Omaha Water Co. v. City of Omaha

• Decision Date: 15 June 1906
• Docket Number: 2,361.
• Parties: OMAHA WATER CO. v. CITY OF OMAHA et al.,
• Court: U.S. Court of Appeals — Eighth Circuit

147 F. 1

OMAHA WATER CO. v. CITY OF OMAHA et al.,

No. 2,361.

United States Court of Appeals, Eighth Circuit.

June 15, 1906

(Syllabus by the Court.)

The Legislature empowered the city of Omaha to contract with individuals or corporations for the construction and maintenance of waterworks 'on such terms and under such regulations as may be agreed on. ' The city by ordinance offered the contract for the construction of the works and their operation for 25 years to the lowest bidder on condition that he would first accept the terms of the ordinance, which provided that the contractor should furnish water to private consumers during the term at such prices as the contractor and the consumers should agree upon, not exceeding certain specified rates. The contractor accepted the ordinance and his assigns constructed the waterworks and operated them for 20 years. The water board of the city ordered the rates reduced below those specified in the ordinance. Held, the accepted ordinance was a contract, the order of the water board impaired its obligation, and the water company was entitled to an injunction to restrain its execution.

Municipal corporations have two classes of powers, the one governmental, in the exercise of which their officers may not bind the municipalities beyond their terms of office, the other business or proprietary, in the exercise of which they are governed by the same rules as individuals or private corporations.

A city exercises its business or proprietary power in purchasing waterworks or contracting for their construction or operation.

The power of a city to regulate or fix the rates which a water gas, or railway company may collect of private consumers partakes of the nature of a governmental power and also of the nature of a business power.

The Legislature of a state unless prohibited by its Constitution may empower a city to suspend by contract, and a city may suspend in that way for a reasonable term of years, its power to fix or regulate the rates which a third party may collect of private consumers.

Neither the power of a municipality to contract with a third part for the construction and operation of waterworks, street railways, or other public utilities, nor the right of such a third party under such a contract, constitutes a special privilege or immunity within the meaning of those terms in section 16, article 1 of the Constitution of Nebraska, which prohibits the Legislature from 'making any irrevocable grant of special privileges or immunities.'

The power to alter or repeal general laws under which corporations have been organized reserved by section 1, art 11b(13) of the Constitution of Nebraska 1875, is limited by section 16, art. 1 of the same Constitution which forbids the passage of any law impairing the obligation of contracts, and it does not reserve to the Legislature the power to destroy or impair the contracts of third parties with such corporations.

The making of a municipal contract to suspend for 25 years the power of the city to regulate the rates which a water company shall collect from private consumers in consideration of the construction and operation of waterworks, is not an unreasonable exercise of the power to contract therefor.

Agreements and grants regarding the suspension of the power to regulate rates and regarding other public franchises will not be raised by mere implication, will be construed favorably to public rights if ambiguous an d will be protected and enforced if clear.

Power granted to a city to contract for the construction and operation of waterworks 'on such terms and under such regulations as may be agreed on' constitutes authority to the municipality to agree with the contractor upon the rates which he may collect of private consumers during a reasonable term of years.

An accepted ordinance which provides for such rate 'as may be agreed upon between the consumer and water company not exceeding' specified rates constitutes a contract by the city that it will not reduce the rates below those specified during the term of the contract, and any such attempted reduction thereof by the city or it water board, under a law of the state, impairs the obligation of this contract.

A mortgage of the property and rights of a water company and the foreclosure thereof passes to the purchaser thereunder its contract right to collect rates specified in a contract between it and a city.

