Source: https://caselaw.findlaw.com/us-supreme-court/178/22.html
Timestamp: 2019-04-22 05:21:47+00:00

Document:
This is a bill in equity to review and reverse a decree entered in the United States circuit court for the southern district of California in a suit in which Charles D. Lanning, receiver of the San Diego Land & Town Company of Kansas, was complainant, and appellants herein were respondents, and in which the appellee was substituted before decree as complainant in lieu of said Lanning.
The bill is extremely voluminous, reciting all the pleadings and proceedings in the original suit.
The bill, in addition to the incorporation of the company and the appointment of a receiver of its assets and affairs, alleged that it was the owner of valuable water, and water rights, reservoirs, and an entire water system for furnishing water to consumers, and that it had a franchise for impounding, sale, and disposition of the waters owned and stored by it to the respondents and other consumers, and to the city of National City and its inhabitants.
The company's supply of water came from the Sweetwater river, a small stream about 5 miles from the city of National City, and its means of distributing the water, which were de- [178 U.S. 22, 23] scribed, could supply but a limited amount of territory, consisting of farming lands within and outside of said city, and in part of the residence portion of the city.
The company in procuring the water and its distributing system had expended up to January 1, 1896, the sum of $1,022,473.54, which was reasonably necessary for the purposes.
By the said expenditure it had procured and owned, 'subject to the public use and the regulation thereof by law,' water and water rights, a reservoir site, and a reservoir of the capacity of six thousand million gallons, and had constructed mains necessary to supply the defendants and their lands, and had constructed and put in the mains and pipes necessary therefor, and was at the time mentioned in the bill furnishing the defendants and each of them with water.
The defendants are the owners respectively of tracts of land under the system of the company, most of them of only a few acres each, and each became the owner of a water right to a part of the water of the company necessary to irrigate his tract of land, and became liable to pay for a yearly rental such as the company was entitled to charge and collect.
The annual expense of the system and its operation, including interest on its bonds, and excluding the natural and necessary depreciation, was $33,034.77, and to pay this expense and income of 6 per cent on the amount invested on the 1st of January, 1896, it was necessary that the rates for waterbe fixed to realize $119,791.66.
The mains and pipes were perishable, and required to be replaced at least once in sixteen years, and required frequent repairs.
To acquire the water and construct the system, the company was compelled to borrow $300,000, and to pay interest in the sum of $21,000 annually, which must be realized from the sale of its water, and was part of its operating expenses, and the share of its revenues which should be raised in the city of National City was about one third, and the amount which could [178 U.S. 22, 24] be raised from said city at the rates which prevailed under the ordinance mentioned in the bill was about $10,715 per annum, and no more.
The value of its water franchises and system was $1,100,000.
No other person or corporation was furnishing water to defendants, nor was there any other system by which they could be furnished, but the franchises and the rights of the company were not exclusive.
The city of National City was a municipal corporation of California, of the sixth class, and the board of trustees thereof claiming to act under the Constitution and laws of the state, passed an ordinance fixing the rates to be charged for water sold and furnished by the company to consumers of the city.
The company commenced to furnish water in the year 1887, and was informed by its engineer that its system and supply of water would furnish to consumers sufficient to irrigate 20,000 acres, and in addition what would be necessary for domestic use inside and outside of said city. The company was unfamiliar with the operation of the plant and system constructed and the cost of operating and maintaining them, and relying upon the estimates of the engineer, and believing that an annual rate of $ 3.50 per acre would be sufficient, fixed the rate at such sum, and had charged it until January 1, 1896, but instead of being able to supply sufficient water to irrigate 20,000 acres, it had been demonstrated by actual experience that the system would not supply sufficient to irrigate, to exceed 7,000 acres, together with water demanded for domestic use, and it was believed not to exceed 6,000 acres, although there were about 10, 000 acres under the system susceptible of irrigation.
At the rate of $3.50 per acre, even if all the lands of the system should be supplied with water and the rates in National City should be maintained, the company would not be able to pay operating expenses and maintain its plant, and the money invested in it would be lost, and the company would be compelled to furnish water at a loss, as it had been furnishing water at a loss, and its system had been going gradually to decay con- [178 U.S. 22, 25] sequent upon the want of revenue and means to replace the same.
