A gas company incorporated in 1835, with the exclusive privilege
of making and selling gas in New Orleans, its faubourgs and
Lafayette, up to April 1, 1875, and another gas company
incorporated in 1870, with a like exclusive privilege in New
Orleans on and after that day, could, just before that day,
consolidate under the provisions of the Act of December 12, 1874,
of the Legislature of Louisiana, which provided that
"Any two business or manufacturing companies now existing whose
objects and business are in general of the same nature may
amalgamate, unite and consolidate."
A legislative grant of an exclusive right to supply gas to a
municipality and its inhabitants, through pipes and mains laid in
the public streets, and upon condition of the performance of the
service by the grantee, is a grant of a franchise vested in the
state, in consideration of the performance of a public service,
and, after performance by the grantee, is a contract protected by
the Constitution of the United States against state legislation to
impair it.
In granting the exclusive franchise to supply gas to a
municipality and its inhabitants, a state legislature does not part
with the police power and duty of protecting the public health, the
public morals, and the public safety as one or the other may be
affected by the exercise of that franchise by the grantee.
The prohibition in the Constitution of the United States against
the passage of laws impairing the obligation of contracts applies
to the constitution as well as the laws of each state.
The Louisiana Light and Heat Producing and Manufacturing
Company, a corporation of Louisiana, was organized in the year 1881
by H. S. Jackson, W. Van Benthusen, and their associates, under a
general law providing for the formation of corporations for certain
purposes, among which are the construction and maintenance of works
for supplying cities or towns with gas. These associates and their
successors, transferees, and assigns had previously been authorized
by an ordinance of the Common Council of New Orleans passed January
25, 1881, for the period of fifty years, and upon specified
conditions, to lay mains, pipes, and conduits in the streets,
alleys,
Page 115 U. S. 651
sidewalks, bridges, avenues parks, gardens, and other places in
that city for the purpose of supplying the public with gas. Among
the conditions was one to the effect that the rights and privileges
defined in the ordinance were granted and accepted without
liability upon the part of the city to any other gas company to
which franchises had been granted by legislative enactment. The
consideration to be paid for these privileges was the sum of
$20,000.
The benefit of this municipal grant having been transferred to
the Louisiana Light and Heat Producing and Manufacturing Company,
and that corporation being about to proceed with the construction
of its mains, pipes, and conduits, the present suit was commenced
against it and its directors in the Civil District Court of the
Parish of New Orleans by the New Orleans Gas Light Company, which
had been created, as will be presently explained, by the
consolidation of other corporations. The plaintiff claims to be
entitled, for the term of fifty years from April 1, 1875, to the
sole and exclusive privilege of manufacturing and distributing gas
in that city, by means of pipes, mains, and conduits laid in its
streets, to such persons or corporate bodies as may choose to
contract for the digging up the streets, and other public ways or
places of the city, for the purpose of laying pipes, conduits, or
mains for supplying illuminating gas and from asserting any right
to do so until after the lapse of fifty years from the latter
date.
An application for an injunction having been denied, the suit
was thereafter removed by the plaintiff into the circuit court of
the United States. In the latter court a bill was filed, so as to
conform to the general rules of equity practice.
A statement of the history of the corporations concerned in the
before-mentioned consolidation is necessary to a clear
understanding as well of the grounds upon which the court below
proceeded as of the questions argued in this Court.
By an act of the Legislature of Louisiana passed April 1,
Page 115 U. S. 652
1835, the New Orleans Gas Light and Banking Company was
incorporated, and was given
"the sole and exclusive privilege of vending gas lights in the
City of New Orleans and its faubourgs and the City of Lafayette, to
such persons or bodies corporate who may voluntarily choose to
contract for the same,"
to which end it was authorized to lay pipes or conduits at its
own expense in any of the public ways or streets of those
localities, having due regard to the public convenience. The right
was reserved to the city after the expiration of forty years, to
buy such gas works as the company constructed, and pay for the same
in city bonds. If the city declined to purchase, then its bonds
which the company had received in payment of its subscription of
stock were to be renewed for twenty years.
By amendments of its charter made in 1845 and 1854, the
company's right to engage in banking was, by its consent,
withdrawn, and the remaining rights granted by the original act
were continued to the corporation under the name of the New Orleans
Gas Light Company, to be enjoyed until April 1, 1875, when its
corporate privileges were to expire. This change was made subject
to the condition that the company should assume all the debts and
engagements of the original company, release its claims against the
charity hospital, and, during the continuance of its charter,
furnish that institution with necessary gas and fixtures free of
charge. By amendments made in 1860, its charter was extended to
April 1, 1895, the exclusive privileges granted by the original
charter not, however, to exist be yond the time fixed in the act of
incorporation.
By an act approved April 20, 1870, another company, under the
name of the Crescent City Gas Light Company, was incorporated. The
charter provided that that company, its successors and assigns,
should, for fifty years from the expiration of the charter of the
New Orleans Gas Light Company, have the sole and exclusive
privilege of making and supplying gas lights in the City of New
Orleans, by means of pipes or conduits laid in the streets, to such
persons or bodies corporate as might voluntarily choose to contract
for it. By a subsequent enactment in 1873, it was given authority
to issue bonds
Page 115 U. S. 653
to an amount not exceeding $1,000,000, secured by mortgage of
its works and property, and it was declared that the charter of the
New Orleans Gas Light Company should expire on April 1, 1875, from
which latter date, and for the term fixed in the act of 1870, the
franchise and privileges granted to the Crescent City Gas Light
Company were confirmed.
