets, and would not be a bidder at
the proposed sale. Thereupon this ordinance was withdrawn, and
another introduced and passed, by which the city, on January 23,
1909, repealed the ordinance of August 17, 1886, under which the
Ohio Valley Telephone Company had erected poles, strung wires, and
conducted a telephone system.
The Cumberland Company thereupon filed its bill in the United
States Circuit Court for the Western District of Kentucky setting
out the facts above outlined, alleging that it was the successor to
the Ohio Valley Telephone Company, which, in reliance upon the
ordinance of August 17, 1886, had erected a telephone system; that
the Cumberland Company, as its successor under the terms of the
consolidation act, and in accordance with the contract between the
city and the Ohio Valley Telephone Company, carried on the
telephone business, and does now carry upon its poles and
underground conduits the fire alarm and police wires of the city,
free of charge, which wires have been and now are daily used by the
city in the conduct of its police and fire departments; that the
Cumberland Company has largely extended and improved the plant,
appliances, and business, and in doing so has expended $1,700,000,
"all of which was done upon the faith of and in reliance upon the
said ordinance." It alleged that the repealing ordinance of 1909
impaired the obligation of its contract and deprived the company of
its business and property without due process of law, and that,
unless enjoined, the city would remove the poles and wires and
destroy the company's business, to its irreparable damage.
Page 224 U. S. 654
A temporary injunction was granted, and the city's demurrer to
the bill for want of equity was overruled. The case was referred to
a master to take testimony as to the extent of the discrimination
and other matters as to which the city made complaint. On
consideration of his report, the court said:
"We find nothing in the answer of the defendant nor in the large
mass of testimony heard on the issues made by the pleadings which
should in any way change the views expressed in passing on the
demurrer and the motion for a temporary injunction."
He thereupon entered a final decree making the injunction
permanent. The city appealed, alleging generally that the court
erred in overruling the demurrer and in granting the injunction. It
specifically alleges that the court erred in holding (1) that the
charter granted to the Ohio Valley Telephone Company the right,
with the consent of the city, to operate a telephone system, which
could not be repealed by the city council; (2) that the ordinance
of August 17, 1886, constituted a valid and binding contract
between the city and the company, which could not be repealed by
the council; (3) that, upon the consolidation of the Ohio Valley
Telephone Company with the Cumberland Telephone & Telegraph
Company, all the rights of the former under its charter and the
ordinance passed to and are now owned by and vested in the
Cumberland Telephone & Telegraph Company, and (4) that the
ordinance of January 23, 1909, repealing that of August 17, 1886,
was void and of no effect.
Page 224 U. S. 658
MR. JUSTICE LAMAR, after making the foregoing statement,
delivered the opinion of the Court.
1. Under the present Constitution of Kentucky, street franchises
cannot be granted for longer than twenty years, and then only to
the highest bidder, after public advertisement by the city
authorities. But in 1886, when the Ohio Valley Telephone Company
was chartered, the legislature not only had the sole right to
create corporations and to grant franchises, but, without municipal
consent, it could have authorized the company to use any and all
streets in the City of Louisville. Instead, however, of exercising
this plenary power, the charter declared that the company might
maintain its telephone system, erect poles and string wires over
the streets and highways of the city, with and by the consent of
the General Council. These provisions of the charter gave the
municipality ample authority to deal with the subject, and by
virtue of this statutory power it could have imposed terms, which
the company might have been unable or unwilling to accept, in which
event the franchise granted by the state would have been nugatory.
But, when the assent was given, the condition precedent had been
performed, the franchise was perfected, and could not thereafter be
abrogated by municipal action. For, while the city was given the
authority to consent, the statute did not confer upon it the power
to withdraw that consent, and no attempt was made to reserve such a
right in the collateral contract contained in those provisions of
the ordinance relating to the company's
Page 224 U. S. 659
giving a bond and carrying the police and fire wires free of
charge. If those or other terms of this independent and separate
contract had been broken by the Ohio Valley Company or its
successors, the city would have had its cause of action. But the
municipality could not by an ordinance impair that contract nor
revoke the rights conferred. Those charter franchises had become
fully operative when the city's consent was given, and thereafter
the company occupied the streets and conducted its business not
under a license from the City of Louisville, but by virtue of a
grant from the State of Kentucky. Such franchises granted by the
legislature could not, of course, be repealed, nullified, or
forfeited by any ordinance of a General Council.
