Case Name: CITY OF PHOENIX, a Municipal Corporation, and M. L. WHEELER, City Manager of the City of Phoenix, a Municipal Corporation, Appellants, v. GEORGE KASUN AND MARY KASUN, his Wife, on Behalf of Themselves and All Others Similarly Situated, Appellees
Court: Arizona Supreme Court
Jurisdiction: Arizona
Decision Date: 1939-12-18
Citations: 54 Ariz. 470
Docket Number: Civil No. 4097
Parties: CITY OF PHOENIX, a Municipal Corporation, and M. L. WHEELER, City Manager of the City of Phoenix, a Municipal Corporation, Appellants, v. GEORGE KASUN AND MARY KASUN, his Wife, on Behalf of Themselves and All Others Similarly Situated, Appellees.
Judges: 
Reporter: Arizona Reports
Volume: 54
Pages: 470–488

Head Matter:
[Civil No. 4097.
Filed December 18, 1939.]
[97 Pac. (2d) 210.]
CITY OF PHOENIX, a Municipal Corporation, and M. L. WHEELER, City Manager of the City of Phoenix, a Municipal Corporation, Appellants, v. GEORGE KASUN AND MARY KASUN, his Wife, on Behalf of Themselves and All Others Similarly Situated, Appellees.
Mr. Hess Seaman, City Attorney, and Mr. "William C. Fields, Assistant City Attorney, for Appellants.
Mr. E. O. Phlegar and Messrs. Cunningham & Carson, for Appellees.

Opinion:
LOCKWOOD, J.
— This is an action by George Kasun and Mary Kasun, his wife, hereinafter called plaintiffs, on behalf of themselves and others similarly situated, under section 3736, Revised Code of 1928, against the City of Phoenix, a municipal corporation, hereinafter called defendant, asking for an injunction against the latter's attempting to enforce a certain ordinance adopted by it increasing the water rates to be paid by consumers outside of the city limits. The substance of the complaint was that the ordinance raising the rate was void because the amount charged for service to the outside consumers was exorbitant, excessive, oppressive, unreasonable and confiscatory. Upon the filing of the complaint an order to show cause was issued to the defendant. In response to such order, it filed a motion to dismiss plaintiffs ' complaint upon the grounds, among others, that it appeared upon the face thereof that the court had no jurisdiction of the subject matter. Defendant further filed a verified answer denying all the material allegations of the complaint, and setting up as a special defense that the water furnished to plaintiffs was furnished under a contract which permitted the raising of the rates to be charged to consumers of plaintiffs' class at any time by the city, and that such being the case, the court was without jurisdiction to review the terms of the contract on the ground that the rate fixed by the city was exorbitant, unreasonable or discriminatory. At the hearing on the order to show cause, the .court overruled defendant's motion to dismiss the complaint and entered an order for a temporary injunction prohibiting the collection of rates under the ordinance in question. Subsequent to the issuance of such temporary writ of injunction, the city adopted another ordinance, No. 2822, repealing all previous ordinances, and fixing the rate to be paid for water delivered to consumers, including all consumers both within and without the city limits. A supplement to the original complaint was filed, alleging that the new ordinance was void for the same reasons as the one first complained of, and asking for a temporary injunction against it. Defendant objected for the same reason it had to the original complaint, and then stipulated as follows:
"Whereas, if and in the event the Court denies defendants' motion to dismiss supplemental complaint in resistance to motion for order extending or clarifying temporary injunction and to quash temporary injunction heretofore granted herein, the defendants desire to appeal from said temporary injunction as extended or clarified in advance of a trial on the merits on the issues raised by the pleadings herein,
"It is stipulated and agreed between the parties hereto as follows:
"1. That the trial setting heretofore entered be vacated and that said case not be set for trial pending such appeal and its determination;
"2. That pending such appeal and its determination, the City of Phoenix will bill all non-resident water consumers at the rates in force before the enactment of the ordinances sought to be invalidated in plaintiffs' original complaint, and in the event defendants are successful on said appeal, no attempt to retroactively enforce said ordinances sought to be invalidated in said original and supplemental complaint will be made by the City."
The injunction as asked for in the supplemental complaint was then granted, and the following stipulation was made:
" . . . and Counsel for the defendants having stipulated in open court that if the Court, as a matter of law, has jurisdiction to determine whether or not said water rates as fixed in said ordinance No. 2822 are unreasonable, arbitrary or discriminatory, that the complaint and supplemental complaint contain allegations sufficient to warrant the Court in granting a Temporary Restraining' Order until this cause may be heard upon its merits, the Court finds that the plaintiffs are entitled to a Temporary Injunction against the defendants, restraining, inhibiting and enjoining the said defendants from enforcing or attempting to enforce the provisions of Ordinance No. 2822. . . . "
It was the theory of plaintiffs that the court had jurisdiction to consider this question. It was contended by defendant that the relationship between the city and consumers of water beyond its corporate limit was not one of public duty, but of voluntary contract, which the court had no jurisdiction to review on the ground that it was unreasonable, arbitrary or discriminatory. The issue of jurisdiction is the sole one for our determination.
