Court Opinion

ID: 7119990
Source: CourtListenerOpinion
Date Created: 2022-07-24 12:37:14.786014+00
Date Added: 2024-06-11T16:14:04.388192
License: Public Domain

Evans, J.
(dissenting.) I. This case presents a troublesome question, and one which we have not heretofore settled. Primarily, it involves a construction of Sections 720 and 724 of the Code. It involves also a rather peculiar application of Section 725. For convenience, I shall set these sections forth as a part of the discussion. Plaintiff, the town of Sibley, had a municipally owned electric plant. In July, 1914, it purported to enter into a joint contract for the sale of its electric power, with three parties, of which the defendant was one. The other two parties were the incorporated towns of Plarris and of Lake Park. These three parties are described in the contract as the “combined interests,” and it will be convenient to so refer to them here. The “combined interests” were purchasing the electric power for the purpose of distribution among the inhabitants of the towns of Oeheyedan, of Harris, and of Lake Park, respectively. The defendant, however, is a private corporation, and stands as a middleman between the plaintiff and the inhabitants of Oeheyedan. The “combined interests” constructed and owned the main transmission line, and took joint delivery at the corporation line of Sibley of the sum total of the electric power provided for by the contract. This sum total *962was distributed between tbe members of tbe combined interests, at a later stage of tbe transmission, by methods agreed upon between them. The contract rate was on a graduated scale, providing for 6 cents per K. W. if tbe consumption did not exceed 3,000 K. W. per month; and for 5 cents per K. W. if it exceeded 3,000 K. W. per month; and for 4 cents per K. W. if it exceeded 6,000 K. W. per month. For the purpose of this scale of prices, the “combined interests” were treated as a unit. The rates thus fixed by contract were adopted by ordinance of the town of Sibley, and the parties operated under it for about four years, except that there was a voluntary modification of it for a period of time. In the year 1919, the city council of the town of Sibley, assuming to find that the contract rates had become unreasonable, by reason of increased prices, and had become less than the cost of production, adopted by ordinance a new scale of prices, which was an increase. For the purpose of this case, no issue is made by the defendant upon the reasonableness of the rates fixed by the new ordinance. A stipulation was signed to that effect. Indeed, all the facts in the case are presented either by a stipulation or by admissions in the pleadings. This action was brought by the plaintiff to recover from the defendant the amount due, as computed under the new ordinance rate. The defendant tendered payment under the contract rate. As stated in the majority opinion, the sole question for us is: Had the city council of the town of Sibley the power to establish by ordinance' the new rates? Still more directly stated, the question is: Did the city council of the town of Sibley have power, in 1914, to bind the city to a contract rate for 20 years? If it did not, then, under the stipulated facts, the present city council does have power to establish reasonable rates by ordinance, and the plaintiff is entitled to recover, as prayed. If it did have power to make the contract rate in 1914, then it does not now have the power to repudiate it by a new ordinance.
The first premise laid in the majority opinion is that the governmental and the proprietary powers of a municipality are clearly separate and distinct, and that the power exercised in the contract of 1914 was proprietary only. This premise is indispensable to the correctness of the majority opinion. On the other hand, if it were conceded, I think that the correctness *963of the conclusion reached would still be subject to grave doubt. In the later discussion, it will be my contention in support of this dissent that, by express statutory provision, the power of the city council over rates is wholly legislative, and not proprietary. For the moment, however, I assume the correctness of the premise, for the purpose of showing that it will not solve the difficulty confronting us. Suppose, for the moment, that the town of Sibley stood in the attitude of a proprietor, like any private corporation. It has entered into contract, not with the defendant alone, but with the defendant jointly with the incorporated towns of Harris and of Lake Park. True, these towns are not parties to this case. But if the majority opinion is sound', then the contract is valid, not only as to the defend-ant, but as to the joint parties thereto. We have before us, then,, a case of contract between the proprietor of an electric light plant and an incorporated town, which fixes the rates by contract for a period of 20 years. Without any doubt, this is in direct violation of Section 725, as we have heretofore held. Toim of Woodward v. Iowa R. & Lt. Co., 189 Iowa 518. Section 725 expressly withholds from city councils the power to make rates by contract for any specified time. We have construed this to mean that the power to make rates is always in the present city council, and that no city council can tie the hands of any future city council on that question. This means that, notwithstanding the contract rate entered into in 1914 for the furnishing of electric power to the towns of Harris and of Lake Park, the question of rates was at all times subject to revision by the city councils of those towns respectively. Clearly, therefore, those towns have never been bound to maintain such contract rate, except so far as it shall be found reasonable by the respective city councils. This contract rate provision being nugatory, therefore, as to the towns of Harris and of Lake Park, was it still binding upon the proprietor of the power plant? That is a question that has come near confronting us in a number of cases, and which we have not yet met. The question of the right of the serving city in such a case is touched upon in the case of City of South Pasadena v. Pasadena L. & W. Co., 152 Cal.. 579 (93 Pac. 490), cited in the brief of appellee. We quote therefrom the following:
*964“The pcnvers of the two cities in regard to this water service will be separate and distinct. One will be subordinate to the other, and hence there will not be two cities exercising the same powers in the same territory at the same time. South Pasadena, within its own limits, will be the sole representative of sovereignty in the fixing of rates and in the supervision of the streets; and Pasadena will be subject thereto, as a private person. If, by fixing- too low rates, South Pasadena should attempt to compel the service to be made at a loss, Pasadena would have the same remedies, and no greater, in the courts that a quasi public corporation or natural person would have in the same circumstances. The fact that the outside service is within another city does not appear to be a significant factor in the question of the power. If it were in a rural community, the rates charged would be subject to judicial control, to make them reasonable. Being in another city, the serving city has a right to demand reasonable rates, and may enforce them if not granted. The limitations -would not affect the power in one case more than in the other.”
