Kansas City v. Industrial Gas Co.

• Citation: 28 P.2d 968,138 Kan. 755
• Decision Date: 27 January 1934
• Docket Number: 31304.
• Parties: KANSAS CITY v. INDUSTRIAL GAS CO. et al. [*]
• Court: United States State Supreme Court of Kansas

28 P.2d 968

138 Kan. 755

KANSAS CITY v. INDUSTRIAL GAS CO. et al. ^[*]

No. 31304.

Supreme Court of Kansas

January 27, 1934

Syllabus by the Court.

Where gas franchise ordinance was required to be accepted by grantee within 120 days after passage, acceptance within 60 days after election at which ordinance was adopted by voters held within time (Rev. St. 1923, 13-- 2801, subd. 6th).

Side agreements, not imbodied in gas franchise ordinance, that it should be effective only if grantee secured certificate of convenience and necessity to operate in another state, held ineffectual (Rev. St. 1923, 13-- 2801).

$50,000 provided in bond as liquidated damages for public utility's failure to carry out ordinance granting gas franchise held not "penalty," but reasonable "liquidated damages."

In an action on a bond, naming a sum as liquidated damages for failure to carry out the provisions of a city ordinance granting a franchise to a public utility, the record is examined and it is held: (1) That the ordinance was accepted within time; (2) that side agreements, not embodied in the ordinance, that it should be in force only in the event the grantee should secure a certificate of convenience and necessity to operate in another state, are ineffectual; (3) that the sum named in the bond was properly construed as liquidated damages; and (4) that it is not so excessive in amount that the court should say it is unreasonable.

Appeal from District Court, Wyandotte County, Third Division William H. McCamish, Judge.

Action by the City of Kansas City, Kan., against the Industrial Gas Company and another. Judgment for plaintiff, and defendants appeal.

Edwin S. McAnany, Maurice L. Alden, and Thomas M. Van Cleave, all of Kansas City, Kan., for appellant Industrial Gas Co.

Henry L. Jost, of Kansas City, Mo., for appellant National Surety Co.

C. A Randolph, Stanley Garrity, and Alfred Kuraner, all of Kansas City, Mo., of counsel.

Alton H. Skinner, John C. O'Brien, James K. Cubbison, and William H. Towers, all of Kansas City, Kan., for appellee.

HARVEY Justice.

This is an action on a bond given to secure the performance of obligations in an ordinance granting a natural gas franchise. The trail court sustained plaintiff's motion for judgment on the pleadings. Defendants have appealed.

Plaintiff alleged its incorporation and that of defendants; that on November 8, 1927, plaintiff passed a certain ordinance, which was approved by the mayor and duly published, and which was submitted to and adopted by the electors of the city at a special election for that purpose and held April 17, 1928 that the grantee named in the ordinance (as the ordinance specifically authorized him to do) assigned his interest to the defendant the Industrial Gas Company; that on June 25 1928, the Industrial Gas Company filed with the city clerk its written acceptance of the ordinance, and also executed as principal, and the National Surety Company as surety, its bond, sued on herein, in the sum of $50,000, and filed the same with the city finance commissioner, which acceptance and bond were received and duly approved. Copies of these instruments, and of the ordinance, are attached, as exhibits, and made part of the petition. The ordinance granted to one Knorpp the right, privilege, and franchise for a period of twenty years from the date of the acceptance of the ordinance, to construct and operate pipes, mains, and other necessary equipment for the supplying and distributing of natural gas for industrial purposes to the city and its inhabitants. It provided that within 120 days after the passage of the ordinance the grantee shall file with the city clerk his acceptance thereof in writing; that within 30 days after such acceptance the grantee agrees to begin the construction of a pipe line to transport natural gas to Kansas City, Kan., from the Amarillo, Tex., gas fields, and a system of pipe lines for the distribution of such natural gas to industrial users within the city, and to complete the pipe line and distribution system "within one year from the date of such commencement thereof, subject to extension of said time equalling delays *** caused by the acts of God, the elements, labor troubles, accidents, and any and all other causes not reasonably within the control of the grantee." That at the time of filing such acceptance the grantee shall file a bond, in the sum of $50,000, executed by an authorized solvent surety company, "conditioned that the grantee will within the time in this ordinance provided cause to be completed a pipe line to transport natural gas to Kansas City, Kansas, and begin the construction of a distribution system within said city for the transportation and distribution of natural gas to industrial users within said city as provided in section three (3) of this ordinance. Because of the difficulty of ascertaining and determining the actual damages which shall be sustained by said city in the event of failure of grantee to cause said pipe line and said distribution system to be built within the time herein specified, said sum of fifty thousand dollars ($50,000.00) is hereby agreed upon as liquidated damages which would in such event be sustained by said city."

