Source: https://supreme.justia.com/cases/federal/us/238/174/
Timestamp: 2019-04-25 10:30:53+00:00

Document:
Where the fixing of rates does not impair the obligation of contracts, the exercise by a municipality of a lawful power to fix rates does not deprive the public utility company of its property without due process of law where it does not appear that the rates fixed are confiscatory.
The fixing of rates, which may be charged by public service corporations -- in this case, a street car corporation -- is a legislative function of the state.
While the state may enter into contracts preventing it for given periods from exercising the function of ratemaking, such a renunciation must be so clear and unequivocal as to permit no doubt of its construction. Home Telephone Co. v. Los Angeles, 211 U. S. 265.
While it is the duty of this Court to determine for itself whether there was a contract and the extent of a binding obligation, and the parties are not concluded by the decision of the state court, in so determining, this Court gives much consideration to the decisions of the state court construing the statutes of the state under which the contract is alleged to have been created.
In this case, as this Court cannot say that the state statute involved in this action unequivocally grants to municipalities the power to deprive the legislature of the right to exercise the ratemaking function in the future, and as the state court in other cases has held that the statute did not indicate an intention to surrender such right, this Court affirms the judgment of the state court holding that no irrevocable contract was created by an ordinance establishing rates of fare of a street car company, notwithstanding that a majority of the members of the highest court of the state did not concur in that view in this case.
and the due process clause of the Fourteenth Amendment of an order of the Wisconsin State Railroad Commission establishing fares upon the system of the plaintiff in error, are stated in the opinion.
This suit originated in the Circuit Court of Dane County, Wisconsin, and was brought by the Milwaukee Electric Railway & Light Company against the Railroad Commission of Wisconsin. The plaintiff, a street railway company, organized under the laws of Wisconsin and authorized to conduct a street railway business in the City of Milwaukee, sought to enjoin the Railroad Commission, organized under the laws of that State of 1905, from enforcing a certain order against the company whereby the right of the railway company to charge fares upon its railway system had been reduced below what it was contended had been previously fixed by an ordinance of the City of Milwaukee, which, it was alleged, upon acceptance, constituted an irrevocable contract between the company and the city. In the allegations of the complaint it appears that, on January 2, 1900, there was granted to the plaintiff the right to operate over certain streets, and in the ordinances of that date all franchises expiring prior to December 31, 1934, were extended to that date, and all franchises which would otherwise expire subsequently to that date were made to terminate at that time.
fare shall entitle each passenger, upon demand made at the time of payment of fare, to one transfer at established points of transfer to any connecting or cross line of said railway company for passage within said city, and convenient points of transfer shall be maintained and such additional points of transfer established as will carry out the full intent and purpose of this ordinance to maintain and extend the transfer system now in force upon the lines of said railway company at the present standard of convenience for the people of said city. Each transfer ticket shall be good only for the passenger to whom it is issued, and for a continuous trip in the direction specified upon the transfer so given, and upon the first car leaving the transfer intersection after the time designated on such transfer."
"Provided, however, that, after the acceptance of the terms of this ordinance, the railway company shall, on demand made at its office in said city, or to the conductors on its cars operated on its lines within the corporate limits of said city, sell tickets in packages of twenty-five for one dollar or six for twenty-five cents, each of which tickets shall entitle the holder thereof to use the same upon the cars of said railway company only between the hours of 5:30 o'clock and 8 o'clock in the morning and between the hours of 5 o'clock and 7 o'clock central standard time, in the afternoon of each day, until January 1, 1905, and shall also entitle the holder to the same privileges as are or may be accorded to passengers paying a cash fare of five cents, and the said railway company shall, from and after January 1, 1905, continue the sale of tickets in packages at the price aforesaid until December 31, 1934, each to be good at all hours of the day, with the same privileges as are or may be accorded to passengers paying a single cash fare of five cents."
charge, until December 31, 1934, a cash fare of five cents, and to sell tickets in packages of twenty-five for one dollar, or six for twenty-five cents, each of which tickets should entitle the holder to use the same upon the cars between the hours mentioned in the ordinance, and to have the privileges accorded to passengers paying five cents fare. In November, 1906, the City of Milwaukee filed a complaint with the defendant Railroad Commission for a reduction of rates of fare, and filed a similar complaint May 13th, 1908. This proceeding resulted in the order complained of, which did not interfere with the cash fare prescribed, but provided that the company should discontinue its rate of twenty five tickets for one dollar, and should sell tickets in packages of thirteen for fifty cents, which tickets were ordered to be accepted in payment of fare. It is alleged that this action of the Railroad Commission impairs the obligation of the contract between the city and the company, and takes the plaintiff's property without due process of law, in violation of § 10 of Article I of the Constitution of the United States and of the Fourteenth Amendment thereto.
to make irrepealable contracts respecting rates. Two of the judges dissented upon the ground that there was an irrepealable contract, valid and binding between the company and the city, which was violated by the subsequent legislation creating and empowering the Railroad Commission, and because of the action of that body in reducing the rate of fare.
