Cedar Rapids Water Co. v. City of Cedar Rapids

• Decision Date: 27 October 1902
• Citation: 118 Iowa 234,91 N.W. 1081
• Parties: CEDAR RAPIDS WATER CO. v. CITY OF CEDAR RAPIDS.
• Court: Iowa Supreme Court

118 Iowa 234

91 N.W. 1081

CEDAR RAPIDS WATER CO.

v.CITY OF CEDAR RAPIDS.

Supreme Court of Iowa.

Oct. 27, 1902.

Appeal from district court, Linn county; W. N. Treichler, Judge.

Action in equity to restrain enforcement of a city ordinance. The district court entered a decree as prayed, and defendant appeals. Reversed.John N. Hughes, J. W. Jamison, and E. H. Crocker, for appellant.

Chas. A. Clark & Son and Wm. G. Clark, for appellee.

WEAVER, J.

The plaintiff alleges that it is a corporation organized for pecuniary profit under the laws of this state; that on February 19, 1875, the defendant, by its council, adopted an ordinance granting to the plaintiff the exclusive privilege for 25 years, and an equal right thereafter with others, of furnishing the city with a water supply; that by its terms said ordinance was made a contract between plaintiff and defendant, and was not subject to change or amendment without mutual consent; that, under the statute then existing, the city had no right or power to fix or regulate the rates to be charged by the water company to private consumers; that on March 8, 1876, the legislature of the state passed an act legalizing the ordinance aforesaid, and declaring it binding and effective for all the purposes therein expressed; that, proceeding under its said contract, plaintiff constructed and installed waterworks and improvements to the aggregate cost of over $400,000, and that the property so created represents a present value of over $500,000; that on June 8, 1900, the city, by its council, wrongfully and without consent of plaintiff passed an ordinance fixing a schedule of rates above which defendant should not be allowed to charge or receive compensation for water service furnished to private consumers; that the rates so fixed are not compensatory, and are wholly insufficient to pay necessary expenses and charges and return any adequate or reasonable profit upon the investment made in the works, and said ordinance is therefore unreasonable, and has the direct effect to deprive plaintiff of its property without due process of law, and to deny to plaintiff the equal protection of the law, in violation of the fourteenth amendment to the constitution of the United States. Upon these and other allegations of the same general tendency, plaintiff asks that said ordinance last named be declared void, and its enforcement enjoined. The defendant admits the passage of the ordinance of February 19, 1875, constituting the contract between the parties, as well as the ordinance of June 8, 1900, the validity of which is assailed by the plaintiff, and admits the construction and operation by plaintiff of a system of waterworks in said city, but denies that its cost or present value exceeds $300,000. It further answers that the rates for water service, as fixed by the later ordinance, are reasonable, and sufficient to furnish plaintiff full compensation for the service so rendered, and return a fair profit upon the investment represented by the works. Defendant denies that there is now any contract existing between it and said water company, and says that the franchise of the plaintiff expired on February 19, 1900, and that all contractual relations theretofore existing between the parties were then terminated, and that since said date the plaintiff has occupied the streets of the city by sufferance only, and without right, and cannot complain of the conditions which may be imposed by the city upon its further occupancy. Upon the issues thus joined, a large amount of testimony was taken, and the court found and adjudged that the rates fixed by the ordinance of June 8, 1900, were insufficient to afford a fair and reasonable return upon the investment represented by the waterworks, and that the defendant should be enjoined from enforcing the same. From this adjudication, the defendant appeals.

The arguments of counsel are largely devoted to the following questions: (1) Was the right which the plaintiff acquired under the ordinance of 1875 to furnish the city water supply a franchise? (2) Did such right or franchise expire at the termination of the 25-year period named in the ordinance? (3) Does the legalizing act of March 8, 1876, give plaintiff any other or greater right than was originally conferred by the ordinance? (4) May the defendant in this proceeding deny the present existence of such right or franchise in the plaintiff? (5) Has the city any power to regulate the rates which may be levied by the water company? (6) Are the rates prescribed by the ordinance of 1900 reasonable? These and minor questions which naturally cluster around them we will now proceed to consider so far as it is necessary to a disposition of defendant's appeal.