Other sections of the ordinance contained appropriate provisions, not specially pertinent in this action. Section 10 sets out the rates to be charged consumers of gas; section 11 provides that the grantee, if requested by the city, will enter into an agreement to furnish gas for domestic use, at a stated price and under certain conditions; section 12 provides how contracts with consumers may be made at less than the scheduled rate; by section 13 the grantee agrees to pay $2,000 to the city annually during the life of the ordinance; section 14 contains a forfeiture provision; and by section 15, when the ordinance is accepted, the terms, provisions, obligations, and conditions thereof are binding on the acceptor, and his or its heirs, successors, and assigns. The provisions of sections 16, 17, and 18 are not especially pertinent here. By section 19 "the ordinance shall take effect and be in force from and after the expiration of sixty (60) days from its final passage and publication in the official city paper and its acceptance by the grantees as herein provided." The bond executed by defendants is in the sum of $50,000, conditioned that:

"Whereas, by the terms of Ordinance Number 23928, passed by the Board of Commissioners of Kansas City, Kansas on November 6, 1927, granting to John L. Knorpp, his heirs, successors and assigns, a natural gas franchise, in said Ordinance more fully described, it is provided that the grantee therein shall within thirty (30) days after the acceptance of said Ordinance by the grantee cause to be begun construction of a pipe line of at least twenty (20) inches in diameter to transport natural gas to Kansas City, Kansas, from the Amarillo, Texas gas fields, and a system of pipe lines for the distribution of said natural gas to industrial users within said City of Kansas City, Kansas, and that said pipe line and distribution system shall be completed within one year from the date of such commencement thereof, subject to an extension of said time equalling delays in such construction caused by the acts of God, the elements, labor troubles, accidents and any and all other causes not reasonably within the control of the grantee, and

"Whereas, The Industrial Gas Company, the principal named in this obligation, has acquired all the rights, powers and privileges of John L. Knorpp, named as original grantee in said Ordinance, and

"Whereas, said Industrial Gas Company has, concurrently with the filing of this bond with the Commissioner of Finance and Revenue of said Kansas City, Kansas, filed with the City Clerk of said Kansas City, Kansas, its acceptance in writing of the provisions, terms, obligations and conditions of said Ordinance.

"Now, Therefore, if the construction of said pipe line and of said distribution system shall he begun and be completed within the respective times provided in said Ordinance for the beginning and completion, respectively, of said pipe line and of said distribution system, then the obligation of this bond shall be void; otherwise it shall remain in full force and effect."

The petition alleged the pertinent provisions of the ordinance, its acceptance by the Industrial Gas Company, the execution and filing of the acceptance of the ordinance, and of the bond and the approval of these instruments, and the default of defendants, in that they had failed to construct the pipe line and the distribution system, although the time for doing so has elapsed; that demand had been made on defendants for payment of the amount of the bond, which demand had been refused, and prayed judgment for liquidated damages in the amount of the bond, with interest since the demand.

The answer of the National Surety Company admitted the incorporation of the parties, and "the passage and approval, the publication, the special election and the assignment of said ordinance," and "the execution delivery, filing and approval of the bond for $50,000.00," all as alleged in the petition; and admitted "the acceptance in writing of said ordinance." As to this last admission an amendment to the answer was made later by leave of court, in which it was admitted the Industrial Gas Company filed a written acceptance of the ordinance June 25, 1928, but alleged the "acceptance was of no force or effect because it was provided in said ordinance that within one hundred and twenty (120) days after the passage of said ordinance the grantee therein, or his assignee, The Industrial Gas Company, should file with the city clerk of said city an acceptance in writing of...