City of Helena v. Helena Waterworks Co.

MORROW, Circuit Judge, after the foregoing statement of facts, delivered the opinion of the court. It is clear that Ordinance No. 248 does not grant an exclusive franchise to the water company to supply the inhabitants of the city of Helena with water during the term of the franchise, since the contrary is expressly provided in the first section of the ordinance granting the franchise and prescribing its terms. It is there provided that: “Nothing herein contained shall he so construed as to give to the said Helena Consolidated Water Company, or its successors or assigns, the exclusive right of occupying the streets, avenues, alleys, and public grounds of said city with water mains and pipes, or the exclusive right of conveying, distributing, and selling the same throughout the city, or of furnishing the same to said city, except as hereinafter set forth.” The meaning of this proviso is made still more definite and certain by reference to the previous language of the section, making the grant of the franchise for laying and maintaining water mains and pipes for the purpose of distributing water throughout the city subject to the qualification that the water is to be sold to “all persons, bodies, or corporations within the city desiring to purchase the same,” and making the general grant to have and exercise all the rights, privileges, and franchises necessary to the proper and successful furnishing of water subject to the further qualification that the water is to be furnished “to the inhabitants of said city, if required.” In other words, the ordinance grants to the water company for the term of 20 years the license and franchise for laying and maintaining water mains and pipes for the purpose of distributing water throughout the city for sale to such purchasers as desire to obtain water from that company. But the franchise is not exclusive. The city may grant another franchise to another company to occupy the streets of the city with water mains and pipes for the purpose of conveying; distributing, and selling water to the inhabitants of the city in competition with the grantee of the franchise. This much is conceded by the appellee. But the controversy turns upon the right of the city to engage in the business of supplying the inhabitants with water in competition with the appellee during the term of the franchise. It would seem that, if the city has the authority to grant a franchise to another corporation to construct and maintain a plant and system for supplying and selling water to its inhabitants, it would have the authority to construct and maintain a system for that purpose .itself. The *11 appellee contends, however, that the city has by the terms of Ordinance No. 248 parted with that right during the continuance of the franchise, and, further, that the city is now proceeding without authority of law to procure a water plant and system of its own. These two questions appear to be the controlling questions in the case. Whether the city of Helena is proceeding under authority of law to acquire a water plant and system to be owned and controlled by the city involves the consideration of a provision of the Constitution of the state, and statutes of the state passed to carry the provision of the Constitution into effect. The section of the Constitution referred to is section 6 of article 13, which provides as follows: “No city, town, township or school district shall be .allowed to become indebted in any manner or for any purpose to an amount, including existing indebtedness, in the aggregate exceeding three per centum of the value of the taxable property therein, to be ascertained by the last assessment for the state and county taxes previous to the incurring of such indebtedness, and all bonds or obligations in excess of such amount given by or on behalf of such city, town, township, or school district shall be void: provided, however, that the legislative assembly may extend the limit mentioned in this section, by authorizing municipal corporations to submit the question to a vote of the tax-payers affected thereby, when such increase is necessary to construct a sewerage system or to procure a supply of water for such municipality which shall own and control said water supply and devote the revenues derived therefrom to the payment of the debt.” It is stipulated in the agreed statement of facts that the indebtedness of the city of Helena is now, and has been for several years last past, in excess of 3 per cent, of the assessed value of all the taxable property in said city, as determined by the assessment for the state and county taxes during each and all of said years. Subdivision 64 of paragraph 4800 of the Political Code of Montana, relating to the legislative powers of cities and towns, as amended by the Act approved March 6, 1895, extends the limit of indebtedness mentioned in the Constitution (article 13, § 6), and provides that an additional indebtedness may be incurred by cities and towns incorporated under the laws of the state “when necessary to construct a sewerage system or procure a water supply for the said city or town, which shall own and control said water supply, and devote the revenues derived therefrom to the payment of the debt.” The statute then proceeds to place a limit upon such additional indebtedness, providing that the limit of the indebtedness shall be submitted to a vote of the taxpayers affected thereby, and carried in the affirmative by a vote of the majority of the taxpayers who vote at such election. The statute further provides for the issue of bonds for such indebtedness, and, where a water supply is being furnished by private parties, the acquisition of the plant of such parties instead of the erection or construction of a new plant. The last provision of the statute was declared unconstitutional by the Supreme Court of the state in Helena Consolidated Water Company v. William L. Steele, 20 Mont. 1 , 49 Pac. 382 , 37 L. R. A. 412, thus disposing of that question; but the appellee objects to the remainder of the statute, on the grounds that it is a general law, whereas the Constitution, it is contended, contemplated a special act adapted to the circumstances of each case. We do not think this objection can be sustained. The tendency of *12 constitutional limitations upon legislative action is