Louisville Gas v. Citizens' Gas-Light Company/Opinion of the Court

Two of the judges of the state court held that the clause of the bill of rights of Kentucky, which declares that 'all freemen, when they form a social compact, are equal, and that no man or set of men are entitled to exclusive, separate public emoluments or privileges from the community but in consideration of public services,' (Const. Ky. 1799, art. 10, § 1; 1850, art. 13, § 1,) for bade the general assembly of that commonwealth to grant to a private corporation the exclusive privilege of manufacturing and distributing gas, for public and private use, in the city of Louisville, by means of pipes and mains laid under the streets and other public ways of that municipality. The other judges were of opinion that that clause did not prohibit a grant by the state to a private corporation, whereby certain privileges were conferred upon the latter in consideration of its discharging a public duty, or of rendering a public service; that the municipality of Louisville being a part of the state government, there was a public necessity for gas-lights upon its streets and in its public buildings, almost as urgent as the establishment of the streets themselves; that the services thus to be performed by the corporation were, in the judgment of the legislative department, an adequate consideration for the grant to it of exclusive privileges; and, consequently, that the grant was a contract, the rights of the parties under it to be determined by the rules applicable to contracts between individuals.

While the judgment below, in view of the equal division in opinion of the judges of the state court, does not rest upon any final determination of this question by that tribunal, it cannot be ignored by us; for, at the threshold of all cases of this kind, this court must ascertain whether there is any such agreement on the part of the state as constitutes a contract within the meaning of the constitution of the United States. If the services which the gas company undertook to perform, in consideration of the exclusive privileges granted to it, were public services, within the meaning of the bill of rights of Kentucky, then the grant of such privileges was not forbidden by the state constitution. In New Orleans Gas-light Co. v. Louisiana, etc., Co., ante, 252, just decided, it is held that the supplying of gas to a city and its inhabitants by means of pipes and mains laid under its public ways, was a franchise belonging to the state, and that the services performed as the consideration for the grant of such a franchise are of a public nature. Such a business is not like that of an ordinary corporation engaged in the manufacture of articles that may be quite as indispensable to some persons as are gas-lights. The former articles may be supplied by individual effort, and with their supply the government has no such concern that it can grant an exclusive right to engage in their manufacture and sale. But as the distribution of gas in thickly populated districts is, for the reasons stated in the other case, a matter of which the public may assume control, services rendered in supplying it for public and private use constitute, in our opinion, such public services as, under the constitution of Kentucky, authorized the legislature to grant to the defendant the exclusive privileges in question. This conclusion is justified, we think, by the decisions of the court of appeals of that state. In O'Hara v. Lexington & O. R. Co., 1 Dana, 232, the point was made that an inquisition for the assessment of damages for the taking of land by a railroad corporation was void upon certain grounds, one of which was that the company's charter granted exclusive privileges, without any consideration of public services. Chief Justice ROBERTSON, speaking for the court, said that, in the true sense of the constitution, no exclusive privileges were granted to the corporation; observing that 'if the charter be on that ground unconstitutional, it would be difficult to maintain the validity of any statute for incorporating any bridge company or any bank, or even for granting a ferry franchise.'

But the principles announced in Gordon v. Winchester, 12 Bush, 114, seem more directly applicable to the present case. Judge COFER, speaking for the whole court, after observing that there were unquestionably cases in which the state may, without violating the constitution, grant privileges to specified individuals, which from the nature of the case could not be enjoyed by all, and in respect of which the state could designate the grantee, said: 'But in all such cases the person, whether natural or artificial, to whom the privilege is granted, is bound, upon accepting it, to render to the public that service the performance of which was the inducement to the grant; and it is because of such obligation to render service to the public that the legislature has power to make the grant.' In illustration of this principle he proceeds to say: 'Permission to keep a tavern or a ferry, to erect a toll-bridge over a stream where it is crossed by a public highway, to build a milldam across a navigable stream, and the like, are special privileges, and, being matters in which the public have an interest, may be granted by the legislature to individuals or corporations; but the grantee, upon accepting the grant, at once becomes bound to render that service to secure which the grant was made; and such obligation on the part of the grantee is just as necessary to the validity of a legislative grant of an exclusive privilege as a consideration, either good or valuable, is to the validity of an ordinary contract. Whenever, by accepting such privilege, the grantee becomes bound, by an express or implied undertaking, to render service to the public, such undertaking will uphold the grant, no matter how inadequate it may be; for the legislature being vested with power to make grants of that character when the public convenience demands it, the legislative judgment is conclusive, both as to the necessity for making the grant and the amount of service to be rendered, and the courts have no power to interfere, however inadequate the consideration or unreasonable the grant may appear to them to be. But when they can see that the grantee of an exclusive privilege has come under no obligation whatever to serve the public in any manner in any way connected with the enjoyment of the grant, it is their duty to pronounce the grant void, as contravening that provision of the bill of rights which prohibits the granting of exclusive privileges, except in consideration of public services.' These observations were made in a case in which it was held that a statute giving a building association the right to receive a greater rate of interest than was allowed by the general law was unconstitutional, in that it conferred exclusive privileges not in consideration of any public services to be performed.

