Water, Light & Gas Company of Hutchinson, Kansas v. Hutchinson

The ultimate question in these cases is the validity of ordinance No. 402 of the city of Hutchinson, which took effect March 17, 1897, and by which the Water, Light, & Gas Company claims to have, for the period of twenty years from such date, the exclusive right and privilege of supplying the city and its inhabitants with water, and with light, heat, and power by means of electricity and gas.

On the 19th of December, 1905, the city enacted and published ordinance No. 651, granting permits to Emerson Carey and others, their successors and assigns, to construct and operate a street railway in and along the streets of the city, and to construct and operate electric and gas plants for the purposes for which electricity may be used.

These suits were brought to command the city and those claiming under ordinance No. 651, to 'desist from doing any acts or exercising any pretenses of right to act' under the ordinance which will in anywise affect the exclusive right of the Water, Light, & Gas Company 'to furnish the city and its inhabitants with electric or gas light for lighting and heating purposes or power, except for street cars and electric railways, and also from making or proceeding to make any contract for furnishing light or gas to said city and its inhabitants' until the expiration of the 'franchises and contracts' of that company.

The cases went off on demurrers to the bills. The circuit court, assuming that ordinance No. 402 was exclusive in its terms and was intended to be so by the city, held that the city did not possess the power, either inherent or under the law of its creation, to make a contract binding and exclusive of all others, and entered decrees dismissing the bills. 144 Fed. 256.

The facts are: In 1885 the city granted to the Holly Manufacturing Company, its successors and assigns, an exclusive right to build and operate waterworks for twenty years. The company erected and operated the works until the subsequent assignment of its rights.

In the same year the city granted to the Interstate Gas Company the right to erect and maintain gas works for the period of twenty-one years; and in 1886 granted to Drake and Orton the right for the period of twenty years to construct and operate an electric light plant. The latter right, and those granted to the two companies, passed by successive assignments, with the knowledge and consent of the city, to the Water, Light, & Power Company, and existed in that company at the time of the passage of ordinance No. 402.

The various companies expended in the aggregate on the construction of their plants and equipment $400,000, to secoure which the Hutchinson Water, Light, & Power Company executed a mortgage upon all the water, light, and gas rights and franchises and properties.

Subsequently, the city became financially embarrassed, so that before the year 1897 it had become indebted for hydrant rentals in the sum of $12,800 in excess of its ability to pay.

On account of this default of the city the company became embarrassed and hindered in the payment of interest on its mortgage, and its mortgage bondholders took possession of its property, and operated the plant during the year 1896 and until the readjustment of its affairs in the spring of 1897, resulting in the passage of ordinance No. 402.

By reason of its embarrassment the company found it expedient to scale down its bonded indebtedness and secure a new franchise from the city, and in ocnsideration of securing the same, and the readjustment of the contract obligations between the company and the city, the bondholders agreed to reduce and scale down their mortgage indebtedness from $400,000 to $212,500.

On March 5, 1897, at the earnest and repeated solicitation of the city, and in consideration of its inability to discharge its past indebtedness to the company and to pay the current indebtedness thereafter, the company agreed with the city to remit one half of the indebtedness then due; that is, to scale it down to $6,400, and to reduce the sum thereafter annually payable for hydrant rental from $12,800 to $6,000 for the years of the contract, and to reduce the rental for hydrants thereafter located from $60 to $36, and reduce the number of hydrants from twelve to ten per mile. These concessions and abatements were made on the condition of a renewal and extension of the franchise and contract rights of the company. And the city was to have, what it did not have before, the right to purchase or otherwise acquire the light and gas properties at any time after ten years from the date of the renewal and adjustment. In view of these considerations and in pursuance of them the city passed ordinance No. 402, to take effect March 17, 1897, and by that ordinance 'granted to the company, its successors and assigns, for the period of twenty years from said date, the exclusive privilege of supplying the city and its inhabitants with the public utilities of water, light, heat, and power by means of electric current and gas.' But it was agreed that the right for furnishing electric current or power should not be exclusive as to or for the operation of street railways, nor exclusive as to any person residing in the city, or any company doing business therein manufacturing gas or electricity for his or its own use for light or fuel. A copy of the ordinance was attached to and made part of the bill. The concessions and abatements would not have been made by the company except for the consideration of the exclusive rights and privileges granted; and the total of the reductions of monetary demands made for what was due and to become due for the period the water franchise had to run amounted to $65,240, which the company remitted from its contract rights and demands against the city. The mortgage bondholders of the Water, Light, & Power Company, for the purpose of effectuating the promises and agreements between the company and the city contained in ordinance No. 402, scaled down their indebtedness from $400,000 to $212,500, and canceled their mortgage, and accepted a substitute mortgage on the property, franchise, and contracts and on its income of $212,500.