To pay cost of operating and maintaining its system and a reasonable interest it was necessary to charge $7 for irrigation purposes, and said sum was a reasonable rate for consumers to pay, and the smallest amount for which the company could furnish water without loss.
By the laws of California the board of supervisors might upon petition of twenty-five inhabitants and taxpayers of the county fix the yearly rental for water, but no such petition had been presented or rates fixed in the case of the company.
For the reasons above stated the company gave notice to the defendant that on January 1, 1896, it would establish a rental of $7 per acre.
The defendants and each of them refused to pay such sum, and maintain that neither the company nor its receiver had the power to increase the rental, and that the former rate must be and remain the rental until the board of supervisors establish one as provided by law.
The increase of the rental was absolutely necessary to maintain and operate the plant.
To enforce the rental the complainant caused the water to be shut off the premises ofea ch of the defendants, and each of them threatened and would, unless restrained by the court from doing so, commence a suit in the superior court of San Diego county, California, to compel complainant to turn on and furnish water again, claiming the use for $3.50 per acre, and for damages. The rights of the defendants and the determination of the question of the right of the company would affect all in the same way and extent, except the quantity of land owned by the several defendants was different.
The bringing of said suits would involve complainant in a multiplicity of suits, would hinder him in the operation of the property of the company and the settlement of its debts and obligations, and the questions involved could better be settled in one suit.
The increase in rates would add to the revenue of the company with the amount of land now under irrigation, not less [178 U.S. 22, 26] than $14,000 per annum, and upon the whole of the land which could be irrigated not less than $20,000 per annum.
The answer was very long and somewhat confused by repetitions. The substance of it is given in the opinion of the circuit court. 76 Fed. Rep. 319.
These facts were, besides those stated in the opinion, that each defendant and all of them paid the full amount demanded by the company as the price of the perpetual easement of water supply from the system granted and annexed to their lands, and that they were forever discharged from the payment of any further sum to apply on the principal of or as income upon the cost or value of the system or debt incurred for its construction or the value of their respective water rights. And that in these respects the company had put all lands on an equal footing, and they had remained on the same footing for more than five years, and in many cases had changed hands; that the value of the water rights had for more thn five years entered into the market value of the lands and the price paid to their vendors by the defendants, who were their successors in title, and they were induced to purchase, improve, and settle upon their respective parcels on account of the rate of $3.50 per acre per annum, and it entered into and became a material element of their value.
That the rate of $3.50 per acre was the only actual rate for irrigation which had ever been established and collected by the company or its receiver, or assented to by consumers.
That they each had since January 1, 1896, paid the rate of $3.50 per acre to the complainant as receiver, and were willing and offered to pay the same as long as it should be legally established. And it was averred that in so far as the act of 1885 purported to prohibit the company from the sale of servitudes in freehold upon its system, or to contract respecting the same, or to receive full compensation from any consumer therefor who was willing to contract for the same, and to prescribe that such easement should be used only upon the terms and conditions that the owners render net annual receipts and profits upon the value thereof in perpetuity, or to prohibit contracts respecting the annual receipts, or to extinguish and satisfy the right of the company to such net annual receipts, the same was unconstitutional and void, and in conflict with the Fourteenth Amendment of the Constitution of the United States, and 1, article 9, of the Constitution of the state.
That the liability of the defendants to pay rates was several, not joint, and that certain of the defendants were not residents of the state, certain others not residents of the county of San Diego, and others were school districts, and that none of them were competent to make petition to the board of supervisors, as required in the act of 1885, and said act, as far as it purported [178 U.S. 22, 29] to authorize the company to increase the rates of $3.50 per acre, was in violation of the Fourteenth Amendment of the Constitution of the United States, and deprived each of them of his or her property without due process of law, and to each of them the equal protection of the laws.
That in so far as the statute of 1885 purported to ath orize the company to shut off water from the lands of defendants or to increase the rate without consent of the defendants, or to permit its collection without giving the defendants a standing in court to contest the reasonableness of the increase, was also in violation of said Fourteenth Amendment. And, also, that the complainant, by shutting off water, violated that amendment.