By a judgment rendered February 1, 1875, in a suit brought by
the Crescent City Gas Light Company against the New Orleans Gas
Light Company, and which involved their respective rights to
manufacture and sell gas in New Orleans, the supreme court of the
state held that the former company "has the sole and exclusive
privilege to make and sell illuminating gas in the City of New
Orleans for fifty years from first April, 1875;" also that the Act
of March 1, 1860, extending the charter of the New Orleans Gas
Light Company from April 1, 1875, until April 1, 1895, "is
unconstitutional and void" as having a title that did not declare
the object of the act. The latter company was also enjoined from
conducting business after April 1, 1875, while the other company
was confirmed in its exclusive right, after that date, to
manufacture and distribute gas in New Orleans.
Crescent City
Gas Light Co. v. New Orleans Gas Light Co., 27 La.Ann.
138.
The bill sets out the foregoing facts and alleges that during
February and March, 1875, the directors of the two companies, by
means of conferences with each other and with their respective
stockholders, concluded to consolidate the two corporations under
the name of the New Orleans Gas Light Company, which should hold
and enjoy the rights, privileges, franchises, and property of each;
that they determined the amount of its capital, the number of
directors, and the persons to compose a board before an election;
that the two boards made an agreement in writing to which the
owners of all the stock of either company have assented; that there
has been no contestation by any stockholder of either of the two
corporations of the consolidation or consolidation agreement;
that
"there was a formal vote, comprising more than three-fifths of
all owners of stock, ratifying and confirming the articles, and the
agreement and certificate of consolidation
Page 115 U. S. 654
have been filed and recorded in the office of the Secretary of
State;"
that
"the corporation thus organized and conducting business, from
the 29th of March, 1875, has manufactured and sold gas throughout
New Orleans without question or opposition,"
supplying the city, its officers, the officers of the state, and
the public generally, and collecting its monthly bills; that there
has been no suit by the state or the city questioning its capacity
as a corporation, or its title to all the franchises, privileges,
rights, or property in its possession; that its possession of "the
sole and exclusive right aforesaid has existed from the agreement
of the 29th of March, 1875;" that the state regularly assessed the
property of the corporation and its franchise for taxation, and
compelled it by suit to pay such taxes on property amounting to
$3,750,000, of which the franchise is charged to be worth
$1,250,000, and that the City of New Orleans in like manner
assessed the consolidated company, and required from it the
performance of the obligations of its charter in supplying gas
throughout the city and on the public streets and in public
buildings ever since the before-mentioned consolidation.
The defendants filed a demurrer and plea to the bill. The case
was determined upon the demurrer, which was sustained and the bill
dismissed without any mention's being made of the plea. The circuit
court was of opinion that the consolidation was entirely without
legal authority, and consequently that there is in law no such
corporation as the one which instituted this suit. Upon that ground
alone the bill was dismissed.
MR. JUSTICE HARLAN delivered the opinion of the Court. After
stating the facts in the language reported above, he continued:
The effect of the consolidation of March 29, 1875, is the first
question to be considered.
Page 115 U. S. 655
By an act of the General Assembly of Louisiana of December 12,
1874, and entitled "An act to authorize the consolidation of
business or manufacturing corporations or companies," it is
provided:
"That any two business and manufacturing corporations or
companies now existing under general or special law whose objects
and business are in general of the same nature may amalgamate,
unite, and consolidate said corporations or companies and form one
consolidated company, holding and enjoying all the rights,
privileges, powers, franchises, and property belonging to each and
under such corporate name as they may adopt or agree upon. Such
consolidation shall be made by agreement in writing, by or under
the authority of the board of directors, and the assent of the
owners of at least three-fifths of the capital stock of each of
said corporations or companies, and a certificate of the fact of
such consolidation, with the name of the consolidated company,
shall be filed and recorded in the office of the Secretary of
State,
provided no such consolidation shall in any manner
affect or impair the right of any creditors of either of said
companies. In the agreement of consolidation, the number of
directors of the consolidated company shall be specified, and the
capital stock may be any amount agreed upon by the companies or
corporations, and set forth in the articles of consolidation."
It will be observed that a consolidated company formed under
this act acquires all the rights, privileges, and franchises
possessed by its constituent companies.
It is contended -- and such was the view taken by the circuit
court -- that as the original New Orleans Gas Light Company had,
until April 1, 1875, the exclusive right to manufacture and
distribute gas in New Orleans, and as the like exclusive right of
the Crescent City Gas Light Company did not come into existence
until that day, the latter company was not, when the act of 1874
was passed, an "existing" business or manufacturing corporation
entitled to the privilege of consolidating with another
company.
In this interpretation of the statute we do not concur. The
original and amended charters of the Crescent City Gas Light
Company invested it with powers of an important character,
Page 115 U. S. 656
capable of being effectively exerted prior to the passage of the
general statute of 1874. By the Act of April 20, 1870, it was
authorized, after its passage, to lay pipes or conduits in any of
the streets or alleys of the City of New Orleans. Upon its
organization, it was entitled to acquire and hold property for all
the objects of its creation, to construct works, purchase
machinery, provide materials, and make such preparations as were
required to put it in readiness to enjoy the exclusive privilege of
supplying the city and its inhabitants with gas on and after April
1, 1875. After its incorporation, it could have made contracts,
obtained capital, and raised money upon bonds secured by mortgage
of its works and property then or thereafter acquired. At the
passage of the consolidation act, it was entitled to exert the
powers given by its charter, except that it could not, before April
1, 1875, encroach upon the exclusive privileges granted to the
other company. With the consent of the latter company, it could
even prior to that date have manufactured and sold gas to the city
and to its inhabitants, for, as declared in the Civil Code of
Louisiana (Art. 11),
"in all cases in which it is not expressly or impliedly
prohibited, they [individuals] can renounce what the law has
established in their favor, when the renunciation does not affect
the rights of others, and is not contrary to the public good."
