If it sufficiently appears that plaintiff in error raised the
question of constitutionality of later legislation repealing that
on which its contract rested as impairing the obligation of that
contract, and that the state court gave effect to the repealing
legislation, the case is properly here under § 237, Judicial
Code.
Under such conditions, it is the duty of this Court to determine
for itself whether a contract existed and whether its obligation
has been impaired.
A street franchise which becomes operative upon the grant of the
consent of the city is a property right. The grant is not a nude
pact, but rests upon an obligation, expressly or impliedly assumed,
to carry on the undertaking to which the grant relates. Such grants
are made and received with the understanding that the recipient is
protected by a contractual right from the moment the grant is
accepted and during the course of performance as contemplated, as
well as after that performance.
Grants of franchises are subject to the tacit condition that
they may be lost by nonuser or misuser. The condition thus implied
is a condition subsequent.
A franchise is given in order that it may be exercised for the
public good, and failure to exercise as contemplated is ground for
revocation and withdrawal.
An indefeasible interest only becomes vested under a franchise
which has not only been duly granted, but has also been exercised
in conformity with the grant.
Whether the authorities shall proceed in case of forfeiture of
franchise for nonuser or misuser by
quo warranto or, as in
this case, by ordinance of repeal, the propriety of which can be
adjudicated in a subsequent legal proceeding, is entirely a matter
of state law.
In this case,
held that, as the right to use the
streets was to be used within a reasonable time or lost, and as it
never had been used, an ordinance of the City of New York of May
11, 1906, revoking the right of the plaintiff in error to lay wires
in, and otherwise to use, the
Page 235 U. S. 180
streets of New York under a permission granted in 1878 did not
contravene the impairment of obligation clause of the federal
Constitution.
Judgment based on 201 N.Y. 329 affirmed.
The facts, which involve rights and obligations of a corporation
licensed by municipal ordinance to maintain electric wires, and the
validity under the impairment of obligation clause of the federal
Constitution of a subsequent revocation of the license by the
municipality owing to misuser and nonuser, are stated in the
opinion.
Page 235 U. S. 185
MR. JUSTICE HUGHES delivered the opinion of the Court.
This is a writ of error to review the denial by the state court
of an application for a writ of peremptory mandamus directing the
Empire City Subway Company (Limited) to lease space in its conduits
in the City of New York to the plaintiff in error.
In the year 1884, the Legislature of the State of New York
required that "all telegraph, telephonic, and electric light wires"
in certain cities -- New York and Brooklyn -- should be placed
under the surface of the streets (Laws of 1884, c. 534). Under the
authority of a statute passed in the next year (Laws of 1885, c.
499, amended by Laws of 1886, c. 503), the Board of Commissioners
of Electric Subways adopted a plan by which the City of New York
should enter into a contract with a company to construct the
necessary subways, etc., which other companies operating electrical
wires should be compelled to use, paying therefor a reasonable
rent. Under contracts made accordingly and ratified by the
legislature (Laws of 1887, c. 716), subways, etc., were constructed
by the Consolidated Telegraph & Electrical Subway Company. The
board first mentioned was succeeded by the Board of Electrical
Control (Laws of 1887, c. 716), and, in 1890, the subways,
conduits, and ducts for low tension conductors which had been thus
provided were transferred to the Empire City Subway Company
(Limited), the defendant
Page 235 U. S. 186
in error. The latter company, by contract with the board and the
city made in 1891 under legislative authority (Laws of 1891, c.
231) agreed to build, maintain, and operate subways, etc., as
specified, it being provided that spaces therein, upon application,
should be leased "to any company or corporation having lawful power
to operate telegraph or telephone conductors in any street" in the
City of New York.
The plaintiff in error, the New York Electric Lines Company,
claiming to be entitled to space in these subways, made application
therefor on or about June 10, 1910. The request was refused, and
the present proceeding for a peremptory mandamus was brought. The
assertion of right rested upon a permission granted by the City of
New York, through its Common Council, to the plaintiff in error, on
April 10, 1883, to lay electrical conductors in the city's streets.
This permission, the city, by its Board of Estimate and
Apportionment, which had succeeded to the powers of the former
Common Council in the matter, had formally revoked by a resolution
adopted on May 11, 1906, reciting that whatever rights the company
had secured under the permission in question had long since been
forfeited by nonuser. The Court of Appeals of the state, holding
that the Board of Estimate and Apportionment had this power of
revocation, and had duly exercised it, affirmed an order refusing
the writ of mandamus. 201 N.Y. 321. The plaintiff in error insists
that the resolution thus sustained was an unconstitutional
impairment of the obligation of its contract with the city.
