City of Texarkana v. Wiggins

• Decision Date: 06 February 1952
• Docket Number: No. A-3273,A-3273
• Citation: 151 Tex. 100,246 S.W.2d 622
• Parties: CITY OF TEXARKANA v. WIGGINS et al.
• Court: Texas Supreme Court

Page 622

246 S.W.2d 622

151 Tex. 100

CITY OF TEXARKANA v. WIGGINS et al.

No. A-3273.

Supreme Court of Texas.

Feb. 6, 1952.

Rehearing Denied March 26, 1952.

Norman C. Russell, City Atty., and John D. Raffaelli, Texarkana, for petitioner.

Brown & Brown, Texarkana, for respondents.

SMITH, Justice.

Respondents, all nonresidents of the City of Texarkana, Texas, filed this suit against petitioner, the City, seeking to enjoin it in the operation of its municipally-owned water and sewer systems from charging nonresidents higher water and sewer rates than those paid by persons residing within the corporte limits of the city.

The trial court rendered judgment for petitioner, the judgment reciting that the court heard sufficient evidence to determine the case on its merits. This judgment was reversed and the cause remanded by the Court of Civil Appeals. 239 S.W.2d 212. The case is before us on writ of error.

Prior to August, 1948, the City of Texarkana, Texas, and surrounding territory, was served by the American Water Works, Inc., a privately-owned utility corporation. At that time the petitioner purchased from this utility corporation all its property serving the city and surrounding territory, payment being made with proceeds derived from the sale of revenue bonds previously authorized by vote of the citizens of the city. An ordinance of the city, enacted on August 27, 1948, adopted for the municipally owned utility the schedule of rates theretofore charged by the American Water Works; this schedule of rates remained in effect until August 8, 1950. The system of rates charged by the American Water Works was, of course, nondiscriminatory in that both residents and nonresidents were charged the same rate for service.

On August 8, 1950, petitioner passed an ordinance providing that water service to nonresident consumers would be furnished at one and one-half times the rate which applied within the corporate limits of the city. The ordinance further provided that sewer service to nonresident users would be furnished 'at a rate double the rate applying within the city limits.' A water tapping charge for al connections to the water system for residential use outside the city was fixed at $50; the water tapping charge for users within the city was set at $10 on unpaved streets, and $15 on paved streets.

Respondents are all residents of the City of North Texarkana, Texas, which adjoins the petitioner on the north. The east-west streets in the City of Texarkana, Texas, are numbered consecutively, beginning with 1st Street in the business district of the City of Texarkana, Texas, and continuing to 36th Strrt in the City of North Texarkana. The line marking the corporate limits of the City of Texarkana, Texas, lies in the center of 29th Street. The north-south streets, which continue through both cities, bear the same names throughout their entire lengths. In short, the geographical line upon which the rate differentiation is based is an arbitrary line marking the limits of a political subdivision.

Petitioner contends that it is under no legal duty to furnish water and sewage disposal service to the respondents; that if it does furnish such service to respondents it is under no legal duty to charge the respondents the same rate as is charged residents, but that it may make such charge as appears to be for the best interest of the City of Texarkana, Texas. This latter contention is based upon the provisions of Article 1108, section 3, R.C.S. of Texas, Vernon's Ann.Civ.St. art. 1108, subd. 3, which provides:

'Any town or city in this State which has or may be chartered or organized under the general laws of Texas, or by special Act or charter, and which owns or operates waterworks, sewers, gas or electric lights, shall have the power and right:

'3. To extend the lines of such systems outside of the limits of such towns or cities and to sell water, sewer, gas, and electric light and power privileges or service to any person or corporation outside of the limits of such towns or cities, or permit them to connect therewith under contract with such town or city under such terms and conditions as may appear to be for the best interest of such town or city; provided that no electric lines shall, for the purposes stated in this section, be extended into the corporate limits of another incorporated town or city.'

Respondents contend that the city in operating its water and sewer systems is acting in its proprietary capacity, that it is subject to the same rules and regulations as privately-owned utility corporations engaged in the same or similar business, and that the rates established by the ordinance of August 8, 1950, being discriminatory, are void and their collection should be enjoined.