In Com. v. Bacon, 13 Bush, 212, the question was as to the constitutionality of an act giving a strictly private corporation, which owed no duty to the public, a monopoly of an ordinary business in which every citizen was entitled to engage upon terms of equality. Its validity was attempted to be sustained on the same principle upon which the grant of ferry privileges was upheld. But the act was held to be unconstitutional; the court, among other things, saying: 'Ferries are parts of highways, and the government may perform its duty in establishing and maintaining them through the agency of private individuals or corporations, and such agencies are representatives of government, and perform for it a part of its functions. And in consideration of the service thus performed for the public the government may prohibit altogether persons from keeping ferries and competing with those it has licensed. The establishment of public highways being a function of government, no person has a right to establish such a highway without the consent of the government; and hence, in prohibiting unlicensed persons from keeping a ferry, the government does not invade the right of even those who own the soil on both sides of the stream.'

In the later case of Com. v. Whipps, 80 Ky. 272, where the validity of a statute of Kentucky authorizing a particular person to dispose of his property by lottery was assailed as a violation of the before-mentioned clause in the bill of rights, PRYOR, J., (Chief Justice LEWIS concurring,) said: 'This constitutional inhibition was intended to prevent the exercise of some public function, or an exclusive privilege affecting the interests and rights of the public generally, when not in consideration of public service; and if made to apply to the exercise of mere private rights or special privileges, it nullifies almost innumerable enactments that are to be found in our private statutes, sanctioned in many instances by every department of the state government.'

The precise question here presented seems not to have been directly adjudicated by the highest court of the state. But, as the exclusive privileges granted to the Louisville Gas Company affected the rights and interests of the public generally, and related to matters of which the public might assume control, we are not prepared to say that the grant was not in consideration of public services, within the meaning of the constitution of Kentucky. We perceive nothing in the language of that instrument, or in the decisions of the highest court of that common wealth, that would justify us in holding that her legislature, in granting the exclusive privileges in question, exceeded its authority.

2. On behalf of the Citizens' Gas-light Company, it is contended that the charter of the Louisville Gas Company, granted January 30, 1867, and amended by the act of January 22, 1869, was at all times subject to alteration or repeal at the pleasure of the legislature. Assuming that the act of 1867 was not a prolongation of the corporate existence of the original Louisville Gas Compnay, but created a new corporation by the same name, it is clear that such charter was granted subject to the provisions of a general statute of Kentucky enacted on the fourteenth of February, 1856, entitled 'An act reserving power to amend or repeal charters and other laws.' That statute is as follows: 'Section 1. That all charters and grants of or to corporations, or amendments thereof, and all other statutes, shall be subject to amendment or repeal at the will of the legislature, unless a contrary intent be therein plainly expressed: provided, that while privileges and franchises so granted may be changed or repealed, no amendment or repeal shall impair other rights previously vested. Sec. 2. That when any corporation shall expire or be dissolved, or its corporate rights and privileges shall cease, by reason of a repeal of its charter or otherwise, and no different provision is made by law, all its works and property, and all debts payable to it, shall be subject to the payment of debts owing by it, and then to distribution among the members according to their respective interests; and such corporation may sue and be sued as before, for the purpose of settlement and distribution as aforesaid. Sec. 3. That the provisions of this act shall only apply to charters and acts of incorporation to be granted hereafter; and that this act shall take effect from its passage.'

