City of Indianapolis v. Consumers' Gas Trust Co.

• Decision Date: 06 February 1906
• Citation: 144 F. 640
• Parties: CITY OF INDIANAPOLIS v. CONSUMERS' GAS TRUST CO. et al.
• Court: U.S. Court of Appeals — Seventh Circuit

144 F. 640

CITY OF INDIANAPOLIS v. CONSUMERS' GAS TRUST CO. et al.

United States Court of Appeals, Seventh Circuit.

February 6, 1906

The city of Indianapolis appeals from a final decree of the Circuit Court against the appellant, as one of the defendants in an ancillary bill filed by the appellee, Byron C. Quinby who was complainant in an original suit, in the same court against Consumers' Gas Trust Company and other defendants. In such original suit a final decree was entered in conformity with the prayer of the bill, which included the winding up of the corporation, and that decree was affirmed on appeal to this court. Consumers' Gas Trust Company et al. v. Quinby (C.C.A.) 137 F. 882. Upon the proceedings thereunder for sale of the corporate property the city of Indianapolis asserted the right to become the exclusive purchaser, at a valuation to be fixed by appraisers, under a provision of the ordinance granting the Consumers' Gas Trust Company its privileges in the city. The ancillary bill sought injunctional relief against this claim and procedure thereunder, as casting a cloud upon the corporate title and preventing its sale in open market. The issues were heard upon the pleadings and stipulated facts. Aside from the special ordinance provision referred to and proceedings under it, the facts and circumstances out of which the present controversy arose, appear substantially in the statement which accompanies the opinion of the court on the former appeal above mentioned.

The ordinance adopted by the city of Indianapolis, June 27, 1887 authorized the use of streets for the purpose of supplying natural gas to the inhabitants, at prices named, upon acceptance of the ordinance by any corporation; and the Consumers' Gas Trust Company accepted such grant November 23, 1887, and entered upon the performance. The special provision of this ordinance in question reads as follows:

'Section 18. The city of Indianapolis shall have the right, by giving at least six months' notice, to purchase the entire plant or plants of any corporation, company, firm or individual accepting the provisions of this ordinance, at any time after the expiration of ten years from the date of its passage. The amount to be paid for such plant or plants shall be ascertained by the appointment of three disinterested persons, one to be appointed by said city and one by said corporation, company, firm or individual, and, in case of disagreement, two shall select a third. The amount thus fixed shall be paid by said city within six months after the amount to be paid for such plant or plants shall have been determined as herein provided.'

The primary action on the part of the city to enforce this provision, occurred May 17, 1905, in the adoption of the following resolution:

'Be it resolved by the board of public works of the city of Indianapolis, That the Consumers' Gas Trust Company be given notice as provided by section 18 of the ordinance approved June 27, 1887, and accepted by said company, of the intention of said city to exercise its right to purchase the plant of said company.'

Other facts bearing upon the issues are stated in the opinion.

See 140 F. 362.

Merrill Moores and Henry Warrum, for appellant.

Ferdinand Winters, for appellee.

Before GROSSCUP, SEAMAN, and KOHLSAAT, Circuit Judges.

SEAMAN Circuit Judge.

The issues which were in controversy under the original bill of the appellee, Quinby, were settled by the decree affirmed in Consummers' Gas Trust Co. v. Quinby (C.C.A.) 137 F. 882. With the fact conceded that the supply of natural gas was exhausted, so that the Consumers' Gas Trust Company was permanently incapable of furnishing such supply to the inhabitants of Indianapolis, the conclusions-- (1) that the corporate franchise was limited and did not extend to other purposes which were contemplated; and (2) that the stockholders retained their property interests and were entitled to distribution of the assets-- necessarily resulted in the decree for winding up the corporation and disposing of its assets. The interesting questions which are now presented, under the ancillary bill, were in no sense involved in the former issues, and their solution does not rest on any matter thus adjudicated, unless the condition which arises from the resultant winding up of the corporation may enter into the consideration.