The Water, Light, & Power Company, on the 4th of October, 1902, sold and transferred to the Water, Light, & Gas Company, the complainant, all of its property rights and franchise, and complainant has since that date been in possession of the same, and in the fulfilment of the duties and obligations imposed on it by its purchase and said ordinance liabilities with the consent of the city, and the city has ratified and approved the same, and contracted and dealt with the complainant as the successor of the Water, Light, & Power Company. The Water, Light, & Gas Company has, since its purchase, expended large sums of money in the improvement and enlargement of its properties and the service rendered by it, and has, under the direction and order of the city, extended its water mains and placed hydrants upon such extensions, and, as agreed by it, has reduced the number of hydrants on its extended mains from twelve to ten per mile, and generally has complied with the orders and requests of the city, whether or not under the ordinance No. 402 it was required to comply with such orders, all of which was done in reliance on the obligations of the city and its good faith in carrying out all the terms and conditions and provisions of ordinance No. 402; but the city, notwithstanding, through its mayor and councilmen, on or about the 19th of December, 1905, enacted and published ordinance No. 651, by which it assumed to grant to Emerson Cary and others the right and privilege, for the term of twenty years thereafter, of establishing and operating in the city a plant and appliances for the manufacture and sale to the city and its inhabitants of electric light and power and manufactured factured and natural gas, with the right and privilege to lay and construct gas mains and pipes and erect poles and wires and all other things necessary to the maintenance of said public service in the streets, alleys, and public places of the city, in opposition to the business of complainant.

It is alleged that ordinance No. 402 constitutes a contract between the city and the complainant in respect to all the rights secured, and in particular in respect to the exclusive rights and privileges thereby conferred, and that the city, by and through ordinance No. 651, illegally and inequitably impairs the same, in violation of the provisions of the Constitution of the United States, which forbids the impairment of the obligation of contracts by the several states of the Union.

Neither the city nor any of the grantees in ordinance No. 651 have paid or tendered complainant the monetary abatement, or the reductions and concessions paid or secured to the city in consideration of the enactment of ordinance No. 402, or to secure complainant from loss from the competition of the rival public service association or company. At the time the public service enterprises were undertaken by the grantors of complainant the city of Hutchinson had about 5,000 inhabitants, and, at the time complainant succeeded to their rights, about 10,000; and at both of said times it would have been impossible, and is now impossible, to maintain rival or competing companies in the city so as to enable either to earn a fair and reasonable income on the cost of their respective properties, and at none of the times when the complainant or its grantors undertook the work of furnishing said public necessities would it or they have done so without being secured in the enforcement thereof for a reasonable time against the competition of rival companies, nor could the large sums of money have been obtained therefor except under like security. The company has not, up to this time, and will not for many years to come, have secured the repayment of the purchase price of said public service and the cost of the betterments, extensions, and improvements.

The company alleges that it does not seek to prevent the granting by the city of a franchise or contract for the erection and maintenance of an electric railway in the city or elsewhere.

An injunction was prayed against the doing or exercising any pretenses of right under ordinance No. 651 which would in any way affect the exclusive rights of the company to furnish electricity and gas for lighting and heating purposes.

Messrs. John F. Dillon, Frank Doster, Harry Hubbard, Houston Whiteside, and Howard S. Lewis for appellant.

[Argument of Counsel from pages 390-392 intentionally omitted]

Messrs. Max Pam, C. M. Williams, A. C. Malloy, and F. F. Prigg for appellees.

Mr. Justice McKenna delivered the opinion of the court: