Louisville v. Cumberland Telephone & Telegraph Company Franchiserevocation/Opinion of the Court

1. Under the present Constitution of Kentucky, street franchises cannot be granted for longer than twenty years, and then only to the highest bidder, after public advertisement by the city authorities. But in 1886, when the Ohio Vally Telephone Company was chartered, the legislature not only had the sole right to create corporations and to grant franchises, but, without municipal consent, it could have authorized the company to use any and all streets in the city of Louisville. Instead, however, of exercising this plenary power, the charter declared that the company might maintain its telephone system, erect poles and string wires over the streets and highways of the city, with and by the consent of the general council. These provisions of the charter gave the municipality ample authority to deal with the subject, and by virtue of this statutory power it could have imposed terms, which the company might have been unable or unwilling to accept; in which event the franchise granted by the state would have been nugatory. But, when the assent was given, the condition precedent had been performed, the franchise was perfected, and could not thereafter be abrogated by municipal action. For, while the city was given the authority to consent, the statute did not confer upon it the power to withdraw that consent, and no attempt was made to reserve such a right in the collateral contract contained in those provisions of the ordinance relating to the company's giving a bond and carrying the police and fire wires free of charge. If those or other terms of this independent and separate contract had been broken by the Ohio Valley Company or its successors, the city would have had its cause of action. But the municipality could not by an ordinance impair that contract nor revoke the rights conferred. Those charter franchises had become fully operative when the city's consent was given, and thereafter the company occupied the streets and conducted its business, not under a license from the city of Louisville, but by virtue of a grant from the state of Kentucky. Such franchises granted by the legislature could not, of course, be repealed, nullified, or forfeited by any ordinance of a general council.

2. In 1891 a new Constitution was adopted by the state of Kentucky, conferring upon municipalities the right to grant street franchises, and later, under the reserve power, a statute was passed repealing all special corporate privileges. It is claimed that, in consequence of these laws, the street rights granted the Ohio Valley Telephone Company have been withdrawn, or at least made subject to municipal revocation. But we find in the cited sections of the Constitution (156, 163, 164, and 199) and the statutes (573, 2742, 2783, and 2825) nothing which sustains this contention, which if correct, would lead to the conclusion that all structures theretofore lawfully placed in city streets by water, light, telephone, railway, and other public utility companies became nuisances, and as such were removable after September, 1898, to the damage of the community at large and the destruction of property of immense value dedicated to public purposes. The general repeal of all special privileges, referred to in the statute, related to exclusive grants, tax exemptions, monopolies, and similar immunities (Ky. Stat. § 573; Covington v. Kentucky, 173 U.S. 231, 43 L. ed. 679, 19 Sup. Ct. Rep. 383), and not to those corporate powers and property rights needed and conferred in order to enable the company to perform the duties for which it had been organized. For, while this charter conferred privileges, it also created obligations in favor of the public, and no attempt was made by the general law to repeal the rights which had vested, nor to relieve the company of the burden which had been imposed.

3. The provisions of the Constitution and statutes relied on as revoking licenses from municipalities, or as conferring power upon cities to repeal grants, are in the main prospective, and do not in any event support the claim that the general council can destroy the rights granted the Ohio Valley Telephone Company, whether they be treated as having been acquired under the charter of April 3, 1886, or under the ordinance of August 17, 1886. On the contrary, the Constitution of 1891, while limiting for the future the power to sell street franchises, distinctly protected the interests of those public-utility companies 'whose charters have been heretofore granted, conferring such rights, and work has in good faith been begun thereunder.' Inasmuch, therefore, as the charter of the Ohio Valley Telephone Company was granted and as the exchanges were in operation before the adoption of the Constitution, that company's rights are expressly preserved by the organic law of the state.

4. The Ohio Valley Company, thus owning the right to use the streets for telephone purposes, was consolidated on January 27, 1900, into the Cumberland Telephone & Telegraph Company, the appellee, and the latter claims that, as successor, it acquired and now holds these privileges. This is denied by the city on the ground that while the statute, then of force, provided for the transfer of the 'property' of the constituent companies, it was not until the amendment of 1902 that provision was made by which their 'franchises' could pass to the consolidated company.

It is not necessary to determine whether that amendment was intended to supply an omission, remove a doubt, or to ratify the transfer and use under this and prior mergers. City R. Co. v. Citizens' Street R. Co. 166 U.S. 569, 41 L. ed. 1118, 17 Sup. Ct. Rep. 653. For while franchises to be are not transferable without express authority, there are other franchises to have, to hold, and to use, which are contractual and proprietary in their nature, and which confer rights and privileges which can be sold wherever the company, as here, has power to dispose of its property. In the present case the Ohio Valley Company was by its charter given authority to mortgage and dispose of franchises. Among those thus held was the right to use the streets in the city for the purpose necessary in conducting a telephone business. Such a street franchise has been called by various names,-an incorporeal hereditament, an interest in land, an easement, a right of way, but, howsoever designated, it is property. Detroit v. Detroit Citizens' Street R. Co. 184 U.S. 394, 46 L. ed. 610, 22 Sup. Ct. Rep. 410; Louisville City R. Co. v. Louisville, 8 Bush, 415; West River Bridge Co. v. Dix, 6 How. 507, 534, 12 L. ed. 535, 546; Morristown v. East Tennessee Teleph. Co. 53 C. C. A. 132, 115 Fed. 304, 307. Being property, it was taxable, alienable, and transferable; and, as property, passed to the Cumberland Telephone & Telegraph Company under the express provisions of the Kentucky statute, which, as of force in 1900, declared that the consolidated company should be 'vested with all the property, business, assets, and effects of the constituent companies, without deed or transfer, and bound for all their contracts and liabilities.'

That the street rights, however designated, passed to the Cumberland Company, is the natural and obvious construction of the act. The plant and property of a telephone company are useless when dissevered from the streets, and there would, in effect, have been no property out of which to pay the debts or with which to perform the public duties imposed if the street rights of the constituent companies had not been transferred by the statute to the consolidated company. The Constitution (§§ 199 and 200), in providing for the incorporation and consolidation of telephone companies, evidently contemplated, as did the statute, that on this statutory union there should be a transfer of that franchise, right of way or property, which alone gave value to the plant, thereby preserving the investment which had been made for purposes of private gain and public use. The city itself so construed the general law, and thereupon demanded from the Cumberland Company, as successor of the Ohio Valley Company, the bond for $50,000 called for in the ordinance of August 17, 1886. The company, in pursuance of the collateral contract contained in the ordinance, and of the requirements of the consolidation statute, carried the police and fire wires of the city free of charge. With the knowledge and acquiescence of the city, and in reliance on the statutory conveyance of the street rights, the Cumberland Company, at an expense of more than a million dollars, erected many new poles, laid additional conduits, and strung miles of wire in extending and improving the telephone system. This action of the council could not enlarge the charter grant, but did operate to estop the city (Boone County v. Burlington & M. River R. Co. 139 U.S. 693, 35 L. ed. 322, 11 Sup. Ct. Rep. 687), from claiming that the ordinance was inoperative, and it also prevented the council from denying that the Cumberland Company had succeeded to every right and obligation of the Ohio Valley Company.

