Source: https://supreme.justia.com/cases/federal/us/265/352/
Timestamp: 2019-04-26 16:05:36+00:00

Document:
1. A state may authorize a municipal corporation to establish by contract the rates to be charged by a public service corporation for a definite term, not grossly unreasonable in time, and the effect of such a contract is to suspend, during its life, the governmental power of regulating the rates. P. 265 U. S. 355.
2. Where a public service corporation and a municipality, having power to contract as to rates, exert it by fixing them for a particular time, the rates are enforceable under the obligation of the contract, even though they become "confiscatory." Id.
3. In Minnesota, a city charter, by authorizing the common council to provide for and control the erection and operation of gas works for supplying the city and its inhabitants with heat and light, and to grant the right to erect, maintain, and operate such works with all rights incident or pertaining thereto to one or more private corporations, empowered the city to enter by ordinance into a contract, in its proprietary capacity, with a private corporation, providing for the construction and operation of gas works for the period of thirty years, and fixing the rates for gas sold the city and its inhabitants. P. 265 U. S. 359.
4. Where a municipality having both the power to contract a to rates and the power to prescribe rates from time to time, exercises the former, the power to regulate is suspended during the contract, and the contract is binding. P. 265 U. S. 360.
5. The provisions of the Minnesota Constitution, Art. IV, § 33, prohibiting the legislature from enacting any special or private laws for granting corporate powers or privileges, except to cities, or for granting to any individual, association, or corporation, except municipal, any special or exclusive privilege, immunity, or franchise whatever, do not apply to contracts made by municipalities under charter powers granted them by the legislature. Id.
6. An ordinance under which a gas company, in consideration of rights and privileges granted, covenanted, and agreed to erect and operate a plant and sell gas, etc., and which contained a clause by which the grantee was "authorized" to sell at not to exceed a price fixed -- construed as a contract fixing that as the maximum rate. P. 265 U. S. 361.
7. A law authorizing cities to regulate rates of public service corporations cannot be invoked by a company to increase the rates fixed by its contract with a city before the law was enacted. P. 265 U. S. 364.
Appeal from a decree of the district court dismissing for want of equity a bill brought by a gas company to enjoin interference with a proposed increase in its rates.
This suit was brought by the Public Service Company to enjoin the city from interfering with a proposed increase in the rates charged for fuel gas.
to increase its rate to that price. The city, however, has threatened to interfere with the collection of the proposed increased rate, and, unless restrained, will attempt to force the company to continue to sell gas at the prescribed maximum rate, resulting in controversies and multiplicity of suits, and inflicting irreparable loss and injury upon the company.
The bill prays that the court adjudge that the maximum rate prescribed by the ordinance is confiscatory and violates the rights of the company under the Fourteenth Amendment, and that the city be enjoined from interfering with the company in raising the rate to $3.39, or attempting in any manner to force it to continue to sell gas at the ordinance rate.
A motion by the company for a preliminary injunction was denied. Thereafter, on motion of the city, the court dismissed the bill for want of equity on the ground that there was a "valid and subsisting contract between the city and the plaintiff company governing the matter of a maximum rate for fuel gas." The company, by reason of the constitutional question involved, has appealed directly to this Court. Judicial Code, § 238; Columbus Railway Co. v. Columbus, 249 U. S. 399.
confiscatory is immaterial. Southern Iowa Elec. Co. v. Chariton, 255 U. S. 539, 255 U. S. 542, and cases there cited; Paducah v. Paducah Ry., 261 U. S. 267, 261 U. S. 273; Georgia Ry. Co. v. Decatur, 262 U. S. 432, 262 U. S. 438. The existence of a binding contract as to the maximum rate for fuel gas is therefore the controlling issue upon which this controversy depends. Its solution turns upon the question whether the city had power to contract on this subject by the ordinance of 1905, and, if so, whether the ordinance constituted such a contract.
1. Was the city authorized to enter into a contract as to the rate to be charged for fuel gas? Such authority must clearly and unmistakably appear. Home Telephone Co. v. Los Angeles, supra, p. 211 U. S. 273; Paducah v. Paducah Ry., supra, p. 261 U. S. 272. Whether it existed depends upon the laws of Minnesota in force at the time. The consolidated charter of the city (Special Laws of 1889, c. 6, p. 131) provided as follows: the city "shall be capable of contracting and being contracted with, and shall have all the powers possessed by municipal corporations at common law." C. 1, § 1.
"The common council, in addition to all powers herein . . . specifically mentioned, shall have full power and authority to make . . . all such ordinances . . . for the general welfare of the city and the inhabitants thereof, as they shall deem expedient."
steam, gas, or other means, and supplying light, heat, and power to the inhabitants of said city; to grant the right to erect such works and all incident rights to one or more private companies or corporations, and to control and regulate the erection and operation of such works, . . . provided . . . that the common council shall have authority to regulate and prescribe the fees and rates and charges of any and all companies hereinbefore mentioned."