Without such consent, the Crescent City Gas Light Company could
after its organization have engaged in the manufacture and
distribution of gas in those parts or districts of New Orleans not
included in the charter of the old company.
Ponchartrain
Railroad Co. v. Lafayett & Pontchartrain Railroad Co., 10
La.Ann. 742. For these reasons, we are of opinion that on the
passage of the act of 1874, and within a reasonable interpretation
of its language, the Crescent City Gas Light Company was an
"existing" business or manufacturing corporation entitled to
"amalgamate, unite, and consolidate" with any like corporation
having objects and business in general of the same nature. In so
holding, it is not perceived that violence is done to any
considerations of public policy which could be supposed to have
prompted the act of 1874, or the legislation relating to the two
companies.
Page 115 U. S. 657
These views give effect to the decision of the supreme court of
the state in
Fee v. New Orleans Gas Light Co., 35 La.Ann.
413, which was determined after the decree in the circuit court had
been passed. One of the questions related to Fee's rights in the
consolidated company by virtue of his ownership ship of stock in
the Crescent City of stock in the Crescent City case shows that the
articles of consolidation were before the court, and that their
legal effect was considered with reference to the provisions of the
act of 1874. Mr. Justice Fenner, speaking for the court, said:
"On the 29th of March, 1875, the New Orleans Gas Light Company
and the Crescent City Gas Light Company, two corporations chartered
under the laws of this state, amalgamated, united, and consolidated
themselves into one consolidated company, in pursuance of the
provisions of an Act of the General Assembly, No. 157 of 1875,
entitled 'An act to authorize the consolidation of business or
manufacturing corporations or companies.' . . . All requirements of
the act were fully complied with. . . . The articles of
consolidation, and the legislative act by the authority of which
they were executed, evidently present a case of complete and
perfect amalgamation the effect of which was, under American
authorities, to terminate the existence of the original
corporations, to create a new corporation, to transmute the members
of the former into members of the latter, and to operate a transfer
of the property, rights, and liability of each old company to the
new one. . . . These authorities and the reason of the matter
satisfy us that plaintiff can and must look to the defendant
company for the satisfaction of whatever rights he had against the
Crescent City Gas Light Company in the mode and on the terms
provided in the articles of consolidation."
Again:
"The law conferred upon three-fifths of his fellow stockholders
the power to effect a consolidation without his consent, and even
against his will, and he is bound by that consolidation, and by the
legal effects thereof, which we have heretofore stated."
If the view taken by the circuit court be correct, then the
consolidation between these companies could not, as adjudged by the
Supreme Court of Louisiana,
Page 115 U. S. 658
have affected Fee's rights and compelled him to look to the
consolidated company for the satisfaction of his claims as a
stockholder in the Crescent City Gas Light Company.
This brings us to the consideration of questions more difficult.
It is further contended that the right granted to the Crescent City
Gas Light Company, of manufacturing and distributing illuminating
gas, and now enjoyed by the consolidated company, was abrogated to
the extent that it was made exclusive by that article of the
Constitution of Louisiana of 1879 which, while preserving rights,
claims, and contracts then existing, provided that
"the monopoly features in the charter of any corporation now
existing in this state, save such as may be contained in the
charter of railroad companies, are hereby abolished,"
and that such article is not in violation of the provision of
the Constitution of the United States which forbids a state to pass
a law impairing the obligation of contracts. These propositions
have received the careful consideration which their importance
demands.
It is true, as suggested in argument, that the manufacture and
distribution of illuminating gas by means of pipes or conduits
placed under legislative authority in the streets of a town or city
is a business of a public character. Under proper management, the
business contributes very materially to the public convenience
while, in the absence of efficient supervision, it may disturb the
comfort and endanger the health and property of the community. It
also holds important relations to the public through the facilities
furnished, by the lighting of streets with gas, for the detection
and prevention of crime. An English historian, contrasting the
London of his day with the London of the time when its streets,
supplied only with oil lamps, were scenes of nightly robberies,
says that "the adventurers in gas lights did more for the
prevention of crime than the government had done since the days of
Alfred." Knight, vol. 7, c. 21; Macaulay, c. 3. Municipal
corporations constitute a part of the civil government of the
state, and their streets are highways which it is the province of
government by appropriate means to render safe. To that end, the
lighting of
Page 115 U. S. 659
streets is a matter of which the public may assume control. For
these reasons, and the necessity of uniform regulations for the
manufacture and distribution of gas for use by the community, we
are of opinion that the supplying of it to the City of New Orleans
and to its inhabitants by the means designated in the legislation
of Louisiana was an object for which the state could rightfully
make provision. Authority for the position that the supplying of
gas to a city and its people may become a public purpose is found
in
New Orleans v. Clark, 95 U. S. 652.
