American Waterworks & Guarantee Co. v. Home Water Co.

• Decision Date: 26 March 1902
• Parties: AMERICAN WATERWORKS & GUARANTEE CO. v. HOME WATER CO. et al.
• Court: U.S. District Court — Eastern District of Arkansas

115 F. 171

AMERICAN WATERWORKS & GUARANTEE CO. v. HOME WATER CO. et al.

United States Circuit Court, E.D. Arkansas, Western Division.

March 26, 1902

J. M Moore and W. B. Smith, for complainant.

W. J Terry, W. L. Terry, and Morris M. Cohn, for city of Little Rock.

The complainant, the American Waterworks & Guarantee Company, a corporation organized under the laws of the state of New Jersey, filed its bill against the Home Water Company and Arkansaw Water Company, corporations organized under the laws of the state of Arkansas, and having their principal places of business in the city of Little Rock, in this district, the Farmers' Loan & Trust Company, a corporation organized under the laws of the state of New York, and the city of Little Rock, a municipal corporation organized under the laws of the state of Arkansas, and located in this district, and alleged: That on December 9, 1880, and at divers times thereafter, the city council of the city of Little Rock under and by virtue of authority conferred upon it by the statutes of the state of Arkansas, adopted various ordinances, granting to the Home Water Company the franchise right, and privilege of erecting and maintaining a system of waterworks in the city of Little Rock, and fixing the price to be paid by the city for water used by the city; also the pressure to be maintained, the kind of water to be used, etc. The Home Water Company, in the manner provided by law, accepted the said ordinances, and they became contracts between the city and the said water company. The ordinance adopted by the city council on November 3, 1885, provided, among other things, for an extension of the original franchise for the term of 50 years from the date of the passage of said ordinance, instead of 25, as at first provided; and the ordinance of August 1, 1892, fixed the rental price of fire hydrants to be paid by the city at $50 each per annum. That the Home Water Company performed all the provisions contained in the several ordinances and contracts, and expended large sums of money in carrying out said contracts and in improving its plant and facilities for furnishing the city with pure water, all of which was done with the full knowledge and under the direction and requirements of the city council, which possessed full power to enter into the aforesaid contracts. During the time the Home Water Company was engaged in making said improvements the city paid the hydrant rental agreed upon, and in all respects carried out the contracts according to the terms thereof, and insisted upon the due and prompt performance by the said water company of all its undertakings under said contracts. That, in order to enable the Home Water Company at all times to carry out its contracts with the city of Little Rock, the said Home Water Company procured the Arkansaw Water Company to construct the reservoirs and other improvements necessary, and to store for and deliver to the said defendant sufficient water, of suitable quality, to meet all requirements, and in consideration of said undertakings the Home Water Company executed to the Arkansaw Water Company a mortgage of its property, plant, and franchises, and assigned to it all the income and revenues that might accrue from the operation of its water plant. In order to obtain means to make the improvements above referred to and other improvements and extensions which became necessary, the Arkansaw Water Company executed and negotiated, at different times, 2,000 bonds, aggregating $2,000,000, and to secure the same executed deeds of trust to the Farmers' Loan & Trust Company, as trustee, conveying to said company all its waterworks and property in and near the city of Little Rock, and all revenues, rents, income, and profits, including all revenues and income that may accrue from and under the franchise and contracts granted by the city of Little Rock to the Home Water Company. In order to better secure the bonds and mortgages, the Arkansaw Water Company procured the complainant to guaranty the payment of the principal and interest of said bonds. Of these bonds, $1,500,000 are now outstanding, and $850,000 are held in trust by the trustee to provide for future extensions and improvements in the plant of said company. That, after the execution of the deeds of trust above mentioned, the Home Water Company conveyed to the Farmers' Loan & Trust Company its waterworks in and near the city of Little Rock, together with all land, machinery, outfits, etc., and rents, privileges, and franchises, under ordinances passed by the city of Little Rock, and all rights, rights of action, incomes, revenues, and profits from any source whatsoever, in trust for the uses and purposes, and upon the conditions set forth and contained in the deed of trust executed by the Arkansaw Water Company to the said Farmers' Loan & Trust Company. And the said Arkansaw Water Company executed a deed in fee simple absolute to the Home Water Company, conveying all of its property, rights, and income.