We have previously laid down certain rules governing municipal corporations operating public utilities, both within and without their corporate limits. They may be stated as follows: (a) a municipal corporation has a right to furnish water through its municipal water plant to consumers without, as well as within, its corporate limits; (b) while furnishing water in this manner the state corporation commission has no jurisdiction to regulate its actions towards consumers, whether inside or outside of such limits; (c) the legislature is the only body which has the right to regulate the rates charged by a municipal corporation operating a public utility, and it has plenary power in that respect except as limited by the Constitution; (d) a municipality may not compel consumers outside of its corporate limits to purchase water from it, nor can it be compelled to furnish such water to non-residents; (e) a municipality can only dispose of its surplus water outside of its corporate limits subject to the prior right of its inhabitants- in cáse of shortage. We think these propositions are either declared specifically or impliedly by the cases of City of Phoenix v. Wright, 52 Ariz. 227, 80 Pac. (2d) 390; Crandall v. Town of Safford, 47 Ariz. 402, 56 Pac. (2d) 660; City of Tucson v. Sims, 39 Ariz. 168, 4 Pac. (2d) 673; Menderson v. City of Phoenix, 51 Ariz. 280, 76 Pac. (2d) 321.
But, it is contended, admitting all of this to be true, the courts have the inherent right to determine the reasonableness of charges made by a municipality, so long as it does furnish water outside of its limits. This is urged upon the basis that the municipality, when it undertakes this, is operating a public utility, and that public utilities are always subject to the jurisdiction of the courts as to whether their rates are unjust, arbitrary or confiscatory.
The distinguishing characteristic of a public utility is the devotion of private property by the owner to such a use that the public generally, or at least that part of the public which has been served and has accepted the service, has the right to demand that such service, so long as it is continued, shall be conducted with reasonable efficiency and under proper charges. When private property is thus devoted to the public use, certain reciprocal rights and duties are raised by implication of law as between the utility and the persons whom it serves, and no contract is necessary to give them. Inasmuch, therefore, as one who devotes his property to a use in which the public has an interest, in effect grants to the public an interest in the use thereof, he must submit to being controlled by the public for the common good to the extent of the interest thus created and so long as such use is continued. Munn v. Illinois, 94 U. S. 113, 24 L. Ed. 77. The right inherent in the public authorities to control the rates to be charged by those operating public utilities is based on the fact that they owe a legal duty to the public to furnish certain services and can, therefore, be regulated by the public as to the price to be charged for such services. It is upon these basic principles that the entire superstructure of public regulation of public utility corporations is based.
• But the fact that a business or enterprise is, generally speaking, a public utility does not make every service performed or rendered by those owning or operating it a public service, with its consequent duties and burdens, but they may act in a private capacity as distinguished from their public capacity, and in so doing are subject to the same rules as any other private person so acting. Killam v. Norfolk etc. R. Co., 122 Va. 541, 96 S. E. 506, 6 A. L. R. 701. Since the basis of the right of regulation is that' a duty is owed the public, regardless of contract, it follows as a corollary that when the duty which arises is based purely on contract and not on law, express or implied, the situation is governed by the rules applying to private contracts in general, notwithstanding that one of the parties may be operating a public utility.
Was the service which the City of Phoenix rendered to plaintiffs and those in like situation with them, based upon contract or law? If it was based upon a legal right, regardless of contract, by all the decisions the courts may determine whether the terms on which he obtains this service are reasonable or not. On the other hand, if his right to receive service is based solely on a voluntary contract with the city, then that contract is subject to review by the courts only in the same manner as any other private contract, and it is not for them to determine whether its provisions are arbitrary, unreasonable or discriminatory.
There are many cases cited to us by counsel for both • parties as bearing upon this question. So far as we are advised, the states of Pennsylvania and perhaps Kansas are the only ones holding that when a public service is rendered by a municipal corporation outside of its city limits, the courts may review the reasonableness of the rates charged for the service. In the cases of Shirk v. Lancaster City, 313 Pa. 158, 169 Atl. 557, 90 A. L. R. 688, American Aniline Products, Inc., v. City of Lock Haven, 288 Pa. 420, 135 Atl. 726, 50 A. L. R. 121, and Barnes Laundry Co. v. City of Pittsburgh, 266 Pa. 24, 109 Atl. 535, the Supreme Court of Pennsylvania did hold that the courts had a right to determine the reasonableness of charges made by certain municipal corporations. This was based on a specific statute which held that the several courts of common pleas shall have chancery powers to prevent or restrain "the commission or continuance of acts contrary to law and prejudicial to the interests of the community or the rights of individuals". 17 P. S. Pa. § 282; Barnes Laundry Co. v. City of Pittsburgh, supra. This case apparently is based upon the ground that the city enjoyed a monopoly of supply and was under the duty, as a matter of law, to furnish the water in question.
