Penn Mut Life Ins Co v. City of Austin

• Decision Date: 03 January 1898
• Docket Number: No. 44,44
• Citation: 168 U.S. 685,42 L.Ed. 626,18 S.Ct. 223
• Parties: PENN MUT. LIFE INS. CO. et al. v. CITY OF AUSTIN et al
• Court: U.S. Supreme Court

168 U.S. 685

18 S.Ct. 223

42 L.Ed. 626

PENN MUT. LIFE INS. CO. et al.

v CITY OF AUSTIN et al.

No. 44.

January 3, 1898.

The court below sustained a demurrer to and dismissed for want of equity the bill of the complainants, by which, as citizens of the states of Pennsylvania, Maryland, and New York, respectively, they impleaded the defendants, the one a municipal corporation created by a law of the state of Texas, and its mayor and board of public works, citizens of the state of Texas, and the other a corporation organized under the authority of the general laws of the state of Texas regulating the formation of corporations, also a citizen of that state.

The bill, which was filed on January 3, 1895, alleged, in substance, as follows: That the city of Austin was in 1892 a municipal corporation, and that for many years its inhabitants and the city itself, for municipal purposes, had been supplied with water by a corporation known as the City Water Company; that in 1882, in consequence of the growth of the city, both for the health of the people of the city, the safety of its property, and the development of its manufacturing industries, a larger supply of water was absolutely needed, and that the taxpayers pr sented a petition to the city authorities asking that an arrangement, by contract or otherwise, be at once made to afford the augmented water supply which was essential; that the municipality, being fully empowered by its charter to supply water and being authorized by the general laws of the state of Texas to make a contract for so doing, on the 13th day of April, 1882, did enter into a contract with the City Water Company to the end that a more copious supply of water should be furnished; that this contract gave to the company the right to furnish water for 20 years, with the privilege on the part of the city of buying at the end of 10 years, or at any time on giving one year's notice, the water works which the contract required the company to erect; that the contract fixed a reasonable price to be paid for the use of water to be furnished by the water company, provided for the establishment of a given number of hydrants for the use of the city, and stipulated a rental therefor; that it imposed upon the corporation obligations of the most onerous character, compelling it to erect a large and costly plant, to lay extensive mains and pipes, and to extend them at any time during the life of the contract wherever the city might direct, and exacted that the company should add new hydrants for municipal uses as the city might require, giving to the water company as compensation, in addition to the rentals to be paid by the city for hydrants, as above stated, a commutation of municipal taxation.

The bill averred that the contract was in all respects advantageous to the city and beneficial to its inhabitants, and was, indeed, as to each and every obligation contained therein or resulting therefrom, reasonable and just; that the city at the time the contract was entered into was not in a position to itself erect the works without inordinately increasing its burden of taxation, and that the contract contemplated that the water company should obtain the money to erect the works by issuing its negotiable bonds, since there was therein contained a stipulation that the money to become due for the rentals of the hydrants should be paid by the city to the trustee of any bonds which might be issued by the water company, so as to guaranty the prompt payment of the interest on any such bonds; that the water company, on the faith of the contract, issued to the Farmers' Loan & Trust Company its negotiable bonds for $250,000, secured them by mortgage upon all its property, present and prospective, and with the sum thus realized and other available resources, with integrity and fidelity, and in complete compliance with every obligation resting on it, erected the desired waterworks plant, which afforded the desired supply of water; that, of the bonds thus issued to the Farmers' Loan & Trust Company, $100,000 in amount were bought for more than their face value in open market by the Penn Mutual Life Insurance Company, one of the complainants. The bill, moreover, alleged that in March, 1883, after the plant had been constructed and many miles of mains had been laid, the city, by ordinance duly enacted, accepted the work, and declared that the water company had fully performed its obligations; that subsequent to this date the city directed a very large extension of the mains and pipes to be made, which was promptly executed by the water company with money obtained from an additional issue of bonds to the Farmers' Loan & Trust Company amounting to $100,000, $10,000 of which Jacob Tome, another of the complainants, bought for full value in open market.

