Source: https://supreme.justia.com/cases/federal/us/202/453/
Timestamp: 2019-04-25 14:27:51+00:00

Document:
Justia › US Law › US Case Law › US Supreme Court › Volume 202 › Vicksburg v. Vicksburg Waterworks Co.
Where complainant's bill discloses an intention by the municipality to deprive complainant -- a water supply company -- of rights under an existing contract by subsequent legislation, and the city cannot show any inherent want of legal validity in the contract, or any such disregard of its obligations by complainant as would absolve the city therefrom, the case is one arising under the Constitution of the United States, the Circuit Court has jurisdiction, and a direct appeal lies to this Court.
It is a valuable feature of equity jurisdiction to anticipate and prevent threatened injury, and in this case an injunction was properly issued to restrain a municipality from erecting its own water system during the continuance of an exclusive franchise owned by complainant.
As a general rule, and so held in this case, it is discretionary with, and under the control of, the trial court to permit the withdrawal by an intervenor of its original bill and to strike out testimony taken concerning the same.
The power given under the state law to a corporation to mortgage its franchises and privileges necessarily includes the power to bring them to sale and make the mortgage effectual, and the purchaser acquires title thereto although the corporate right to exist may not be sold.
The laws of Mississippi, as construed by its highest court, do not prevent a municipality from granting an exclusive water supply franchise for a limited period during which it cannot erect and operate its own water system, and under the constitutional limitation that the legislative power to alter, amend and repeal charters of corporations must be exercised so that no injustice shall be done to stockholders, an act of the legislature authorizing the municipality to erect its own water system would not amount to repealing the exclusive features of an existing legal franchise.
While grants of franchises are to be strictly construed in favor of the public and nothing is to be taken by implication, where the city has, as in this case, by the terms of the contract given the grantee the exclusive right to erect, maintain and operate waterworks for a definite period it cannot, under the impairment clause of the Constitution, erect and operate, under ordinances subsequently enacted, its own water system during the life of the franchise and subject the company to that competition.
to construct a sewer in a particular manner irrespective of the exercise of discretion vested in the municipal authorities to determine the practicability of the sewer, the availability of taxation for the purpose, and like matters.
This case was before this Court at the October Term, 1901, and is reported in 185 U. S. 185 U.S. 65. It was then here upon the question of jurisdiction, and it was held that it presented a controversy arising under the Constitution of the United States, such as gave the circuit court jurisdiction. There was no diversity of citizenship, and the bill was filed by the Vicksburg Waterworks Company, a corporation of the State of Mississippi, against the Mayor and Aldermen of the City of Vicksburg, a municipal corporation of the same state. In view of the full statement of the contents of the bill and the amended bill in the case, as reported in 185 U.S., it is unnecessary to repeat it. On the present appeal a motion to dismiss or affirm was made, which was passed, to be heard with the merits. We regard the decision of this Court, when the case was here at the former term, as settling the question of jurisdiction, and affirmatively determining that, upon the bill and amended bill, the complainant alleged a case which involved the application of the Constitution of the United States, and appealable to this Court, within § 5 of the Act of March 3, 1891, as amended. 26 Stat. 827.
"Unless the city can point to some inherent want of legal validity in the contract, or to some disregard by the waterworks company of its obligations under the contract as to warrant the city in declaring itself absolved from the contract, the case presented by the bill is within the meaning of the Constitution of the United States and within the jurisdiction of the circuit court, as presenting a federal question."
held that it was a valuable feature of equity jurisdiction to anticipate and prevent threatened injury, and the conclusion was reached that the allegations of the bill made a case for an injunction. The case was thus brought within § 5 of the Act of March, 1891, as one in which the appeal is directly to this Court. See also, upon this point, Penn Mutual Life Insurance Co. v. Austin, 168 U. S. 685. The motion to dismiss will be overruled.
