Case Name: TEXAS POWER & LIGHT COMPANY, Petitioner, v. CITY OF GARLAND et al., Respondents
Court: Supreme Court of Texas
Jurisdiction: Texas
Decision Date: 1968-03-27
Citations: 431 S.W.2d 511
Docket Number: No. A-11680
Parties: TEXAS POWER & LIGHT COMPANY, Petitioner, v. CITY OF GARLAND et al., Respondents.
Judges: STEAKLEY, J., joins in this dissent.
Reporter: South Western Reporter Second Series
Volume: 431
Pages: 511–533

Head Matter:
TEXAS POWER & LIGHT COMPANY, Petitioner, v. CITY OF GARLAND et al., Respondents.
No. A-11680.
Supreme Court of Texas.
March 27, 1968.
Rehearing Denied July 24, 1968.
Burford, Ryburn & Ford, Robert E. Burns, H. P. Kucera, Dallas, for petitioner.
Cary Young, Garland, McGinnis, Loch-ridge, Kilgore, Hunter & Wilson, James W. Wilson, Austin, for respondents.

Opinion:
SMITH, Justice.
Texas Power & Light Company sued the City of Garland a home rule city, to enjoin the City from requiring the Com pany to obtain a permit before it extended its electrical line to a new customer and from interfering with the Company's franchise rights. The Company also sought a declaratory judgment that an ordinance stating reasons for the City's denial of a permit is an unconstitutional impairment of its franchise. The City answered and sought a declaration that the ordinance is a valid exercise of the powers reserved to a City by Article 1, § 17 of the Texas Constitution, Vernon's Ann. St.; the ordinance was a lawful exercise of its police powers and the ordinance was impliedly incorporated into the franchise as a part of the Company's franchise with the City. The trial court without a jury, sustained the Company in its contentions and permanently enjoined the City from requiring a permit as a condition precedent to the extension of its line to the new customer. The Company then constructed its line. The court of civil appeals reversed the trial court. 405 S.W.2d 380. We reverse the judgment of the intermediate court and affirm the judgment of the trial court.
On August 2, 1915, City granted the Company a franchise extending to August 1, 1965. The Company does not contend that its franchise was an exclusive one. On March 28, 1949, the City enacted an ordinance requiring the Company to obtain a permit before extending any of its services. The 1949 ordinance authorizes the denial of a permit for any one of thirteen reasons. On August 4, 1964, the City by ordinance, extended the term of the original franchise from August 1, 1965, to August 1, 1990.
The City, some time after it granted the 1915 franchise, installed its own electric plant and it now provides about eighty-five per cent of the electrical service to the inhabitants of the City. In 1965 the firm of Chiles & Stockton planned to build a 118-unit apartment complex on the south side of Walnut Street in Garland. It applied to the Company for service because it preferred the Company's service to that of the City. The Company then applied to the City for a permit to extend its line 1500 feet to and across Chiles & Stockton's property. The City Council denied the Company's application. The only reason given for the denial is found in the City Manager's recommendation to the City Council that "the City of Garland has always intended to serve this area and due to the fact that Texas Power & Light Company's nearest source would require the construction of a new line of approximately 1,500 feet." Our decision requires an examination of the three relevant documents:
1915 Franchise
"Section 1: That there is hereby granted to Texas Power and Light Company, its successors and assigns, (herein called the Grantee) the right, privilege and franchise until August 1st, A.D.1945 to construct, maintain and operate in the present and future streets, alleys and public places of the City of Garland, and its successors, electric light and power lines with all of the necessary or desirable appurtenances, (including underground conduits, poles, towers; wires, transmission lines and telegraph and telephone wires for its own use), for the purpose of supplying electricity to the said city, the inhabitants thereof and persons and corporations beyond the limits thereof, for light, heat, power and other purposes.
"Section 2: Poles or towers shall be so erected as to interfere as little as possible with traffic over streets and alleys. The location of all poles and towers or conduits shall be fixed under the supervision of the street and alley committee of the City Council or the successors to the duties of that committee, but not so as to unreasonably interfere with the proper operation of the said lines.
