Case Name: Southern Indiana Gas & Electric Co. v. City of Boonville
Court: Supreme Court of Indiana
Jurisdiction: Indiana
Decision Date: 1969-06-24
Citations: 252 Ind. 385
Docket Number: No. 1068-S-170
Parties: Southern Indiana Gas & Electric Co. v. City of Boonville.
Judges: 
Reporter: Indiana Reports
Volume: 252
Pages: 385–395

Head Matter:
Southern Indiana Gas & Electric Co. v. City of Boonville.
[No. 1068-S-170.
Filed June 24, 1969.
Rehearing denied August 25, 1969.]
Fred P. Bamberger, Evansville, Bamberger, Foreman, Osxoald & Hahn, of counsel, Evansville for appellant.
George B. Gavit, Indianapolis, Donald G. Hendrickson, Boonville, Ice Miller Donadío & Ryan, of counsel, Indianapolis, for appellee.

Opinion:
Arterburn, J.
Appellee, City of Boonville, as plaintiff, filed a complaint for condemnation of a certain electrical transmission system owned by the appellant company which was located in two subdivisions of the City of Boonville, known as Mac-Ray Acres and East Gate Park, which the City of Boonville had recently annexed. The complaint alleged that the city operated a municipal electric utility in the City of Boonville and desired to exercise the right of eminent domain to acquire the transmission lines in the newly annexed subdivisions.
The complaint further alleged that the appellee, had made a good-faith effort to purchase the property from the appellant but was not able to agree on the price which was offered, to-wit: $50.00. It was conceded that the $50.00 only paid for the tangible lines and poles involved, and in no way compensated the electric company for contractual and other rights involved.
The evidence involved shows that at the time this litigation began, the City of Boonville was purchasing its electric energy from the appellant electric company. At that time there was in existence and had been for a number of years a contract under which this energy was supplied for utility purposes in the City of Boonville. As part of that 1947 contract, which was reaffirmed in 1959 and extended to May 31, 1974, the City of Boonville agreed not to extend its services beyond the then city limits of Boonville. The agreement was again supplemented and reaffirmed in 1965. This original contract and the subsequent renewals and amendments were approved by the Common Council of the City of Boonville and also by the Public Service Commission.
At the time of the beginning of this litigation the appellant electric company provided the only electrical service to the homes and businesses in the two subdivisions by virtue of a certificate of public convenience and necessity issued by the Public Service Commission. Following an annexation of the subdivisions, the City of Boonville took steps to provide electrical services to the two subdivisions, and the appellant electric company thereupon secured a temporary injunction prohibiting the appellee from servicing such annexed area, based upon its contract with the city, which provided for such a division of territory.
The appellee then requested an interpretation of the temporary injunction from the trial court to determine whether the appellee-city was prohibited from bringing a condemnation action against the appellant. The court held that the temporary injunction did not prohibit the bringing of a condemnation action, which the city thereupon brought, and the rulings in such proceeding are now being appealed for our consideration.
Objections were filed to the complaint, based primarily upon the contentions that a good-faith effort was not made to negotiate a fair price, that the damages did not take into consideration values other than the mere worth of the poles and lines and that appellee-city should not be permitted to violate its contract made in good faith with reference to an agreeable division of territory to be served after improvements were made by both parties, based upon the contract, with the city still retaining certain benefits under the contract with reference to the furnishing of electrical energy.
The central issue in this appeal is the validity of the provision in the original contract for the furnishing of electrical energy, which was reaffirmed in 1965. The essential part of that contract, other than that concerning the furnishing of electrical energy by appellant to the City of Boonville for its use in serving its customers, provided:
"That it [City of Boonville] will sell electricity only to its customers residing within the city limits of Boon-ville, Indiana, as said city limits existed on June 6, 1941, and to those customers who are located on what is known as the 'Lake Drain Line' and to Mary Johnson, J. L. Petrey, J. D. Burton and the Fair Grounds Association; and that it will not extend its service to any other customers or territory without the written consent of the Company and without first obtaining legal authority to do so." (Parenthesis added).
If this provision is valid and the city is bound by the contract, then it is apparent appellee cannot condemn appellant's property in this proceeding, except in violation of its contractual obligations.
Appellee argues that the contractual provision is invalid because the city, in effect, contracts away its power of eminent domain. It cites the case of Southern Indiana Gas & Electric Co. v. City of Boonville (1939), 215 Ind. 552, 20 N. E. 2d 648. Language in that case standing by itself might support the appellee. However, an examination of the facts therein shows that it refers merely to the franchise or indeterminate permit which the state had granted the utility, and not a contract between the two parties, as in this case. In the present case the contract is directly between the city and the utility, and unless there is some public policy involved, the parties are bound by the contractual obligations until the contract expires. The City of Boonville operates the utility in a proprietary and private capacity and not as a part of its sovereign rights.