That case involved the liability of a municipal corporation upon
coupon bonds issued to a company which had undertaken, for a
valuable consideration, to light its streets with gas. MR. JUSTICE
FIELD, delivering the opinion of the Court, said:
"A private corporation, as well as individuals, may be employed
by a city in the construction of works needed for the health,
comfort, and convenience of its citizens, and though such works may
be used by the corporation for its own gain, yet as they advance
the public good, the corporation may be properly aided in their
construction by the city, and for that purpose its obligations may
be issued unless some constitutional or legislative provision
stands in the way."
Legislation of that character is not liable to the objection
that it is a mere monopoly, preventing citizens from engaging in an
ordinary pursuit or business open as of common right to all upon
terms of equality, for the right to dig up the streets and other
public ways of New Orleans, and place therein pipes and mains for
the distribution of gas for public and private use is a franchise
the privilege of exercising which could only be granted by the
state or by the municipal government of that city acting under
legislative authority. Dillon's Municipal Corps., 3d ed., ยง 691;
State v. Cincinnati Gas Co., 18 Ohio St. 262.
See also
Boston v. Richardson, 13 Allen 146.
To the same effect is the decision of the Supreme Court of
Louisiana in
Crescent City Gas Light Co. v. New Orleans Gas
Light Co., 27 La.Ann. 147, in which it was said:
"The right to operate gas works and to illuminate a city is not
an ancient or usual occupation of citizens generally. No one
has
Page 115 U. S. 660
the right to dig up the streets and lay down gas pipes, erect
lamp posts, and carry on the business of lighting the streets and
the houses of the City of New Orleans without special authority
from the sovereign. It is a franchise belonging to the state, and,
in the exercise of the police power, the state could carry on the
business itself or select one or several agents to do so."
It will therefore be assumed in the further consideration of
this case that the charter of the Crescent City Gas Light Company
-- to whose rights and franchises the present plaintiff has
succeeded -- so far as it created a corporation with authority to
manufacture gas and to distribute the same by means of pipes,
mains, and conduits laid in the streets and other public ways of
New Orleans, constituted, to use the language of this Court in the
case of
Delaware Railroad
Tax, 18 Wall. 206,
"a contract between the state and its corporators, and within
the provision of the Constitution prohibiting legislation impairing
the obligation of contracts,"
and therefore
"equally protected from legislative interference whether the
public be interested in the exercise of its franchise or the
charter be granted for the sole benefit of its corporators."
See also Greenwood v. Freight Co., 105 U.
S. 20;
New Jersey v. Yard, 95 U.
S. 113.
But it is earnestly insisted that since the supplying of New
Orleans and its inhabitants with gas has relation to the public
comfort, and in some sense to the public health and the public
safety, and for that reason is an object to which the police power
extends, it was not competent for one legislature to limit or
restrict the power of a subsequent legislature in respect to those
subjects. It is consequently claimed that the state may at pleasure
recall the grant of exclusive privileges to the plaintiff, and that
no agreement by her, upon whatever consideration, in reference to a
matter connected in any degree with the public comfort, the public
health, or the public safety will constitute a contract the
obligation of which is protected against impairment by the national
Constitution. And this position is supposed by counsel to be
justified by recent adjudications of this Court in which the nature
and scope of the police power have been considered.
Page 115 U. S. 661
In the
Slaughterhouse
Cases, 16 Wall. 36,
83 U. S. 62, it
was said that the police power is, from its nature, incapable of
any exact definition or limitation, and in
Stone v.
Mississippi, 101 U. S. 818,
that it is
"easier to determine whether particular cases come within the
general scope of the power than to give an abstract definition of
the power itself, which will be in all respects accurate."
That there is a power, sometimes called the police power, which
has never been surrendered by the states, in virtue of which they
may, within certain limits, control everything within their
respective territories, and upon the proper exercise of which,
under some circumstances, may depend the public health, the public
morals, or the public safety is conceded in all the cases.
Gibbons v.
Ogden, 9 Wheat. 1,
22 U. S. 203. In
its broadest sense, as sometimes defined, it includes all
legislation and almost every function of civil government.
Barbier v. Connolly, 113 U. S. 31. As
thus defined, we may not improperly refer to that power the
authority of the state to create educational and charitable
institutions and provide for the establishment, maintenance, and
control of public high ways, turnpike roads, canals, wharves,
ferries, and telegraph lines, and the draining of swamps.
Definitions of the police power must, however, be taken subject to
the condition that the state cannot, in its exercise, for any
purpose whatever, encroach upon the powers of the general
government or rights granted or secured by the supreme law of the
land.
Illustrations of interference with the rightful authority of the
general government by state legislation -- which was defended upon
the ground that it was enacted under the police power -- are found
in cases where enactments concerning the introduction of foreign
paupers, convicts, and diseased persons were held to be
unconstitutional as conflicting, by their necessary operation and
effect, with the paramount authority of Congress to regulate
commerce with foreign nations, and among the several states. In
Henderson v. Mayor of New York, 92 U. S.
259, the Court, speaking by MR. JUSTICE MILLER, while
declining to decide whether, in the absence of congressional
action, the states can, or how far they may, by appropriate
legislation protect themselves against actual paupers, vagrants,
criminals,
Page 115 U. S. 662
and diseased persons arriving from foreign countries, said that
no definition of the police power and
"no urgency for its use can authorize a state to exercise it in
regard to a subject matter which has been confided exclusively to
the discretion of Congress by the Constitution."