"Section 3: The service furnished hereunder to said City and its inhabitants shall be first class in all respects, considering all circumstances, and shall be subject to such reasonable rules and regu lations as the grantee may make from time to time. The Grantee may require reasonable security for the payment of its bills. Where meters are used they shall be furnished and maintained by the Grantee, without rental or other charge.
"Section 4: The Grantee shall hold the City harmless for all expense or liability for any act or neglect of the Grantee hereunder.
"Section 5: The Grantee shall file its written acceptance of this franchise within thirty days after its passage and approval."
Section 10 of the 1949 Ordinance
"The permit provided for herein may be denied in the discretion of the Governing Body if any of the electrical facilities, appurtenances, apparatus, poles, wires, transformers, cross arms used to conduct, transmit or generate electrical power, energy, or current, or any one of them whether in combination or singly constitutes :
" (a) a nuisance, a hazard or is likely to become such; or
"(b) results in duplication of services in an area, addition or portion of the City of Garland, with electric facilities installed, contemplated or planned as extensions of the City's Municipal Electrical Systems; or
"(c) an interference with the orderly, economic, prudent and useful extension of the electrical facilities, equipment, transmission lines and generating facilities of the municipally owned electrical power plant and distributing equipment, or likely to become such; or
"(d) a denial or a likely interference with electrical services requested to be furnished by the municipally owned electrical power plant and facilities, or an expressed preference for such municipally owned electrical service; or
"(e) an unnecessary extension of the transmission facilities; or
"(f) an extension of electrical services resulting or likely to result in a loss of domestic and commercial customers, reduced income from investment by the City of Garland and its municipally owned electric plant and equipment; or
"(g) is likely to cause any reduction or earning power or capacity or reduction of net income to the City of Garland in the operation of its municipally owned electric plant; or
"(h) a direct or indirect impairment of any outstanding City of Garland revenue or general obligation bonds, or is likely to result in a reduction of net income available to retire revenue bonds of the City of Garland, and those bonds to be liquidated out of electric plant operations; or
"(i) an interference with any governmental or proprietary function of the City of Garland; or
"(j) a direct or indirect condition or situation that might influence the granting, extension, regranting or renewal of any franchise; or
"(k) unnecessary above ground transmission facilities; or
"(1) unsightly, unusual and unnecessary above ground transmission facilities depreciating or likely to depreciate the value of adjoining private and public property; or
"(m) a possible basis or claim to be a vested right in property or to a contract upon the expiration of a franchise.
"A determination by the Governing Body that any one of the foregoing reasons exists shall be sufficient basis for denial of the permit."
1964 Ordinance Extending 1915 Franchise
"Section 1. That the electric light, heat and power franchise heretofore granted to the Texas Power & Light Company by ordinance adopted by the City Council of the City of Garland, Texas, on August 2, 1915, be extended for a period of twenty-five (25) years from and after the expiration date named therein so that the term of such franchise will extend to the 1st day of August, 1990.
"Section 2. The grantee in such franchise, to-wit Texas Power & Light Company, shall file its written acceptance of this extension of said franchise within sixty (60) days after the passage and approval of this ordinance."
The City's basic contention is that Article 1, § 17, of the Texas Constitution reserves in the City the power to prohibit future expansion of the Company's facilities and to do so unilaterally by an amendment or partial revocation of the franchise which it granted and the Company accepted. It relies upon Mayor, etc. of City of Houston v. Houston City St. Ry. Co., 83 Tex. 548, 19 S.W. 127 (1892) which discussed the constitutional reservation of powers. The Company, however, relies upon the direct holding of the same case and argues that Article 1, § 19 of the Constitution must be construed with § 17. The two provisions of the Bill of Rights are:
"Sec. 17. No person's property shall be taken, damaged or destroyed for or applied to public use without adequate compensation being made, unless by the consent of such person; and, when taken, except for the use of the State, such compensation shall be first made, or secured by a deposit of money; and 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." (Emphasis added.)
"Sec. 19. No citizen of this State shall be deprived of life, liberty, property, privileges or immunities, or in any manner disfranchised, except by the due course of the law of the land."