Applying the foregoing discussion to the ease before us, it would mean that the towns of Harris and of Lake Park could at any time repudiate the rates as unreasonable, and fix upon alleged reasonable rates; and on the other hand, the town of Sibley could at any time repudiate the rates, whether fixed by the contract or by ordinance of the towns of Harris and of Lake Park, and could refuse to render service for less than reasonable rates.
I recognize that my argument up to this point is somewhat beside the mark, because the particular defendant herein is a private corporation, and is not subject to the disability created by Section 725, as against a municipality. The defendant could bind itself by a contract. Whether the fact is influential that this private corporation was organized as an intermediary, and for the sole purpose of furnishing electric power to the town of Ocheyedan, and presumably had a franchise for that purpose, and that the rates contracted for could not be made binding upon the town-of Ocheyedan, either by contract or otherwise, except perhaps by ordinance of the city council, might present an interesting question. I shall not enter upon it. My discus*965sion of tbe disability of the towns of Harris and of Lake Parle is intended only as preliminary to the main question.
II. I turn, therefore, to the main question: Did the city council of the town of Sibley in 1914 have power to bind the city and its inhabitants to a fixed contract rate for 20 years? The power to fix rates for public utilities has always been deemed legislative. It was so at common law. By Section 473 of the Code of 1873, the legislature expressly .conferred power upon the city councils to enter into contracts for rates for a limited period of tiihe. This power was by later legislation withdrawn, and has never since been conferred. It is conceded in this case that the town of Sibley did have the legislative power to fix the rates for its own inhabitants, but it is contended that it had no legislative power beyond its corporate limits. One of the premises laid down by the majority opinion is that a city council has no extraterritorial legislative power, unless it be conferred by the legislature. I grant it. It is equally true that it does have' extraterritorial legislative power when such power is conferred by the legislature. This rule is stated by MeQuillin as follows:
“The right to exercise police power beyond the municipal area must be derived by legislative grants which expressly or impliedly permit it. It is not unusual to grant cities and towns the right to exercise police regulations beyond their corporate limits.” 3 MeQuillin on Municipal Corporations, Section 897.
The question at this point, therefore, resolves itself 'into a question of construction of Sections 720 and 724. Do they confer extraterritorial legislative power upon the city council of the town of Sibley? The majority opinion answers this question in the negative. It can just as readily be answered .in the affirmative. Section 720 provides as follows:
“They shall have power to purchase, establish, erect, maintain and operate, within or without the corporate limits of any city or town, heating plants, waterworks, gasworks or electric light or electric power plants, with all the necessary reservoirs, mains, filters, streams, trenches, pipes, drains, poles, wires, burners, machinery, apparatus and other requisites of said works or plants and lease or sell the same. * * * And they shall have power to enter into contracts with persons, corporations or mu-*966nieipalities for the purchase of heat, gas, water, and electric current for either light or power purposes, and shall have power to sell the same either to residents of such municipality, or to others, including corporations, and to erect and maintain the necessary transmission lines therefor either within or without the corporate limits, to the same extent, in the same manner, and under the same regulations, with the same poiver to establish rates and collect rents as is or hereafter may be provided by law for cities having municipally owned plants.”
The last clause of the foregoing section carries us to Section 724, as being the only statute- which has to do with the regulation of rates for municipally owned plants.