Chy Lung v. Freeman, 92 U. S. 275. And
in
Railroad Co. v. Husen, 95 U. S.
474, Mr. Justice Strong, delivering the opinion of the
Court, said that
"The police power of a state cannot obstruct foreign commerce or
interstate commerce beyond the necessity for its exercise, and,
under color of it, objects not within its scope cannot be secured
at the expense of the protection afforded by the federal
Constitution."
That the police power, according to its largest definition, is
restricted in its exercise by the national Constitution is further
shown by those cases in which grants of exclusive privileges
respecting public highways and bridges over navigable streams have
been sustained as contracts the obligations of which are fully
protected against impairment by state enactments.
In
Bridge Proprietors v. Hoboken
Co., 1 Wall. 116, it was decided that a State of
New Jersey empowering certain commissioners to contract for the
building of a bridge over the Hackensack River, and providing not
only that the "said contract should be valid on the parties
contracting as well as on the State of New Jersey," but that it
should not be lawful "for any person or persons whatsoever to erect
any other bridge over or across the said river for ninety-nine
years," was a contract whose obligation could not be impaired by a
law of the state. MR. JUSTICE MILLER, delivering the opinion of the
Court, after observing that the parties who built the bridge had
the positive enactment of the legislature in the very statute which
authorized the contract with them, that no other bridge should be
built, and that the prohibition against the erection of other
bridges was the necessary and only means of securing to them the
benefit of their grant, said:
"Without this, they would not have invested their money in
building the bridges, which were then much needed and which could
not have been built without some such security for a permanent and
sufficient return for the capital so expended. On the faith of this
enactment,
Page 115 U. S. 663
they invested the money necessary to erect the bridges. These
acts and promises, on the one side and the other, are wanting in no
element necessary to constitute a contract."
In
The Binghamton
Bridge, 3 Wall. 51, the question was whether a
charter granted to a company authorizing it to build and maintain a
bridge across a river in New York for the accommodation of the
public, in consideration for which it was given a right to take
certain tolls, and providing that it should be unlawful for anyone
to erect a bridge or establish a ferry within a distance of two
miles on that river either above or below that bridge, constituted
a contract within the meaning of the Constitution. Under authority
of a subsequent statute, another company erected a bridge across
the same river within a few rods above the old one, to the injury
of the business of the latter. The argument was strenuously pressed
that while the legislature could dispose of all matters properly
the subject of bargain, it had no authority to dispose of the right
of passing a great river for four miles. The Court held that the
first company's charter was a contract between it and the state
within the protection of the Constitution of the United States, and
that the charter to the last company was therefore null and void.
Mr. Justice Davis, delivering the opinion of the Court, said that
if anything was settled by an unbroken chain of decisions in the
federal courts, it was that an act of incorporation was a contract
between the state and the stockholders,
"a departure from which
now would involve dangers to
society that cannot be foreseen, would shock the sense of justice
of the country, unhinge its business interests, and weaken if not
destroy that respect which has always been felt for the judicial
department of the government."
P.
70 U. S. 73. It
was also observed, in language applicable to the present case in
some respects:
"The purposes to be attained are generally beyond the ability of
individual enterprise, and can only be accomplished through the aid
of associated wealth. This will not be risked unless privileges are
given and securities furnished in an act of incorporation. The
wants of the public are often so imperative that a duty is imposed
on the government to provide for them, and as experience
Page 115 U. S. 664
has proved that a state should not directly attempt to do this,
it is necessary to confer on others the faculty of doing what the
sovereign power is unwilling to undertake. The legislature
therefore says to public-spirited citizens:"
"If you will embark with your time, money, and skill in an
enterprise which will accommodate the public necessities, we will
grant to you, for a limited period, or in perpetuity, privileges
that will justify the expenditure of your money, and the employment
of your time and skill."
"Such a grant is a contract, with mutual considerations, and
justice and good policy alike require that the protection of the
law should be assured to it."
See also West River Bridge Co. v.
Dix, 6 How. 507,
47 U. S.
531.
The same principle was declared by the Supreme Court of
Louisiana in
Pontchartrain Railroad Co. v. Orleans Navigation
Co., 15 La. 413, where Chief Justice Martin said:
"In the same manner as Congress may reward the discoverer of a
new invention or mode of constructing roads by an exclusive
privilege, the legislature may reward those who employ their
capital and industry in doubtful enterprises for the construction
of a railway between two points which may be of great utility to
the public, though the success of the enterprise may be
precarious."
See also Pontchartrain Railroad Co. v. New Orleans R. Co.,
11 La.Ann. 253; Pontchartrain R. Co. v. Lafayette &
Ponchartrain Railroad Co., ubi supra. And in
Crescent City
Gas Light Co. v. New Orleans Gas Light Co., the court
said:
"As the legislature had the right in 1835 to grant the sole and
exclusive privilege to the defendant company to make and vend gas
in New Orleans for forty years, the legislature of 1870 had the
same power to confer on the plaintiff the same privilege for fifty
years from the termination of the grant to defendant. We therefore
conclude that the grant of the monopoly complained of does not
violate the Constitution, and is valid."
Numerous other cases could be cited as establishing the doctrine
that the state may by contract restrict the exercise of some of its
most important powers. We particularly refer to those in which it
is held that an exemption from taxation, for
Page 115 U. S. 665
a valuable consideration at the time advanced or for services to
be thereafter performed, constitutes a contract within the meaning
of the Constitution.