The franchise in City of Houston, as is the case with that granted by City of Garland, was not exclusive. In both cases the municipality granted a franchise for a term of years for the use of all streets. In City of Houston the franchise was to a street railway company to operate "over any and all streets of the City of Houston." In this case the franchise granted "the right, privilege and franchise to construct, maintain and operate .in the present and future streets, alleys and public places of the City of Garland. " In both cases the municipality later enacted an ordinance attempting to repeal or annul the effect of the franchise it had previously authorized. In both, the City made no effort to oust the utility entirely.
City of Houston struck down the municipality's attempt to repeal or annul the franchise by the subsequent ordinance. It held that the City of Houston had the power to grant the franchise but could not "abandon or transfer its ordinary control over the streets of a legislative character" and could not create a monopoly, neither of which the City of Houston had done. The court then stated that there was no claim that the use of the streets by the utility had "become a nuisance or amounts to an injury to the public These holdings meant that the City of Houston did not possess the power to amend the franchise or prohibit its full exercise, though it at all times had the reserve power of ordinary control which we construe to mean the reasonable exercise of its police powers. City of Los Angeles v. Los Angeles Gas & Electric Corporation, 251 U.S. 32, 40 S.Ct. 76, 64 L.Ed. 121 (1919) ; 37 C.J.S. Franchises § 24; 12 McQuillin, Municipal Corporations, § 34.74 (3rd. ed. 1949).
The court in City of Houston then discussed Article 1, § 17, though it had not been raised by the parties. It stated that § 17 must be read in connection with § 19 of the Bill of Rights, saying:
" When we consider the effect and consequences of declaring that every grant of special privileges or franchises for a term of years by the state could be revoked or withdrawn at the mere pleasure or will of the legislature, we then very much doubt that the framers of the constitution, or the people in adopting it, intended to reserve to or confer such power or authority upon the legislature. The policy of the state seems to have been to encourage the building of railroads and the investment of capital in similar enterprises. If these special privileges or franchises in question can be recalled or terminated at the will of the legislature, then it would follow that, under the same reservation in the original law, every charter granted, since the adoption of the present constitution, to any railroad, telegraph, or telephone company could be repealed or revoked at the pleasure of the legislature, without the necessity of a judicial forfeiture. And hence we invoke section 19 of the bill of rights, which not only protects property, but also 'privileges or immunities;' from destruction, 'except by due course of the law of the land.' While not conclusive of the question, still this provision affords some evidence of the general purpose of the constitution; and that its authors did not intend, by the declaration contained in section 17, to announce that the continuance or duration of every privilege or immunity, which might be created by the legislature or under its authority, should be entirely dependent upon its caprice or will. With the light before us at this time, we think that the better opinion is that this particular clause of the constitution was intended to prohibit the legislature from granting any 'special privilege or immunity' in such way, or of such character, as that it could not be subsequently annulled or declared forfeited for such causes as might be defined by the law, or condemned in the exercise of eminent domain, and it was further intended that 'all privileges and franchises' granted by the legislature, or under its authority, should at all times remain subject to legislative control and regulation.
City of Houston was cited in City of Baird v. West Texas Utilities Co., 174 S.W.2d 649 (Tex.Civ.App.1943, writ ref.) for the holding that a franchise is a vested or valuable property right which may not be impaired. 5 McQuillin, § 19.39 (3rd. ed. 1949). The City of Baird granted a franchise to a named company, its successor and assigns. The franchise was assigned to West Texas Utilities, and the City of Baird sought to enjoin further'operations within the City because it had not consented to the assignment. In rejecting the City's contention, the court said:
" The effect of this suit is one of ouster, working a forfeiture of property rights of holder in connection with the franchise. Such would be in contravention of appellee's constitutional rights under Article 1, sec. 19, Constitution of Texas."
The court went on to make clear the nature of the powers reserved to the City. It is a "reasonable control at least to the extent such control has been delegated to such city by the State, or may hereafter be so delegated by legislative authority."
