City of Hillsboro v. Public Service Commission of Oregon

• Decision Date: 17 February 1920
• Citation: 97 Or. 320,187 P. 617
• Parties: CITY OF HILLSBORO v. PUBLIC SERVICE COMMISSION OF OREGON ET AL.
• Court: Oregon Supreme Court

187 P. 617

97 Or. 320

CITY OF HILLSBORO v. PUBLIC SERVICE COMMISSION OF OREGON ET AL.

Supreme Court of Oregon

February 17, 1920

In Banc.

Appeal from Circuit Court, Washington County; George R. Bagley Judge.

Suit by the City of Hillsboro against the Public Service Commission of Oregon and the North Coast Power Company. From decree dismissing the suit, plaintiff appeals. Affirmed.

This is a suit by the city of Hillsboro to set aside an order of the Public Service Commission, and to enjoin the North Coast Power Company from collecting rentals for fire hydrants in the city of Hillsboro. The substantial facts as recited in the complaint are that on September 7, 1909, plaintiff, by ordinance, entered into a contract with the Hillsboro Water Light & Power Company, whereby a franchise was granted to the latter to use the streets and alleys of the city for laying water mains and service pipes, and to erect and maintain poles, wires and fixtures therein for conducting electricity and the grantee thereafter laid its pipes, erected its poles and placed its wires and equipment for the purpose of supplying the city and its people with electric lights and water, and engaged in selling water to the general public as a public utility within the city. Thereafter the Hillsboro Water, Light & Power Company sold its franchise and other property to the Washington-Oregon Corporation, which later transferred its interests to the defendant North Coast Power Company. Each of these several public service corporations in turn, accepted and operated under the franchise which, among others, contained the following clause:

"The grantee shall also install, free of cost to the city of Hillsboro, as many single or double hydrants of standard make and size as shall be ordered by said city, at such places as the city may hereafter designate, and shall maintain and keep the same in repair. The city shall pay to grantee, for a period of five years from the date of acceptance of this ordinance, a rate of $1.00 per calendar month for each fire hydrant installed and maintained in said city, and after said five year period expires, grantee shall maintain all hydrants, and install new hydrants, free of cost to the city."

The power of the municipality to enter into the franchise contract is found in the following provision of its charter:

"The city council shall have power within the city of Hillsboro * * * to make provisions for lighting the city and providing the city with light and to contract with any person, persons or corporation therefor; to make provisions for providing the city with water and fire protection, sewers and street sprinkling and to contract with any person, persons or corporation therefor."

During the year 1918, the defendant North Coast Power Company applied to the Public Service Commission of Oregon for permission to charge the city of Hillsboro $5 per month for each and every hydrant installed within the city of Hillsboro. Thereafter a hearing was had before the Public Service Commission, at which the parties appeared by their several attorneys, and thereafter the commission made its findings of fact and the following order:

"It is therefore ordered that the North Coast Power Company be and is hereby authorized to discontinue free hydrants and water therefor to the city of Hillsboro for fire protection purposes, and that in lieu thereof it shall charge for such service at the rate of $3.50 per month per hydrant now connected for said city of Hillsboro, a reasonable date for this order to become effective is November 1, 1918."

The complaint alleges that the Public Service Commission was without jurisdiction to make this order, because, in entering into the contract, the city was acting in its proprietary capacity, and that, if the Public Utilities Act attempts to authorize such action, then the act is in violation of section 10 of article 1 of the Constitution of the United States, relating to the impairment of the obligations of contracts, and contrary to the provisions of section 1a of article 4 and section 2 of article 11 of the Constitution of Oregon. That said order is void because the Public Utilities Act is not retroactive. Each of the defendants filed a demurrer to this complaint upon the ground that it does not state facts sufficient to constitute a cause of suit. The demurrers having been sustained by the trial court, the plaintiff declined to plead over, and a decree was entered dismissing the suit, from which plaintiff appeals.

S. B. Huston, of Portland, for appellant.

J. O. Bailey, Asst. Atty. Gen. (George M. Brown, Atty. Gen., on the brief), for respondent Public Service Commission.

C. A. Hart, of Portland, and E. M. Hayden, of Tacoma, Wash. (Carey & Kerr, of Portland, and Hayden, Langhorne & Metzger, of Tacoma, Wash., on the brief), for respondent North Coast Power Co.

BENSON, J. (after stating the facts as above).

Plaintiff bases its argument in support of the sufficiency of the complaint, upon the answers to four questions which its able counsel formulates thus:

"First. Did the ctiy of Hillsboro have authority to make the contract?

"Second. Was the contract involved herein a matter in which the general public is concerned, or, in other words, is it a rate-making contract?

"Third. Was the contract involved in this case made by the city in its governmental capacity, or in its proprietary capacity?

"Fourth. If this contract was entered into by the city in its proprietary capacity, has the Public Service Commission authority to interfere with it?"

As regards the first of these questions, it may be remarked that the defendants do not seriously question the fact that, when the franchise was granted by the city and accepted by the public service corporation, it was a valid contract, and for the purpose of this discussion it may be conceded.

The remaining questions are so interdependent as to be beyond the reach of a practicable separate consideration. Counsel for plaintiff argues that the power to provide a water system is not governmental, but strictly proprietary, and cites in support of this premise Tone v. Tillamook City, 58 Or. 386, 114 P. 940. In that case Mr. Justice McBride, for the court, says:

"The power to provide a water system is not governmental nor legislative in its character, but strictly proprietary, and the city, when engaged in prosecuting such an improvement, is clothed with the same authority and subject to the same liabilities as a private citizen."

In support of this doctrine the opinion from which we quote cites the frequently approved case of Esberg Cigar Co. v. Portland, 34 Or. 282, 55 P. 961, 43 L. R. A. 445, 75 Am. St. Rep. 651. Both of these cases are clearly distinguishable from the present controversy, by the controlling fact that in each of them the municipality was the owner of the water system, and was engaged in operating it for profit, and in neither case did the city occupy the position of7 a customer. The distinction between such a case and one in which the city, like its inhabitants, is a customer, is expressly recognized in the statute creating the public service commission, in section 1 of which we find this language:

"No plant owned or operated by a municipality shall be deemed a public utility under or for the purposes of this act." Laws 1911, p. 483.

It does not follow, therefore, that every contract for securing the service of a public necessity is exclusively proprietary in its nature. The twofold character of many of such contracts is clearly indicated by the following excerpt from section 1303, 3 Dillon on Municipal Corporations:

"No uniform rule can be applied to all the circumstances in which the municipality acts under power to furnish water or light, or to contract therefor. Thus, when it is sought to charge the municipality with responsibility for property destroyed through failure to exercise its power to furnish water for fire protection or for negligence in the exercise of the power, it has been repeatedly said that the grant of power must be regarded as exclusively for public purposes, and as belonging to the municipal corporation, when assumed, in its public, political, or municipal character. Similarly, in

...