Natural Gas & Fuel Corp. v. Norphlet Gas & Water Co.

• Decision Date: 02 May 1927
• Docket Number: (No. 203.)
• Citation: 294 S.W. 52
• Parties: NATURAL GAS & FUEL CORPORATION v. NORPHLET GAS & WATER CO. et al.
• Court: Arkansas Supreme Court

294 S.W. 52

NATURAL GAS & FUEL CORPORATION v. NORPHLET GAS & WATER CO. et al.

(No. 203.)

Supreme Court of Arkansas.

May 2, 1927.

Dissenting Opinion, May 16, 1927.

Rehearing Denied May 30, 1927.

Appeal from Union Chancery Court; J. Y. Stevens, Chancellor.

Suit by the Norphlet Gas & Water Company and the Town of Norphlet against the Natural Gas & Fuel Corporation to enjoin it from furnishing gas, and to require it to remove pipe lines. Judgment for plaintiffs, and defendant appeals. Reversed and remanded, with directions.

Norphlet Gas & Water Company and the town of Norphlet brought this suit in equity against the Natural Gas & Fuel Corporation, to enjoin it from furnishing natural gas to the inhabitants of the town of Norphlet, and to require it to remove its pipe lines and gas mains from the streets and alleys of the town of Norphlet. The suit was defended on the ground that Natural Gas & Fuel Corporation had a contract, with the inhabitants of the town of Norphlet, to lay its gas mains in the streets of the town and to furnish gas to its inhabitants, and that the purported franchise of the Norphlet Gas & Water Company was invalid.

On the part of the plaintiffs, it was shown that on June 1, 1925, the town of Norphlet granted to the Norphlet Gas & Water Company an exclusive franchise for the term of 25 years to lay its gas mains in the streets and alleys of said town, and to furnish the inhabitants thereof with natural gas for heat, light, and power.

On the part of the defendant, it was shown that a charter was granted to it by the state of Arkansas on the 11th day of April, 1922. By the terms of its charter, it was given power to establish, construct, and operate pipe lines and other appurtenances for distributing and marketing gas and other mineral products. It was also given the power to distribute and deliver such gas through its own pipe lines and other appurtenances suitable for that purpose, and to purchase, lease, or contract for all such machinery or property as might be incident and necessary to any of the objects granted. Pursuant to the provisions of its charter, it obtained an easement or right of way to lay its gas mains from the gas fields to the village of Norphlet before it was incorporated as a town. It obtained an easement from the owners of the real property in the village to lay its mains along the public highways and streets of the village. In the beginning it had about 100 customers. When gas and oil was discovered in that territory, the village of Norphlet greatly increased in population, and the defendant extended its gas mains to furnish natural gas to the inhabitants thereof. At the time the town was incorporated, it had 2,500 inhabitants, and the defendant had from 275 to 300 domestic consumers of natural gas. It had about 25 industrial consumers and also furnished gas to blacksmiths and machinery shops in said town. At this time, it had expended about $20,000 in laying its gas mains and in preparing to furnish the inhabitants of the town of Norphlet with natural gas. After the town of Norphlet granted to the Norphlet Gas & Water Company its franchise, that company expended something over $50,000 laying its gas mains and in preparing to serve the inhabitants of the town of Norphlet with natural gas.

The chancellor found the issues in favor of the plaintiffs, and the defendant was enjoined from furnishing natural gas for any purpose to people living within the corporate limits of the town of Norphlet; and it was ordered to remove its pipe lines and equipment for furnishing natural gas from the streets and alleys of said town. The case is here on appeal.

Pace & Davis and R. E. Wiley, both of Little Rock, and Jeff Davis, of El Dorado, for appellant.

G. E. Garner, of Little Rock, for appellees.

HART, C. J. (after stating the facts as above).

A franchise granted by a city council to a public service corporation to furnish gas for heat, light, and power, when accepted, becomes a binding contract to be governed by the same rules and principles that control other contracts. City of Mena v. Tomlinson Bros., 118 Ark. 166, 175 S. W. 1187; Arkansas Light & Power Co. v. Cooley, 138 Ark. 390, 211 S. W. 664; Pocahontas v. Central Power & Light Co., 152 Ark. 276, 244 S. W. 712; and El Dorado v. Citizens' Light & Power Co., 158 Ark. 550, 250 S. W. 882.

