City of Covington v. Sanitation Dist. No. 1 of Campbell and Kenton Counties

• Decision Date: 03 May 1957
• Citation: 301 S.W.2d 885
• Court: Supreme Court of Kentucky
• Parties: CITY OF COVINGTON, Kentucky, et al., Appellants, v. SANITATION DISTRICT NO. 1 OF CAMPBELL & KENTON COUNTIES, KY., et al., Appellees.

Page 885

301 S.W.2d 885

CITY OF COVINGTON, Kentucky, et al., Appellants, v.SANITATION DISTRICT NO. 1 OF CAMPBELL & KENTON COUNTIES KY., et al., Appellees.

Court of Appeals of Kentucky.

May 3, 1957.

Stanley Chrisman, Ralph P. Rich, Edward H. Walton, James C. Ware, Melvin T. Stubbs, Covington, for appellants.

Stanley C. Moebus, Newport, C. W. Grafton, Louisville, Marion W. Moore, Covington, Albert C. Keeler, Cincinnati, Ohio, for appellees.

MOREMEN, Judge.

Sanitation DistrictNo. 1 of Campbell and Kenton Counties(called 'district') was created pursuant to Chapter 220 of Kentucky Revised Statutes by petition of about seventeen incorporated areas and communities located in northern Kentucky.Several of the larger cities, such as Newport and Covington, had existing sewer facilities and, in all, there were about 33,000 property owners who had connections with them.The big problem, however, was the collection and disposal of sewage.Separate undertakings to accomplish this end would have required a tremendous outlay of money and, therefore, as a community project, the several cities undertook, by the creation of this district, to accomplish, by joint action at a lesser expense, the task of sewage disposal by modern methods.

After proper incorporation of the district as a separate municipal corporation, and with permission of the chief sanitation engineer in the department of health of this state, the district began to function.In 1952, $7,600,000 worth of revenue bonds were issued and the proceeds were used to construct intercepting sewers, sewage pumping stations, force mains and a sewage treatment plant.

The effluent from the treatment plant was to be emptied into the Ohio River.By these means it was anticipated that the sewage disposal would be facilitated and the obnoxious practice of dumping raw sewage into the Ohio River would be eliminated.

The various parts used in the collection of sewage were installed and, in July 1954, the treatment plant located at Bromley was put in operation.This plant was faulty in construction and, in October of the same year, interested parties obtained an injunction against the district which prohibited the use of the plant until the mechanical defects and faulty design were corrected.It was necessary then to bypass the plant, and sewage without treatment was dumped into the Ohio River.

Engineers skilled in the construction of sewage systems were employed and the district has endeavored to correct the structural defects.To date, this has not been accomplished.The remainder of the newly constructed system, however, is in operation and charges have been assessed against the various users.

The question which we have before us on this appeal arises out of the application of KRS 220.510, a fragment of which reads:

'* * * In case of failure of any user to pay for services rendered, the board may compel payment and may enjoin further use until the payment is made, or it may institute an action in any court having jurisdiction for the recovery of charges for services rendered, or the board, may, by a notice in writing, signed by its chairman or any member of said board, notify the municipality, or the person, firm, or corporation which furnishes water to the user's premises, to shut off the water service to said user's premises, until such time as all delinquent charges, plus a reasonable charge for turning off and on the water service, against said user, are paid in full.Upon receipt of such notice in writing, the municipality, or the person, firm, or corporation, which furnishes water to the said user's premises, shall immediately shut off and discontinue the water service to the said user's premises. * * *'

A number of persons refused to pay bills submitted by the district for sewer service and the district gave notice to one of the municipalities, the city of Covington, that a user was delinquent in the payment of his sewer charges and requested the city to shut off water service until such time as the charges were paid.The city refused to do so upon the ground that the statute above quoted was in violation of the Constitutions of the State and the United States.

We think it unnecessary to outline in detail the various parties to this suit who were drawn in as individuals or as representatives of a class because no contest is had here concerning our jurisdiction to decide the issues presented.However, we have a representative for four separate bond issues while the city of Covington had issued in order to obtain capital for the benefit of its water system and these bonds were to be paid out of revenue.There is a 1955 issue of $450,000 water works and sewer revenue bonds; a 1953 issue of $250,000; a 1938 issue of $85,000; and a 1935 issue of $445,000.These bonds, as we have indicated, are revenue bonds to be paid out of operation revenues and in each ordinance is the customary pledge to impose a sufficient rate to pay principal and interest as they become due.In the last issue, 1955, is the additional safeguard that if the water revenue proved insufficient, the city pledged itself to impose a sewer service charge.This party is specifically mentioned because he has raised, in behalf of the bondholders, a constitutional question that requires considerable discussion.