Upon the case's going back to the circuit court, an answer was filed raising issues as to whether the complainant had accepted and performed the agreement in their contract to supply water to the city, and denying the right of the complainant to have and to own the contract and the authority of the city to make an exclusive contract, and detailing other matters not necessary to further set forth.
Certain questions of fact as to the character of the water supplied by the complainant, the pressure maintained, and similar questions were decided by the circuit court in favor of the appellees. An examination of the record makes it sufficient for us to say that we find no reason for disturbing the conclusions of the circuit court upon these questions.
its own during the term covered by the contract with the complainant.
the action of the court upon the pleadings as to the City Waterworks & Light Company, this testimony had become immaterial.
In the action of the court just recited we can find no ground for a reversal. The City Waterworks & Light Company had come into the case claiming an ownership of the contract which was denied by the city; certain testimony was filed concerning this claim of the company. We think it was discretionary with the court to permit the withdrawal of these pleadings and the suppression of this testimony, and it was likewise within its discretion to permit or deny a further answer by the city setting up the alleged transfer of ownership. These matters, except in cases of gross abuse of discretion, are within the control of the trial court. Chapman v. Barney, 129 U. S. 677, 129 U. S. 681; Dean v. Mason, 20 How. 198, 61 U. S. 204.
"All of its real and personal property, goods, chattels, owned now or which may hereafter be acquired by it, including its land, rents, waterworks, buildings, pump houses, standpipes, reservoirs, machinery, pipes, mains, hydrants, apparatus, and equipments, situated in the City of Vicksburg, County of Warren, State of Mississippi, together with all and singular the tenements, hereditaments, and appurtenances thereunto belonging or in any wise appertaining, and the reversion and reversions, remainder and remainders, tolls, rents, issues, income, profits accruing therefrom; also all and singular the corporate franchises, privileges, rights, liabilities which the water company now has and can exercise or shall hereafter acquire and possess, and also all the estate, right, title, interest, property, possessions, claim, and demand whatsoever, as well in law as in equity, of the water company, of and to the property above described or hereafter to be acquired, and each and every part and parcel thereof, with the appurtenances, to have and to hold all and singular the above granted and described premises with the appurtenances unto the trustee and its successors forever."
deed, conveyed all the property described in the deed of trust to the Farmers' Loan & Trust Company to the Vicksburg Waterworks Company.
A preliminary question is made that the Vicksburg Waterworks Company did not acquire title to the contract rights by virtue of these proceedings. But we are cited to an Act of the Legislature of Mississippi, approved March 7, 1882, Laws of 1882, p. 50, which upon its face is broad enough to authorize such corporations to borrow money and secure the payment of the same by mortgage or deed of trust upon their property and franchises, and we think the mortgage in question would include the contract rights of the Vicksburg Water Supply Company, and that they would pass by the sale and subsequent quitclaim deed to the Vicksburg Waterworks Company. Where a company is authorized to mortgage its franchises and rights, these may be sold and the purchaser acquire title thereto at the foreclosure sale, although the corporate right to exist may not be sold. Memphis Co. v. Commissioners, 112 U. S. 609. The power to mortgage the privileges and rights of the corporation must necessarily include the power to bring them to sale to make the mortgage effectual. New Orleans &c. .R. Co. v. Delamore, 114 U. S. 501, cited and followed in Julian v. Central Trust Co., 193 U. S. 93, 193 U. S. 106. We think the mortgage in this case covered and the decree passed the contract rights given originally to the Vicksburg Water Supply company by the ordinance of November 18, 1886.