The Omaha Water Company, a corporation of the state of Maine, exhibited its bill against the city of Omaha, the water board of that city, and the individual members of that board, all citizens of the state of Nebraska, to restrain them from enforcing an order of the water board made on May 1, 1905, which reduced some of the meter rates fixed by an ordnance of the city passed on July 11, 1880, under which the complainant was furnishing water under a contract with the city, upon the grounds that the order of the water board impaired the obligation of the complainant's contract and established unreasonable rates. This is an appeal from a decree which dismissed this bill on the ground that it failed to state facts sufficient to entitle the complainant to any relief in equity. These facts were disclosed by the bill: The Legislature of Nebraska, by an act approved March 28, 1873, empowered the city of Omaha 'to erect, construct and maintain waterworks, either within or without the corporate limits of the city, and to make all needful rules and regulations concerning the use of water supplied by such waterworks, and to all acts necessary for the constructions, completion, management and control of the same. ' Gen. St. Neb. 1873, c. 8, Sec. 15, subd. 27. By an act approved February 27, 1879, the Legislature added to the foregoing subdivision this provision: 'And the mayor and council of each city created and governed by said act (the act of March 28, 1873) shall have power to contract with, and procure individuals or incorporations to construct and maintain waterworks on such terms and under such regulations as may be agreed on. ' Laws Neb. 1879, p. 99, Sec. 15, subd. 27.

The city of Omaha, by an ordinance and an amendment thereto, in the year 1880, provided that any person or corporation who should construct and maintain waterworks of the character described therein for the purpose of supplying the city and its inhabitants with water should have the right of way along the streets and public places of the city for the purpose of placing and maintaining mains, pipes, and hydrants upon the terms and conditions in said ordinance specified. Some of the terms and conditions thus specified were that any person or corporation who should construct such waterworks should furnish water to citizens residing along the line of its mains at all time when any such waterworks should be maintained at rates which should not exceed a certain tariff of water rates set forth in the ordinance which specified the rate for dwelling houses not exceeding five rooms as $6 per annum, and various other specific services at specific prices which are termed 'flat rates,' that 'rents for all purposes not herein named will be fixed by meter measurement as may be agreed upon between the consumer and water company not exceeding meter rates' which were specified to be used as follows:

Gals. per day. Rate per 1,000 gals.

100 to 500 .............. 35c.

500 to 1,000 ............ 30c.

1,000 to 2,000 .......... 25c.

2,000 to 4,000 .......... 20c.

Over 4,000 .............. 15c.

that advertisements for furnishing the city with water for fire protection and public use for the term of 25 years from the completion of such works should be published, that the bids should be accompanied with bonds in the sum of $25,000 conditioned 'for the faithful performance of the terms and conditions of this ordinance;' that 'said bids shall also be accompanied by a conditional acceptance of this ordinance in the event the contract for the public supply and fire protection shall be awarded;' and that the city of Omaha should have the right at any time after the expiration of 20 years to purchase the waterworks at an appraised valuation.

Sidney E. Locke accepted the terms of this ordinance, bid for the construction of the waterworks thereunder, his bid was accepted and the city made a contract with him for the construction of the waterworks and the rental of 250 hydrants for the term of 25 years. Locke assigned his contract and his rights and franchises thereunder, with the consent of the city, to the City Waterworks Company, a corporation of Nebraska, which constructed the waterworks, and they were accepted by the city on September 4, 1883. By subsequent conveyances the property, rights, and franchises of this corporation vested in the complainant. In March, 1903, the city elected to purchase the waterworks pursuant to the provision of the ordinance of 1880, appraisers were selected, an examination of the waterworks has been made and the matter has been submitted to the appraisers for the completion of their report.

By an act approved March 9, 1905, the Legislature of Nebraska authorized the election of a water board for the city and provided that 'if such city or any portion thereof shall be supplied with water for domestic, mechanical, public, or fire purposes by any individual, copartnership or corporation, then and in such case, said board shall have the sole power and authority to regulate and fix the water rates and fire hydrants' rentals. ' On May 1, 1905, the water board of the city of Omaha passed an order to the effect that the maxima meter rates fixed by the ordinance of 1880 should be materially reduced so that the cost of furnishing water to consumers governed by these reduced rates will not be covered...