Wyandotte County Gas Company v. Kansas ex rel. Marshall/Opinion of the Court

The supreme court of the state of Kansas, with a modification to which it is not necessary to refer, affirmed a decree of the district court of Wyandotte county, Kansas, enjoining the plaintiff in error, the Wyandotte County Gas Company, from charging domestic consumers in the cities of Kansas City, Kansas, and Rosedale, Kansas, for natural gas furnished, any sum in excess of 25 cents per thousand cubic feet. To such decree this writ of error is directed, and the Federal ground relied upon for reversal is the existence of contract rights in favor of the Gas Company, which it is insisted were impaired by the action of the court below.

The price which the court below sustained was lower than the rate charged by the Gas Company, and was in effect a statutory rate, since a state law fixed the rate, and forbade the charging of a higher rate without the consent of the State Utilities Commission, which consent the Gas Company, under the theory that its contract relieved it from doing so, had not sought to obtain.

The court below rested its conclusion upon the grounds, first, that the company had no contract rights fixing rates which were impaired by enforcing the lower rate fixed in the subsequent state law, and second, that if the city had agreed with the company to fix contract rates, the action of the city was void, since the city possessed no authority to make a contract limiting its power to fix reasonable rates for the future. As the question of power, which the last proposition involves, lies at the foundation of the case, we come first to consider it, indulging, for the sake of argument, in the hypothesis that the city contracted with the company for fixed rates during a stated period, which contract would be impaired if the subsequent legislation here complained of was enforced.

At the outset it is certain that the determination of the question of power involves a consideration and construction of the law of the state from which the city derived its authority. While, indeed, that fact does not relieve us from the duty of determining for ourselves the scope and character of the asserted contract, it is yet elementary doctrine that, in the discharge of such duty, it is incumbent upon us not to lightly disregard the construction put by the court below upon the statutes of the state, but to seek to uphold such construction as far as it can be done consistently with the obligation to independently determine whether a contract exists which, in disregard of the Constitution, has been impaired by subsequent legislation.

The alleged contract arises from the passage in 1904 by the city of ordinance 6051, and action taken thereunder. The question of power is to be determined by a consideration of a comprehensive state law adopted in 1903, regulating cities of the first class, of which Kansas City was one. This law was incorporated in the general statutes of Kansas for 1905, and in referring to it we quote the section numbers as found in the act of 1905, putting in brackets the section numbers of the law of 1903, as originally adopted. Under the heading of 'General Provisions' in the 4th paragraph of § 734 (2) cities of the first class were empowered 'to make all contracts and do all other acts in relation to the property and concerns of the city necessary to the exercise of its corporate or administrative powers.'

Under the heading of 'Legislative Department, Powers of the Mayor and Council,' it was provided in § 784 (51):

'Rates for Water, Light, etc. § 51.-To prescribe and fix maximum rates and charges, and regulate the collection of the same, for all water, electric light, heat, power, gas, telephone service, or any other commodity or service furnished to such city or to any of the inhabitants thereof by any person or corporation now authorized by such city by virtue of a franchise ordinance, or that may hereafter be authorized by virtue of a franchise ordinance to furnish water, electric light, heat, power, gas, or telephone service, or any other commodity or service, to such city or to its inhabitants. The rates and charges so prescribed shall at all times be reasonable and just; and if any city shall fix unreasonable and unjust rates and charges, the same may, at the instance of any producer or consumer, be reviewed and determined by the district court of the county in which such city is situated.'

Under the heading of 'Public Utilities,' § 902 (167), authority was given for the securing of an adequate supply of water and the granting of franchises to that end, as well as of contracting for laying pipes, etc., etc. The section contained the following provision as to rates: 'Provided further, that. . . the mayor and council of any such city shall at all times during the existence of any such grant, contract, or privilege have the right by ordinance to fix a reasonable schedule of maximum rates to be charged for water for public and private purposes by any such person, company, or corporation. Provided, however, That said mayor and council shall at no time fix a rate which will prohibit such person, company, or corporation from earning at least 8 per cent on its capital invested over and above its operating expenses and expenses for maintenance and taxes. In establishing and fixing such rates, the value of the plant and property of any such person, company, or corporation shall be taken into consideration, but the value of such franchise, contract, and privilege given and granted by the city to such person, company, or corporation shall not be taken into consideration in ascertaining the reasonableness of the rates to be charged to the inhabitants of such city.'