Upon this review all inquiry hinges ultimately on the validity or force, as between these contestants, of the option provision contained in section 18 of the ordinance under which the corporation obtained and exercised the franchise rights in the city of Indianapolis. The main contentions, in support of the relief sought in the ancillary bill and granted by the decree, are that the provision referred to was ultra vires both corporations-- that is, that the gas company was without power to thus contract for a sale, and, in any view of the power of the other party to sell, the municipality was without power to purchase. In the opinion filed by the Circuit Judge who heard the case, the contention of ultra vires the incorporation of the gas company, is upheld; and, with no precedent directly in point, but in the light of the authorities cited, we recognize the force of the reasoning to that end. Both the question of power under its incorporation, and the right to raise it as the groundwork for the equitable relief sought, are inquiries of general interest in the line of municipal grants, and not free from difficulty, under the various lines of decision touching one and the other aspect; and one or both challenge solution at the threshold of the case.

The proposition stated, or necessarily implied, as premises for the argument, not only of want of power to give the option to the city, but of right in the corporation or its representative stockholder to equitable relief against its provisions, may be fairly summarized as follows: (1) The gas company derives its existence and powers as a corporation from the state, under the general legislative acts which conferred the authority to organize for the objects declared in the articles; and not from the city of Indianapolis. (2) The right to exercise its powers for the purpose for which it was incorporated--supplying natural gas to the inhabitants of Indianapolis by means of pipes within the city-- is derived exclusively from the city, under delegation from the state, through the ordinance in question. (3) The gas company thus created and endowed became a quasi public corporation, as well recognized under the Indiana authorities, and subject to the general rule of that jurisdiction (and elsewhere as well), that no transfer can be made which disables such corporation from performance of its duties during the charter term, unless expressly authorized by the statute. (4) No express statutory authority appears for the option provision referred to, or the transfer contemplated by it. (5) The general statutes of the state then in force (Rev. St. 1881, Sec. 3106, cl. 28; 2 Burns' Ann.St. 1901, § 3541) enabled cities 'to construct or establish gas works, or to regulate the establishment thereof' by others; under the so-called special charter provisions, after 1891 and up to 1905 (2 Burns' Ann.St. 1901, § 3830) the city was empowered to purchase or erect and operate gas works and 'natural gas lines'; and, as amended in 1905 (Acts 1905, p. 279, c. 129, Sec. 93, cl. 8) to purchase, etc., 'gas works.' (6) An act of March 7, 1887 (2 Burns' Ann.St. 1901, § 4306), authorized cities 'to provide by ordinance, reasonable regulations for the safe supply,' etc., 'of natural gas within the respective limits.' (7) The ordinance of June 27, 1887, which empowered and regulated the operations of this gas company, provided in section 18 that the city 'shall have the right,' upon notice, after the expiration of 10 years, 'to purchase the entire plant or plants of any corporation' accepting thereunder at a price to be fixed by appraisers and paid by the city.

With all these premises in mind, is the established rule of Indiana against the voluntary transfer of its property by such public service corporation, violated by this option clause in the franchise ordinance? Otherwise stated, the inquiry in point must be, whether the doctrine of the authorities referred to is applicable, in any just sense, to the provision thus imposed by the city as one of the conditions of the privilege granted the gas company. For if it is so applicable, and the provision is treated as mere consent or participation on the part of the city to the transfer, no authority to transcend the corporate powers can be thus conferred. New Albany Waterworks v. Louisville Banking Co., 58 C.C.A. 576, 122 F. 776, 781. Examination of the numerous authorities cited for and against the contention of ultra vires reveals no case involving a provision of like character with this option clause, nor one in reference to a right to transfer the corporate property to a municipality under any circumstances. The general doctrine in all is thus comprehensively stated in the leading case of Central Transp. Co. v. Pullman's Car Co., 139 U.S. 24, 48, 11 Sup.Ct. 478, 484, 35 L.Ed. 55:

'A corporation cannot, without the assent of the Legislature, transfer its franchise to another corporation, and abnegate the performance of the duties to the public, imposed upon it by its charter as the consideration for the grant of its franchise. Neither the grant of a franchise to transport passengers, nor a general authority to sell and dispose of property, empowers the grantee, while it continues to exist as a corporation, to sell or to lease its entire property and franchise to another corporation.'

In none of the citations, state or general, are there any reasons stated...