City Railway Company v. Citizens' St. Railroad Company/Opinion of the Court

This case involves the right of the Citizens' Street-Railroad Company of Indianapolis to operate a street railroad upon the streets upon which it had constructed its tracks at the commencement of this suit, as well as the validity of a certain contract and ordinance ratifying the same between the city and the City Railway Company, in so far as the city attempted to confer upon that company a right to lay its tracks upon the streets already occupied by the complainant, or to abridge its rights in the use of such streets.

1. There can be no doubt that the circuit court had jurisdiction of the case, notwithstanding the fact that both parties are corporations and citizens of the state of Indiana. It should be borne in mind in this connection that jurisdiction depended upon the allegations of the bill, and not upon the facts as they subsequently turned out to be. The gravamen of the bill is that under the act of the general assembly of 1861, and the ordinances of January 18, 1864, and April 7, 1880, the Citizens' Railroad Company had become vested with certain exclusive rights to operate a street railway in the cith of Indianapolis, either in perpetuity or for the term of 30 years or 37 years, which the city had attempted to impair by entering into a contract with the City Railway Company to lay and operate a railway upon the same streets.

All that is necessary to establish the jurisdiction of the court is to show that the complainant had, or claimed in good faith to have, a contract with the city, which the latter had attempted to impair. Conceding that the legislature of the state alone had the right to make such grant, 'it may,' as was observed in Wright v. Nagle, 101 U.S. 791, 794, 'exercise its authority by direct legislation, or through agencies duly established, having power for that purpose. The grant, when made, binds the public, and is directly or indirectly the act of the state. The easement is a legislative grant, whether made directly by the legislature itself of by any one of its properly constituted instrumentalities.' 'The complainants claim,' as in the case under consideration, 'they have such a grant through the agency of the inferior court, acting under the authority of the legislature.' See, also, Saginaw Gaslight Co. v. City of Saginaw, 28 Fed. 529; Weston v. Charleston, 2 Pet. 462; Waterworks Co. v. Rivers, 115 U.S. 674, 6 Sup. Ct. 273.

That the complainant had a contract with the city is entirely clear. It was so held by the supreme court of Indiana in Western Paving & Supply Co. v. Citizens' St. R. Co., 128 Ind. 525, 26 N. E. 188, and 28 N. E. 88, in which the liability of the company for certain street improvements was discussed, and passed upon. It is true that by section 11 of the original act of 1861 a right was reserved to the general assembly to amend or repeal, at their discretion, the act authorizing the incorporation of street-railway companies; but that was a right reserved to the general assembly itself, and was never delegated, if in fact it could be delegated, to the common council of the city.

That the city did attempt to impair this contract by the agreement of April 24, 1893, with the City Railway Company, and its ordinance ratifying the same, is equally clear. This contract was entered into in pursuance of a supposed right given by the act of the general assembly of March 9, 1891, known as the 'City Charter,' the fifty-ninth section of which enacted that 'the board of public works shall have power * *  * to authorize and empower by contract telephone, telegraph, electric light, gas, water, steam, or street car or railroad companies to use any street, alley, or other public place in such city; *  *  * provided, that such contracts shall, in all cases, be submitted by said board to the council of such city, and approved by them by ordinance before the same shall take effect.' This contract and ordinance of April 24, 1893, even if otherwise valid, could not be construed to interfere with the rights of the complainant to occupy the streets of the city under the act of 1861, and the ordinance of January 18, 1864, without coming in conflict with that provision of the constitution which forbids states from enacting laws impairing the obligation of contracts. Whether the state had or had not impaired the obligation of this contract was not a question which could be properly passed upon on a motion to dismiss, so long as the complainant claimed in its bill that it had that effect, and such claim was apparently made in good faith, and was not a frivolus one. New Orleans v. New Orleans Waterworks Co., 142 U.S. 79, 88, 12 Sup. Ct. 142.

Even if the charter were held to have expired on January 18, 1894,-30 years from its date,-it would not have necessarily affected the jurisdiction of the court to entertain this bill, since it was filed eight months before that time, although it might have affected the right of the complainant to a decree.

Did the act of 1891, known as the 'New Charter,' repeal the act of 1861 authorizing the incorporation of railway companies? In other words, should it be construed as an exercise of the power, reserved to the state in the eleventh section of the act of 1861, to amend or repeal that act at the discretion of the legislature? As the act of 1891 practically established a new system, and vested the whole power of the legislature over streetrailway companies in the board of public works of the several cities therein named, subject to the approval of the common council of such cities, perhaps it might be construed to repeal the former, so far as there was a conflict between the two acts; but it certainly should not be construed to act retrospectively, or to affect contracts entered into prior to its passage, unless its language be so clear as to admit of no other construction. While it was doubtless intended to authorize the board of public works of the cities covered by the act to contract for the use of their streets by railway companies, there is nothing from which can be inferred a power to disturb or interfere with contracts already existing; indeed, it is highly improbable that it would ever have delegated such a power to a subordinate body. There is always a presumption that statutes are intended to operate prospectively only (Shreveport v. Cole, 129 U.S. 39, 9 Sup. Ct. 210), and we see nothing in this statute to rebut such presumption.