We think that it sufficiently appears that this question was
raised in the state court, and as the state court gave effect to
the repealing resolution the case is properly here. It is therefore
the duty of this Court to determine for itself whether a contract
existed and whether its obligation has been impaired.
Douglass
v. Kentucky, 168 U. S. 488,
168 U. S.
502;
Page 235 U. S. 187
St. Paul Gas Light Co. v. St. Paul, 181 U.
S. 142,
181 U. S. 148;
Grand Trunk Western Ry. Co. v. South Bend, 227 U.
S. 544,
227 U. S. 551;
Atlantic Coast Line v. Goldsboro, 232 U.
S. 548,
232 U. S. 556;
Louisiana Railway & Navigation Co. v. Behrman, ante,
p.
235 U. S. 164.
The plaintiff in error was incorporated in the year 1882 under a
general law of the State of New York (Laws of 1848, c. 265, as
amended by Laws of 1853, c. 471). Its certificate of incorporation
stated, among other things, that it was incorporated for the
purpose of
"owning, constructing, using, maintaining, and leasing lines of
telegraph wires or other electric conductors for telegraphic and
telephonic communication and for electric illumination, to be
placed under the pavements of the streets . . . of the Cities of
New York and Brooklyn,"
and "for the purpose of owning franchises for laying and
operating the said lines of electric conductors." Chapter 483 of
the Laws of 1881 had authorized any company so incorporated "to
construct and lay lines of electrical conductors underground in any
city," provided that it "first obtain from the Common Council" of
such city the "permission to use the streets" for the purposes set
forth. The permission in question, which, as already stated, was
granted by the Common Council of the City of New York on April 10,
1883, was (omitting parts not here material) as follows:
"
Resolved, that permission be and hereby is granted to
the New York Electric Lines Company, to lay wires or other
conductors of electricity, in and through the streets, avenues, and
highways of New York City, and to make connections of such wires or
conductors underground by means of the necessary vaults, test
boxes, and distributing conduits, and thence above ground with
points of electric illuminations or of telegraphic or telephone
signals in accordance with the provisions of an ordinance . . .
approved . . . December 14, 1878."
It was also resolved that the company should not
Page 235 U. S. 188
"transfer or dispose of the franchise hereby granted without the
further authority of the Common Council."
On April 24, 1883, the plaintiff in error presented to the
Common Council, and the latter spread upon its minutes, a formal
acceptance of the permission, which, after the recitals,
states:
"Now therefore the said New York Electric Lines Company by these
presents accepts the said franchise as contained in the ordinance
and resolutions adopted by the honorable the Board of Aldermen,
April 10, 1883, and agrees to, assumes, and obligates itself in the
observance of all the requirements, provisions, restrictions,
conditions, and limitations contained in the said last-mentioned
ordinance as adopted April 10, 1883, as well also as to the
provisions, conditions, and obligations of said general ordinance
approved by the Mayor December 14, 1878."
The ordinance of 1878, referred to, regulated the method of
laying wires under the streets, and provided that within six months
after the grant of permission, grantees should file with the county
clerk "maps, diagrams, and tabular statements indicating the amount
and position of the spaces proposed to be occupied by them." In
May, 1883, the plaintiff in error, in asserted compliance with the
ordinance, filed a map, diagrams, and statement. It is alleged in
the affidavits presented on the application for mandamus that the
plaintiff in error secured inventions and patent rights, that it
had an office and factory, that it prosecuted experimental work in
relation to its project, and expended in this way large sums of
money. But, in the actual construction of conduits or laying of
wires, nothing was done prior to the legislation of 1885 and 1886,
which, as we have seen, provided for a comprehensive plan for the
building of subways in which electrical conductors should be
placed.
Section 3 of the Act of 1885 expressly made it obligatory upon
any company "operating or intending to operate electrical
Page 235 U. S. 189
conductors," and desiring or being required to place its
conductors underground, to file with the board of commissioners a
"map or maps, made to scale," showing the proposed plan of
construction of its underground electrical system, and "to obtain
the approval by said board of said plan" before any underground
conduits should be constructed. The plaintiff in error did not
submit a plan to the board as required by the statute. In July,
1886, it applied to the Commissioner of Public Works for a permit
to make the necessary excavations in the streets for the purpose of
laying conductors, and, on the application's being denied,
petitioned for a writ of peremptory mandamus to direct the
Commissioner to grant it. It was insisted in its petition in that
proceeding that it had "never operated or intended to operate
electrical conductors," its intention having always been "to lease
to other persons, natural or corporate, all of its electrical
conductors, and not to operate itself any" of them; that the Acts
of 1885 and 1886 (above mentioned), relating to the construction of
subways, did not apply to the plaintiff in error, and that, if they
were applicable, they violated the federal Constitution, being an
impairment of its contract with the city and operating to deprive
the plaintiff in error of its property without due process of law.
