BINDING CHARACTER. OF FRANCHISE PROVISIONS.

Court of Appeals for Franklin County.

#### City of Columbus v. The Ohio State Telephone Co.

Decided, July 2, 1917.

*Telephone Company*— Bound *by Provisions as to Rates Contained in Its Franchise Ordinance*— Use *of Streets a Sufficient*Consideration— *Public Utilities Commission Without Power to Change Rates so Fixed*— Unforeseen *Costs and Unprofitable Operation Rot Ground for Disregard of Rate Provisions*— Section 614-2, *et seq.*

1. The use of the streets of a municipality by a telephone company, including the use of the subsurface for a conduit system, constitutes a sufficient consideration to render binding a provision in the franchise ordinance which fixes telephone rates within the corporate limits, and such a provision -is enforcible both on behalf of the city and of private consumers located within its limits.

2. The public utilities act has no application to the provision of a franchise ordinance which fixes rates for a definite period.

3. Where the conduit system has been extended under orders from an authorized officer of the municipality, the company may equitably increase its rates within the limits permitted by the franchise ordinance in the event of conduit extensions.

4. A company which has accepted a franchise, including a provision as to rates, will not be permitted to retain the favorable provisions and at the same time eliminate one which unanticipated cost and unprofitable operation has rendered burdensome.

*103H. *L. Scarlett,*City Solicitor, and *John R. King,*Assistant, for plaintiff.

*Daugherty, Todd & Rarey*and *George H. Jones,*contra.

By the Court.

(Kunkle, Allread and Ferneding, JJ., concurring.)

The city of Columbus brought this action .against the Ohio State Telephone Company to enjoin the telephone company from putting into effect a proposed increase of its annual charge upon business phones from $40 to $54 per annum, less .a discount of $3 for payment in advance.

The petition alleges that the telephone company is operating under a franchise, ordinance and contract dated and taking effect in the year 1899 and continuing for a definite period of twenty-five years. The ordinance provides for the construction and maintenance of at least five miles of conduits and such extension of the conduit system as might be required by the city after five years from the completion of the exchange.

Under the ordinance and contract, the original telephone company, to whose rights the defendant succeeds, agreed that its charge for business phones should not exceed $42 per ¡annum, but provided that if the city at any time after five years from the installation of the exchange required the company to place additional wires underground that the charges for rentals above set forth might be equitably increased, but not exceeding one dollar per month per phone in excess of the charges above stipulated.

The petition alleges that the defendant entered upon and constructed its plant in the streets, alleys and avenues of the city and has constructed and now maintains more than twelve and one-half miles of underground conduits and that the city at no time required or demanded that the telephone company lay additional conduits over and above the five miles originally provided for in the ordinance. The city, therefore, contends 'that the telephone company has no authority to increase its telephone charges upon business phones .above the $42 per annum provided for in the ordinance.

An answer was filed in which the defendant, among other things, admits the terms and provisions of the ordinance and *104that it is operating under said ordinance. It admits that it has constructed approximately ten miles of additional conduits, which it is now maintaining as a part of its telephone system and that it proposes to raise the schedule of rates on -business phones to the sum of $54 per annum, less a discount of $3 for payment in advance and denies each and every other allegation.

The defendant sets out four additional defenses.

By the first defense it is claimed that the city of Columbus had no legal right to fix the telephone rates to subscribers and that such provision in the ordinance and contract were without consideration.

The second defense alleges, in substance, that the only authority to fix telephone rates is vested in the Public Utilities Commission, under Section 614-2 *et seq.*of the General Code; that the telephone company on the first day of January, 1917, filed this proposed schedule of rates with the Public Utilities Commission to become effective February 1, 1917, and that no objections, protest or complaint having been filed with the Public Utilities Commission to said rates, the same are now the only lawful rates which the defendant is authorized or permitted to charge.

The third defense alleges, in substance, that the city through its duly authorized officers and agents subsequent to the passage of the franchise ordinance, from time to time, notified this defendant to remove its poles and fixtures from certain streets, alleys and public ways and to place the same in conduits beneath the surface of said streets and that in obedience to said orders and notices, the defendant from time to time constructed more than ten trench miles of conduits in addition to the five miles originally provided for in the ordinance and has leased approximately three trench miles of conduits, in all of which it has placed and maintained its telephone wires in the operation of its plant. The defendant, therefore, claims thé right to increase the charges upon business phones up to the maximum of-$54 per annum, as provided in the ordinance.

The fourth defense, in substance, avers that the telephone plant in the city of Columbus has increased in cost and expense far beyond what was contemplated by the parties at the time the *105franchise ordinance and contract become effective, making the operation of the plant under the franchise rates unprofitable and causing a loss to the company of substantially $60,000 per annum and that by reason of such unanticipated situation, the telephone company is entitled to have the ordinance rates disregarded and equitable rates established in view of existing conditions.