The bill of review then averred that there were exceptions taken to the answer on the ground that it did not set forth or discover relative and material matters of fact tending to show that the bill was not true or in confession or avoidance thereof, but instead set forth immaterial and irrelevant matter.
Each exception was specific, but altogether they went to the whole answer except its admissions and certain of its denials.
It was prayed that the defendants be compelled to amend the answer, and to put in a full and sufficient one.
The exceptions coming on to be heard, they were sustained-the defendants excepted.
By order of the court, on motion of complainant, Charles D. Lanning was discharged as receiver, and the San Diego Land & Town Company of Maine was substituted as complainant-defendants excepted.
A notice was given of a motion to be made that the bill in the suit be taken pro confesso, and a decree of the court be taken accordingly, on the ground that the exceptions to the answer had been sustained and no amended answer had been filed within the time allowed.
The motion came on to be heard, and, pending its hearing, the defendants gave notice of a motion to dismiss the suit on the ground that the receiver had been discharged, the property had been sold under foreclosure, and had passed into the hands of another corporation; that the San Diego Land & Town Com- [178 U.S. 22, 30] pany of Maine was not the successor of the receiver, and had no interest or right to prosecute the action, and that the board of supervisors of San Diego county had fixed the rates of the company.
The two motions came on to be heard on the 2d of January, 1898, and the motion to dismiss was denied, and the motion that the bill be taken pro confesso against all the defendants was granted, and a decree ordered to be entered according to the opinion of the court. The defendants excepted.
The bill of review further averred that the court caused to be entered, greatly to the prejudice of the orators, its decree which was set out at length. It further averred that the defendants had paid the costs adjudged against them, and detailed at length their exceptions to the ruling of the court. The exceptions reasserted the materiality and sufficiency of the averments of the answer, contended that the court misapprehended them, and erroneously treated and considered the exceptions as raising for discussion the merits of the case, and by expunging the answer from the records deprived the defendants of the right to have the merits of their defenses on their face regularly determined upon the setting of the cause for hearing on bill and answer or upon issues raised and proofs made.
The bill of review asserted further errors against the decree in that it denied the rights alleged in the answer of defendants, and so construed and enforced the Constitution and statutes of the state as to violate 1, art. 14, of the Constitution of the United States, in that it maintained the company and the receiver in increasing the rate, and the condition of nonpayment the right to shut off the water from the lands of the defendants, and thereby deprived them of the equal protection of the laws and of their property without due process of law. And further, because it was an exercise of judicial power to the same end, and to the deprivation of the right of contract without due process of law. Also denied to the state a republican form of government, guaranteed by 4, art. 4, of the Constitution of the United States, in that, as enforced and applied, the state assumed the absolute control of all water [178 U.S. 22, 31] appropriatd and all works for its distribution, abolished capacity to acquire property, rights, and servitudes in such water and waterworks absolutely, or with ownership of lands for irrigation, or free from the perpetual obligation to pay net revenue of not less than 6 nor more than 18 per cent per annum upon the cost or value of the water system; and abolished the right or capacity to ascertain, fix, or define, by contract or convention, the rate of compensation to be paid by any consumer for the supply of water for irrigation of land.
Error was also asserted in the decree in that it was in favor of the San Diego Land & Town Company, of Maine, although it had not become a party to the cause, by supplemental bill or otherwise, and because what interest it had did not appear, nor was its claim to any interest set forth, so that the defendant could answer or plead thereto. Also, error in that the court had no jurisdiction to entertain the cause or make any decree on the merits, and error in not dismissing the suit after the discharge of Lanning, the receiver and complainant.
The defendant (appellee) moved the court to strike the bill from the files and dismiss the suit.
The motion was denied. The water company then demurred to the bill on the grounds that it appeared therefrom that there was no error in the proceeding and decision in Lanning v. Osborne appearing on the face of the record or otherwise; that complainants were not entitled to the relief prayed for, or any relief; that no error appeared in said suit which could be re- [178 U.S. 22, 32] lieved by a bill of review or a bill in the nature of a bill of review; that the remedy of complainants was by appeal.