The state court held that the statutes in question were applicable
to the plaintiff in error and were constitutional, and refused the
mandamus.
People ex Rel. New York Electric Lines Co. v.
Squire, 107 N.Y. 593.
This Court affirmed the judgment (
id., 145 U. S. 145 U.S.
175), saying (pp.
145 U. S.
187-188):
"In no sense of the term do we think it can be safely averred
that the Acts of 1885 and 1886 are not applicable to the relator. .
. . Neither can it be said that the Acts of 1885 and 1886 have a
retroactive effect, at least so far as the relator is concerned,
since whatever rights it obtained under the ordinance of 1883,
which it accepted
Page 235 U. S. 190
as the basis of the contract it claims to have entered into,
were expressly subject to regulation in their use by the highest
legislative power in the state, acting for the benefit of all
interests affected by those rights, and for the benefit of the
public generally, so long as the relator's essential rights were
not impaired or invaded.
New Orleans Gas Company v. Louisiana
Light Company, 115 U. S. 650;
Stein v.
Bienville Water Supply Company, 141 U. S.
67."
And conceding for the purpose of the discussion, but "without
deciding," that the plaintiff in error had a contract with the city
"for the laying of its wires, and the construction of its
underground electrical system," this Court reached the conclusion
that its rights had in no way been impaired by the legislation
under review.
This decision was rendered in May, 1892. Meanwhile, pursuant to
the statutes above mentioned, a plan of construction had been
adopted by the board charged with that duty, subways had been
built, and the defendant in error had entered into its contract to
maintain and operate those for low tension conductors, as
specified, including telegraph and telephone conductors. But, for
fifteen years after the final decision in the case cited, no
application was made by the plaintiff in error for space in these
subways. The first application for such space was made in June,
1907, and was not granted.
Nor, during this long period, was any attempt made by the
plaintiff in error either to build conduits or to place wires under
the city's streets, save that in December, 1905, it applied to the
Commissioner of Water Supply, Gas, and Electricity for a permit to
open the streets for that purpose, and, on its being denied, a
proceeding was begun to obtain a peremptory writ of mandamus. This
was refused, and the order to that effect was affirmed by the Court
of Appeals of the state.
People ex Rel. New York Electric Lines
Co. v. Ellison, 188 N.Y. 523. The pertinent legislation and
the subway contracts were reviewed, and
Page 235 U. S. 191
the requirement that electrical conductors should be placed in
conduits constructed in accordance with the adopted plan, instead
of the plaintiff in error's being permitted to build its own
subways for such conductors, was sustained. In arriving at this
result, it was again assumed that the plaintiff in error had a
continuing right under the city's permission, but this question was
expressly reserved (
id., p. 527). A writ of error sued out
from this Court was dismissed on motion of the plaintiff in error.
214 U.S. 529.
It was about the time when the last-mentioned proceeding was
instituted that the city's permission was revoked (May 11, 1906),
and the state court, in its opinion in the present case, said that
the question "remaining to be determined" was whether
"the relator, under the resolution of the Common Council of
April, 1883, has the right, as a matter of law, to have its wires
inserted in the ducts of the Empire City Subway Company
notwithstanding the revocation of such resolution."
Did a "bare acceptance" of the permission operate to vest an
irrevocable franchise? 201 N.Y. pp. 321-329? This question was
answered in the negative in the view that such a permission is "a
license merely, revocable at the pleasure of the city, unless it
has been accepted and some substantial part of the work performed,"
as contemplated by the permission, "sufficient to create a right of
property and thus form a consideration for the contract."
The plaintiff in error challenges this view, insisting that, by
virtue of the city's permission, it is the grantee of an
irrevocable franchise in the city's streets; that this franchise
was derived from the state; that, when the consent of the city was
given as provided in the statute, the grant became immediately
operative, and could not thereafter be revoked or impaired by
municipal resolution or ordinance; that the granted right, however
named, is property and, as such, is inviolable, and that this
position is
Page 235 U. S. 192
supported by numerous decisions both of the state court and of
this Court, which are cited in the margin.
