Freeport Water Company v. Freeport/Opinion of the Court

by Joseph McKenna

United States Supreme Court

180 U.S. 587

Freeport Water Company  v.  Freeport

 Argued: October 31, 1900. --- Decided: March 25, 1901

'Since the ordinary administration of the law is carried on by the state courts, it necessarily happens that by the course of their decisons certain rules are established which become rules of property and action in the state, and have all the effect of law, and which it would be wrong to disturb. This is especially true with regard to the law of real estate and the construction of state constitutions and statutes. Such established rules are always regarded by the Federal courts, no less than by the state courts themselves, as authoritative declarations of what the law is. But where the law has not been thus settled, it is the right and duty of the Federal courts to exercise their own judgment; as they always do in reference to the doctrines of commercial law and general jurisprudence. So, when contracts and transactions have been entered into, and rights have accrued thereon under a particular state of the decisions, or when there has been no decision of the state tribunals, the Federal courts properly claim the right to adopt their own interpretation of the law applicable to the case, although a different interpretation may be adopted by the state courts after such rights have accrued. But even in such cases, for the sake of harmony and to avoid confusion, the Federal courts will lean towards an agreement of views with the state courts if the question seems to them balanced with doubt. Acting on these principles, founded as they are on comity and good sense, the courts of the United States, without sacrificing their own dignity as independent tribunals, endeavor to avoid, and in most cases do avoid, any unseemly conflict with the well-considered decisions of the state courts.'

Applying these principles to the case at bar, we solve its questions. The supreme court of the state in passing on the case, not only considered the acts of the 9th and 10th of April, 1872, regarding municipalities, but also, as we have said, the general incorporation act of April 18, 1872. Under the latter the plaintiff was incorporated, and it was held that the act 'must be regarded as entering into and forming part of the charter' of the plaintiff. The statute reserves to the general assembly the power to prescribe in the government of corporations 'such regulations and provisions as it may deem advisable.' The language is very comprehensive. Regarding it alone, it is difficult to conceive what objects of legislation are not covered by it. The supreme court of the state has construed it to be of greater import than the usual reservation of the power to alter and amend the charters of corporations.

The plaintiff, however, contends that it was not intended by the terms, 'regulations and provisions,' 'to interfere with the internal business management of the corporation itself,' but to regulate 'those classes of acts which control the relation existing between stockholders as individuals and the corporation as an entirety, and the relations between corporations and third persons; that is, the manner of carrying on their business or exercising the powers of a corporation.' We think the construction is too narrow. The statute made no distinction between the internal and the external business of corporations,-between their relations to stockholders and their relations to third persons. Such are but special exertions of the power which the legislature possesses.

In Boston Beer Co. v. Massachusetts, 97 U.S. 25, 24 L. ed. 989, a provision was passed on, of an act defining the general powers and duties of manufacturing corporations, as affecting the beer company. The general statute was enacted in 1809, and the provision construed was as follows: 'Provided always, that the legislature may from time to time, upon due notice to any corporation, make further provisions and regulations for the management of the business of the corporation and for the government thereof, or wholly repeal any act or part thereof, establishing any corporation, as shall be deemed expedient.' The beer company was incorporated in 1828 'for the purpose of manufacturing malt liquors in all their varieties.' It was held that the provisions of 1809 were adopted in the charter of the beer company, and were a part of the contract between the state and the company, rendering the latter subject to the exercise of that power; and the seizure and forfeiture of certain malt liquors, which were intended to be sold in violation of the prohibitory liquor law passed in 1869, were sustained.

But assuming that § 9 of the general incorporation act is correctly interpreted by plaintiff, we are brought to the question of the power of the city to make an irrevocable contract for thirty years, fixing water rates. The power is claimed under the statutes of 1872, heretofore quoted. The supreme court of the state, as we have seen, decided against the claim, and the principle of Burgess v. Seligman applies if the ruling of the court and the contention of the plaintiff is 'balanced with doubt.' There were no previous interpretations of the statutes by the state courts upon which the plaintiff had a right to rely. It acted upon the faith of the statute alone, and committed its rights to a judicial interpretation of the statute. The rule which governs interpretation in such cases has often been declared. We expressed it, following many prior decisions, in Detroit Citizens' Street R. Co. v. Detroit R. Co. 171 U.S. 48, 43 L. ed. 67, 18 Sup. Ct. Rep. 732, to be that the power of a municipal corporation to grant exclusive privileges must be conferred by explicit terms. If inferred from other powers, it is not enough that the power is convenient to other powers; it must be indispersable to them.

In Smith v. McDowell ex rel. Hall, 148 Ill. 51, 23 L. R. A. 393, 35 N. E. 141, the supreme court of the state expressed the rule as follows: 'Their power [the power of municipal corporations] is measured by the legislative grant, and they can exercise such powers only as are expressly granted, or are necessarily implied from the powers expressly conferred.'

The supreme court of the state applied these principles. It held that an irrevocable contract for specific rates was not indispensable to the other powers with which the cities of the state were invested. And a distinction was made between a contract which related to a governmental function, which the regulation of rates was said to be, and a contract which related to franchises which, though public in their nature, yet were not governmental, which the supply of water was said to be. This distinction, it was held, the statutes of 1872 observed, and gave the power to make one kind of contract, but not the other,-the power to contract for a supply of water, but not the power to contract 'to pay a fixed and unalterable rate for thirty years.' This was deduced from the silence of the statute of the 9th of April and the necessity of resolving all ambiguities in favor of the public. But ambiguity disappears, it was said, when the statute of the 9th was considered with the statute of the 10th, as it necessarily had to be, as the statutes were 'in pari materia, and should be construed together.' Section 1 of the act of the 10th of April 'authorizes,' the court said, 'the city council to empower a private corporation to construct and maintain waterworks at such rates as may be fixed by ordinance. The meaning of this language is not that the waterworks are to be maintained at such established rate as may be fixed by one ordinance for a period not exceeding thirty years. The clause, 'for a period not exceeding thirty years,' qualifies the words construct and maintain the same,' but does not qualify the words 'at such rates as may be fixed by ordinance."