to require that no special law shall be enacted where a general law can be made applicable; and this provision we find in express terms in the Constitution of Montana, after an enumeration of cases where special laws are prohibited (section 26 of article 5). But it is not necessary to pursue this question further. We think the whole question whether the city is proceeding under the authority of law is covered by the agreed statement of facts. It is there stipulated “that- the city of Helena contemplates and intends to do all acts and things necessary to secure a water supply and system to be owned and controlled by the said city of Helena, and that it contemplates and intends to raise funds and revenue therefor in the manner provided by law.” It is also stipulated “that no injury of which complainant can complain will result therefrom if defendant city has the rights claimed by it;” that the facts complained of “will not result in great and irreparable injury and damage, or any damage or injury, to said complainant, as a taxpayer or otherwise, unless it be found that the said acts are in violation of the rights of said complainant, and an unwarranted attempt to exercise powers and rights in behalf of said defendant, the city of Helena; that, unless enjoined and restrained from so doing, it [the city of Helena] will, both before and after the expiration of said alleged contract and franchise [Ordinance No. 248], furnish and supply the said city and the inhabitants thereof with water; * * * that the revenue for said purpose will be created and raised by borrowing money or raising funds within the limit of indebtedness, as heretofore or hereafter to be extended in accordance with the requirements of the Constitution and provisions of the statutes of the state of Montana in that behalf, unless it shall be adjudged that it has no legal or equitable right to do so on account of the facts and admissions hereinbefore stated and .made.” If these stipulations mean anything, they mean that the city is proceeding regularly under the Constitution and laws of the state for the purpose of securing a water supply and system to be owned and controlled by the city; and, as the stipulations appear to be in accordance with the law and the facts, they will be so construed, without further discussion. The only remaining question necessary to be considered is whether, under Ordinance No. 248, the city has entered into an implied agreement or contract with the water company that it will not engage in the business of supplying water to the inhabitants of the city in competition with the water company during the term of the franchise. Referring again to the ordinance, we find in section 3 that the city made an express reservation that nothing contained in the ordinance should conclude the city “from the construction or maintenance of sewer works or other works or plants of a public nature.” What are “works or plants of a public nature”? Section 6 of article 13 of the Constitution of the state, relating to public indebtedness, has authorized municipal corporations, as we have seen, “to procure a supply of water for such municipality, which shall own and control said water supply and devote the revenues derived therefrom to the payment of the debt.” This authority clearly contemplates works *13 or plants of a public nature to carry out the constitutional power conferred upon the municipality; and the legislative assembly, in accordance with the authority of the Constitution, has not only provided, in subdivision 64 of section 4800 of the Political Code, for the creation of the indebtedness for the purpose of procuring a supply of water, but has also provided, in subdivision 79 of the same section, that the.city or town council shall have power “to adopt, enter into, and carry out means for securing the supply of water for the use of the city or town or its inhabitants.” This last provision is broad enough to authorize a municipal contract with a corporation or individual to supply the water required for the municipality; but it is also broad enough to authorize the city or town council to construct and maintain a plant of its own for that purpose, and, in our opinion, ■ it was this power and authority that was reserved in section 3 of the ordinance. We are further supported in this view of the ordinance by an examination of section 6, where it is provided that the water company shall furnish and provide a full, ample, and sufficient supply of good, pure, wholesome, and clear water for the use and wants of the inhabitants of the city, and to provide the city with water for fire, sewerage (maintenance and construction), and other purposes, and that such supply shall be full, ample, and sufficient for the present population of the city and for the future population of the city, as the same may be from time to time, “during the full term of five years.” This section might properly be construed as a contract with the water company that the water company should have the exclusive right of supplying the city and its inhabitants with water during the first five years of the franchise. It might also be construed as an implied agreement' that the city would not establish a plant of its own for the purpose of supplying water to its inhabitants or for its own purposes during that period. But this period of 5 years has long since expired, and the section now only serves to indicate that for the remaining 15 years of the franchise there was no exclusive franchise granted to the water company, and no implied agreement that during this last period it would not engage in the business of supplying water to the inhabitants of the city or for its own municipal purposes. It appears that the court below followed the decision of-the Circuit Court for the Western District of Missouri, in the case of Southwest Missouri Light Co. v. City of Joplin (C. C.) 101 Fed. 33 , and 113 Fed. 817 . It will be found, upon examination of that case, that the statute under which the municipal authorities acted was in the alternative; that is to say, the city council might, under the authority of the statute, establish gas or electric works, or light works of any kind, for the purpose of supplying the inhabitants of the city with light, or they might in their discretion grant the right to any person or corporation upon such terms as might be