We cannot agree with petitioner's contention that this statute is sufficient to authorize it to charge a discriminatory rate for utilities furnished to nonresidents than to its residents. Under the facts in this case, the city has dealt with the residents and nonresidents as one class or unit. The ordinance under consideration recites that the city has purchased and is now maintaining and operating within and without the limits of said city a municipal water system. Since 1948 the same rates have been charged consumers living within and without the city. No other utility exists within the area to furnish water and sewer service.

The common-law rule that one engaged in rendering a service affected with a public interest or, more strictly, what has come to be known as a utility service, may not discriminate in charges or service as between persons similarly situated is of such long standing and is so well recognized that it needs no citation of authority to support it. The economic nature of the enterprise which renders this type service is such that the courts have imposed upon it the duty to treat all alike unless there is some reasonable basis for a differentiation. Statutes have been enacted in almost every state making this common-law rule a statutory one. Pond, Public Utilities (4th. ed. 1932) sections 270-275. Hence, the American Water Works was required to, and did, render service to respondents at the same rate as was charged within the corporate limits of petitioner.

It is settled in this state that the petitioner, upon the purchase by it of the property of the privately-owned utility, was subject to this same rule prohibiting unreasonable or unjustified discrimination in rates and service. City of Galveston v. Kenner, 1922, 111 Tex. 484, 240 S.W. 894; Houston v. Lockwood Investment Co., Tex.Civ.App.1912, 144 S.W. 685, writ dis'm; Highland Park v. Guthrie, Tex.Civ.App.1925, 269 S.W. 193, writ refused. This same rule prevails in many other states. 43 Am.Jur. 684, section 172; 50 A.L.R. 126.

Admittedly these cases do not settle the particular question before us; they announce the broad common-law principle that a municipality may not unreasonably discriminate in rates and charges and they do not determine the further question whether or not different rates based on nothing more than the limits of a municipal corporation are unreasonably discriminatory. These cases are authority, however, for at least this much: in the absence of (1) a showing that the discrimination has a reasonable basis or (2) a statute to the contrary, a municipality may not discriminate in charges or service as between those similarly situated. Many decisions have transported the concept of proprietary capacity, as distinguished from governmental capacity, from the cases involving the liability of a governmental unit for the torts of its agents to these decisions involving the duty of a municipality to offer its utility service at nondiscriminatory rates and have found in this concept a basis for the rule set out above. The concept of proprietary capacity is, however, hardly helpful in this situation. The real reason for the rule that, in so far as treatment of consumers is concerned, the municipally-owned utility is no different from the privately-owned utility is that the economic nature of the business has not changed; it remains a monopoly in spite of the change in ownership.

The change from private to public ownership may, in theory at least, eliminate or lessen the profit motive, but the consumer of utility services still cannot pick and choose his supplier of water as he does his grocer. The utility consumer is thus at the mercy of the monopoly and, for this reason, utilities, regardless of the character of their ownership, should be and have been, subjected to control under the common-law rule forbidding unreasonable discrimination.

We do not pass upon the question whether the petitioner is under a legal duty to serve respondents with water and sewage disposal, nor do we pass on the question whether the rates charged by petitioner, whether within or without its corporate limits, are required to be 'reasonable' as that term is understood in public utility parlance (i. e., a 'reasonable' rate yields 'a fair return on fair value'). But assuming that petitioner has no duty to serve, it does not follow, under the common-law rule at least, that having elected to serve it may do so on such terms as it chooses to impose. The contention that the petitioner, being under no legal obligation to serve, may do so on such terms as it chooses to impose brings before us a familiar argument in a new guise. It is the old, and logically appealing, argument that the greater includes the lesser power, that a governmental unit having the greater power of granting or withholding a privilege or service it perforce must have the lesser power of offering the privilege or service on whatever terms it may impose. That this is not necessarily true is demonstrated in the doctrine of unconstitutional conditions. Of the many cases applying this doctrine Terral v. Burke Construction Co., 257 U.S. 529, 42 S.Ct. 188, 66 L.Ed. 352, 21 A.L.R. 186, and Western Union Telegraph...