The demurrer was sustained with leave to complainants to amend the bill in ten days.
Messrs. Alfred Haines, C. H. Ripley, M. L. Ward, and George Fuller for appellants.
Messrs. John D. Works, Lewis R. Works, Bradner W. Lee, and Charles D. Lanning for appellees.
Messrs. John Garber and Frank H. Short filed a brief as amici curiae.
One of the grounds of demurrer to the bill was that it appeared from the complainants' own showing that their remedy was by appeal and not by bill of review. It is not pressed with much earnestness here, and is clearly untenable. Whiting v. Bank of United States, 13 Pet. 6, 10 L. ed. 33; Putnam v. Day, 22 Wall. 60, 22 L. ed. 764; Buffington v. Harvey, 95 U.S. 99 , 24 L. ed. 381; Ensminger v. Powers, 108 U.S. 292 , 27 L. ed. 732, 2 Sup. Ct. Rep. 642; Willamette Iron Bridge Co. v. Hatch, 125 U.S. 1 , 31 L. ed. 629, 8 Sup. Ct. Rep. 811; Story, Eq. Pl. 10th ed. 403 et seq.
The principal contention of the appellants is that the water rights are easements in the real estate constituting the water system. In other words (as described by appellants), 'incorporeal interests in the corporeal property of a water system annexed to lands irrigated by that system.' Being such, the corporation may sell them, the landowner may contract for them- [178 U.S. 22, 33] may buy them outright ad free himself wholly from annual rates, or may stipulate for a particular rate. In other words, that the water right is an interest in the system, paid for with the land, or by the stipulated rate, and not subject to any rate or to increase beyond the stipulated rate, according to the varying expenses or valuations of the system.
It is claimed to be property, and the right to sell and to buy it is asserted respectively for the owner of the system and the consumers of its waters, and that the Constitution and laws of the state of California do not prohibit this, or if they can be construed to do so violate the Fourteenth Amendment of the Constitution of the United States by depriving appellants of their property without due process of law, and violate also certain provisions of the Constitution of the state of California.
It is further contended by appellants that conceding a contract cannot be made between 'water corporations' and their customers for a particular rate which will preclude regulation by the state, that until such regulation the parties-company and consumers-may contract. And, further, that the rate of $3.50 per acre per annum was the rate charged and collected by the company, and therefore became the rate established by law by virtue of a provision in 5 of the statute of 1885, hereafter quoted.
It is also contended that the answer in the original suit averred the rate of $3.50 per acre per annum was a reasonable rate, and denied that the increased rate of $7.00 per acre was reasonable, and that on the issue thus raised, the defendants there, complainants in the bill of review, were entitled to a hearing.
The charge of error in the decrees is based on their adjudging against these contentions.
Opposing the contentions of appellants, the appellee makes a distinction between the facilities for the use and the right to use the water of its system and the actual use of it. The compensation for the former, appellee concedes, may be the subject of contract; the rate for the latter, it contends, is subject to reg- [178 U.S. 22, 34] ulation by law, but, until so regulated, may be established by the water companies.
The circuit court did not accept the distinction made by appellee. It did not accept the view contended for by appellants. It held, interpreting the Constitution and laws of the state, that the appropriation and disposition of water was a public use, the right to collect tolls or compensation for it a franchise, subject to regulation and control in the manner prescribed by law, and that such tolls and compensation could not be fixed by the contract of the parties.
If the contention of the appellee is justified, that the contracts between it and the appellants gave it the right to establish the rates, the controversy is narrowed and simplified, and we are relieved from deciding the many interesting and difficult questions pressed by appellants for judgment.
The rates in Chula Vista were governed by the general contract.
These provisions do not leave much room for construction. For irrigation purposes and for domestic purposes the rental of water is to be paid at rates 'fixed' by the company. The only qualification is 'as allowed by law.' What this means we shall presently consider; but whatever it means, it does not sustain appellant's contention that the rate of $3. 50 per acre per annum was irrevocable, secured to them free from the power of variation by the company or by law. It is not important to consider, therefore, whether, under the Constitution and laws of the state, they could contract with the company for the price [178 U.S. 22, 37] of a water right. If the contract, they plead, gives to the company the power to fix the annual rate, the only inquiry which need be, is whether the power has been exercised 'as allowed by law.' What this means can be the only controversy.