The record in the case at bar, however, fails to show that the ayes and nays were called and recorded, as required by section 7528 of Crawford & Moses' Digest, upon the passage of the ordinance, granting an exclusive franchise to the Norphlet Gas & Water Company to furnish natural gas to the inhabitants of the town of Norphlet for the period of 25 years. The section of the Digest just referred to has been held mandatory, and a failure to comply with it makes the ordinance void. Cutler v. Russellville, 40 Ark. 105, and Arkansas Light & Power Co. v. Cooley, 138 Ark. 390, 211 S. W. 664.

But it is insisted by counsel for the plaintiffs that the town of Norphlet is estopped from questioning the validity of the ordinance, because it has stood by and allowed the Norphlet Gas & Water Company to expend great sums of money in laying its gas mains in the streets and alleys of the town, and in purchasing equipment for the purpose of carrying out its contract. The record shows that it has expended over $50,000 in making preparations for carrying out its contract and that it is fully equipped to do so. In this connection, it may be said, there is a marked distinction between the doctrine of estoppel as applied to ultra vires and intra vires contracts of municipal corporations, which are recognized both by the text-writers and the adjudicated cases on the subject.

On this question, Judge McQuillin says:

"That a municipality cannot be estopped to question the use of its streets without a franchise, or the validity of a franchise where it has no power to grant such a franchise. * * * On the other hand, if a municipality has the power to grant a franchise, and a public service company uses the streets with the knowledge of the municipality, the latter may be estopped to question the right to use the streets without a franchise, or the validity of the franchise granted where it does not violate statutory or charter requirements. For instance, a municipality, which has acquiesced for years in the use of its streets by a public service company, which has spent thousands of dollars in connection with such use, and which has received the benefits of such use of the streets and has regulated the use and levied licenses and granted permission as to certain uses, cannot contest the right of the company to use the streets. Likewise acquiescence by a municipality in the use of streets by a railroad company, pursuant to a grant of such right by the Legislature, precludes the municipality from objecting thereto." 4 McQuillin, Mun. Corp. § 1687.

Judge Dillon says:

"And if the municipality has the power to grant such right or franchise, and a corporation, believing and assuming that it has the consent or grant of the municipality, has, with the knowledge of the proper municipal authorities, proceeded to exercise the right of franchise, and has constructed, maintained, and operated its works and appliances in the city streets, the municipality will, in a proper case, be estopped by the acts and conduct of its officers and representatives in knowingly permitting and acquiescing in the use and occupation of the streets, from asserting the invalidity of the grant of the franchise, so far, at least, as concerns its own failure to pass an ordinance or take steps necessary to effectuate the grant." 3 Dillon, Mun. Corp. (5th Ed.) 1242.

In City Railway Co. v. Citizens' Street Railroad Co., 166 U. S. 557, 17 S. Ct. 653, 41 L. Ed. 1114, in discussing the subject, the court said:

"All that is necessary to create an estoppel in pais is to show that, upon the faith of a certain action on the part of the city, which it had power to take, the company incurred a new liability; as, for example, by the negotiation of a new loan, and the issue of a new bond and mortgage to secure the same."

In City of Louisville v. Cumberland Tel. & Tel. Co., 224 U. S. 649, 32 S. Ct. 572, 56 L. Ed. 934, it was held (quoting from the syllabus):

"Permitting the transferee of a franchise to act thereunder and expend large sums of money, and exacting from it a bond to comply with the conditions of the franchise, will operate to estop a municipality from denying that the franchise was transferable, and the transferee had succeeded to all the rights of the transferring corporation."

In Moore v. New York, 73 N. Y. 238, 29 Am Rep. 134, the rule was tersely stated as follows:

"The unauthorized acts of city authorities— that is, those ultra vires, in the sense that they are not within the general powers conferred, are not binding on the corporation, and corporations are not estopped by acts of corporate agents strictly ultra vires. A city may set up as a defense its own want of power under its charter to contract, but in favor of bona fide holders of its negotiable securities, and by parity of reasoning, those innocently dealing with it, and in good faith parting with property and expending money for its benefit, it may be estopped to avail itself of irregularities in the exercise of the power conferred."

These and many other authorities to the same effect may be found in a case note to 7 A. L. R. 1248 et seq.

This distinction has been recognized and applied by this court. In Newport v. Railway Co., 58 Ark. 270, 24 S. W. 427, the town of Newport was sued to recover an amount alleged to be due on a contract to construct a levee. The court held that, inasmuch as the contract sued on was not within the scope of the corporate powers of the town, it could not be ratified, and the town was not estopped by having accepted and received the benefit of the work done under it. On the other hand, in Town of...