In the view we take of the case, it is unnecessary to pass upon the question whether the ordinance had the effect to make a contract binding between the city and the company until subsequent legislative action by the state, or to decide whether the grant of the rights and privileges as to fares was, under the Wisconsin Constitution, revocable at the will of the legislature.
corporation or person to take the same, but in such respects are hereby confirmed."
"The surrender, by contract, of a power of government, though in certain well defined cases it may be made by legislative authority, is a very grave act, and the surrender itself, as well as the authority to make it, must be closely scrutinized. No other body than the supreme legislature (in this case the legislature of the state) has the authority to make such a surrender, unless the authority is clearly delegated to it by the supreme legislature. The general powers of a municipality, or of any other political subdivision of the state, are not sufficient. Specific authority for that purpose is required."
and fares by lowering them if found to be excessive; that, while the term "grant" was used, he held the grant was to be upon terms such as the municipal authorities might determine, and that this language was more appropriate to the exercise of power by the municipality than to the making of a contract between parties. The language of the section certainly lends itself to this construction, and there is nothing in specific terms conferring the right to contract by agreement between parties, much less to make such contract during its existence exclusive of any further right of the state to act upon the subject in the exercise of its legislative authority. It authorizes the grant of the use of the streets upon such terms as the proper authorities shall determine, not upon such terms as the parties in interest shall agree to.
therein was specifically validated by an act of the Legislature of Minnesota subsequently passed.
It is true that this Court has repeatedly held that the discharge of the duty imposed upon it by the Constitution to make effectual the provision that no state shall pass any law impairing the obligation of a contract requires this Court to determine for itself whether there is a contract, and the extent of its binding obligation, and parties are not concluded in these respects by the determination and decisions of the courts of the states. While this is so, it has been frequently held that, where a statute of a state is alleged to create or authorize a contract inviolable by subsequent legislation of the state, in determining its meaning, much consideration is given to the decisions of the highest court of the state. Among other cases which have asserted this principle are Freeport Water Co. v. Freeport, 180 U. S. 587, and Vicksburg v. Vicksburg Waterworks Co., 206 U. S. 496, 206 U. S. 509.
moneys, property, or property rights of the city, or unlawful increase of the burdens of taxation threatened by the proposed ordinance, and held that the claim that parties had offered large sums of money for the franchise privileges granted to the company, and that the company itself had offered to pay large sums of money in case the city would grant the right to charge five cents fare until the year 1935, did not sustain the allegation that there was a squandering of the money and rights of the city, in rejecting the offers and enacting the ordinance. We do not find in this case any decision of the question here involved, as to whether the alleged contract between the city and the company would have the effect to deny, because of the provisions granting authority to the city in § 1862, the subsequent right of the legislature to fix rates binding upon the company.
"No specific authority having been conferred on the city to enter into the contract in question, the right of the state to interfere whenever the public weal demanded was not abrogated. The contract remained valid between the parties to it until such time as the state saw fit to exercise its paramount authority, and no longer. To this extent and to this extent only is the contract before us a valid subsisting obligation. It would be unreasonable to hold that, by enacting sec. 1862, Stat. (1898), or sec. 1863, Stat. (Supp. 1906: Laws of 1901, c. 425), the state intended to surrender its governmental power of fixing rates. That power was only suspended until such time as the state saw fit to act."
"We are of the opinion, therefore, that the holding in the Manitowoc case, to the effect that neither section indicated any legislative intention of surrendering the sovereign power of the state to regulate fares, was entirely correct and was advisedly made."
While it is true that the opinion of the chief justice in this case was concurred in by only two other judges of the six who sat on this appeal, in view of the decision of the same court in the Manitowoc case, we can have no doubt that the judicial interpretation of § 1862 by the highest court of the State of Wisconsin denies authority to municipal corporations to make contracts concluding the state from the future exercise of its power to fix the rates which may be charged by such public service corporations as are here involved.
of in what we have said. For if the state might still exercise its authority to fix rates notwithstanding the so-called contracting ordinance, the exercise of such lawful power could not deprive the plaintiff of property without due process.

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