2. In 1891, a new Constitution was adopted by the State of
Kentucky, conferring upon municipalities the right to grant street
franchises, and later, under the reserve power, a statute was
passed repealing all special corporate privileges. It is claimed
that, in consequence of these laws, the street rights granted the
Ohio Valley Telephone Company have been withdrawn, or at least made
subject to municipal revocation. But we find in the cited sections
of the Constitution (156, 163, 164, and 199) and the statutes (§§
573, 2742, 2783, and 2825) nothing which sustains this contention,
which if correct, would lead to the conclusion that all structures
theretofore lawfully placed in city streets by water, light,
telephone, railway, and other public utility companies became
nuisances, and as such were removable after September, 1898, to the
damage of the community at large and the destruction of property of
immense value dedicated to public purposes. The general repeal of
all special privileges, referred to in the statute, related to
exclusive grants, tax exemptions, monopolies, and similar
immunities (Ky.Stat. § 573;
Covington v. Kentucky,
173 U. S. 231),
and not to those corporate powers and property rights needed
Page 224 U. S. 660
and conferred in order to enable the company to perform the
duties for which it had been organized. For, while this charter
conferred privileges, it also created obligations in favor of the
public, and no attempt was made by the general law to repeal the
rights which had vested nor to relieve the company of the burden
which had been imposed.
3. The provisions of the Constitution and statutes relied on as
revoking licenses from municipalities, or as conferring power upon
cities to repeal grants, are in the main prospective, and do not,
in any event, support the claim that the General Council can
destroy the rights granted the Ohio Valley Telephone Company,
whether they be treated as having been acquired under the charter
of April 3, 1886, or under the ordinance of August 17, 1886. On the
contrary, the constitution of 1891, while limiting for the future
the power to sell street franchises, distinctly protected the
interests of those public utility companies "whose charters have
been heretofore granted, conferring such rights, and work has in
good faith been begun thereunder." Inasmuch, therefore, as the
charter of the Ohio Valley Telephone Company was granted and as the
exchanges were in operation before the adoption of the
constitution, that company's rights are expressly preserved by the
organic law of the state.
4. The Ohio Valley Company, thus owning the right to use the
streets for telephone purposes, was consolidated on January 27,
1900, into the Cumberland Telephone & Telegraph Company, the
appellee, and the latter claims that, as successor, it acquired and
now holds these privileges. This is denied by the city on the
ground that, while the statute, then of force, provided for the
transfer of the "property" of the constituent companies, it was not
until the amendment of 1902 that provision was made by which their
"franchises" could pass to the consolidated company.
It is not necessary to determine whether that amendment
Page 224 U. S. 661
was intended to supply an omission, remove a doubt, or to ratify
the transfer and use under this and prior mergers.
City Railway
Co. v. Citizens' Street Railroad Co., 166
U. S. 569. For, while franchises to be are not
transferable without express authority, there are other franchises
to have, to hold, and to use which are contractual and proprietary
in their nature, and which confer rights and privileges which can
be sold wherever the company, as here, has power to dispose of its
property. In the present case, the Ohio Valley Company was by its
charter given authority to mortgage and dispose of franchises.
Among those thus held was the right to use the streets in the city
for the purpose necessary in conducting a telephone business. Such
a street franchise has been called by various names -- an
incorporeal hereditament, an interest in land, an easement, a right
of way -- but, howsoever designated, it is property.
Detroit v.
Detroit Citizens' Street Ry., 184
U. S. 394;
Louisville City R. v. Louisville, 71
Ky. 415;
West River Bridge Co. v.
Dix, 6 How. 507,
47 U. S. 534;
Morristown v. East Tenn. Tel. Co., 115 F. 304, 307. Being
property, it was taxable, alienable, and transferable, and, as
property, passed to the Cumberland Telephone & Telegraph
Company under the express provisions of the Kentucky statute which,
as of force in 1900, declared that the consolidated company should
be
"vested with all the property, business, assets, and effects of
the constituent companies, without deed or transfer, and bound for
all their contracts and liabilities."
That the street rights, however designated, passed to the
Cumberland Company is the natural and obvious construction of the
act. The plant and property of a telephone company are useless when
dissevered from the streets, and there would, in effect, have been
no property out of which to pay the debts or with which to perform
the public duties imposed if the street rights of the constituent
companies had not been transferred by the
Page 224 U. S. 662
statute to the consolidated company. The constitution (§§ 199
and 200), in providing for the incorporation and consolidation of
telephone companies, evidently contemplated, as did the statute,
that on this statutory union there should be a transfer of that
franchise, right of way, or property which alone gave value to the
plant, thereby preserving the investment which had been made for
purposes of private gain and public use. The city itself so
construed the general law, and thereupon demanded from the
Cumberland Company, as successor of the Ohio Valley Company, the
bond for $50,000 called for in the ordinance of August 17, 1886.
