Mercantile Trust Deposit Company of Baltimore v. Columbus/Opinion of the Court

The sole question arising herein is whether the Federal circuit court had the jurisdiction to determine the issue involved. That question alone has been certified to this court by the circuit court, under the provisions of the 5th section of the act of Congress of 1891. [26 Stat. at L. 827, chap. 517, U.S.C.omp. Stat. 1901, p. 549.] The grounds of the dismissal of the bill are set forth in the foregoing statement of facts.

Whether this case comes within the principle laid down by this court in Dawson v. Columbia Ave. Sav. Fund, S. D. Title & T. Co. 197 U.S. 178, 49 L. ed. 713, 25 Sup. Ct. Rep. 420, upon the question of diversity of citizenship, it is unnecessary to determine, because there is, in our opinion, a Federal question involved, which gave the circuit court jurisdiction to determine the case without reference to citizenship. It is averred in the bill that by reason of the passage of the ordinance of the common council of the city and the act of the legislature of Georgia, passed December 3, 1902, the obligation of the contract set forth in the bill was impaired. It is part of the duty of the Federal courts, under the impairment of the obligation of contract clause in the Constitution, to decide whether there be a valid contract and what its construction is, and whether, as construed, there is any subsequent legislation, by municipality or by the state legislature, which impairs its obligation. That the ordinance of the common council of a municipal corporation may constitute a law within the meaning of this constitutional clause is too well settled to admit of doubt. St. Paul Gaslight Co. v. St. Paul, 181 U.S. 142, 148, 45 L. ed. 788, 791, 21 Sup. Ct. Rep. 575; Davis & F. Mfg. Co. v. Los Angeles, 189 U.S. 207-216, 47 L. ed. 778-780, 23 Sup. Ct. Rep. 498. The contract in this case provided in terms for the exclusive privilege of supplying water to the city and its inhabitants for thirty years from the date of its completion. By the ordinance of the city of 1902 the city insisted that the water company had totally failed to fulfil its contract to supply water to the city and its inhabitants. Such ordinance then went on and proposed to the electors an ordinance, the material portions of which have been set forth in the foregoing statement.

The act of the legislature, passed the day before the day of the election, is also referred to in the statement and some of its material provisions are mentioned.

The ordinance and the act should properly be considered together, and they evidently contemplate an immediate execution of the work in case the electors assented to the issuing of the bonds. If the provisions of the ordinance and act were carried out, the effect, of course, could be none other than disastrous to the water company, as the obligations of the contract (if any) would thereby be so far impaired as to render the contract of no value. The source of the ability of the water company to pay the interest on its bonds, and the principal thereof, as they became due, was, by this ordinance and act, entirely cut off.

Was not this legislation, and legislation of a kind materially to impair the obligation of the contract then existing, and not only to impair, but to wholly destroy its value? We are not called upon now to say whether the exclusive right for thirty years, granted to the water company by the contract to supply the city with water, was legal and valid, because that is a part of the question whether the obligation of the contract has been impaired by the subsequent ordinances of the city and the laws of the state. It cannot be determined that there is an impairment of the obligation of a contract until it is determined what the contract is, and whether it is a valid contract. If it be valid, it still remains to be determined whether the subsequent proceedings of the city council and legislature impaired its obligation. The ordinance and act were not mere statements of an intention on the part of one of the parties to a contract not to be bound by its obligations. Such a denial on the part, even of a municipal corporation, contained in an ordinance to that effect, is not legislation impairing the obligation of a contract. St. Paul Gaslight Co. v. St. Paul, 181 U.S. 142, 45 L. ed. 788, 21 Sup. Ct. Rep. 575. It was stated in that case that the ordinance in question 'created no new right or imposed no new duty substantially antagonistic to the obligations of the contract, but simply expressed the purpose of the city not in the future to pay the interest on the cost of construction of the lamp posts which were ordered to be removed. . . . When the substantial scope of this provision of the ordinance is thus clearly understood, it is seen that the contention here advanced of impairment of the obligations of the contract arising from this provision of the ordinance reduces itself at once to the proposition that wherever it is asserted, on the one hand, that a municipality is bound by a contract to perform a particular act, and the municipality denies that it is liable under the contract to do so, thereby an impairment of the obligations of the contract arises, in violation of the Constitution of the United States. But this amounts only to the contention that every case involving a controversy concerning a municipal contract is one of Federal cognizance, determinable ultimately in this court. Thus, to reduce the proposition to its ultimate conception is to demonstrate its error.'

In the case at bar the conditions are entirely different. There was not merely a denial by the city of its obligation under the contract, but the question is whether there were not new and substantial duties in positive opposition to those contained in the contract created and their performance provided for by the ordinances and act. The act of the legislature aided the city by granting it power to itself erect waterworks and to issue bonds in payment of the cost thereof, and the city was proceeding to avail itself of the power thus granted, when its progress was arrested by the filing of the bill in this case and the issuing of a temporary injunction. It would seem as if the case were really within the principle decided in Walla Walla v. Walla Walla Water Co. 172 U.S. 1, 43 L. ed. 341, 19 Sup. Ct. Rep. 77; Vicksburg Waterworks Co. v. Vicksburg, 185 U.S. 65, 46 L. ed. 808, 22 Sup. Ct. Rep. 585, 202 U.S. 453, 50 L. ed. 1102, 26 Sup. Ct. Rep. 660; Davis & F. Mfg. Co. v. Los Angeles, 189 U.S. 207, 47 L. ed. 778, 23 Sup. Ct. Rep. 498; Knoxville Water Co. v. Knoxville, 200 U.S. 22, 50 L. ed. 353, 26 Sup. Ct. Rep. 224. In the last-cited case the water company contended that the agreement mentioned in that case constituted a contract, for which it acquired for a given period the exclusive right to supply water to the city and its inhabitants, and it insisted that the obligation of this contract would be impaired if the city, acting under the acts of the legislature and under the ordinance mentioned, established and maintained an independent and separate system of waterworks in competition with those of the water company. It was held that such a question was one arising under the Constitution of the United States, and that the Federal circuit court had jurisdiction thereof without regard to the citizenship of the parties. It must be remembered that in the case before us the sole question is whether the Federal circuit court had jurisdiction to determine the case, and we are not now concerned with the question as to how the matter should be determined, but only whether the circuit court had jurisdiction to determine it. As stated in Vicksburg Waterworks Co. v. Vicksburg, 185 U.S. 65, at page 82, 46 L. ed. 808, at page 815, 22 Sup. Ct. Rep. 585, at page 592, in speaking of the question of jurisdiction: 'We do not wish to be understood as now determining such questions in the present case, for we are only considering whether or not the circuit court had jurisdiction to consider them.'

Concluding that the court below had such jurisdiction, because it presents a controversy arising under the Constitution of the United States, the judgment of the Circuit Court is reversed, and the case remanded to that court to take proceedings therein according to law.

Reversed.