New Haven Water Co. v. City of New Haven

• Decision Date: 03 October 1927
• Citation: 106 Conn. 562,139 A. 99
• Court: Connecticut Supreme Court
• Parties: NEW HAVEN WATER CO. v. CITY OF NEW HAVEN.

139 A. 99

106 Conn. 562

NEW HAVEN WATER CO. v. CITY OF NEW HAVEN.

Supreme Court of Errors of Connecticut.

October 3, 1927

[Copyrighted Material Omitted]

Case Reserved from Superior Court, New Haven County; Arthur F Ells, Judge.

Action by the New Haven water company against the City of New Haven for a declaratory judgment that plaintiff has right notwithstanding its contract with defendant, to petition the Public Utilities Commission for an increase in its rates within the city, and that under its contract defendant should save plaintiff harmless from part of the federal income and capital stock tax, or pay the amount provided in the contract, was brought to the superior court, and reserved by the court on the admitted allegations of the complaint for the advice of the Supreme Court of Errors. Questions answered.

The plaintiff is a private corporation chartered by the General Assembly, in 1849, to supply New Haven with pure water for public and domestic use, and has supplied water to the city of New Haven since January 1, 1862. Through consolidations with other companies it supplies eight other towns with water, and through stock control of another company supplies another town with water. It owns property and pays taxes in sixteen towns in New Haven and Middlesex counties. It has acquired and developed available sources of supply within a distance of several miles from New Haven and built dams, reservoirs, and pumping stations for the distribution of water therefrom to New Haven and these other towns. It has purchased land and water rights in the towns of North Branford, Guilford, Madison, and Killingworth, in order to conduct the waters of the Hammonassett river and streams westerly thereof, by conduits and tunnels, into a large reservoir in North Branford and thence to distribute it to New Haven and the other towns. The plaintiff has begun to construct and there is now under construction in North Branford a large dam to impound the waters of these rivers and streams. On February 17, 1902, the plaintiff and the city of New Haven entered into a contract, which, among other clauses, provided:

The plaintiff will furnish the city with a full and adequate supply of water for all reasonable present and future public and municipal purposes, including water for school and fire protection purposes, in certain designated wards for all time after the 20th day of February, 1902, or until the termination of the contract. If the works of the company shall at any time prove inadequate for these purposes and uses, the city shall have the privilege of annulling the contract. The city will, from time to time, at the request of the company adopt and enforce reasonable rules and regulations to prevent waste of water. The company agrees that the rates for water to be charged consumers of water in the city shall at all times be fair and reasonable, and if the city and company cannot agree as to rates which the city at any time shall consider unreasonable the matter shall be submitted to arbitration. The arbitrators shall not fix a rate for water which shall leave to the company an income insufficient to provide means with which to pay its operating costs, including interest on indebtedness, and all labor, material, salaries, damages, renewals and extensions, repair and replacement of plant, and all taxes, together with a sum sufficient to pay the present rate of dividend upon its present capital stock and a reasonable return upon such other capital as shall in the future be invested in additions or extensions of the plant of the company not exceeding the present rate of dividend. The company shall, whenever in the opinion of its board of directors its income exceeds the sum required to properly care for the above purpose, reduce its rates of water to the inhabitants of the city. The contract gives at length the schedule of rates to be charged by the company.

If at any time it shall be determined in or by judicial proceedings that the company has not complied with the terms of the contract, or has refused to abide by the arbitration provided for in the contract, the city shall have the right to purchase all the property, assets, and franchises of the company upon paying to it a just and fair compensation therefor. In case the company shall sell or transfer its property and franchises to any other person or corporation, or in case a majority of the members of the board of directors shall not be residents of the city, or the company shall become a member of any trust or syndicate, the city thereupon shall have the right to purchase its property, assets, and franchises.

" Tenth. Said company shall pay such taxes as may be levied according to law upon its tangible property, including pipes, mains, and reservoirs, within the city of New Haven and other towns in which such property may be located. In case any franchise or other tax, except upon its tangible property, shall be assessed against said company, said city shall save said company harmless from such part thereof as shall be measured by the ratio of the gross revenue received from consumers within the city of New Haven, to gross revenue of said company from all its consumers. Said city may, at its option, refuse to save said company harmless, as heretofore provided, and in case of its failure so to do, it shall, without other liability to said company by reason thereof, pay, during such period of failure, for water for fire protection the sum of $20 per year for each hydrant, and for all other water used by said city at the lowest meter rates to private consumers, as per schedule then in force, less a discount of 25 per cent. therefrom.

Eleventh. At the end of 25 years from the 20th day of February A. D. 1902, and at the end of every successive period of 25 years thereafter, if said city shall determine to purchase the property, assets, and franchises of said company, said company will then sell and convey the same to said city upon said city paying a just and fair compensation therefor, which said compensation, if said parties cannot agree, shall be determined by a committee to be appointed by the superior court, in the manner provided by the act passed by the General Assembly at its January session, 1881."

" Fourteenth. Neither of the parties hereto shall be at liberty to avoid or set aside this contract, without the consent of the other, notwithstanding any breach thereof, except in the manner provided herein.

Fifteenth. Said city and said company will unite in an application to the General Assembly, at its next session, for the passage of an act making the terms of this contract obligatory upon both parties as though specifically authorized in their respective charters."

The company made a stipulation to the contract on its date that nothing in the contract should be so construed as to prevent the city from sinking or driving wells on its property and using the water therefrom on the premises, provided that water shall not be distributed by the city either for public or private purposes in pipes or mains. And further, that the contract shall not be so construed as to charge any person a higher price for continuance of his present service than he has heretofore been charged for the same service unless changed by arbitration as provided in the contract. The company also stipulated that application shall, at the option of the city, be made to the General Assembly for the confirmation thereof when the contract is presented for confirmation.

The finding further recites:

" The plaintiff has hitherto paid all taxes upon its tangible property as provided in said contract, and the city of New Haven has hitherto paid to the plaintiff the proportion of the taxes fixed in said paragraph tenth, upon the gross earnings of the plaintiff, under section 1370 of the General Statutes and amendments thereto.

The plaintiff has paid to the United States the corporation taxes (imposed by act of Congress of August 5, 1909 [36 Stat. 11] and amendments thereto) and the capital stock tax (imposed by act of Congress of September 8, 1916 [39 Stat. 756], and amendments thereto) assessed against the plaintiff.

The defendant has not saved the plaintiff harmless from any part of any of said income and capital stock taxes, nor has the defendant paid to the plaintiff for the water supplied to the defendant for fire protection and other municipal purposes.

No demand was made by the plaintiff upon the defendant, with respect to such corporate income and capital stock taxes, until on or about August 20, 1926, when the defendant refused to pay said taxes."

On June 1, 1903, the General Assembly of the state of Connecticut passed a private act (14 Sp. Laws 1903, p. 276), as follows:

" Amending the charters of the city of New Haven and of the New Haven water company.

Resolved by this Assembly:

Section 1. That the terms of a certain contract entered into by and between the city of New Haven and the New Haven water company on the 17th day of February, 1902, concerning the supplying of water for the use of said city and its inhabitants, be and they are hereby made obligatory upon the said city of New Haven and the said New Haven water company as though specifically authorized in their respective charters.

Sec. 2. A certain stipulation executed and delivered by the New Haven water company to the city of New Haven on the 17th day of February, 1902, concerning the construction of the contract referred to in section 1 hereof, is hereby made obligatory upon the said New Haven water company whenever said city shall exercise its option to claim the construction, or any part thereof, in said stipulation particularly set forth."

The maximum rates fixed in said contract, to be charged to private consumers,...