The plaintiff demurred separately to the defense marked one, two, three and four of the answer and also to all of the answer, for the reason that the facts stated therein do not separately or jointly constitute a defense.

The demurrer was presented in the court of common pleas. The court of common pleas, in searching the record, found that the petition was defective and sustained the demurrer to the petition and dismissed the action. From this final judgment appeal was taken to this court.

The ease is submitted here upon the demurrer to the answer and also upon a motion for a temporary injunction.

In support of the claim that the petition is insufficient to constitute a cause of action, it is claimed that the council of the city of Columbus had no authority to fix the rates and that the acceptance of such franchise including the rates was not binding as a contract because there was no consideration.

It must be observed that as a controlling feature, the city of Columbus by the franchise ordinance in controversy granted not only the right to maintain an overhead -telephone system but to maintain conduits in the streets, alleys and public places.

The latter feature, we think, constitutes such a grant as would afford a consideration for the fixing of rates in the franchise ordinance.

In the case of *Zanesville*v. *The Gas Light Company,*47 O. S., page 1, it was held that the fixing of rates by a gas company in the franchise ordinance was valid. That a right to the use of the streets furnished a valid consideration for the agreement of the company fixing prices at which a commodity was- to be furnished to the city and to its inhabitants.

This doctrine was followed in the case of *City*v. *Gas Company,*76 O. S., page 309, and was extended so as to include a stipu*106lated sum to be paid to the city as. compensation for the use of the streets.

In the recent case of *Telephone Company*v. *City of Columbus,*88 O. S., 466, the principle of the gas company case was extended to the case of a telephone company which obtained in the franchise the right to the use of the streets for conduit purposes.

The case of *Farmer*v. *Telephone Company,*72 O. S., 526, is limited to the case of a telephone company which obtains its franchise to operate merely an overhead telephone system and does not apply to the case of a telephone company obtaining the use of the streets and alleys for a conduit system.

The right of a municipality to require a telephone or other public utilities company to fix rates in consideration of a franchise to use the streets, especially the sub-surface, is amply sustained by the weight of authority in other jurisdictions. *Dillon Municipal Corporations*(5th Ed.), page 1952; *Pond on Public Utilities,*Section 431; *McQuillan on Municipal Corporations,*Section 1741, and cases cited.

We are therefore of the opinion that under the facts stated in the petition the provisions of the franchise ordinance fixing the telephone rates is valid and may be enforced by the city in its own behalf and in the behalf of the consumers located within its corporate limits.

We therefore proceed to consider the sufficiency of the defenses numbered one, two, three and four of the answer.

Defense number one challenges the consideration of a franchise provision fixing rates upon the ground that there is no consideration. This proposition has already been discussed. That defense, in our opinion, is insufficient.

Defense number two relates to the filing of the rates with the Public Utilities Commission. Upon consideration of this defense, we have reached the conclusion that the Public Utilities Act does not apply to the ordinance under consideration, for the reason that this ordinance grants a franchise fixing the rates for a definite period. See Section 614-19, G. C.; *Village of Lexington*v. *Ohio Fuel Supply Co.,*24 C.C.(N.S.), 537; *Taylor*v. *Hiles, Receiver,*21 C.C.(N.S.), 391.

*107We think this is also in harmony with the opinion of the Supreme Court in the case of *City of Cincinnati*v. *Public Utilities Commission,*decided May 15, 1917.

We think the third defense alleging the extension of the conduit system under notices ,and orders from the superintendent of fire and police telegraph of the city of Columbus constitutes a good defense and, if true, would authorize the company to increase its rates equitably above the $42 per annum provided in the franchise ordinance and not exceeding $12 per year.

We think the fourth defense in relation to the unanticipated cost and extension of the service is not a good defense.

The company accepted the ordinance and its right to maintain this system including conduits, is based thereon. Whether the company might under the situation set forth in this defense surrender its entire franchise we are not called upon to consider, ■but having accepted the franchise including the provision as to the rates, we think that they are not now justified in disregarding the provision as to rates and retain the favorable provisions of the ordinance.

We are therefore of the opinion that the demurrer should be sustained to so much of the answer as is embraced under numbers one, two and four and overruled as to so much of the answer as is embraced under number three.

In respect to the motion for a temporary injunction, we have considered the affidavits filed by the city in connection with those filed by the defendant in the court below. We have reached the conclusion that the question as to whether all or a part of the extension of the conduit system over and above the five miles provided for in the ordinance was made by notice or request of the city is considerably involved, and we do not deem it advisable to pass upon this question of fact upon these affidavits, but feel that as matter of public convenience no interference should be made -by a temporary injunction at this time, but the case should be put at issue and finally tried and determined.

The motion for a temporary injunction is therefore overruled and the demurrer to the first, second and fourth defenses of the answer sustained and as to the third defense overruled.