St Cloud Public Service Co v. City of St Cloud, 10

• Decision Date: 26 May 1924
• Docket Number: No. 10,10
• Citation: 265 U.S. 352,44 S.Ct. 492,68 L.Ed. 1050
• Parties: ST. CLOUD PUBLIC SERVICE CO. v. CITY OF ST. CLOUD
• Court: U.S. Supreme Court

265 U.S. 352

44 S.Ct. 492

68 L.Ed. 1050

ST. CLOUD PUBLIC SERVICE CO.

v CITY OF ST. CLOUD

No. 10.

Argued Oct. 2, 1923.

Decided May 26, 1924.

Mr. J. O. P. Wheelwright, of Minneapolis, Minn., for appellant.

Mr. R. B. Brower, of St. Cloud, Minn., for appellee.

[Argument of Counsel from page 353 intentionally omitted] Mr. Justice SANFORD delivered the opinion of the Court.

This suit was brought by the Public Service Company to enjoin the City from interfering with a proposed increase in the rates charged for fuel gas.

The allegations of the bill, shortly stated, are: The Company is a public service corporation organized under the laws of Minnesota, and the City, a municipal corporation of that State. In 1905 the City by ordinance granted the Company's predecessor, its successors and assigns, the right to construct and maintain for thirty years works for the manufacture, distribution and sale of gas to the City and its inhabitants, and authorized it to sell fuel gas at a rate not exceeding $1.35 per thousand cubic feet. The grantee's rights were assigned to the Company in 1915, and since then it has been engaged in manufacturing and selling fuel gas under the ordinance.¹ Since 1917 the Company has sold fuel gas at the maximum rate of $1.35 prescribed by the ordinance. This rate has not yet yielded, and cannot yield any return on the value of the property devoted to the gas business, has resulted in a constant loss and steadily increasing operating deficit, is inadequate and confiscatory, and deprives the Company of its property without due process of law in violation of the Fourteenth Amendment to the Constitution. The City Commission has refused to entertain a petition to prescribe a rate yielding a reasonable return on the invested capital. To secure a fair and reasonable return, a rate of $3.39 per thousand cubic feet is necessary. The Company intends to increase its rate to that price. The City, however, has threatened to interfere with the collection of the proposed increased rate, and, unless restrained, will attempt to force the Company to continue to sell gas at the prescribed maximum rate, resulting in controversies and multiplicity of suits, and inflicting irreparable loss and injury upon the Company.

The bill prays that the court adjudge that the maximum rate prescribed by the ordinance is confiscatory and violates the rights of the Company under the Fourteenth Amendment; and that the City be enjoined from interfering with the Company in raising the rate to $3.39, or attempting in any manner to force it to continue to sell gas at the ordinance rate.

A motion by the Company for a preliminary injunction was denied. Thereafter, on motion of the City, the court dismissed the bill for want of equity, on the ground that there was a 'valid and subsisting contract between the City and the plaintiff Company governing the matter of a maximum rate for fuel gas.' The Company, by reason of the constitutional question involved, has appealed directly to this Court. Judicial Code, § 238 (Comp. St. § 1215); Columbus Railway Co. v. Columbus, 249 U. S. 399, 39 Sup. Ct. 349, 63 L. Ed. 669, 6 A. L. R. 1648.

It has been long settled that a State may authorize a municipal corporation to establish by an inviolable contract the rates to be charged by a public service corporation for a definite term, not grossly unreasonable in time, and that the effect of such a contract is to suspend, during its life, the governmental power of fixing and regulating the rates. Home Telephone Co. v. Los Angeles, 211 U. S. 265, 273, 29 Sup. Ct. 50, 53 L. Ed. 176, and cases there cited. And where a public service corporation and the municipality have power to contract as to rates, and exert that power by fixing the rates to govern during a particular time, the enforcement of such rates is controlled by the obligation resulting from the contract, and the question whether they are confiscatory is immaterial. Southern Iowa Elec. Co. v. Chariton, 255 U. S. 539, 542, 41 Sup. Ct. 400, 65 L. Ed. 764, and cases there cited; Paducah v. Paducah Ry., 261 U. S. 267, 273, 43 Sup. Ct. 335, 67 L. Ed. 647; Georgia Ry. Co. v. Decatur, 262 U. S. 432, 438, 43 Sup. Ct. 613, 67 L. Ed. 1065. The existence of a binding contract as to the maximum rate for fuel gas is therefore the controlling issue upon which this controversy depends. Its solution turns upon the question whether the City had power to contract on this subject by the ordinance of 1905; and, if so, whether the ordinance constituted such a contract.