The bill then alleged that in 1884 the city of Austin contracted with a corporation known as the Austin Electric Light Company to build and carry on a plant required to light that city, and that this corporation issued its bonds to carry out its corporate purposes to the extent of $25,000; that in June, 1887, all the plant rights, privileges, franchises, and obligations of this electric light company, as well as those of the water company, were, ith the consent and approval of the city of Austin, transferred to a corporation known as the Austin Water, Light & Power Company, a Texas corporation, having corporate capacity both to undertake the duty of supplying water and of furnishing light to the city of Austin; that, in consequence of its assumption of all the obligations of both the aforementioned companies, the Austin Water, Light & Power Company was required by the city to make considerable additions to its water mains, and, in order to obtain the capital to execute these directions of the city, that company issued to the Farmers' Loan & Trust Company of New York $750,000 of bonds, secured by mortgage upon all its property, $375,000 of these bonds being reserved to pay the outstanding bonds (that is, the $250,000 first issue of the water company, the $100,000 second issue, and the $25,000 issue by the Austin Electric Light Company), and the remaining $375,000 being negotiated in open market for full value, the proceeds being expended in complying with the city's direction, and that $50,000 of these last bonds were purchased in open market for full value by Ogden and Robert Goelet the last-named complainants. The bill averred that the waterworks thus originally established and extended were in every respect entirely adequate to supply every want, not only of all the inhabitants of the city of Austin, but of the municipality, and that in each and every particular the municipality was as advantageously placed with respect to a water supply as it could have been under any condition or circumstance whatever.

The bill then alleged that despite the existence of the contract, and the entire justness and fairness of each and every obligation and stipulation therein contained, and without any just reason therefor, the city of Austin, on the 31st day of March, 1890, passed an ordinance entitled 'An ordinance ordering an election to obtain the consent of the property tax paying qualified voters of the city of Austin to the extension by the city council of the bonded indebtedness of the city of Austin for the purposes of constructing a system of waterworks and furnishing lights for the city of Austin'; that this ordinance provided that an election should be held on the 5th day of May, 1890, to obtain the consent of the taxpayers for an increase of the bonded indebtedness of the city to the amount of $1,400,000 for the purpose of obtaining money to erect a system of waterworks and an electric light plant for lighting the city; that on the 5th of May, 1890, the election was held, as provided, and the taxpayers gave their assent to the proposition submitted by the ordinance, and that the city council thereafter declared the election to have been carried, and that the power to issue bonds had been sanctioned; that on July 21, 1890, the city passed an ordinance authorizing the increased issue of $1,400,000 of bonds, providing for the levy and collection each year, as long as the bonds should be outstanding, of a tax to aid in paying the same. This ordinance directed that the bonds on their face should not only contain a statement of the objects for which they were issued, but should also show that their payment was secured by all the sums to be collected for the use of the water to be furnished by the new plant, and the ordinance moreover contained a provision guarantying that the rates to be charged for the water to be furnished should be so regulated that their product would equal the sum of the interest on the bonds, and a sinking fund to provide for the retirement of the principal thereof. The money to be realized from the sale of the bonds was required to be set apart in a distinct fund, to be warranted for from time to time in payment of the work as it progressed. The character of the work to be done was, moreover, fixed by an ordinance which empowered the board of public works to construct waterworks by means of a dam across the Colorado river at a designated point, in accordance with the plans o a civil engineer who was named therein.

It was alleged that, as the purpose and necessary effect of the foregoing action of the city was to impair the contract rights of the Austin Water, Light & Power Company held by it as the assignee of the two original companies, the ordinances passed by the city, and each and everything subsequently done thereunder, was void, because repugnant to the constitution of the United States. The bill, moreover, averred that in April, 1891, the legislature of the state of Texas passed an act giving a new charter to the city of Austin, which contained an express grant of power to that city to construct for its own use a waterworks plant, and that the sole...