A number of cases uphold the right of municipalities to exercise reasonable control and regulation over franchise holders. Storrie v. Houston City St. Ry. Co., 92 Tex. 129, 46 S.W. 796, 44 L.R.A. 716 (1898) upheld the municipality's power to impose the cost of paving that part of its streets between and along the rails of a company which held a franchise. Corpus Christi Gas Co. v. City of Corpus Christi, 283 S.W. 281 (Tex.Civ.App.1926, writ ref.) was an action to restrain a gas company from digging trenches along city streets. Southwestern Telegraph & Telephone Co. v. City of Dallas, 174 S.W. 636 (Tex.Civ.App.1915, writ ref.) upheld the power of the city to impose a reasonable charge for the use of the city streets by the telephone company which had already paid for the privilege of entering the city with its poles and lines. The vested right to use the streets was not disturbed, said the court. San Antonio Traction Co. v. Altgelt, 200 U.S. 304, 26 S.Ct. 261, 50 L.Ed. 491 (1906) affirming 81 S.W. 106 (Tex.Civ.App.1904, writ ref.) upheld the power of the City of San Antonio to force a railway company operating under a franchise to charge lower rates than those specified in its franchise. However, it was held in State v. Lone Star Gas Co., 86 S.W.2d 484 (Tex.Civ.App. 1935, writ ref.), rev'd on other grounds, 304 U.S. 224, 58 S.Ct. 883, 82 L.Ed 1304, "The right of the state to regulate the rates and practices of a public utility is referable to the police power of the state, and is a legislative function which cannot be alienated or contracted away by the state or any agency or political subdivision of the state." See also, Dallas Ry. Co. v. Geller, 114 Tex. 484, 271 S.W. 1106 (1925). The cases cited impose incidental burdens upon the franchise, but none of them goes so far as to be a partial ouster of the right to provide service granted by a franchise.
The rule announced in City of Houston has never been overruled. It means that a city may bind itself by a franchise, so long as it does not surrender or contract away its police or governmental powers. State v. Missouri, K. & T. Ry. Co. of Texas, 99 Tex. 516, 91 S.W. 214, 5 L.R.A.,N.S., 783 (1906); 23 Am.Jur., Franchises, § 19. The rule is stated generally in 5 McQuillin, Municipal Corporations, § 19.37:
"The constitutional provision against impairment of contracts does not prohibit ordinances duly enacted under the police power to protect the safety and welfare of the public. The authority of the state itself or its constituted agencies to exercise the police power is implied in every contract made by and between individuals, partnerships, corporations or public utilities.
« ⅜ * ⅝
" In other words, municipal franchises affecting subjects within the police power must be considered as embracing the right of the grantor to legislate with respect to such subjects unfettered by the franchise provisions, and such legislation does not, therefore, impair the obligation of the franchise.
" Generally speaking a rate ordinance does not impair the obligation of a franchise; such an ordinance, at least where it is reasonable and constitutes a proper exercise of the municipal police power, does not impair the obligation of a franchise contract.
Thus, the provisions of the 1949 ordinance invoked by the City to deny the permit must constitute a reasonable exercise of the City's police power; otherwise, the City violates Article 1, § 19 of the Texas Constitution. The reasonable scope of police powers which may be exercised with respect to a utility providing electrical service is well stated in State ex rel. Cleveland Electric Illuminating Co. v. City of Euclid, 169 Ohio St. 476, 159 N.E.2d 756 (1959). A franchise is subject to the police power exercised to:
" [Djirectly promote the general health, safety, welfare or morals ; the means adopted to accomplish the legislative purpose must be suitable to the end in view, must be impartial in operation, must have a real and substantial relation to such purpose and must not interfere with private rights beyond the necessities of the situation."
The foregoing definition of the police power is consonant with the underlying ideas expressed in the City of Houston case. Those fundamental concepts protect the contractual rights of the private enterprise from arbitrary and unreasonable alteration by legislation, unless the statute or ordinance directly promotes the general health, safety, and welfare of the public. We think this is the true meaning arising from the interrelation of Article 1, § 17 and Article 1 § 19 of the Texas Constitution. The question, therefore, is whether the provisions of the 1949 ordinance invoked by the City qualify as an exercise of the police power directly promoting legiti mate concerns of the government. The 1949 ordinance contains provisions which may be discussed in groups.