"SEC. 178. Corporations shall be formed under general laws only. The legislature shall have power to alter, amend, or repeal any charter of incorporation now existing and revocable, and any that may hereafter be created, whenever in its opinion it may be for the public interests to do so; provided, however, that no injustice shall be done to the stockholders."
build its own waterworks amounted to a repeal of the exclusive feature of the grant in the ordinance of 1886, if any it contained. We are cited in support of that proposition to the case of Hamilton Gas Light & Coke Co. v. Hamilton, 146 U. S. 258, considering the provisions of the Constitution of Ohio as to altering or revoking corporate privileges. But we think the right of the Vicksburg Waterworks Company was acquired under the foreclosure and sale of the contract rights conferred in the ordinance of 1886 and covered in the mortgage, as we have stated. Furthermore, the Mississippi Constitution contains this provision, which is not in the Ohio Constitution, considered in the Hamilton case, namely: "Provided [in exercising the right of amendment or repeal of a charter] no injustice shall be done to the stockholders." If it be true that the complainant below had a binding contract excluding competition by the city in furnishing a water supply for a period of thirty years, we think it would be a palpable injustice to the stockholders to permit the competition of the city by new works of its own, which, whether operated profitably for the municipality or not, might be destructive of all successful operation in furnishing water to consumers by the private company.
said the Supreme Court of Mississippi has denied this power, and we are referred to Collins v. Sherman, 31 Miss. 679, Gains v. Coates, 51 Miss. 335, and Greenville Waterworks Co. v. Greenville, 7 So. 409.
"The City of Walla Walla shall have power to erect and maintain waterworks within or without the city limits, or to authorize the erection of the same for the purpose of furnishing the city, or the inhabitants thereof, with a sufficient supply of water."
The contract was made for twenty-five years. The grant was not made exclusive to the waterworks company, but the city agreed not to erect waterworks of its own, and reserved the right to take, condemn, and pay for the works of the company at any time after the expiration of the contract. It was held by this Court that the city might thus exclude itself from competition during the period of the contract, and of this feature of the contract the following pertinent language was used by Mr. Justice Brown, who delivered the opinion of the Court.
laying of its pipes through the streets, and, as the life of the contract was limited to twenty-five years, it would naturally desire to protect itself from competition as far as possible, and would have a right to expect that at least the city would not itself enter into such competition. . . ."
"Cases are not infrequent where, under a general power to cause the streets of a city to be lighted or to furnish its inhabitants with a supply of water, without limitation as to time, it has been held that the city has no right to grant an exclusive franchise for a period of years; but these cases do not touch upon the question how far the city, in the exercise of an undoubted power to make a particular contract, can hedge it about with limitations designed to do little more than bind the city to carry out the contract in good faith and with decent regard for the rights of the other party."
In the Walla Walla case, the same general power to make the contract existed. There was an express provision against making an exclusive contract, and this Court held that, for the period mentioned in the contract and as incident to the protection of the rights of the contractor, the city might exclude itself from competition. We think that case is decisive of the present one on this proposition.
"the right to have and enjoy the franchises and privileges of such incorporation within the district or locality covered by its charter shall be an exclusive one, and no other company shall be incorporated for that purpose until the said corporation shall have, from its earnings, realized and divided among its stockholders, during five years, a dividend equal to eight percentum per annum upon its capital stock."
"While the language from the act of 1874, above quoted, would seem to favor the exclusive right claimed by the water company, a careful examination of clause 3 of section 34 shows that the legislature intended that the right should be exclusive only as against other water companies, for immediately in this connection occur the words"
"and no other company shall be incorporated for that purpose until the said corporation shall have, from its earnings, realized and divided among its stockholders, during five years, a dividend equal to eight percentum per annum upon its capital stock."
The provision that another company shall not be incorporated was not intended to prohibit a city or borough from providing its citizens with pure water by means of works constructed by itself from money in its own treasury.
In considering this contract, we are to remember the well established rule in this Court which requires grants of franchises and special privileges to be most strongly construed in favor of the public, and that, where the privilege claimed is doubtful, nothing is to be taken by mere implication as against public rights. This rule has been applied to a series of contracts in waterworks and lighting cases, and we have no disposition to detract from its force and effect. And unless the city has excluded itself in plain and explicit terms from competition with the waterworks company during the period of this contract, it cannot be held to have done so by mere implication. The rule, as applied to waterworks contracts, tracts, was last announced in this Court in Knoxville Water Co. v. Knoxville, 200 U. S. 22, decided at this term, citing previous cases.