The statutes are certainly ambiguous, and in resolving the ambiguity in favor of the public the court applied the rule declared in many cases. We said in the Railroad Commission Cases, 116 U.S. 307, sub nom. Stone v. Farmers Loan & T. Co. 29 L. ed. 636, 6 Sup. Ct. Rep. 334, 388, 1191, by Chief Justice Waite, of the power of the regulation of rates:

'This power of regulation is a power of government, continuing in its nature, and if it can be bargained away at all it can only be by words of positive grant, or something which is in law equivalent. If there is reasonable doubt, it must be resolved in favor of the existence of the power. In the words of Chief Justice Marshall in Providence Bank v. Billings, 4 Pet. 514, 561, 7 L. ed. 939, 955, 'its abandonment ought not to be presumed in a case in which the deliberate purpose of the state to abandon it does not appear.' This rule is elementary, and the cases in our reports where it has been considered and applied are numerous.'

These remarks are obviously applicable to the Illinois statutes. The question is whether the power given to the municipalities of the state was to be continuing or occasional, indeed only special in its purpose, intended to have but one exercise, and then bound in contract for thirty years. If the latter had been the intention it would have been natural to express it. The fullness of sovereignty can be taken for granted, and naturally would be and should be taken for granted. An example is afforded by the act of June 6, 1891. By that act the corporate authorities of any city which have authorized or shall authorize any individual, company, or corporation to supply water, 'be and are hereby empowered to prescribe by ordinance maximum rates and charges for the supply of water furnished by such individual, company, or corporation. . . .' There is no explicit provision for repetitions of the power,-none declaring the power conferred a continuing one. Who now doubts that it is? If rights were claimed and were pleading for a different interpretation, we might have to listen to them, but now, undisturbed by them, we yield without resistance to that meaning which the subject-matter demands in the absence of negativing words.

Our conclusion is that the powers conferred by the statutes of 1872 can, without straining, be construed as distributive. The city council was authorized to contract with any person or corporation to construct and maintain waterworks 'at such rates as may be fixed by ordinance, and for a period not exceeding thirty years.' The words, 'fixed by ordinance,' may be construed to mean by ordinance once for all to endure during the whole period of thirty years; or by ordinance from time to time as might be deemed necessary. Of the two constructions that must be adopted which is most favorable to the public, not that one which would so tie the hands of the council that the rates could not be adjusted as justice to both parties might require at a particular time.

It is also urged by plaintiff that the ordinance of February 10, 1896, deprives the plaintiff of its property without due process of law. The grounds of this contention are that (1) by the statute of June 6, 1891, none of the circumstances which, it is claimed, constitute a rate just and reasonable, are required to be considered by the authorities of cities, nor is previous notice required to be given to the parties furnishing water; (2) establishing rates is a legislative, not a judicial act, and that, therefore, the power to review and determine them, given by the statute to the circuit court, is void; (3) the cities, towns, and villages of the state are made judges in their own cases.

The first ground is answered by San Diego Land & Town Co. v. National City, 174 U.S. 739, 750, 43 L. ed. 1158, and we may say there is no question of the reasonableness of the rates. It was alleged in the pleas of the defendant that the rates of the ordinance of June, 1882, were unreasonable when established. This was conceded by the demurrer. It was also alleged that the rates established by the ordinance of February 10, 1896, were just and reasonable. This was also conceded. The allegations, therefore, must be accepted as true conclusions from investigation. And it was averred, besides, that 'the plaintiff refused to treat' with a committee appointed by the city council, 'and neglected to reduce or fix such rental and water rates so as to make them just, reasonable, and fair.' Of the second ground it is only necessary to say that the statutes of 1872 gave to the city the power to fix the rates. It became a condition, therefore, of the privileges granted to plaintiff. The act of 1891 only repeated and emphasized the power.

The third ground urged why plaintiff is deprived of its property without due process of law is as abstract, as free from real grievance to plaintiff, as the other grounds. With what functions the circuit courts of the state may be invested may not be of Federal concern. It is also a matter of construction, in which we might be obliged to follow the state courts. The ground we are now reviewing seems not to have been presented to the supreme court of the state, either in the case at bar or the cases referred to by it and upon which it based its opinion.

In Danville v. Danville Water Co. 178 Ill. 299, 53 N. E. 118, and 180 Ill. 235, 54 N. E. 224, the provision of the statute was referred to, but not in such way that it can be confidently said that the power given to the circuit court was to only review the rates fixed by the city council, and to determine them to be reasonable or unreasonable, or whether the court could go farther and fix rates. The former seems a natural construction. But whether it is or not, the plaintiff has yet no reviewable grievance. No power has been attempted to be exercised by the circuit court against the plaintiff, and no judicial remedy has been denied it.

Judgment affirmed.

Mr. Justice White, with whom concurs Mr. Justice Brewer, Mr. Justice Brown, and Mr. Justice Peckham, dissenting:

Notes