It is further alleged that, during the time of the execution of the mortgages and the issuance of the bonds referred to, the city of Little Rock paid the hydrant rental provided in the contracts, and never at any time questioned the validity of any of said contracts; and the said mortgages and bonds were executed and delivered by the Arkansaw Water Company, the trust accepted by the Farmers' Loan & Trust Company, and the guaranty made by the complainant, in full faith and belief that all of the said contracts were valid and binding that there was no claim on the part of the city that said contracts were invalid on account of any defect of power or want of authority on the part of the city in executing the same, or that they were subject to change without the consent of the parties thereto. That the city has violated the contracts previously referred to, by asserting the same to be of no force and effect, and by declaring them to be forfeited for pretended noncompliance on the part of the Home Water Company with the terms of said contracts, without any previous notice to the said company, and the city has since refused to carry out said contracts or recognize them as binding, and has refused to make any payments under the contracts since June 30, 1809, thereby depriving the Home Water Company of its property, to wit, the unpaid rentals owing by the city, and the rights, privileges, and franchises enjoyed by said company, without due process of law, in violation of the provisions of section 10, art. 1, of the constitution of the United States, and of the provisions of section 1 of the fourteenth amendment to the constitution of the United States. But such acts and conduct the said city has injured the complainant and the Farmers' Loan & Trust Company by impairing their rights in the property as security and indemnity under the conveyances in trust mentioned previously. The city claims that the contract of November 3, 1885, is not binding upon it, as the city council has no power to enter into a contract that would bind succeeding councils for a term of 50 years, and that the hydrant rental provided in the contract of August 1, 1892, is excessive, and the city claims the right to revise the rates without the consent of the other contracting party, and refuses to pay the hydrant rental or perform its contract in any manner, although the Home Water Company has continued to render the service and supply water according to the terms of the contracts. The city sometimes claims that the Home Water Company has not performed its contract by furnishing pure water, and sometimes that it has not maintained the pressure called for by the contracts, but that such claims are untrue, and were not made in good faith, but are made for the purpose of carrying out the intention of the city to repudiate said contracts, and to force the Home Water Company to enter into a new contract, with the city. Among other things, said city, in further pursuance of its aforesaid design, through the board of public affairs and the fire committee, created by and representing the city council, did on February 26, 1900, cause a notice to be served on the Home Water Company, in words and figures as follows, to wit: 'Some days ago the board of public affairs and fire committee of this city, in accordance with the recommendations of Hiram Phillips, hydraulic engineer, requested of you that you at once put in larger mains on Lincoln avenue, and certain part of Main and Seventh streets. Since this, the city council has, by resolution, signified its desire that the whole question of your contract with the city should be thoroughly looked into, and has authorized the city attorney to employ an assistant for this purpose, if he so desired. In view of this, the board of public affairs desire that you take no further action on its request above referred to, unless upon your own motion, and without our waiving any right to insist upon a forfeiture of your charter and contract. With the present lights before us, the best course to be pursued is that the city is to insist that the contract existing between your company and it is no longer binding and enforceable upon it. We have repeatedly notified you, and do now, that you have not maintained a constant and average pressure as required by your contract; you have not furnished a full and adequate supply of water for the extinguishment of fires; you have not secured nor constantly maintained a supply of pure and wholesome water fit for domestic and manufacturing purposes; you have not maintained your pipe connections and machinery so that direct pressure could be given; your water mains have not been of sufficient capacity to meet the requirements of your contract; you have required the citizens to pay...