The contract in the respect under consideration is found in section 1 of the ordinance, and undertakes to give to Bullock & Company, their associates, successors, and assigns, the exclusive right and privilege, for the period of thirty years from the time the ordinance takes effect, of erecting, maintaining, and operating a system of waterworks, with certain privileges named, for the furnishing of a supply of good water to the City of Vicksburg and its inhabitants, for public and private use.
Without resorting to implication or inserting anything by way of intendment into this contract, it undertakes to give, by its terms, to Bullock & Company, their associates, successors, and assigns, the exclusive right to erect, maintain, and operate waterworks, for a definite term, to supply water for public and private use. These are the words of the contract and the question upon this branch of the case is, conceding the power of the city to exclude itself from competition with the grantee of these privileges during the period named, has it done so by the express terms used? It has contracted with the company in language which is unmistakable, that the rights and privileges named and granted shall be exclusive. Consistently with this grant, can the city submit the grantee to what may be the ruinous competition of a system of waterworks to be owned and managed by the city, to supply the needs, public and private, covered in the grant of privileges to the grantee? It needs no argument to demonstrate, as was pointed out in the Walla Walla case, that the competition of the city may be far more destructive than that of a private company. The city may conduct the business without regard to the profit to be gained, as it may resort to public taxation to make up for losses. A private company would be compelled to meet the grantee upon different terms, and would not likely conduct the business unless it could be made profitable. We cannot conceive how the right can be exclusive, and the city have the right at the same time, to erect and maintain a system of waterworks which may, and probably would, practically destroy the value of rights and privileges conferred in its grant. If the right is to be exclusive, as the city has contracted that it shall be, it cannot at the same time, be shared with another; particularly so when such division of occupation is against the will of the one entitled to exercise the rights alone. It is difficult to conceive of words more apt to express the purpose that the company shall have the undivided occupancy of the field so far as the other contracting party is concerned.
"Appertaining to the subject alone; not including, admitting, or pertaining to any other or others; undivided; sole: as, an exclusive right or privilege; exclusive jurisdiction."
We think, therefore, it requires no resort to implication or intendment in order to give a construction to this phase of the contract; but, on the other hand, the city has provided and the company has accepted a grant which says in plain and apt words that it shall have an exclusive right -- a sole and undivided privilege. To hold otherwise, in our view, would do violence to the plain words of the contract, and permit one of the contracting parties to destroy and defeat the enjoyment of a right which has been granted in plain and unmistakable terms. On the authority of the Walla Walla case, the city had the power to exclude itself for the term of this contract, giving the words used only the weight to which they are entitled, without strained or unusual construction, and we think it was distinctly agreed that, for the term named, the right of furnishing water to the inhabitants of Vicksburg under the terms of the ordinance was vested solely in the grantee, so far at least, as the city's right to compete is concerned. Any other construction seems to us to ignore the language employed, and to permit one of the parties to the contract to destroy its benefit to the other. We think the court below did not err in reaching this conclusion.
twelve months from date, application might be made to the court for an extension of time. The error assigned in this behalf is as to the award of the mandatory injunction. We think the court erred in this respect, and that it had no authority to issue a mandatory injunction requiring the city to construct a sewer, irrespective of the exercise of discretion vested by law in the municipal authorities to determine the practicability of the sewer ordered, the availability of taxation for the purpose, and the like matters, and we think that the exercise of this authority is primarily vested in the municipality, and not in the courts.
pure, wholesome water. And yet it is now held that it was competent for the City of Vicksburg, by mere implication, to so tie its hands that it cannot perform the duty which it owes in that regard to its people.

References: v. 
 § 5
 § 5
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.