2. In arguing the case upon the merits, complainant insisted with great earnestness that, inasmuch as the act of 1861, providing for the incorporation of street-railway companies, had declared, in section 2, that the stockholders in the companies organized under that act, and their successors, should be 'a body politic and corporate in perpetuity, by the name state in the articles of association,' the common council of Indianapolis, which, by section 12, must have given consent 'to the location, survey, and construction' of any street railway before the construction of the same could be commenced, had no power, in its ordinance of January 18, 1864, to limit the right of the complainant to operate its railway to the term of 30 years; and that such ordinance, though valid in so far as it gave consent to build and operate the railway, was invalid in so far as it attempted to abridge the franchise granted by the general assembly, which existed in perpetuity. We do not, however, find it necessary to express an opinion upon this question, in view of the conclusion we have reached upon the legality of the ordinance of April 7, 1880, amending section 15 of the original ordinance by extending complainant's franchise from 30 to 37 years.

No question was made respecting the validity of the original ordinance, but the amended ordinance of April 7, 1880, was attacked principally upon the ground of a want of consideration for the extension of the franchise for seven years. The facts connected with this amendment were substantially as follows: The railway being mortgaged for $200,000 in first mortgage bonds and $100,000 in second mortgage bonds at 7 per cent. interest at the time of the purchase by the railroad company, the company was desirous of paying them off, as they were at liberty to do under the mortgages, and of renewing the loan in one mortgage at a lower rate of interest. In negotiating with the proposed purchasers of the bonds it was insisted that the contract with the city ought to do extended, as the proposed new issue of bonds would run beyond the time fixed for the termination of the contract. The manager of the road thereupon applied to the common council for an ordinance amending section 15 of the original ordinance, by making it read '45 years' instead of '30 years.' The committee declined to agree to this, but recommended as a compromise an ordinance fixing the term of the original ordinance at 37 years instead of 45 years. To this the company finally agreed. Thereupon the common council adopted the ordinance in question.

While this transaction cannot properly be termed a legal consideration for the ordinance, since the negotiation of the new loan was neither a benefit to the city nor a detriment to the railway company, yet we think that the subsequent negotiation of the loan operates against the city by way of estoppel. All that is necessary to create an estoppel in pais is to show that upon the faith of a certain action on the part of the city, which it had power to take, the company incurred a new liability; as, for example, by the negotiation of a new loan, and the issue of a new bond and mortgage to secure the same. Under such circumstances, justice to the bondholders, who have in good faith invested their money in reliance upon the validity of such action, demands that the city shall be held to its contract, notwithstanding there may have been originally no consideration to support it. The consequences of a different ruling would not only destroy the credit of the company, but might be disastrous to the bondholders, the value of whose investment would depend very largely upon the lengh of time the bonds were to run. Experience shows that the value of bonds or debentures depends not only upon the sufficiency of the security and the rate of interest, but upon the length of time they have to run, and the certainty that they will not, before the expiration of such time, be called in for redemption. But, however this may be, it seems to us that the continued operation of the road may itself be regarded a sufficient consideration for the extension of the franchise. This extension was not a mere gratuity or bounty, within the case of Grand Lodge F. & A. Masons of Louisiana v. Cuty of New Orleans, 166 U.S. 143, 17 Sup. Ct. 523 (recently decided), but was an agreement to prolong the privilege of occupying the streets of the city, in consideration that the company should continue the facilities already afforded to its citizens. The original ordinance of January 18, 1864, was plainly a proposition on the part of the city to grant to the company the use of its streets for 30 years, in consideration that the company lay its tracks and operate a railway thereon upon certain conditions prescribed by the ordinance. This proposition, when accepted by the company, and the road built and operated as specified, became a contract which the state was not at liberty to impair during its continuance; but if, at the expiration of the 30 years, the road had been sold to another company, and that company had applied for and obtained from the common council a franchise to occupy its streets for another period, it seems to be clear that such a contract would need no other consideration to support it than the continued operation of the road under such conditions as the city chose to impose. But this is practically such a case, since it makes no difference in principle whether the road passes into the hands of a new company or is retained by the old one, or whether the extension is granted at the time of or before the original franchise expired. In either case the consideration, viz. the continued operation of the road, is the same. If, instead of extending the original ordinance, this ordinance had been surrendered by the company, and a new one had been enacted, by which the franchise was extended, it would hardly be contended that the continued operation of the road would not be a sufficient consideration for the new ordinance. This was, in reality, part of the consideration upon which the original franchise was granted, and is, we think, a valuable consideration within the meaning of the law, and sufficient to support the extension.

