Case ID: ohio-st_101/html/0144-01.html
Source: Caselaw Access Project
Author: {"author": "Merrell, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Phelps, a Taxpayer, v. The Logan Natural Gas & Fuel Co. et al.
    
      Municipal corporations — Gas-rate ordinance — Abrogation or modification before expiration■ — Ordinance increasing rate valid, when■ — ■Mutuality of contracts — Specific performance — Right of taxpayer to sue.
    
    1. Pending the term of a gas-rate ordinance passed by the council of a municipality and accepted by the gas company, it is competent for the parties to modify or abrogate by mutual agreement the contract thus entered into.
    2. Where the council of a municipality has determined by ordinance the rates to be charged consumers of gas for an ensuing period of ten years, and the gas company has accepted the provisions of such ordinance, an ordinance passed four years later and also accepted by said company, providing for an immediate increase in the rates to be charged, is a valid exercise of municipal power, and constitutes a binding contract between the municipality and the gas company, abrogating and superseding the prior gas-rate ordinance.
    3. A taxpayer of a municipality has no vested interest in a contract between the municipality and a gas company for the supply of gas to consumers at specified rates for a definite term, such as will entitle him to maintain an action for specific performance of such contract after the same has been abrogated by agreement duly entered into between the municipality and the gas company.
    (No. 16346
    Decided March 2, 1920.)
    Error to the Court of Appeals of Hancock county.
    The parties stand in this court in their original relation, and will therefore be referred to as plaintiff and defendants.
    The plaintiff, suing as a taxpayer of the city of Findlay, brought this action to compel the specific performance by the defendant, The Logan Natural Gas & Fuel Company, of a certain contract entered into in June, 1914, between it and the city of Findlay.
    That contract, which was for the supply of natural gas for public and private use for the period of ten years ending June, 1924, was preceded in 1903 by a franchise granted by the city council to the gas company, for distributing and vending natural gas to the city of Findlay and its citizens. This franchise was indefinite as to the term of enjoyment, but prescribed the price and rate which the gas company was permitted to charge.
    At the expiration of the ten-year period, the gas-rate ordinance of June, 1914, was passed by the city council and formally accepted by the gas company. The rate therein fixed was 33 cents per 1000 cubic feet for the first five years, and 38 cents per 1000 cubic feet for the last five years of the ordinance period. Both rates were subject to discount for prompt payment.
    On or about October 18, 1918, the defendant gas company applied to the city council for a new gas-rate ordinance, upon the statement that in view of the increase in the cost of labor and material, and consequent increase in the cost of producing and distributing natural gas, the company could not afford to supply gas to- the city and the citizens thereof at the rate fixed in the ordinance of June, 1914; that unless the ordinance rate were increased it would result that the consumer would necessarily be deprived of adequate service. In a circular letter to its consumers, the gas company set forth the reasons for which it had applied to the city council for a new rate ordinance.
    The foregoing appears from the finding of facts, and it further appears that on October 18, 1918, “after due and proper consideration in open meeting, the said council promptly and unanimously passed an ordinance upon such application and request of the defendant gas company, and the mayor of said city formally approved an ordinance, the first section of which repealed the rate ordinance of June 29, 1914, in toto, thus abrogating the contract involved in said ordinance of 1914, and the acceptance and operation thereunder, and absolved the defendant gas company from its obligation to the city and her citizen gas consumers involved in the promulgation and acceptance thereof.”
    By the second section of this ordinance, the defendant gas company was “authorized, directed, and permitted to file a schedule with the Public Utilities Commission of Ohio, fixing a rate of 38 cents per 1000 cubic feet, less 3 cents per 1000 cubic feet [discount], together with a minimum charge of the price of 2000 cubic feet per month at the aforesaid rate, which when filed with the Public Utilities Commission, as required by law, shall be effective and binding on both parties from and after the twenty-fourth day of November, 1918, and until changed conditions * * * justify a change of rate,” etc.
    This ordinance was formally accepted by the gas company, which, after the date named, began imposing and collecting from the city and other consumers the increased rate.
    The court of appeals found that the ordinance of October 18, 1918, was a valid exercise of the power vested in the council of the defendant city, and was binding and obligatory upon the defendant city and its citizen consumers.
    The plaintiff seeks to reverse the judgment of the court of appeals based upon the foregoing conclusions of law.
    
      Mr. George H. Phelps, for plaintiff in error.
    
      Mr. S. M. Douglass; Mr. Freeman T. Eagle son; Mr. J. Warren Madden and Mr. J. C. Bitler, for defendants in error.
   Merrell, J.

The claim here urged is in substance this: that pending the term of a gas-rate ordinance, passed by a city council, and accepted by a gas company, it is incompetent for the parties to abrogate by mutual agreement the contract thus entered into. In support of this claim it is insisted: first, that the consumers of* gas who are citizens of the municipality in question have a vested interest in the rate contract for the term thereof; and, second, that certain statutory provisions forbid, directly or by necessary implication, the abrogation of such contract.