In the case of American Aniline Products, Inc., v. City of Lock Haven, supra, the court seemingly bases its judgment on the fact that a city operating a legalized monopoly cannot make an unfair discrimination, and the same rule apparently was applied in Shirk v. Lancaster City, supra.
The case of Holton Creamery Co. v. Brown, 137 Kan. 418, 20 Pac. (2d) 503, deals with a situation where the consumer was a resident of the city. Under the Kansas statute, the court held that the rates charged by municipalities were subject to the same rule as those of a private public utility corporation, but in that case the consumer was a resident of the city and the municipality was, of course, under the duty of rendering him the services which he demanded.
The leading case upholding the position of the city is that of Childs v. City of Columbia, 87 S. C. 566, 70 S. E. 296, 297, 34 L. R. A. (N. S.) 542. In that case, as in this, the complainant was a nonresident of the city, and the charges made him, originally on equal terms with the residents, were increased greatly and complaint was made that the proposed rate was excessive, unreasonable and discriminatory, while the relief asked was injunctive. The court said:
"Evidently the complaint is framed on the theory that the city of Columbia is to be considered, with respect to the contract alleged, as if it were a private business corporation, bound by any contract made by the city authorities to furnish water beyond the city limits. Counsel for appellant has submitted an elaborate argument supported by many authorities in support of that theory. Assuming the correctness of this position, it does not by any means follow that the city occupied towards the plaintiff, a nonresident, the relation of a public service corporation, under obligation to contract with him for his water supply at a reasonable rate, without discrimination.
"All powers and privileges conferred by the Constitution and statutes on municipal corporations must be held to be limited in their exercise to the territory embraced in the municipal boundaries, and for the benefit of the inhabitants of the municipality, unless the Constitution or statute expressly provides that such powers and privileges may be exercised beyond the corporate boundaries, or for the benefit of nonresidents. . . .
"Assuming that the city authorities had the power to contract with the plaintiff to furnish water for his residence and other houses, and that the duty devolves on them of contracting for the sale of any excess of the city's water supply beyond the municipal needs and the needs of its inhabitants, it is, nevertheless., perfectly obvious that the duty to sell the excess of its water supply did not import an obligation to make a contract with any particular person at a reasonable price; but, on the contrary, did import an obligation to sell its surplus water for the sole benefit of the city at the highest price obtainable. It was a duty not owed to outsiders, but exclusively to inhabitants and taxpayers of the city. It follows that the plaintiff, as a mere nonresident, had no rights whatever against the city, except such as he may have acquired by contract. In other words, the city was under no public duty to furnish water to the plaintiff at reasonable rates, or to furnish it at all, and to obtain tbe injunction the plaintiff must show that the city is about to violate its contract with him. " (Italics ours.)
In the case of Collier v. City of Atlanta, 178 Ga. 575, 173 S. E. 853, 855, it appeared that the City of Atlanta, which had for many years operated a municipal water system for its own inhabitants, was authorized by the legislature to extend its system without the limits of the city to such point as it saw fit. After some time of service to outside consumers it raised the water rates to such consumers beyond that of similar consumers within the city. A protest was made and the court, in its syllabus opinion, said:
"1. The city of Atlanta has authority under its charter to extend its water mains beyond the city limits and into the territory of the adjacent county of De Kalb, and to supply persons in such outlying territory with water service, and to charge persons for such service as may be supplied to them on their request.
" (a) The charge for such service is not in any sense a tax.
" (b) The city may not compel any person in such outlying territory to accept the water service which it undertakes to provide, nor may the city be compelled to render water service to such person where it has not voluntarily contracted to do so.
"(c) The city may, by ordinance in pursuance of its charter powers, classify rates to be charged in such outlying territory for service to be rendered therein, and provide for cutting off water supply to customers for failure to pay their bills.
"(d) The fact that rates are prescribed that are higher than those fixed within the city limits will not render the rates charged in such outlying territory objectionable as offending the due process and equal protection clauses of the State and Federal Constitu tions. (Const. Ga. art. 1, §1, par. 3; Const. U. S. Amend. 14 [U. S. C. A.])".
After a careful consideration of all the authorities, we are of the opinion that the controlling factors in the present case are that the city was under no obligation, as a matter of law, to furnish any service to the plaintiffs; that the relationship between them was purely contractual in its nature, and that such being the case, the reasonableness or unreasonableness of the rates fixed by the contract are not subject to review by the court. The only right which it has under the circumstances is to determine whether the city is complying with the terms of its contract, since there is no allegation that there was any fraud in its inception.
As we have stated in the City of Phoenix v. Wright, supra, the remedy of the outside consumer, in a case like this, is an appeal to the political authority, such as the legislature or the voters of the state, or a refusal to accept the service on the terms offered by the city.
The judgment of the superior court of Maricopa county is reversed, with instructions to vacate the temporary injunction and to sustain defendant's demurrer on the ground that the court did not have jurisdiction of the case.
EOSS, C. J., concurs.