1. Was the city authorized to enter into a contract as to the rate to be charged for fuel gas? Such authority must clearly and unmistakably appear. Home Telephone Co. v. Los Angeles, supra, page 273; Paducah v. Paducah Ry., supra, page 272. Whether it existed depends upon the laws of Minnesota in force at the time. The consolidated charter of the City (Special Laws of 1889, c. 6, p. 131) provided as follows:

The City 'shall be capable of contracting and being contracted with; and shall have all the powers possessed by municipal corporations at common law.' Subchapter 1, § 1.

'The common council in addition to all powers herein * * * specifically mentioned, shall have full power and authority to make * * * all such ordinances * * * for the general welfare of the city and the inhabitants thereof, as they shall deem expedient.' Subchapter 4, § 4.

'The common council shall have full power by ordinance: * * * To provide for and control the erection and operation of gas works, electric lights, or other works or material for lighting the streets and alleys, public grounds, and buildings of said city, and supplying light and power to said city and its inhabitants; and to grant the right to erect, maintain and operate such works, with all rights incident or pertaining thereto, to one or more private companies or corporations; * * * to provide for and control the erection and operation of works for heating the public buildings of said city by steam, gas, or other means, and supplying light, heat, and power to the inhabitants of said city; to grant the right to erect such works and all incident rights to one or more private companies or corporations, and to control and regulate the erection and operation of such works: * * * Provided, * * * that the common council shall have authority to regulate and prescribe the fees and rates and charges of any and all companies hereinbefore mentioned.' Subchapter 4, § 5, cl. 10.

In construing and giving effect to these provisions of the charter we look to the decisions of the Supreme Court of the State. In Reed v. City of Anoka, 85 Minn. 294, 297, 298, 88 N. W. 981, 982 (1902) the city charter—likewise enacted in 1889 conferred upon the municipality the power 'to make and establish public pumps, wells, cisterns and hydrants, and to provide for and control the erection of waterworks for the supply of water for the city and its inhabitants.' The city, by ordinance entered into a contract with individuals for the construction and operation of a system of waterworks for such purposes, for a term of thirty-one years; the city agreeing to pay the grantees a specified sum per year for each hydrant, and restrictions and limitations being imposed as to the charges to be made by the grantees for water furnished the inhabitants. In a suit bought by taxpayers to enjoin the performance of this contract the court said, that there could be

'no doubt but that these charter provisions confer upon the municipality authority to enter into contracts with individuals for the purpose of providing itself and its inhabitants with a supply of water. * * * The authorities are very uniform that contracts of this nature are not within the legislative or governmental prerogatives of the municipality, but rather within its proprietary or business powers. Their purpose is not to govern the inhabitants, but to secure for them and for itself a private benefit. * * * It was so held in * * * [ ] Flynn v. Little Falls E. & W. Co., 74 Minn. 180. * * * While this precise point of distinction was not made in that case, it is authority for the proposition that a municipality does not exercise its legislative functions in entering into contracts of this kind, but only its business or proprietary powers, to which the rules and principles of law applicable to contracts and transactions between individuals apply.'

In City of St. Cloud v. Water Co., 88 Minn. 329, 332, 92 N. W. 1112, 1113 (1903), there was involved an ordinance passed by the present appellee in 1887, providing for the sale of the City's waterworks to certain persons and granting them the right to maintain the system for the period of thirty years and to furnish water to its inhabitants at certain specified rates; in consideration of which the grantees agreed to extend the system, to furnish water without charge for certain purposes, and to supply a specified amount of pure water for domestic purposes. The original charter of the City (Special Laws of 1868, c. 28, p. 144) made it capable of contracting, vested it with all the general powers possessed by municipal corporations at common law, and gave it the power of establishing and constructing public pumps, wells, cisterns, reservoirs and hydrants. In a suit by the City to set aside the contract entered into by the ordinance for failure of the grantees to furnish pure water in the stipulated quantities, the court said:

'The obligations of the parties, as set out in the ordinance, constitute a contract. The city was enabled to enter into such obligation by virtue of its charter powers and the general laws of the state, and was endowed with the right to construct, or cause to be constructed, a water system for the benefit of its inhabitants, and had control of its streets, and could contract with reference to their use for the purpose of extending the system. * * * The obligations thus entered into were mutual. Upon the one hand, the...