The theory that the individual consumer has a vested interest in a contract made by his city with a public utility, and in the provisions thereof with respect to rates for service, finds no support in the authorities. The individual citizen is in no exact sense the direct beneficiary of such contract. The benefits and rights accruing to him thereunder are his by virtue of his membership in the municipal corporation. The latter, embodying the collective citizenship, and representing the general welfare of its citizens, as distinguished from the sum total of their divergent private interests, is therefore the real as well as the nominal party in interest in such contract.

As said in Asher et al. v. The Hutchinson Water, Light & Power Co., 66 Kans., 496, at page 500:

“An individual can acquire no vested right, as against the public, in the continued service of a public utility. Such a doctrine once admitted would destroy the convenience as a public utility; it would then become hampered and subject to the control of the individual and made to subserve such interests, to the detriment of the public welfare.”

In passing it may be observed that the contracts of a municipal corporation, unless limited by positive provisions of statute law, are governed by the same principles as apply to contracts between individuals. As between the latter, parties competent to contract are competent to modify or to abrogate the contracts, so far as executory, between them made, the consideration therefor being found in the mutual waivers of rights thereunder. Page on Contracts, Section 317.

It follows that the ordinance of the city of Find-lay of October 18, 1918, abrogating, with the consent of the gas company, the prior contract, still partly executory, made by the passage and acceptance of the rate ordinance of June, 1914, violated no principle of the law of contracts, and was not open to attack on general grounds by the individual taxpayer or gas consumer, suing either in his personal right, or, as here, on behalf of the public. Asher v. Hutchinson Water Co., supra; Little Rock Railway & Electric Co. v. Dowell, 101 Ark., 223; Blankenburg v. Philadelphia Rapid Transit Co., 228 Pa. St., 338, and 4 McQuillin on Municipal Corporations, Section 1763.

Express authority for this conclusion is found in the case of The Logan Natural Gas & Fuel Co. v. City of Chillicothe, 65 Ohio St., 186, wherein the city, having granted in 1895 a franchise to the gas company fixing rates for the ensuing ten years, attempted in 1900 to impose by ordinance, and without the consent of the company, a “flat'charge” not provided for in the original ordinance. It was held that the ordinance of 1900 was invalid for want of consent of the other party to the franchise contract, but the gas company, which, without authority, had been exacting a “flat rate” charge of its own fixing, was expressly given the option of carrying out strictly the contract of 1895, or of accepting the provisions of the ordinance of 1900, which by such acceptance would be validated.

In other words, this court in that case, declared valid the precise course followed by the parties defendant in the present action.

No claim is made on other than technical grounds that the action of the Findlay council in the present instance constituted an abuse of power, or even that its passage of the ordinance of 1900 was injudicious in the light of the public interest to be served.

Had it been so regarded by any appreciable number of citizens, it was open to them to have tested the issue by invoking a referendum, the remedy provided by the constitution and the legislature to meet just such situations. Nothing of the sort was attempted.

It is, however, claimed that the ordinance of October, 1918, is invalid because in conflict with the provisions of Sections 614-32 and 614-44, General Code.

The latter section authorizes a municipal corporation “within one year before the expiration of any contract” with certain public utilities to “proceed to fix the price, rate, charge, toll, or rental that such public utility may charge * * • * for an ensuing period.” It is pointed out that the city of Findlay assumed to act with respect to rates six years before the expiration of the rate contract of 1914.

However, the statute in question manifestly has reference solely to the exercise of the power of the municipality conferred by other statutory provisions (Section 3982, General Code) to regulate rates subject to an appeal by the utility or the electors to the Public Utilities Commission.

The section referred to does not assume, directly or by implication, to control or limit the power of a municipality to contract with such utility or to modify or abrogate existing contracts with the consent of the other contracting party. The power to contract differs so essentially from the power to regulate, that no further comment is required.

Section 614-32, General Code, confers upon the Public Utilities Commission “power * * * in case of any emergency * * * to temporarily alter, amend, or with the consent of the public utility concerned suspend any existing rates.” This provision it is suggested was intended as an exclusive remedy for the condition which confronted the present parties defendant, and has the effect of prohibiting any action by the municipality or the utility, or both, with reference to existing rate contracts. Clearly, however, it is unnecessary to read into the act a prohibition of what neither the municipality nor the utility, acting independently, has power to do. (The Logan Natural Gas & Fuel Co. v. Chillicothe, supra.) On the other hand, the fixing of an emergency rate is simply a special form of regulation, and a statutory provision granting such power cannot be construed by implication, however strained, to affect the totally unrelated power to contract.

As Section 614-32, General Code, by its very terms is foreign to the controversy in the present case, it is unnecessary to consider whether by other provisions of the act of which it is a part (Section 614-47, General Code) it has any application to the rates for service agreed upon between the present defendants.

For the reasons assigned it must be concluded that the ordinance of the city of Findlay of October 1918, having been accepted by the gas company, was a valid exercise of municipal power. By the terms of that ordinance thus accepted, the pre-existing- contract between the city and the gas company was abrogated, and ceased to be the subject of specific performance at the instance of any party or person whomsoever.

Judgment affirmed.

Nichols, C. J., Jones, Matthias, Johnson and Robinson, JJ., concur.