* Thus, in
Ghee v. Northern Union Gas Co., 158 N.Y. 510, 513,
referring to the legal effect of the consent of the municipal
authorities under a statute empowering the corporation to lay gas
conduits in streets, on such consent, the court said:
"It operates to create a franchise by which is vested in the
corporation receiving it a perpetual and indefeasible interest in
the land constituting the streets of a municipality. It is true
that the franchise comes from the state, but the act of the local
authorities, who represent the state by its permission and for that
purpose, constitutes the act upon which the law operates to create
the franchise."
And in
Louisville v. Cumberland Telephone Co.,
224 U. S. 649,
224 U. S. 659,
where a corporation was authorized to erect poles, etc., over the
streets with the consent of the general council of the city, it was
held that the charter franchises became "fully operative" when the
city's consent was obtained.
"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."
Id., p.
224 U. S. 661.
Again, in the recent case of
Owensboro v. Cumberland Telephone
Co., 230 U. S. 58,
230 U. S. 65, it
was said:
"That an
Page 235 U. S. 193
ordinance granting the right to place and maintain upon the
streets of a city poles and wires of such a company is the granting
of a property right has been too many times decided by this Court
to need more than a reference to some of the later cases."
See also Boise Water Co. v. Boise City, 230 U. S.
84,
230 U. S. 91.
These municipal consents are intended to afford the basis of
enterprise with reciprocal advantages, and it would be virtually
impossible to fulfill the manifest intent of the legislature and to
secure the benefits expected to flow from the privileges conferred
if, in the initial states of the enterprise, when the necessary
proceedings preliminary to the execution of the proposed work are
being taken with due promptness, or when the work is under way, the
municipal consent should be subject to revocation at any time by
the authorities -- not upon the ground that the contract had not
been performed, or that any condition thereof, express or implied,
had been broken, but because as yet no contract whatever had been
made, and there was nothing but a license, which might be withdrawn
at pleasure. Grants like the one under consideration are not nude
pacts, but rest upon obligations expressly or impliedly assumed to
carry on the undertaking to which they relate.
See The
Binghamton Bridge, 3 Wall. 51,
70 U. S. 74;
Pearsall v. Great Northern Railway, 161 U.
S. 646,
161 U. S. 663,
161 U. S. 667.
They are made and received with the understanding that the
recipient is protected by a contractual right from the moment the
grant is accepted and during the course of performance as
contemplated, as well as after that performance. The case of
Capital City Light & Fuel Co. v. Tallahassee,
186 U. S. 401, to
which the defendant in error refers, is not opposed. There, the
complainant, upon the ground of an exclusive privilege, sought to
enjoin a municipality from operating its own electric light plant;
although ten years had elapsed since the complainant's grant, the
complainant had done nothing whatever to establish an electric
light business, and under the
Page 235 U. S. 194
express terms of the statute, the exclusive privilege had not
attached (
id., p.
186 U. S. 410).
But, while the grant becomes effective when made and accepted in
accordance with the statute, and the grantee is thus protected in
starting the enterprise, it has always been recognized that, as the
franchise is given in order that it may be exercised for the public
benefit, the failure to exercise it as contemplated is ground for
revocation or withdrawal. In the cases where the right of
revocation in the absence of express condition has been denied, it
will be found that there has been performance at least to some
substantial extent, or that the grantee is duly proceeding to
perform. And when it is said that there is vested an indefeasible
interest, easement, or contract right, it is plainly meant to refer
to a franchise not only granted, but exercised in conformity with
the grant. (
See cases cited
supra.) It is a tacit
condition annexed to grants of franchises that they may be lost by
misuser or nonuser.
Terrett v.
Taylor, 9 Cranch 43,
13 U. S. 51;
Chicago Life Insurance Co. v. Needles, 113 U.
S. 574,
113 U. S. 580;
Given v. Wright, 117 U. S. 648,
117 U. S. 656.
The condition thus implied is, of course, a condition subsequent.
The same principle is applicable when a municipality under
legislative authority gives the permission which brings the
franchise into being; there is necessarily implied the condition of
user. The conception of the permission as giving rise to a right of
property in no way involves the notion that the exercise of the
franchise may be held in abeyance for an indefinite time, and that
the right may thus be treated as a permanent lien upon the public
streets, to be enforced for the advantage of the owner at any time,
however distant. Although the franchise is property,
"it is subject to defeasance or forfeiture by failure to
exercise it (
People v. Broadway R. Co., 126 N.Y. 29) or by
subsequent abandonment after it has been exercised (
People v.
Albany & Vermont R. Co., 24 N.Y. 261)."
If "no time is prescribed, the
Page 235 U. S. 195
franchise must be exercised within a reasonable time."