Asylum v. New Orleans, 105
U. S. 368;
Home of the Friendless v.
Rouse, 8 Wall. 430;
New
Jersey v. Wilson, 7 Cranch 164,
11 U. S. 166;
Bank of Ohio v.
Knoop, 16 How. 363,
57 U. S. 376;
Gordon v. Appeal Tax
Court, 3 How. 133;
Wimington
Railroad v. Reid, 13 Wall. 264,
80 U. S. 266;
Humphrey v.
Pegues, 16 Wall 244,
83 U. S.
248-249;
Farrington v. Tennessee, 95 U.
S. 689.
If the state can by contract restrict the exercise of her power
to construct and maintain highways, bridges, and ferries by
granting to a particular corporation the exclusive right to
construct and operate a railroad within certain lines and between
given points or to maintain a bridge or operate a ferry over one of
her navigable streams within designated limits, if she may restrict
the exercise of the power of taxation by granting exemption from
taxation to particular individuals and corporations, it is
difficult to perceive upon what ground we can deny her authority,
when not forbidden by her own organic law, in consideration of
money to be expended and important services to be rendered for the
promotion of the public comfort, the public health, or the public
safety, to grant a franchise to be exercised exclusively by those
who thus do for the public what the state might undertake to
perform either herself or by subordinate municipal agencies.
The former adjudications of this Court upon which counsel mainly
rely do not declare any different doctrine or justify the
conclusion for which the defendant contends.
In
Beer Co. v. Massachusetts, 97 U.
S. 32, one of the questions considered was whether the
charter of a private corporation, authorizing it to engage in the
manufacture of malt liquors and, as incidental thereto, to dispose
of the product constituted a contract protected against subsequent
legislation prohibiting the manufacture of liquors within the
state. The beer company claimed the right under its charter to
manufacture and sell beer without limit as to time and without
reference to any exigencies in the health or morals of the
community requiring such manufacture to cease. It was decided
Page 115 U. S. 666
that, while the company acquired by its charter the capacity, as
a corporation, to engage in the manufacture of malt liquors, its
business was at all times subject to the same governmental control
as like business conducted by individuals, and that the legislature
could not divest itself of the power, by such appropriate means,
applicable alike to corporations and individuals, as its discretion
might devise, to protect the lives, health, and property of the
people, or to preserve good order and the public morals. The
prohibitory enactment of which the beer company complained was held
to be a mere police regulation which the state could establish even
had there been no reservation of authority to amend or repeal its
charter.
The case of
Fertilizing Co. v. Hyde Park, 97 U.
S. 663, is much relied on by counsel. But a careful
examination will show that it does not militate against the views
here expressed. A fertilizing company, having been authorized by
its charter to establish and maintain south of a specified line in
Cook County, Illinois, chemical and other works for manufacturing
and converting animal matter into an agricultural fertilizer and
other chemical products, claimed that its charter constituted a
contract the obligation of which was impaired by an ordinance of
the village of Hyde Park, where its works were established,
prohibiting under penalties the carrying of offal through its
streets from Chicago to the company's place of business. The
ordinance was based upon a statute passed after the date of the
company's charter, investing the village authorities with power to
define or abate nuisances injurious to the public health and to
regulate, prohibit, or license certain named trades or callings,
and "all establishments and places where nauseous, offensive, or
unwholesome business was carried on." It appeared in proof that the
company's factory was
"an unendurable nuisance to the inhabitants for many miles
around its location; that the stench was intolerable, producing
nausea, discomfort, if not sickness to the people; that it
depreciated the value of the property, and was a source of immense
annoyance,"
and that the transportation of putrid animal matter by the
company through the streets of Hyde Park "was offensive in a high
degree both to sight and smell." The decision was that
Page 115 U. S. 667
the state, under her power to protect the public health, could
abate the nuisance created by the company's business
notwithstanding its works had been established within the general
locality designated in its charter, and consequently the
legislature could at its discretion amend the charter of Hyde Park
and remove the restriction upon its authority to abate nuisances or
invest it with power to regulate or prohibit business necessarily
injurious to the public health.
The same principles underlie the decision in
Stone v.
Mississippi, 101 U. S. 814, in
which it was held that anyone accepting a grant of a lottery does
so
"with the implied understanding that the people, in their
sovereign capacity and through their properly constituted agencies,
may resume it at any time when the public good shall require,
whether it be paid for or not,"
the only right acquired by the grantee being "a suspension of
certain governmental rights in his favor, subject to withdrawal at
will." The business, for the protection of which the contract
clause of the Constitution was invoked, was declared by the Court
to be a species of gambling, wrong in its influence and tending to
"disturb the checks and balances of a well ordered community."
Touching legislation granting the privilege of engaging in business
of that character, the Chief Justice, delivering the opinion of the
Court, said:
"No legislature can bargain away the public health or the public
morals. The people themselves cannot do it, much less their
servants. The supervision of both these subjects of governmental
power is continuing in its nature; they are to be dealt with as the
special exigencies of the moment may require. Government is
organized with a view to their preservation, and cannot divest
itself of the power to provide for them. For this purpose the
largest legislative discretion is allowed, and the discretion
cannot be parted with any more than the power."
We are referred to
Butchers' Union Co. v. Crescent City
Co., 111 U. S. 746, as
authority for the proposition that the state is incapable of making
a contract protected by national Constitution in reference to any
matter within the reach of her police power in its broadest sense.