C. 4, § 5, cl. 10.
"to make and establish public pumps, wells, cisterns and hydrants, and to provide for and control the erection of waterworks for the supply of water for the city and its inhabitants."
"no doubt but that these charter provisions confer upon the municipality authority to enter into contracts with individuals for the purpose of providing itself and its inhabitants with a supply of water. . . . The authorities are very uniform that contracts of this nature are not within the legislative or governmental prerogatives of the municipality, but rather within its proprietary or business powers. Their purpose is not to govern the inhabitants, but to secure for them and for itself a private benefit. . . . It was so held in . . .
Flynn v. Little Falls E. & W. Co., 74 Minn. 180. . . . While this precise point of distinction was not made in that case, it is authority for the proposition that a municipality does not exercise its legislative functions in entering into contracts of this kind, but only its business or proprietary powers, to which the rules and principles of law applicable to contracts and transactions between individuals apply."
rights -- for instance, in the collection of the hydrant rentals; on the other hand, the courts of the state are open to the city to secure the enforcement of its rights. No serious question can arise as to the nature of the contract obligation. . . ."
power of granting the right to construct and operate the public utility, or, if it did not exercise this power to contract, might thereafter "regulate and prescribe" the rates in the exercise of the governmental authority conferred by the proviso. One power, however, is not destructive of the other. And where a municipality has both the power to contract as to rates and also the power to prescribe rates from time to time, if it exercises the power to contract, its power to regulate the rates during the period of the contract is thereby suspended, and the contract is binding. Paducah v. Paducah Ry., supra, pp. 261 U. S. 272-273.
"The Legislature is prohibited from enacting any special or private laws in the following cases: . . . 7th. For granting corporate powers or privileges, except to cities. . . . 10th. For granting to any individual, association, or corporation, except municipal, any special or exclusive privilege, immunity or franchise whatever."
"that no irrevocable or uncontrollable grant of special privileges or immunities shall be made, but all privileges and franchises granted by the legislature, or created under its authority, shall be subject to the control thereof,"
which was held to prevent a municipality, acting under the authority of the legislature, from entering into a binding contract as to public service rates. The provision of the Minnesota Constitution makes no reference either to irrevocable or uncontrollable privileges, or to privileges created by a municipality acting under the authority of the legislature, and is, as we view it, merely a limitation upon the direct authority of the legislature itself, to the extent that we have indicated.
Nor do we find anything in the Laws of 1893, c. 74, p. 189 (General Statutes of 1913, § 6137) in conflict with the conclusion which we have reached as to the power of the city to contract as to rates.
erecting wires, the grantee "shall conform" to all reasonable regulations prescribed by the city. § 4.
"In consideration of the rights and privileges herein granted, the grantee hereby covenants and agrees that it will . . . erect . . . an efficient coal gas generating plant or system of ample capacity, and, after the erection thereof, will manufacture and offer for sale to the city and its inhabitants coal gas of at least fourteen candle power."
§ 5. "The grantee is authorized hereby to sell illuminating gas when the works therefor shall have been completed . . . at the price of not to exceed" $1.85 per thousand cubic feet, "and fuel gas at the rate of not to exceed" $1.35 per thousand cubic feet, and shall be at liberty to cut off the supply from any person not paying for a period of thirty days. § 6. "The rights hereby granted are upon the express condition" that the city may purchase the electric and gas works of the grantee at specified intervals at the appraised value thereof, as determined by arbitrators to be chosen in a prescribed manner. § 7.
electric works for the period of thirty years, the ordinance specifies the maximum rates for gas, but contains no provision as to the rates for electricity, the apparent purpose being to establish definitely by contract the maximum rates for gas, but to leave the rates for electricity to be thereafter "regulated and prescribed" by the council from time to time under the power given it by the proviso of the charter.
"through its city council or like governing body, by ordinance, to prescribe from time to time the rates which any public service corporation supplying gas or electric current for lighting or power purposes within said city may charge for such service,"
"construed to impair the obligation of any contract or franchise provision now existing between any such city [council] and any such public service corporation."
The city clearly could not avail itself of this statute to reduce the gas rates below the maximum prescribed in the contract of 1905, and the company, conversely, cannot under it obtain higher rates. The contract is binding on both parties alike.
MR. JUSTICE BUTLER took no part in the hearing or decision of this case.
The ordinance also granted the right to construct and maintain for the same period works for the manufacture and sale of electricity. The bill alleges that the gas and electric operations are conducted as distinct and separate departments, and that neither the company nor its predecessor has ever sold gas except for fuel purposes, there being no demand for illuminating gas.
There are repeated references in the bill to this provision as fixing a maximum rate, thus: the "maximum rate fixed for the price of gas in the ordinance," § 36, and similar references to the "maximum rate" in §§ 39, 41, 42 and 44, cl. 1.

References: § 33
 § 238
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 § 1
 § 5
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 § 6137
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§ 5
 § 6
 § 7
 § 36