Section 724 provides as follows: *
“They shall have power, when operating such works or plants, and shall have the power to sell the products of such * * * plants, to any municipality, individual or private corporations outside of the city or town limits as ivell as to individuals or corporations within its limits, and to erect in the public highway the necessary poles upon which to construct transmission lines, and to assess from time to time, in such manner as they shall deem equitable, upon each tenement or other place supplied with water, gas, heat, light or power, reasonable rents or rates fixed by ordinance, and to levy a tax, as hereafter provided, to pay or aid in paying-the expenses of running, operating, renewing, extending and repairing such works or plants owned and operated by such city or town, and the interest on any bonds issued to pay all or any part of the cost of their construction.”
It is argued in the majority opinion that these sections designate two classes, viz.: (1) Those living within-the city; (2) those living without the city. Would it not be more accurate to say that, instead of dividing them into two classes, it unites all, whether within or without, into one class! The provisions of the statute relate to all the proposed patrons, “either within or without the corporate limits.” No person, either within or without the corporation, becomes the patron of the plant, and subject to rates, except upon his own volition. When he does become a patron, whether within or without the city limits, the statute extends the jurisdiction of the city council over him to make rates, and requires that the rates fixed be *967reasonable. In that respect, the statute operates uniformly upon all patrons.
Stress is laid by the majority upon the provision that permits the municipality “to sell.” It is argued that this implies a power to contract for the rate. But this power to sell expressly applies to persons within the city, as well as to those without. In Section 720, the language is:
“Shall have power to sell the same either to residents of such municipality or to others.”
In Section 724, the language is:
“Shall have the power to sell the x>roducts of such * * * plants, to any municipality, individual or private corporations outside of the city * * * as well as to individuals or corporations within its limits.”
If we are to hold, therefore, that the conferring of power “to sell” implies power to contract for a rate, then it follows that the town of Sibley could bind itself to its own citizens by a contract rate for 20 years. It will hardly be contended that such was the intent of the statute. Such construction would render wholly nugatory the later express provisions requiring the city to fix reasonable rates “from time to time.” I think, therefore, that the natural construction of these sections of the statute is that they conferred extraterritorial jurisdiction upon the city council to fix rates over those who chose to become its patrons; that the power conferred as to rates was wholly legislative, and was in no sense arbitrary or proprietary; and that, being legislative, it was to operate uniformly and reasonably as to all patrons.
I recognize that, when such extraterritorial power is extended so as to include other municipalities, it brings into conjunction two jurisdictions, each of which has its powers under the statute. In my judgment, the solution of such a conjunction is indicated in the Pasadena case, from which I have above quoted.
III. As incidental to the main discussion, I think there is undue emphasis put in the majority opinion upon the premise that the governmental and proprietary characters of the municipality “are clearly separate and distinct,” and that too much is predicated thereon. While it is true .that this dual character of a municipality is recognized it is not correct to say that the *968powers ‘conferred upon tbe municipality in tbe separate characters are clearly distinct and separate. It would be more accurate to say that they are usually so blended that they cannot be distinguished at all. The duality itself is a fiction of speech and argument which has been generally accepted for a very limited purpose. One purpose' subserved by it — and I am not sure but that it is the only purpose — is to create liability of the city for negligence resulting in personal injuries in the management of municipal plants.
In Davoust v. City of Alameda, 149 Cal. 69 (84 Pac. 760), this question is discussed by Justice Shaw, as follows:
“The authorities uniformly hold that the duties arising from the operation of gasworks, electric works, waterworks, and such like public utilities, are of the private nature which is required to make municipal corporations liable for damages caused by negligence therein. It is evident, however, that the division of municipal functions into two classes, one public and governmental, the other 'private and corporate, is without any real foundation, and is made solely from the supposed necessity of doing so in order to allow a suit to be maintained for such injuries. In its public functions" a municipality was said to represent the sovereign power, and as such, to be exempt from private action. Hence, with respect to the class of powers here involved, it was considered necessary to designate them as private in character^ in order to uphold a suit to recover for these injuries. ' The only reason given for classifying the power to administer public utilities as private and corporate, is that private persons and corporations frequently engage in such enterprises; that they are carried on by the city for its own profit; and, in a few cases, that the municipality has contracted with the sovereign power to do such things, and is, therefore, acting in a private capacity. None of these reasons is of any force. * * * It may be that, in former times, cities engaged in such enterprises for the sake of the profit to be made thereby. But, under our system, its charges for service are fixed solely for the purpose of covering the operating expenses and providing a sinking fund, and profit, if any, is merely incidental. The making of contracts with the state by municipalities to supply such public needs is with us utterly unknown. In our form of *969government and under our constitutional provisions, a city can have no active powers or functions that are not public and governmental in character. * * * It must be conceded that the rule holding cities liable for such injuries is more conducive to justice than would be the contrary. ‘ The rule of law is a general one, that the superior or employer must answer civilly for the negligence or want of skill of his agent or servant in the course or line of his employment, by which another, who is free from contributory fault, is injured. Municipal corporations, under the conditions herein stated, fall within the operation of this rule of law.’ (2 Dillon on Municipal Corporations, Section 968.) ”
In a later case, Marin Water & Power Co. v. Town of Sausalito, (Cal. App.) 193 Pac. 294, the foregoing opinion by Justice Shaw was approved by the court, as follows:
“We are constrained, therefore, to accept the distinction which the Supreme Court has thus made between the governmental and proprietary functions of municipalities, although ■in doing so. we are disposed to give our approval to that portion of the concurring opinion of Mr. Justice Shaw in the case of Davoust v. City of Alameda, supra, in which such a distinction is declared to.be wholly fictitious, and apt to produce embarrassing consequences, if extended and applied to other cases than those then before that court.”