But no such principle is there established. In that case, the
question was whether
Page 115 U. S. 668
a grant in 1869 to a private corporation of the exclusive
privilege of maintaining a livestock landing and slaughterhouse,
within a certain part of the Territory of Louisiana embracing the
City of New Orleans -- all slaughtering by others in that city to
be done at the establishment erected by that corporation --
prevented the state or the municipal government of the city, acting
under her authority, from thereafter opening to general competition
the right to maintain slaughter houses and livestock landings. The
majority of the Court in the
Slaughterhouse Cases, having
determined that the grant was merely a police regulation designed
to remove from the thickly populated part of New Orleans "noxious
slaughterhouses and large and offensive collections of animals
necessarily incident to the slaughtering business of a large city,"
and that the authority to do that rested upon the same ground as
the power to interdict in the midst of dense populations
unwholesome trades operations offensive to the senses, building
with combustible materials, and the burial of the dead, it was
ruled in the last case that the obligations of a contract could not
arise out of such a police regulation. So far from the Court's
saying that the state could not make a valid contract in reference
to any matter whatever within the reach of the police power,
according to its largest definition, its language was:
"While we are not prepared to say that the legislature can make
valid contracts on no subject embraced in the largest definition of
the police power, we think that in regard to two subjects so
embraced, it cannot, by contract, limit the exercise of those
powers to the prejudice of the general welfare. They are the
public health and the
public morals. The
preservation of these is so necessary to the best interests of
social organization that a wise policy forbids the legislative body
to divest itself of the power to enact laws for the preservation of
health and the repression of crime."
Pp.
111 U. S.
750-751. In that case, four members of this Court, while
assenting to the doctrine that the state cannot limit the exercise
of its powers to the prejudice of the public health and the public
morals, concurred in the judgment upon the general ground, among
others, that the act of 1869, giving exclusive privileges to the
company the validity of
Page 115 U. S. 669
whose charter in that respect was the matter determined in
Slaughterhouse Cases, was not in any just or legal sense
an exercise of the police power for the preservation of the public
health, but, under the pretense simply of exerting that power, was
an invasion of the right of citizens other than those interested in
that particular company to engage in an ordinary business open to
everyone upon terms of perfect equality, although at all times it
was subject to such regulations in respect of the locality and the
mode in which it should be conducted as the state might
establish.
The principle upon which the decisions in
Beer Co. v.
Massachusetts, Fertilizing Co. v. Hyde Park, Stone v.
Mississippi, and
Butchers' Union Co. v. Crescent City
Livestock Landing Co. rest is that one legislature cannot so
limit the discretion of its successors that they may not enact such
laws as are necessary to protect the public health or the public
morals. That principle, it may be observed, was announced with
reference to particular kinds of private business which, in
whatever manner conducted, were detrimental to the public health or
the public morals. It is fairly the result of those cases that
statutory authority given by the state to corporations or
individuals to engage in a particular private business attended by
such results, while it protects them for the time against public
prosecution, does not constitute a contract preventing the
withdrawal of such authority or the granting of it to others.
The present case involves no such considerations. For, as we
have seen, the manufacture of gas and its distribution for public
and private use by means of pipes laid under legislative authority
in the streets and ways of a city is not an ordinary business in
which everyone may engage, but is a franchise belonging to the
government, to be granted for the accomplishment of public objects
to whomsoever and upon what terms it pleases. It is a business of a
public nature, and meets a public necessity for which the state may
make provision. It is one which, so far from affecting the public
injuriously, has become one of the most important agencies of
civilization for the promotion of the public convenience and the
public safety.
Page 115 U. S. 670
It is to be presumed that the Legislature of Louisiana, when
granting the exclusive privileges in question, deemed it unwise to
burden the public with the cost of erecting and maintaining gas
works sufficient to meet the necessities of the municipal
government and the people of New Orleans, and that the public would
be best protected as well as best served through a single
corporation invested with the power and charged with the duty of
supplying gas of the requisite quality and in such quantity as the
public needs demanded. In order to accomplish what in its judgment
the public welfare required, the legislature deemed it necessary
that some inducement be offered to private capitalists to undertake
at their own cost the work of supplying gas for the city and its
people. That inducement was furnished in the grant of an exclusive
privilege of manufacturing and distributing gas by means of pipes
laid in the streets of New Orleans for a fixed period, during which
the company would be protected against competition from
corporations or companies engaged in like business. Without that
grant, it was inevitable either that the cost of supplying the city
and its people would have been made in some form a charge upon the
public or the public would have been deprived of the security in
person, property, and business which comes from well lighted
streets.
It is not our province to declare that the legislature unwisely
exercised the discretion with which it was invested. Nor are we
prepared to hold that the state was incapable -- her authority in
the premises not being at the time limited by her own organic law
-- of providing for supplying gas to one of her municipalities and
its inhabitants by means of a valid contract with a private
corporation of her own creation. We may repeat here what was said
by Chief Justice Taney in
Ohio Life Insurance &
Trust Co. v. Debolt, 16 How. 415, in reference to
the authority of a state to limit the exercise of its power of
taxation:
"But whether such contracts should be made or not is exclusively
for the consideration of the state. It is the exercise of an
undoubted power of sovereignty which has not been surrendered by
the adoption of the Constitution of the United States, and over
which this Court has no control. For it can never be maintained in
any tribunal in this country
Page 115 U. S. 671
that the people of a state, in the exercise of the powers of
sovereignty, can be restrained within narrower limits than that
fixed by the Constitution of the United States upon the ground that
they make contracts ruinous or injurious to themselves. The
principle that they are the best judges of what is for their own
interest is the foundation of our political institutions. It is
equally clear upon the same principle that the people of a state
may, by the form of government they adopt, confer on their public
servants and representatives all the power and rights of
sovereignty which they themselves possess, or may restrict them
within such limits as they deem best and safest for the public
interest."