Section (a) of the ordinance authorizes the City to deny a permit when the proposed facility constitutes "a nuisance, a hazard, or is likely to become such." The City, however, did not base the refusal of the permit on the grounds that the extension would constitute a hazard or nuisance. To the contrary, the City agreed at the trial of the case that the proposed extension presented no hazards to the public safety. The reason the City assigned for its denial of the permit was the City's intent to serve the area in the future. Thus, subdivisions (a), (j), (1), and (m) of the 1949 ordinance are not relied upon by the City and are not here involved.
Sections (c), (d), (f), (g), (h) and (i), authorizing the denial of a permit by reason of competitive interference with the City's electrical service, are aimed directly at the advancement of the City's economic and proprietary interests. Under these provisions the City urges that it possesses the power to amend the franchise and that its power is broad enough to require City Council approval as a prerequisite to expansion by the Company. In other words, the City contends that it may wholly curb any expansion under the non-exclusive franchise held by the Company. Obviously these provisions have for their purpose the elimination of the Company as a competitor beyond its existing lines. They accord preferments ousting the Company from exercising rights in an area granted by its franchise. These things the City cannot doc Essential franchise rights cannot be taken under a pretense of regulation designed to gain a competitive advantage to the City acting in its proprietary capacity. The City has no right to barter with the police power. When the City authorized the extension of the franchise it contractually submitted itself to economic competition. Conversely, the Company received rights protected by Article 1, § 19 of the Texas Constitution. The right to use the present and future streets of the City of Garland cannot now be altered by legislation, unless the ordinance provisions listed above have a reasonable relationship to the protection of the public health, safety, morals or welfare. Sections (c), (d), (f), fe), (h) and (i) are destructive of the franchise rights rather than regulatory in nature; therefore, they are void. American Consumer Industries, Inc. v. City of New York, 28 A.D.2d 38, 281 N.Y.S.2d 467 (1967); City of Akron v. Public Utilities Commission, 149 Ohio St. 347, 78 N.E.2d 890 (1948); Eighth Avenue Coach Corp. v. City of New York, 170 Mise. 243, 10 N.Y.S.2d 170 (S.Ct.1939); Wisconsin Tel. Co. v. City of Milwaukee, 223 Wis. 251, 270 N.W. 336 (1936).
The remaining sections are (b), (e) and (k). These provisions, designed to prevent duplication of present or future City electrical systems, are said to be within the City's police power. We hold that these three sections are void because they do not state a reasonable standard aimed at protecting the safety or welfare of the public. They in no way control the City's exercise of discretion. Sections (b), (e) and (k) do not increase safety factors or limit danger by prescribing uniform requirements for all equipment and construction of lines similar to an electrical safety code. We think the City has:
" ample authority under its police power to make reasonable provisions for the protection of the public and to maintain high but uniform standards of safety in the transmission and distribution of electricity within its boundaries by imposing safety regulations which, although protecting, fall short of prohibiting the exercise of the powers granted in the franchise." City of Tukwila v. City of Seattle, 68 Wash.2d 611, 414 P.2d 597 (1966).
Attempting to uphold the denial of the permit by reason of sections (b), (e) and (k), the City argues that there is an unnecessary duplication of facilities be cause the City lines are closer to the Chiles & Stockton apartments. In one sense, only one of the electrical suppliers is needed; however, to give the sections of the ordinance the meaning advocated by the City would virtually eliminate all expansion by the Company. Such an interpretation would unlawfully impair the Company's franchise. From an examination of the physical circumstances, we conclude the trial court correctly ruled "that the refusal of the defendants to grant plaintiff a permit is without basis or foundation in law or in fact."