Moreover, the section, after directing that a contract should be reduced to writing, contained the following:

'and any attempt to evade, directly or indirectly, the requirements of this act as to such consideration, or the obligations and conditions of such contract, shall render such contract and franchise absolutely null and void and inoperative.'

By § 904(169) the same general power was given to make contracts and grant franchises, etc., concerning heat, light, power, and street railway franchises, as was conferred, as above stated, for the purpose of obtaining a water supply; but as to the authority to fix rates by contract, the power was limited by a restriction in substance the same as that which was imposed upon the right to contract for rates for the purposes of a water supply, since by § 905 (170) the right of the city in that respect was expressly reserved to

'at all times during the existence of any such grant, contract, or privilege. . . to fix a reasonable schedule of maximum rates to be charged for public and private purposes, including street lighting by any such person, company, or corporation, to the inhabitants of any such city, for gas light, electric light, electric power, or heat, and the rates of fare on any street railway.'

Section 906 (170a) contained regulations as to the period of the contract which might be made and other general regulations, and closed with the provision which is inserted in the margin.

Considering these statutory provisions, the court below (88 Kan. 165, 127 Pac. 639) decided that they did not authorize the city to devest itself by contract of its duty to see that nothing but reasonable rates were enforced, however much the statute might have as to other subjects conferred upon the city an authority to contract in the complete sense. Looking comprehensively at the provisions in question, in the light of the duty resting on us to which at the outset we referred, not lightly to disregard the construction which the state court of last resort has given to the statutes of the state, we can see no ground for holding that the court erred in its conclusion. Conceding that there are forms of expression used in the statute which, taken isolatedly, might be considered as having conferred the power to fix a contract rate, such concession is not decisive, since we must consider the statute as a whole. And

Nothing in this act shall be construed as prohibiting any city governed and controlled by the provisions of this act from granting, and the mayor and council of any such city are hereby authorized to grant, to any person, company, or corporation, a franchise to construct, maintain, and operate a natural gas plant for the purpose of furnishing to said city and its inhabitants natural gas for lights, fuel, and all other purposes, with authority to lay and maintain all necessary mains and pipes in the streets, avenues, alleys, and public grounds of said city on such terms and conditions as may be agreed to by said mayor and council and such person, company, or corporation: Provided, That such franchise shall not continue for a longer period than twenty years. when we do so, we think to divorce the expressions referred to from the context, would be not to interpret and apply, but to distort the statute. Especially is this conclusion necessary when the broad scope of the provisos which we have quoted is taken into view, since they in effect forbid the making of contract rates as to both water and gas by commanding that the governmental power to see to it that only reasonable rates are exacted shall be perpetually preserved and exerted. In face of such a plain manifestation of the legislative will, it would be a departure from the obvious intent and purpose of the lawmaker to hold that the statute conferred the power to do that which the text makes it apparent there was a dominant and fixed purpose of the legislature to forbid. This conclusive view also applies to the special provision concerning natural gas. We say this because, as obviously the prior sections of the statute embraced only manufactured gas, the provision as to natural gas was rendered necessary in order to give the same power to deal with that subject as was conferred concerning manufactured gas. In other words, on its face, the purpose of the provision was to bring natural gas within the statute, subject to the regulations and limitations which the statute imposed, and it could not therefore have been intended to cause dealings concerning natural gas to be for the purpose of power conferred within the statute, and at the same time to exclude the conferred authority from the safeguards and regulations which the statute exacted. The bringing of natural gas within the power, therefore, caused it to be subject to the limitations which the statute imposed, and which, as we have seen, rendered it impossible to contract away the governmental power to forbid unreasonable and secure reasonable rates.

Affirmed.