prescribed by ordinance, providing that such right should not extend for a longer period than 20 years. The city council, in the exercise of its discretion, adopted the latter alternative, and granted to certain persons the right to establish a light plant for the generation- *14 of electricity, for the purpose of furnishing light, heat, motor power,, and other purposes, for the period of 20 years. The Circuit Court very properly held that, the city council having adopted the alternative method of procuring light for the city and its inhabitants contemplated by the statute, it was an implied term of the contract,, made by the acceptance of the ordinance, that the city could not itself enter into competition with the grantee in supplying .light to consumers during the term of the grant by means of a light plant erected under the powers conferred by the statute. The law under which the city of Helena acted in this case prescribed no such alternative conditions, and we certainly ought not to assume that they are to be implied, unless the implication is so plain as to be beyond all doubt; and this is not the case .with respect to either the law of the state or the ordinance of the city. Public grants are to be so strictly construed as to- operate as a surrender by them of the sovereignty no further than is expressly declared by the language employed for the purpose of their creation. The grantee takes nothing in that respect by inference. Such is deemed the legal intent of the state in imparting to its citizens or corporations powers and privileges of public character. Syracuse Water Co. v. City of Syracuse, 116 N. Y. 167, 178 , 22 N. E. 381 , 5 L. R. A. 546. The general doctrine is that whenever privileges are granted to a corporation, and the grant comes under revision in the courts, such privileges are to be strictly construed against the corporation and in favor of the public, and that nothing passes but what is granted in clear and explicit terms. Charles River Bridge v. Warren Bridge, 11 Pet. 420 , 9 L. Ed. 773, 938 ; Rice v. Railroad Company, 1 Black, 358, 380 , 17 L. Ed. 147 . In Bienville Water Supply Co. v. Mobile (C. C.) 95 Fed. 539 ; Id., 175 U. S. 109 , 20 Sup. St. 40, 44 L. Ed. 92 , the city of Mobile was authorized and empowered by its charter and an act of the Legislature to build or otherwise acquire waterworks of its own, to supply water to itself and its inhabitants for the extinguishment of fires- and for sanitary and domestic purposes. The city, instead of building or acquiring waterworks of its own, entered into a contract with the Bienville Water Supply Company, by which it was agreed that the water company would furnish for the use of the city 260 fire hydrants and water for fire service of a certain number of streams and pressure, and it was further agreed that the city would have the unrestricted use of such hydrants for such fire purposes and the free use of water for all municipal buildings. The water company agreed not to charge, during the continuance of the contract, for domestic use, a greater or higher rate for water than that named and specified in the contract. The city, in consideration of the stipulations contained in the agreement on the part of the water company, agreed to pay the water company for the use of the hydrants at the rate of $50 per annum for each hydrant during the continu-' anee of the contract. It was agreed that the contract should be for 6 years. It was afterwards extended for a period of 12 years. Before the expiration of this contract the city proceeded to erect waterworks of its own for the purpose of supplying water to its inhab *15 itants and for its own use. The water company filed a bill in equity in the United States Circuit Court against the city to enjoin it from making or carrying out any other contract for supplying water to its inhabitants, or from the construction of a system of waterworks for that purpose, during the continuance of the contract with the water company, and from building or acquiring a system of waterworks to bring water into the city during such contract. To this bill the city demurred. In support of the bill the water company contended that the city had no legal right to impair the value of its plant, or to destroy or diminish its income therefrom, which would be the effect of the city’s action in building waterworks and furnishing water to its inhabitants; and it was averred that the city was insolvent, and that the only way complainant could protect itself was through the interposition of a court of equity. It was not asserted by the water company that it had been granted an exclusive franchise to furnish water to the city and its inhabitants; but it was contended that under the contract the city had no right to furnish water to other persons, or to build or acquire a system of waterworks to supply water to itself and its inhabitants, and that to do this was a violation of the contract. The bill was dismissed by the Circuit Court. In the Supreme Court the decree of the Circuit Court was affirmed, the Supreme Court holding that no acts were averred showing that the city was violating or intended to violate its contract with the water company. In the case of Skaneateles Water Co. v. Skaneateles, 184 U. S. 354 , 22 Sup. Ct. 400, 46 L. Ed. 585 , the franchise granted to the water company was very much of the same character as the franchise involved in this case. It was there said: “There is no implied contract in an ordinary grant of a franchise, such as this, that the grantor will never do any act by which the value of the franchise granted may in the future he reduced. Such a contract would he altogether too far-reaching and important in its possible consequences in the way of limitation of the powers of a municipality, even in matters not immediately connected with water, to be left to implication. We think none such arises from the facts detailed.” _ The principle of these last cases, we think, disposes of the question whether the city of Helena has, under Ordinance No. 248, parted with the right to construct and maintain a plant and system for supplying and selling water to its inhabitants, and disposes of the question in favor of the city. The decree of the Circuit Court is therefore reversed, with instructions to dismiss the bill of complaint. 2. See Franchises, vol. 23, Cent. Dig. § 2.