The Chiles & Stockton apartment complex is located in an open and undeveloped area west of the populated portion of Garland. The land is situated between Walnut Street and Forest Lane, streets extending westerly from Garland. Walnut is about one-half mile north of Forest Lane. The City had a line along Walnut and the Company had a line along Forest Lane with an extension north from Forest Lane to a point about half way between the two streets. From that point the Company intended to extend its line to reach the new customer. To do so, it would run the line across vacant undeveloped property. At that time, neither line occupied the large open area between Forest Lane and Walnut. The Company and City lines ran along different streets and neither crossed the other at any point, nor did they occupy the same easements. Two competitors were seeking to serve an undeveloped area, and the customer preferred the Company's service. We see no reason to allow the municipally owned corporation a competitive advantage over the privately owned corporation in this situation. See Public Service Commission v. City of Paris (Vanmeter v. Elvove), 299 S.W.2d 811 (Ky.1957). Without stating standards by which the City can govern the exercise of its discretion, Sections (b), (e) and (k) allow the City to arbitrarily exercise its governmental power to exclude competition in an undeveloped area. The three sections are void because they do not provide adequate standards to govern the discretion of the City. Weiner v. Borough of Stratford, Camden County, 15 N.J. 295, 104 A.2d 659 (1954); 5 McQuillin, Municipal Corporations, § 1812 (3rd. ed. 1949).
Finally, it is our opinion that the 1964 ordinance which extended the 1915 franchise did not impliedly incorporate the 1949 ordinance as additional contractual limitations upon the Company's franchise. The intermediate court held that the ordinance was incorporated into the franchise, relying upon Nueces Valley Townsite Co. v. San Antonio, U. & G. R. Co., 123 Tex. 167, 67 S.W.2d 215 (1933); and Winder Bros, v. Sterling, 118 Tex. 268, 12 S.W.2d 127, 14 S.W.2d 802 (1929). There are several reasons that the ordinance was not so incorporated.
The 1949 ordinance could not have been enacted as a valid contractual limitation upon the 1915 franchise. The 1949 ordinance, aimed at controlling activities outside the City's police power, was an invalid impairment of the original franchise ordinance when it was enacted; therefore, it cannot now be impliedly incorporated into the valid franchise ordinance passed in 1964.
The City had the power to limit the Company to its existing services at the time it granted the 1964 extension. Athens Telephone Co. v. City of Athens, 182 S.W. 42 (Tex.Civ.App.1916, writ ref.). It is significant that the City granted a franchise which clearly and unambiguously declared a purpose repugnant to the idea of implied incorporation. The Company over a period of several years before the extension had challenged the validity of the ordinance, City of Garland v. Texas Power & Light Co., 342 S.W.2d 816 (Tex.Civ.App., 1961, no writ). With this history of prior litigation in which the courts had held the ordinance invalid on a temporary injunction appeal, the City granted an extension by an ordinance that declared its purpose was to extend the original 1915 franchise without amendment.
The preamble of the ordinance says it was enacted to "extend the terms of said franchise 25 years from its present expiration date." The ordinance consisted of two short sections. The first provided that the "franchise heretofore granted be extended for a period of twenty-five (25) years. " Section 2 required the Company to file its written acceptance "of this extension of said franchise within sixty (60) days. " This court recently held that there is a difference between an extension of an existing contract and the making of a new one. The term "extension," as applied to rights under an oil and gas lease, means the prolongation or continuation of the same terms and provisions of an existing lease. We held there was no extension if the provisions of the new agreement differed from those already in existence, there was a new consideration, and the former lease had already terminated. Sunac Petroleum Corporation v. Parkes, 416 S.W.2d 798 (Tex.Sup.1967). Conversely, we hold that the 1964 ordinance was enacted before the 1915 franchise expired and was extended upon the identical terms provided in the original franchise.
The franchise was a broad grant to operate on the present and future streets of Garland. The City's contention is that the franchise by implication was limited to areas in Garland where the Company was then located, and without the right to expand. The conflict between the express terms of the grant and the claimed implications by the City, taken with the history and invalidity of the ordinance at the time it was passed is so sharp that we must reject the contention the ordinance was impliedly incorporated as a part of the contract.
We conclude that Sections (a), (j), (1), and (m) of the 1949 ordinance are not in issue and we express no opinion as to their validity. The other sections are not valid police regulations and are void. The judgment of the court of civil appeals is reversed and that of the trial court is affirmed.