Appellants contend that the statute(KRS 220.510) is unconstitutional in that

(a) it impairs the obligation of the contract between the city and its water customers and,

(b) it discriminatorily permits the district to select one or more of the city's water customers against whom to exercise the remedy of cutting off the water supply and to exclude other users from the same action, and

(c) it impairs the obligation of the contract between the city and its water works revenue bondholders.

Appellants' arguments are based mainly upon the 'contract clause' found in Article I, Section 10, of the United States Constitution, andSection 19 of the Constitution of this Commonwealth.The inclusion of the clause in the Federal Constitution resulted from the fear that the then existing financial condition of the country would produce widespread enactment of state laws for the repudiation of both public and private debts.Rottschaefer on Constitutional Law, page 558.The protection of the clause extends to contracts between a state (or subdivisions thereof) and a private person, and to those between private persons.

The 'obligation' of a contract has been defined as 'the law which binds the parties thereto to the performance of their agreement.'Sturges v. Crowninshield, 4 Wheat. 122, 4 L.Ed. 529.

It is an accepted principle that included in the terms of contracts are the laws which subsist at the time and place of the making of the contract, and where it is to be performed, as if they were expressly incorporated in its terms and, as stated in Home Building & Loan Ass'n v. Blaisdell, 290 U.S. 398, 54 S.Ct. 231, 237, 78 L.Ed. 413, 88 A.L.R. 1481:

'The obligations of a contract are impaired by a law which renders them invalid, or releases or extinguishes them (Sturges v. Crowninshield, supra, 4 Wheat. at pages 197, 198, 4 L.Ed. 529), and impairment, as above noted, has been predicated of laws which without destroying contracts derogate from substantial contractual rights.'

It may be noted that not only must an alleged impairment be substantial, but there are several exceptions to the immunity granted by the 'contract clauses,' for example, the contracts are subject to the right of eminent domain.West River Bridge Co. v. Dix, 6 How. 507, 12 L.Ed. 535;City of Cincinnati v. Louisville & N. R. Co., 223 U.S. 390, 32 S.Ct. 267, 56 L.Ed. 481.

The second limitation upon the protective scope of the contract clause exists in the fact that a state may affect certain prior contracts by subsequent legislation if it has reserved the power to do so by appropriate constitutional or legislative enactments existing at the time the contracts were made, Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, 4 L.Ed. 629, Greenwood v. Union Freight Co., 105 U.S. 13, 26 L.Ed. 961.Into the category of reserve power, the courts have read the right to protect the public health or public morals, Douglas v. Commonwealth of Kentucky, 168 U.S. 488, 18 S.Ct. 199, 42 L.Ed. 553; the control by the state of the sale of intoxicating liquors, Boston Beer Co. v. Commonwealth of Massachusetts, 97 U.S. 25, 24 L.Ed. 989; protection against nuisances despite the existing contracts, Northwestern Fertilizing Co. v. Hyde Park, 97 U.S. 659, 24 L.Ed. 1036; public safety, Chicago B. & Q. R. Co. v. State of Nebraska, 170 U.S. 57, 18 S.Ct. 513, 42 L.Ed. 948.Taxes, we suppose, need no supporting authority.

The exception which has been many times invoked by the courts, which resembles to some extent the reserve power theory, is found in the principle that the inclusion of existing laws into a contract, at the time it is made, carries with it also the general principle that those relationships defined by the contract are subject to change by subsequent legislation under a reasonable exercise of the state's police power.In this instance, the broad term, police power, is concerned with the public health and the general welfare of the community.The determination of the question of whether the state has properly exercised this power will be decisive of the case at bar.

In Nourse v. City of Russellville, 257 Ky. 525, 78 S.W.2d 761, 765, this court firmly placed legislation affecting sanitary systems of sewage disposal in the last class above mentioned, saying:

'The science of sanitation has developed and taught much in recent years.It has demonstrated that nothing contributes more to secure the preservation of public health than a sanitary system of sewerage disposal, whether it be the...