This ordinance is also attacked upon the ground that it was never formally accepted by the company. There is really nothing in this contention. No formal resolution of acceptance is necessary in any case, if the facts show an actual, practical acceptance by the company, or action which would be only explicable in case the amendment were accepted. There are two circumstances in this case, either of which is sufficient to constitute an acceptance.

Mr. Johnson, the manager of the road, who desired the extension of the charter, applied for an amendment making the original section 15 read 'forty-five years' instead of 'thirty years,' and in that connection says: 'After a good deal of argument, I was finally forced to concede to the wishes of the committee, and they recommended to the council an ordinance making it read 'thirty-seven years,' instead of the 'forty-five' we applied for. This ordinance we consented to in committee, and afterwards agreed to with the council, as the best we could do under the circumstances.' This was sufficient, as it is universally held that a previous request for an ordinance obviates the necessity of a subsequent acceptance. City of Atlanta v. Gate City Gaslight Co., 71 Ga. 106; 1 Mor. Priv. Corp. 23; Railroad Co. v. Zimmer, 20 Ill. 654; Bank v. Richardson, 1 Me. 79; State v. Dawson, 22 Ind. 272; Newton v. Carbery, 5 Cranch, C. C. 632, Feb. Cas. No. 10,190; Perkins v. Sanders, 56 Miss. 732, 739.

We are also of opinion that an acceptance may be presumed from the fact that the amendment was beneficial to the corporation (U.S. v. Danridge, 12 Wheat. 64, 70; Charles River Bridge v. Essex Bridge, 7 Pick. 344; Com. v. Cullen, 13 Pa. St. 133, 140; Railroad Co. v. Smith, 47 Me. 34), and from the further fact that it issued its bonds, as was contemplated when the ordinance was applied for, and made them fall due at the expiration of the enlarged franchise.

There is nothing in the so-called 'electrical ordinance' which affects this question. It seems that in December, 1889, the common council adopted an ordinance amendatory of the original ordinance of January 18, 1864, to the effect that 'the cars to be used on such tracks shall be operated with animal or electrical power only.' The ordinance further provided that 'nothing herein contained shall be construed so as to lengthen the term of the franchise, enlarge or in any other way change or affect the rights of the Citizens' Street-Railroad Company of the city of Indianapolis, under said ordinance of January 18, 1864, except to authorize the use of electrical as well as animal power.'

It was also provided that the appellee should signify its acceptance by writing, within 60 days, filed with the city clerk, which was done.

At this time there was no law of the state permitting electricity to be used, and it is now claimed that the common council exceeded its powers in authorizing this change to be made.

But it seems that on March 3, 1891, a law was enacted by the general assembly, declarfore 'that any street or horse railroad heretofore or hereafter organized * *  * may, with consent of the common council of the cith, *  *  * use electricity for motive power.' Conceding, although not deciding, that the city might have exceeded its lawful power in authorizing the change from animal power to electricity, in the absence of legislative authority so to do, we think the act of 1891 should be construed, not only as conferring a new authority upon the city, but as a ratification of what the city had already done in that direction. In view of the large expenditures incurred by the company upon the faith of this ordinance, it is ill becoming the city to set up its own want of power to make it, when such power was directly and explicitly given a few months thereafter.

The fact that the ordinance declared that it should not be so construed as to lengthen the term of the franchise under the ordinance of January 18, 1864, is wholly immaterial, since the ordinance had been amended, changing the original limitation of time from 30 to 37 years. In fact, the ordinance had but a single object, which was to permit the substitution of electric for animal power, and it is scarcely possible that, if either party had understood that the franchise was to expire in January, 1894, four years from the time the electric ordinance was adopted, the complainant company would have entered upon the work of changing its entire system of street railway into an electrical system, and incurred the very large expense necessary for that purpose, knowing that before it could reap any substantial return from such an investment its rights in the streets of the city would expire by limitation. The improbability becomes the more apparent when it is considered that it was under no ocmpulsion to made the change, andmight, at its option, have continued the use of horse power until the original franchise had expired.

We are, therefore, of opinion that the complainant company had a valid contract with the city under the original ordinance of January 18, 1864, as amended by the ordinance of April 7, 1880, which will not expire until January 18, 1901, and that the contract and ordinance of April 24, 1893, with the defendant company is invalid in so far as it may be construed to interfere with the complainant in the construction, operation, and maintenance of its street-car system in the city of Indianapolis. But, as we are not called upon to express an opinion whether complainant is entitled to a perpetual franchise from the city, the decree of the court below must be modified by striking out from the second paragraph the words, 'without regard to any limitation of time mentioned in any ordinance of the city,' and also the word 'forever,' and, as so modified, it is affirmed.

Mr. Justice GRAY and Mr. Justice WHITE concurred in the result.

Mr. Justice SHIRAS was of opinion that the decree should be affirmed without modification.

Mr. Justice HARLAN did not hear the argument, or participate in the decision of this case.