5. The appellant makes the further contention that its general demurrer should have been sustained and the bill dismissed because the original grant of street rights, having been indefinite as to time, was either void ab initio, or revocable at the will of the general council, or that it expired in 1893, when (Ky. Stat. § 2742) Louisville was made a city of the first class, with new and enlarged power. In support of this proposition numerous decisions are cited, in some of which it appeared that a state had chartered a public-utility corporation, but the city by ordinance, had given an exclusive or perpetual grant of a street franchise which was held to be void, because made in excess of the statutory power possessed by the municipality. In others the company had been incorporated for thirty years, and the street right was held to have been granted only for that limited period. In others, it was decided that such privileges terminated with the corporate existence of the municipality through whose streets the rails and tracks were to be laid. Detroit Citizens' Street R. Co. v. Detroit R. Co. 171 U.S. 48, 54, 43 L. ed. 67, 71, 18 Sup. Ct. Rep. 732; St. Clair County Turnp. Co. v. Illinois, 96 U.S. 63, 24 L. ed. 651; Blair v. Chicago, 201 U.S. 400, 50 L. ed. 801, 26 Sup. Ct. Rep. 427; 3 Dill. Mun. Corp. §§ 1265-1269.

None of these decisions are applicable to a case like the present, where the Ohio Valley Telephone Company, with a perpetual charter, has received, not from the municipality, but from the state of Kentucky, the grant of an assignable right to use the streets of a city which remains the same legal entity, although by a later statute it has been put in the first class and given greater municipal powers. Vilas v. Manila, 220 U.S. 345, 361, 55 L. ed. 491, 497, 31 Sup. Ct. Rep. 416.

In considering the duration of such a franchise it is necessary to consider that a telephone system cannot be operated without the use of poles, conduits, wires, and fixtures. These structures are permanent in their nature and require a large investment for their erection and construction. To say that the right to maintain these appliances was only a license, which could be revoked at will, would operate to nullify the charter itself, and thus defeat the state's purpose to secure a telephone system for public use. For, manifestly, no one would have been willing to incur the heavy expense of installing these necessary and costly fixtures if they were removable at will of the city, and the utility and value of the entire plant be thereby destroyed. Such a construction of the charter cannot be supported, either from a practical or technical standpoint.

This grant was not at will, nor for years, nor for the life of the city. Neither was it made terminable upon the happening of a future event; but it was a necessary and integral part of the other franchises conferred upon the company, all of which were perpetual, and none of which could be exercised without this essential right to use the streets. The duration of the public business in which these permanent structures were to be used, the express provision that franchises could be mortgaged and sold, then nature of the grant, and the terms of the charter as a whole, compel a holding that the state of Kentucky conferred upon the Ohio Valley Telephone Company the right to use the streets to the extent and for the period necessary to enable the company to perform the perpetual obligation to maintain and conduct a telephone system in the city of Louisville. Such has been the uniform holding of courts construing similar grants to like corporations. Milhau v. Sharp (1863) 27 N. Y. 611, 84 Am. Dec. 314; State, Hudson Teleph. Co., Prosecutor, v. Jersey City, 49 N. J. L. 303, 60 Am. Rep. 619, 8 Atl. 123; Mobile v. Louisville & N. R. Co. 84 Ala. 122, 5 Am. St. Rep. 342, 4 So. 106; Seattle v. Columbia & P. S. R. Co. 6 Wash. 392, 33 Pac. 1048; People ex rel. Woodhaven Gaslight Co. v. Deehan, 153 N. Y. 528, 47 N. E. 787. The earlier cases are reviewed in Detroit Citizens' Street R. Co. v. Detroit, 26 L.R.A. 667, 12 C. C. A. 365, 22 U.S. App. 570, 64 Fed. 634, which was cited with approval in Detroit v. Detroit Citizens' Street R. Co. 184 U.S. 395, 46 L. ed. 610, 22 Sup. Ct. Rep. 410, this court there saying that 'where the grant to a corporation of a franchise to construct and operate its road is not, by its terms, limited and revocable, the grant is in fee.'

The right to conduct a telephone exchange and to use the streets of the city of Louisville, which had been vested by law in the Cumberland Telephone & Telegraph Company, could not be impaired or forfeited by an ordinance of the general council; nor had it expired by lapse of time or under any provision of law when the bill was filed. The Circuit Court properly made the injunction permanent, and its decree is affirmed.