New
York v. Bryan, 196 N.Y. 158, 164.
It follows that, where the franchise has not been exercised
within a reasonable time in accordance with the condition which
inheres in the nature of the grant, its revocation upon this ground
cannot be regarded as an impairment of contractual obligation. The
privileges conferred may be withdrawn by such methods of procedure
as are consistent with established legal principles. This rule,
frequently recognized in cases where franchises have been abused or
misemployed (
see Chicago Life Insurance Co. v. Needles,
113 U. S. 574,
113 U. S. 580;
Farmers' Loan & Trust Co. v. Galesburg, 133 U.
S. 156,
133 U. S. 179;
New Orleans Water Works Co. v. Louisiana, 185 U.
S. 336,
185 U. S. 347;
Columbus v. Mercantile Trust &c. Co., 218 U.
S. 645,
218 U. S. 663;
Dillon, Munic. Corp., 5th ed., § 1311), must also be applicable
where they have been neglected -- that is, have not been used in
due time. Whether in such cases, where there has been a municipal
permission for use of streets, the state shall proceed directly by
quo warranto, or whether it shall authorize the
municipality to pass a resolution or ordinance of repeal or
revocation, leaving the propriety of its course to be determined in
an appropriate legal proceeding in which the default of the grantee
may be adjudicated, is a question of state law with which we are
not concerned. The resolution in such case serves to define the
attitude of the public authorities, and to revoke the permission
where sufficient ground exists for such revocation. Whether there
has been such a misuse or nonexercise of the franchise as to
warrant its withdrawal is a matter for judicial consideration.
In the present case, the plaintiff in error, insisting upon its
continuing right despite the resolution of revocation, applied for
a peremptory writ of mandamus to compel the Subway Company, a
quasi-public instrumentality, to furnish the desired space
in its conduits. It had been
Page 235 U. S. 196
held by the state court that this was an available remedy where
a company had "lawful power" to operate its conductors in the
city's streets, and had been denied the space which the Subway
Company by its contract with the city had agreed to give.
Matter of Long Acre El. L. & P. Co., 188 N.Y. 361. The
question of "lawful power" of the plaintiff in error was
considered, and the application refused. It is true that it was
stated that there was a license only, which, by reason of
nonperformance, had not ripened into a contract right, but it is
equally true that the nonperformance shown was available to defeat
that right, assuming it to have been created at the time of the
grant, and to make the resolution of revocation -- which the state
court has held was adopted under state authority -- entirely
proper.
For a long period of years after the final determination of the
validity of the statutes authorizing a comprehensive scheme of
subway construction, and after the contract with the Subway Company
had been made, the plaintiff in error made no attempt to secure
space and to exercise the franchise now claimed. It treated that
right as susceptible of practically indefinite retention unused. In
the circumstances disclosed, its excuses are unavailing. The right
conferred, assuming it to be a contract right, was to be used
within a reasonable time or lost. In view of the state of the case
as to nonexercise, it cannot be said that its constitutional right
has been infringed.
Judgment affirmed.
*
Milhau v. Sharp, 27 N.Y. 611, 620;
People v.
O'Brien, 111 N.Y. 1, 38;
Suburban Rapid Transit Co. v. The
Mayor, 128 N.Y. 510, 520;
People ex Rel. Woodhaven Gas Co.
v. Deehan, 153 N.Y. 528, 532;
Ghee v. Northern Union Gas
Co., 158 N.Y. 510, 513;
City of Rochester v. Rochester
Railway Co., 182 N.Y. 99, 119;
New York v. Bryan, 196
N.Y. 158, 164;
New Orleans Gas Light Co. v. Louisiana Light
&c. Co., 115 U. S. 650,
660;
New Orleans Water Works Co. v. Rivers, 115 U.
S. 674,
115 U. S.
680-681;
Walla Walla v. Walla Walla Co.,
172 U. S. 1,
172 U. S. 9;
Detroit v. Detroit &c. Ry. Co., 184 U.
S. 368,
184 U. S. 394;
Louisville v. Cumberland Telephone Co., 224 U.
S. 649,
224 U. S. 658,
224 U. S. 663;
Grand Trunk Railway Co. v. South Bend, 227 U.
S. 544,
227 U. S. 552;
Owensboro v. Cumberland Telephone Co., 230 U. S.
58,
230 U. S. 65;
Boise Water Co. v. Boise City, 230 U. S.
84,
230 U. S. 90-91;
Russell v. Sebastian, 233 U. S. 195,
233 U. S.
204.