Pp.
57 U. S.
428-429. After observing that the power of the state to
make contracts may be indiscreetly and, for the public, injuriously
exercised, he proceeds:
"Yet if the contract was within the scope of the authority
conferred by the constitution of the state, it is like any other
contract made by competent authority, binding upon the parties. Nor
can the people or their representatives, by any act of theirs,
afterwards impair its obligation. When the contract is made, the
Constitution of the United States acts upon it and declares that it
shall not be impaired, and makes it the duty of this Court of carry
it into execution. That duty must be performed."
P.
57 U. S.
429.
With reference to the contract in this case, it may be said that
it is not in any legal sense to the prejudice of the public health
or the public safety. It is nonetheless a contract because the
manufacture and distribution of gas, when not subjected to proper
supervision, may possibly work injury to the public, for the grant
of exclusive privileges to the plaintiff does not restrict the
power of the state, or of the municipal government of New Orleans
acting under authority for that purpose, to establish and enforce
regulations, not inconsistent with the essential rights granted by
plaintiff's charter, necessary for the protection of the public
against injury, whether arising from the want of due care in the
conduct of its business or from an improper use of the streets in
laying gas pipes, or from the failure of the grantee to furnish gas
of the required quality and amount.
Page 115 U. S. 672
The constitutional prohibition upon state laws impairing the
obligation of contracts does not restrict the power of the state to
protect the public health, the public morals, or the public safety
as the one or the other may be involved in the execution of such
contracts. Rights and privileges arising from contracts with a
state are subject to regulations for the protection of the public
health, the public morals, and the public safety in the same sense
and to the same extent as are all contracts and all property,
whether owned by natural persons or corporations.
Whatever, therefore, in the manufacture or distribution of gas
in the City of New Orleans proves to be injurious to the public
health, the public comfort, or the public safety may,
notwithstanding the exclusive grant to plaintiff, be prohibited by
legislation, or by municipal ordinance passed under legislative
authority. It cannot be said with propriety that to sustain that
grant is to obstruct the state in the exercise of her power to
provide for the public protection, health, and safety. The article
in the state constitution of 1879 in relation to monopolies is not
in any legal sense an exercise of the police power for the
preservation of the public health or the promotion of the public
safety, for the exclusiveness of a grant has no relation whatever
to the public health or to the public safety. These considerations
depend upon the nature of the business or duty to which the grant
relates, and not at all upon the inquiry whether a franchise is
exercised by one rather than by many. The monopoly clause only
evinces a purpose to reverse the policy previously pursued of
granting to private corporations franchises accompanied by
exclusive privileges, as a means of accomplishing public objects.
That change of policy, although manifested by constitutional
enactment, cannot affect contracts which, when entered into, were
within the power of the state to make, and which consequently were
protected against impairment in respect of their obligation by the
Constitution of the United States. A state can no more impair the
obligation of a contract by her organic law than by legislative
enactment, for her constitution is a law within the meaning of the
contract clause of the national Constitution.
Railroad
Co. v.
Page 115 U. S. 673
McClure, 10 Wall. 511;
Ohio
Life Ins. & T. Co. v. Debolt, 16 How. 429;
Sedgwick's Stat. & Const. Law 637. And the obligation of her
contracts is as fully protected by that instrument against
impairment by legislation as are contracts between individuals
exclusively.
State v.
Wilson, 7 Cranch 164;
Providence
Bank v. Billings, 4 Pet. 514;
Green v.
Biddle, 8 Wheat. 1;
Woodruff
v. Trapnall, 10 How. 190;
Wolff v. New
Orleans, 103 U. S. 358.
If, in the judgment of the state, the public interests will be
best subserved by an abandonment of the policy of granting
exclusive privileges to corporations other than railroad companies,
in consideration of services to be performed by them for the
public, the way is open for the accomplishment of that result with
respect to corporations whose contracts with the state are
unaffected by that change in her organic law. The rights and
franchises which have become vested upon the faith of such
contracts can be taken by the public, upon just compensation to the
company, under the state's power of eminent domain.
West River
Bridge Co. v. Dix, ubi supra; 54 U. S. Railroad
Co. v. Louisa Railroad Co., 13 How. 71,
54 U. S. 83;
Boston Water Power Co. v. Boston & Worcester Railroad,
23 Pick. 360, 393;
Boston & Lowell Railroad Co. v. Salem
& Lowell Railroad Co., 2 Gray 1, 35. In that way the
plighted faith of the public will be kept with those who have made
large investments upon the assurance by the state that the contract
with them will be performed.
The demurrer to the bill of complaint should have been
overruled. Upon its averments, the complainant was entitled to a
decree perpetually restraining the defendants, and each of them,
their servants, agents, and employees, from the manufacture and
distribution of gas in new Orleans by means of pipes, mains, and
conduits laid in or along the streets and other public ways and
places of that city.
The decree dismissing the bill is reversed, and the cause
remanded for further proceedings in conformity with this
opinion.