The company, in pursuance of the collateral contract contained in
the ordinance and of the requirements of the consolidation statute,
carried the police and fire wires of the city free of charge. With
the knowledge and acquiescence of the city, and in reliance on the
statutory conveyance of the street rights, the Cumberland Company,
at an expense of more than a million dollars, erected many new
poles, laid additional conduits, and strung miles of wire in
extending and improving the telephone system. This action of the
council could not enlarge the charter grant, but did operate to
estop the city (
Boone County v. Burlington & M. R. R.
Co., 139 U. S. 693)
from claiming that the ordinance was inoperative, and it also
prevented the council from denying that the Cumberland Company had
succeeded to every right and obligation of the Ohio Valley
Company.
5. The appellant makes the further contention that its general
demurrer should have been sustained and the bill dismissed because
the original grant of street rights, having been indefinite as to
time, was either void
ab initio, or revocable at the will
of the General Council, or that it expired in 1893, when (Ky.Stat.
§ 2742) Louisville was made a city of the first class, with new and
enlarged power. In support of this proposition, numerous
Page 224 U. S. 663
decisions are cited, in some of which it appeared that a state
had chartered a public utility corporation, but the city by
ordinance had given an exclusive or perpetual grant of a street
franchise which was held to be void because made in excess of the
statutory power possessed by the municipality. In others, the
company had been incorporated for thirty years, and the street
right was held to have been granted only for that limited period.
In others, it was decided that such privileges terminated with the
corporate existence of the municipality through whose streets the
rails and tracks were to be laid.
Detroit Citizens' Street
Railway v. Detroit Railway, 171 U. S. 48,
171 U. S. 54;
St. Clair County Turnpike Co. v. Illinois, 96 U. S.
63;
Blair v. Chicago, 201 U.
S. 400; 3 Dill., Mun.Corp. §§ 1265-1269.
None of these decisions are applicable to a case like the
present, where the Ohio Valley Telephone Company, with a perpetual
charter, has received, not from the municipality, but from the
State of Kentucky, the grant of an assignable right to use the
streets of a city which remains the same legal entity, although by
a later statute it has been put in the first class and given
greater municipal powers.
Vilas v. Manila, 220 U.
S. 345,
220 U. S.
361.
In considering the duration of such a franchise, it is necessary
to consider that a telephone system cannot be operated without the
use of poles, conduits, wires, and fixtures. These structures are
permanent in their nature, and require a large investment for their
erection and construction. To say that the right to maintain these
appliances was only a license, which could be revoked at will,
would operate to nullify the charter itself, and thus defeat the
state's purpose to secure a telephone system for public use. For
manifestly no one would have been willing to incur the heavy
expense of installing these necessary and costly fixtures if they
were removable at will of the city, and the utility and value of
the entire plant
Page 224 U. S. 664
be thereby destroyed. Such a construction of the charter cannot
be supported, either from a practical or technical standpoint.
This grant was not at will, nor for years, nor for the life of
the city. Neither was it made terminable upon the happening of a
future event; but it was a necessary and integral part of the other
franchises conferred upon the company, all of which were perpetual,
and none of which could be exercised without this essential right
to use the streets. The duration of the public business in which
these permanent structures were to be used, the express provision
that franchises could be mortgaged and sold, the nature of the
grant, and the terms of the charter as a whole compel a holding
that the State of Kentucky conferred upon the Ohio Valley Telephone
Company the right to use the streets to the extent and for the
period necessary to enable the company to perform the perpetual
obligation to maintain and conduct a telephone system in the City
of Louisville. Such has been the uniform holding of courts
construing similar grants to like corporations.
Milhau v.
Sharp (1863) 27 N.Y. 611;
Hudson Telephone Co. v. Jersey
City, 49 N.J.L. 303;
Mobile v. L. & N. R. Co., 84
Ala. 122;
Seattle v. Columbia & P.S. R. Co., 6 Wash.
392;
People v. Deehan, 153 N.Y. 528. The earlier cases are
reviewed in
Detroit St. R. Co. v. Detroit, 64 F. 634,
which was cited with approval in
Detroit v. Detroit St. R.
Co., 184 U. S. 395,
this Court there saying that "where the grant to a corporation of a
franchise to construct and operate its road is not, by its terms,
limited and revocable, the grant is in fee."
The right to conduct a telephone exchange and to use the streets
of the City of Louisville which had been vested by law in the
Cumberland Telephone & Telegraph Company could not be impaired
or forfeited by an ordinance of the General Council, nor had it
expired by lapse of
Page 224 U. S. 665
time or under any provision of law when the bill was filed. The
Circuit Court properly made the injunction permanent, and its
decree is
Affirmed.