When it is considered further that a municipality is a mere creation of the statute; that it has no capital which it may invest in proprietary enterprises; that all of its obligations must ultimately be met by taxation; that it can have no arbitrary control over any fund or funds which it may accumulate; that it acts at all times under statutory direction with reference to any municipal property, and is subject at all times to statutory limitations; that whatever property it may acquire pursuant to the statute remains at all times subject to legislative control; and that every statute under which it acts is always subject to legislative amendment, — it will readily be seen that the relation of a municipality to municipal property is not that of a proprietor, in any emphatic sense, but is that of a public or governmental trustee, and that its administration and use of the property must all be had pursuant to the governmental powers *970conferred by legislation upon it. It can exercise no other power over its own property than that which is conferred upon it by the legislature. The statute has not conferred upon it any power of attempted speculative enterprises or profits on behalf of its inhabitants. It is permitted to acquire public utilities and to manage the same, but the method of management is closely defined. This is permitted in the interest of the public good, and doubtless in the interest of economy. But it is required to make the public investment and the return thereon balance, even though resort be had to taxation for that purpose. Rates are to be reasonable, — nothing more, nothing less. Neither profit nor loss is contemplated or is even permissible, in a speculative sense. This, in my judgment, is the fair purport of the brief statutes which govern the municipality in the administration of the trust. A long-term contract for a rate' is speculative in character. It might result in great profit to the municipality, and on the other hand, might result in great loss. It would become highly profitable only in the event that the rates became unreasonably high. To collect such rates would be, to violate the statute. If the contract should become a losing one, it would be because the rates were unreasonably low. The municipality has no capital against which such losses could be charged. It could only retrieve such losses by resort to taxation. Its power of taxation is always subject to statutory limitations. The cardinal principle laid down for the control of public utilities by municipalities in the matter of rates is that they shall at all times be reasonable, and that, with such guide before it, the city council shall, from time to time, by appropriate ordinance revise such rates.
Assuming it to be true, as all will doubtless concede, that a municipality as grantee cannot contract for an unalterable rate to be paid by its inhabitants, I think it is equally true that it is under the same disability to contract as a grantor for an unalterable rate from its patrons.
I think, therefore, that the contract before us must be construed as though the statute were made a part thereof, and that the rate contracted for is to be deemed a reasonable rate for the time being only. It is not to be deemed an unalterable one.
In the foregoing discussion, I have assumed, as does the *971majority opinion, that the delivery of the electric power by the plaintiff to the defendant was outside the corporate limits of the town, and not inside thereof. The question whether it was thus delivered would be immaterial, if I am correct in the foregoing' discussion. On the other hand, it becomes very material if the view of the majority opinion prevails. Though the printed record is somewhat obscure, a careful examination of it discloses that the delivery of the electric power to the defendant was literally ivithin the corporate limits, although “at the corporate limits.” The-record discloses that the plaintiff leased to the defendant a tract of ground at the corporation limits, whereon the defendant was to and did construct its substation. It was at this substation that the power was metered through the meter of the plaintiff. The opinion and decree of the trial court recognize the fact that the delivery was literally within the corporate limits; but because the delivery was for the purpose of outside consumption, the tidal court held that this made it the legal equivalent of an outside delivery. The fact remains that the jurisdiction of the plaintiff city and its council over the substation and over its own meter therein would not be an extraterritorial jurisdiction. If the city was under disability in 1914 to make an unalterable contract rate within its corporate limits, then it had jurisdiction all the time to prescribe reasonable rates -within the corporate limits. It had jurisdiction for this purpose over every other meter within such limits. How can it be said that it did not have jurisdiction over this meter in the defendant’s substation, the lateral dimension of which extends 50 feet from the corporate line? The importance, therefore, of this question is that, if the majority opinion in its final result be sustained, then decision must be put upon some other ground than that the city was without extraterritorial jurisdiction to fix reasonable rates.
Preston and De Oraee, -T-T., join in this dissent.