1. The term “franchise” is defined in various ways, and its meaning depends more or less upon the connection in which the word is employed. Without going into any extended research as to its origin, it may be said that a franchise is a special privilege conferred by governmental authority upon individuals, and which does not belong to citizens of the country generally, as a matter of common right. It is also to be regarded as a generic term covering all rights granted to a corporation by legislative act or statute. See “Franchise,” And. Law Dict. A corporation (by which is meant an association of individuals organized into a body lawfully exercising corporate powers) is itself a franchise, and the different powers which may be exercised by the corporation are also franchises. In the first illustration above used, the franchise is the privilege held by the individual members to be a corporation and exercise corporate powers; and in the second, the franchise is the privilege which is granted to the corporation when organized to perform certain acts or to carry on certain business. The word is also often used with special reference to a privilege granted by the state, or by some minor municipality acting under the authority of the state, to conduct a business of public utility,--such, for instance, as supplying the public with water, light, transportation, and other conveniences. It follows, then, without argument, that under the ordinance of 1875 the plaintiff obtained a privilege which may properly be called a “franchise,” in the common acceptance of that term; that is, the right or privilege of supplying the city of Cedar Rapids and its inhabitants with water, and of occupying the streets of the city for that purpose. It must be said, however, that plaintiff's privilege of supplying the city with water is not, in the strict sense of the word, a “corporate franchise”; that is, it is not a privilege derived from or obtained by the act of incorporation. Its charter rights and privileges are such only as come to it through its organization under the general corporation law, and did not and could not include the right to furnish water to the defendant city. Such right could only be acquired after the incorporation was accomplished, and by the agreement and consent of the city. True, the grant of corporate capacity was from the state, and the subsequent grant from the city may be said theoretically to have been also from the state. But the city was under no legal obligation to make the grant, and might have refused it without in any manner affecting the plaintiff's corporate rights, powers, or franchises. By making the grant it gave the plaintiff what may be called an “additional franchise or privilege.” See Bridge Co. v. Prange, 35 Mich. 400, 24 Am. Rep. 585. And like other franchises, it constituted a contract between the parties, having in general the same incidents and subject to the same interpretation which would obtain between other contracting parties. It is not, however, a matter of vital importance by what name we call the right obtained by plaintiff. The defendant, as we understand, concedes that the plaintiff did obtain a grant--whether it be called a “franchise,” “privilege,” or “license”--to supply the city with water for 25 years; and the question sought to be raised is whether that right still exists, and, if it exists, whether plaintiff is entitled to the relief demanded.

2. Does the franchise or privileges conferred upon the plaintiff to furnish the city water supply remain effective after the expiration of the period of 25 years? The law under which cities and towns were acting at the date of the ordinance of 1875 provided that, when the right to build and operate waterworks was granted to private individuals or corporations, such grant should be made “to inure for a term of not more than twenty-five years.” Code 1873, § 473. The word “inure,” in the sense here employed, is defined, “To take or have effect; to operate.” And. Law Dict. Section 1 of the ordinance of 1875 described the franchise granted as being “the exclusive privilege for twenty-five years and an equal right thereafter with all others of supplying the city of Cedar Rapids with water.” Section 2 of the same ordinance provided that the water company should “have during said term of twenty-five years the right to use any street, avenue or lane for the purpose of laying down pipes or other fixtures for conveying and distributing water.” In view of the statutory limitation above quoted upon the power of cities and towns to enter into such contracts and make such grants, it would seem too clear for argument that so much of the ordinance of 1875 as attempts to extend the grant thereby made beyond the term of 25 years is void. That a contract made in violation of law cannot be enforced, is elementary. The same is true of any contract of a municipal corporation for which there is no express or implied statutory authority. City of Somerset v. Smith (Ky.) 49 S. W. 456;Logan v. Pyne, 43 Iowa, 524, 22 Am. Rep. 261;Becker v. Waterworks, 79 Iowa, 422, 44 N. W. 694, 18 Am. St. Rep. 377;Clark v. City of Des Moines, 19 Iowa, 199, 87 Am. Dec. 423;McPherson v. Foster, 43 Iowa,...