The delegation of the powers of eminent domain for the operation of a utility is for business purposes, as distinguished from a governmental or a sovereign purpose. The exercise by a municipality of its eminent domain powers in connection with its utility operations therefore involved a proprietary or a businesslike decision. It is simply a business operation. In The City of Vincennes v. The Citizens' Gas Light Company (1892), 132 Ind. 114, 126, 31 N. E. 573, it is said:
"There is a distinction between powers of a legislative character and powers of a business nature. The power to execute a contract for goods, for houses, for gas, for water and the like, is neither a judicial nor a legislative power, but is a purely business power____"
Also, in The City of Indianapolis v. The Indianapolis Gas-Light & Coke Company (1879), 66 Ind. 396, 407, our Court said:
". . . When it (a municipal corporation) makes a contract within the scope of its power . . ., it must be enforced the same as the contract of a business corporation, or a person...." (parenthesis added).
In the case of Public Service Co. of Ind. v. City of Newcastle (1937), 212 Ind. 229, 237, 8 N. E. 2d 821, this Court stated:
"It is well settled that, when furnishing electric energy to light its streets, buildings, and public places, the city is exercising a governmental function, but that, when it furnishes and sells energy for domestic and commercial purposes, it acts as a private business corporation, and, in the latter case, it is subject to the rules governing private corporations."
In the operation of a utility a city is bound in the same fashion as any other owner of a utility, corporate or otherwise, and may contract with reference to the dispo sition of such property and its operation. Department of Treasury v. City of Linton (1945), 223 Ind. 363, 60 N. E. 2d 948; Chadwick, Treasurer v. City of Crawfordsville (1940), 216 Ind. 399, 24 N. E. 2d 937; Public Service Co. of Ind. v. City of Newcastle, supra; City of Huntington v. Northern Ind. Power Co. (1937), 211 Ind. 502, 5 N. E. 2d 889; City of Logansport v. Public Service Comm. (1931), 202 Ind. 523, 177 N. E. 249.
It follows that a utility, including one operated by the city, may make a contract which prevents it from thereafter taking property by use of its power of eminent domain. It has not lost the right to exercise the power of eminent domain, but has made a contract which prevents it from succeeding in such a case if it should bring an action of eminent domain. In this case the Court has issued a temporary injunction which stamps with approval the contract between the parties as binding. At the same time it interpreted the injunction as not prohibiting the bringing of the condemnation action, but it did not state that the appellee-city was entitled to succeed in such proceeding.
In this case the City of Boonville, as part of its contract with the appellant, entered into an agreement for the furnishing of electrical energey for the operation of its utility, and at the same time agreed upon drawing a line between the territory to be served by the appellant and the city. We know of no public policy that prevents such an agreement. In fact, efficiency and economy would favor such agreements as avoiding duplication of equipment, etc. In considering this question of division of territory between utilities, McQuillin, Municipal Corporations, 2nd Ed., Revised Vol. 5, Sec. 1931, at p. 39, says in part:
"It was held that the municipality, in granting a franchise to a water company, could agree not to compete during the period of the contract, notwithstanding it could not grant an exclusive franchise. . . ." City of Walla Walla et al. v. Walla Walla Water Co. (1898), 172 U.S. 1, 43 L.Ed. 341, 19 S. Ct. 77; City Gas Company v. People's Gas System, Inc. (Fla., 1965), 182 So.2d 429.
The contract in question did not purport to grant an exclusive franchise and the contract was approved by the Public Service Commission.
The City of Boonville now seeks to abrogate a part of the contract; that part which it finds undesirable. The court in issuing the temporary injunction, has recognized the validity of the contract between the parties. If the City of Boon-ville should be successful in taking over merely the lines and poles in this case, could it, in the face of a temporary injunction or a permanent injunction, serve the territory involved? Would the possession of the mere poles and wire be a grant of power to operate a public utility service? It is unnecessary to answer this question, since in our opinion the City of Boonville is bound by its contract made in good faith in operating a utility as a proprietor. Once appellee engaged in a public utility business, it became bound by its business decisions, the same as any other utility.
The judgment and order of the trial court is reversed, with directions to sustain the objections to the complaint, based upon the validity of the contract between the parties herein referred to.
Hunter, Jackson and Givan, JJ., concur. DeBruler, C. J., dissents with opinion.