The deduction which appellants make is that when the com- [178 U.S. 22, 38] pany once fixes the rates they must remain so fixed, and if changed by supervisorial action recur upon the cessation of that action-inevitable always through every change of condition; if excessive, to forever remain so; if deficient, to forever remain so.
The argument urged to support this is that one of the ordinary meanings of the word 'actual' is 'existing at the time.' 'And if (to quote counsel) the lexicographer be consulted to define the word 'established' he will give its meaning substantially, as does the Century Dictionary, to be 'to make stable; firm or sure; appoint; ordain; settle or fix unalterably." To illustrate the immutability which one of its senses conveys, counsel quote with apologetic reverence an illustration, which they say is often found in standard dictionaries: 'I will establish my covenant with him for an everlasting covenant.' Gen. xvii: 19.
We are not impressed with the aptness of the illustration to the case at bar.
Covenants formed and promulgated by a divine wisdom and foresight can have the attribute of immutability, and their language may be used and interpreted to express it. um an regulations are for the most part occasional and temporary. Besides, one definition of a word does not express its whole meaning or necessarily determine the intention of its use. If so, interpretation would not be difficult, and the application of the language of a law or contract would be as unerring as easy.
It is manifest to construe the word 'establish' to mean 'to [178 U.S. 22, 39] fix unalterably' would throw the powers of the board of supervisors into confusion and contradiction.
To say that the rates are unalterable for a year would prove nothing. Such effect comes, not from the use of the word 'establish,' but from other words, and, but for them, rates established might 'be established anew' as often as the board of supervisors might choose. Nor can it be said that the word means one thing when applied to the power of the board of supervisors, and another thing when applied to the power of the company. To say so is to abandon the argument. That depends upon the meaning of the word 'establish' to be 'to fix unalterably,'-to mean of itself, and in its use, permanence and unchangeability. If it does not mean that of itself, there is an end of the argument, for there is nothing in the act or its purpose which would give it such meaning when expressing the power of the company, and something else when expressing the power of the board of supervisors. The purpose of the act rejects such view. Its purpose is regulation, deliberate and judicial and periodical regulation by a selected tribunal, and we cannot believe that the legislature intends by an absolute and peremptory provision to fix rates upon the water companies unalterable by them, no matter what change in conditions might supervene. Against rates which may become unreasonably high, the statute gives relief to consumers through petition to the board of supervisors. Rates which may become unreasonably low, it surely does not intend to impose on the companies forever, except as relief may come from the voluntary justice of its customers or by a violation of the statute and appeal to the courts. There is nothing in the act to indicate such purpose, nor does it need to have such purpose. Its dominant idea is the regulation of rates by law, not commanded to be exercised by the governing bodies as a voluntary duty as establishing rates in cities and towns, but exercised when invoked by petition. Until the necessity of that, what more natural and just than to leave the right with the water companies and recognize it as legal. This is the meaning, we think, of the provisions of 5 and 8, supra. To so interpret them makes the scheme of regulation complete-adequate, without being meddlesome or [178 U.S. 22, 40] oppressive. The power of regulation is asserted and provided for, and ready to be exercised to correct abuse, and who doubts but that its exercise would be invoked.
The appellants assign many errors upon the action of the circuit court in sustaining the exceptions to the answer made in the original suit. It would extend the opinion to too great length to consider them separately. They are reduced to and depend upon the claim that they constituted a submission of the case on bill and answer, and if the latter traversed any material allegation of the bill it could not be taken pro confesso, and a decree entered upon it would be erroneous. (Re Sanford Fork & Tool Co. 160 U.S. 247 , 40 L. ed. 14 , 16 Sup. Ct. Rep. 291).
The application of the principle is claimed upon the ground that the answer denies that the rate of $3.50 per acre per annum is unreasonable or that the increased rate of $7.00 per acre is reasonable.
We concur in this view, and finding no error in the decree in is offirmed.

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