The language of this statute is too plain to need interpretation. It formed a part of the charter of the new Louisville Gas Company when incorporated in 1867, and the right of the legislature, by a subsequent act, passed in 1872, to incorporate another gas company to manufacture and distribute gas in Louisville, by means of pipes laid, at its own costs, in the public ways of that city, so far from impairing the obligation of defendant's contract with the state, was authorized by its reserved power of amendment or repeal, unless it be that the act of January 22, 1869, 'plainly expressed' the intent that the charter of the new Louisville Gas Company should not be subject to amendment or repeal at the mere will of the legislature. The judges of the state court all concurred in the opinion that no such intent was plainly expressed. As this question is at the very foundation of the inquiry whether the defendant had a valid contract with the state, the obligation of which has been impaired by subsequent legislation, we cannot avoid its determination. Whether an alleged contract arises from state legislation, or by agreement with the agents of a state by its authority, or by stipulations between individuals exclusively, we are obliged, upon our own judgment, and independently of the adjudication of the state court, to decide whether there exists a contract within the protection of the constitution of the United States. Jefferson Branch Bank v. Skelly, 1 Black, 436; Wright v. Nagle, 101 U.S. 794; Railroad Co. v. Palmes, 109 U.S. 257; S.C.. 3 Sup. Ct. Rep. 193. After carefully considering the grounds upon which the state court rests its conclusion, we have felt constrained to reach a different result. We are of opinion that the act of 1869 plainly expresses the intention that the company should enjoy the rights, privileges, and franchises conferred by the act of 1867, as modified and extended by that of 1869, without its charter being subject to amendment or repeal at the will of the legislature. In ascertaining the legislative intent we attach no consequence to the negotiations between the Louisville Gas Company and the city council of Louisville as to the provisions to be embodied in any amended charter giving the company exclusive privileges from January 1, 1869; for the words of the act of 1869 being, in our opinion, clear and unambiguous, effect must be given to them according to their ordinary signification. The clause in that act declaring that 'no alteration or amendment to the charter of the gas company shall be made without the concurrence of the city council and the directors of the gas company,' plainly expresses, as we think, the intention that the company's charter should not be amended or repealed 'at the will of the legislature.' When the legislature declared that there shall be no alteration or amendment without the concurrence of the city council and the directors of the company, it must have intended to waive, with respect to that company, its absolute power reserved by the act of 1856, of amending or repealing charters of incorporations thereafter granted. The language used is wholly inconsistent with any other purpose than to withdraw the charter of that particular company from the operation of the act of 1856, so far as to make the right of amendment or repeal subject, not to the mere will of the legislature, but, in the first instance, to the concurrence of the city council and the directors of the gas company. If there can be no amendment or repeal without the concurrence of the city council and the directors of the company, then it cannot be said that such amendment or repeal depends entirely upon the will of the legislature, as declared in the act of 1856. It was as if the legislature had said: 'As the municipal government of Louisville and the company are agreed, the latter may enjoy the rights, privileges, and franchises granted by its charter for the whole term of 20 years, unless before the expiration of that period the city council and its directors concur in asking alterations or amendments, which will be made if, in the judgment of the general assembly, the public interests will be thereby promoted.'

3. But it is argued that, as the defendant's charter of 1867 conferred upon it no exclusive privileges, the granting of such privileges in the act of 1869 was without consideration, and is to be deemed a mere gratuity. To this it is sufficient to answer that, apart from the public services to be performed, the obligations of the company were enlarged by the act of 1869, and its rights under that of 1867 materially lessened and burdened in the following particulars: The amended charter limited the profits of the company to 12 per cent. per annum on the par value of its stock, 2 per cent. of which were required to be used for extensions, and not to be capitalized except at the end of each five years, while under the original charter the only limitation upon the prices to be charged private consumers was that they should not exceed the average charges in Philadelphia, Baltimore, Cincinnati, Chicago, and St. Louis; the amended charter limited the amount to be annually charged the city per lamp to $35, no matter what its actual cost was, while under the original charter the company was entitled to charge the city for the actual cost of supplying, lighting, and extinguishing lamps, not, however, exceeding the average charges in the before-mentioned cities; and by the amended charter the company was required to extend its mains when its income from lights would amount to 7 per cent. on such extensions, while under the original charter such extensions were not required unless its income therefrom would pay 8 per cent. These concessions upon the part of the company seem to be of a substantial character, and constituted a sufficient consideration to uphold the grant of exclusive privileges. If the consideration appears now to be inadequate upon a money basis, that was a matter for legislative determination, behind which the courts should not attempt to go.

4. These preliminary matters being disposed of, and without referring to some matters discussed by counsel, but not fairly arising on the pleadings, or in any evidence in the cause, it is clear that, upon the main issue, this case is determined by the principles announced in New Orleans Gas-light Co. v. Louisiana Light, etc., Co., ante, 252, just decided. For the reasons there stated, and which need not be repeated here, we are of opinion that the grant to the Louisville Gas Company by the act of January 22, 1869, amendatory of the act of January 30, 1867, of the exclusive privilege of erecting and establishing gas-works in the city of Louisville during the continuance of its charter, and of vending coal gas-lights, and supplying that municipality and its people with gas by means of public works,-that is, by means of pipes, mains, and conduits placed in and under its streets and public ways,-constitutes a contract between the state and that company the obligation of which was impaired by the charter of the Citizens' Gas-Light Company. The charter of the latter company is therefore inoperative, in respect of these matters, until, at least, the exclusive privileges granted the Louisville Gas Company cease, according to the provisions of its charter. As the object of the plaintiff's suit was to obtain a decree enjoining the defendant from claiming and exercising the exclusive privileges so granted to it, the judgment of the Louisville chancery court dismissing the bill should have been affirmed by the court of appeals. The judgment of the latter court, reversing that of the court of original jurisdiction, is itself reversed, and the cause remanded for further proceedings not inconsistent with this opinion. Reversed.