Bartholomew v. City of Austin

85 F. 359, 29 C.C.A. 568, 1898 U.S. App. LEXIS 2165

Opinion

PARDEE, Circuit Judge,

after stating the facts as above, delivered the opinion of the court.

The contract on which this action is based is a grant and privilege for a period of 20 years to the City Wafer Company to supply water to the city of Austin, and the inhabitants thereof, with the right of extension under certain named contingencies. The grant is not in terms an exclusive one, and, so far as the language used is concerned, there is nothing to hinder the city of Austin from erecting other and competing works, nor from granting to others the right to use the streets, nor from contracting with others for the furnishing of more water, as the needs of the city may require. It is very well settled that, in contracts with states or municipalities conferring powers, grants, or privileges on private corporations affecting the general rights and interests of the public, the grant or privilege must be clearly conferred, all implications, doubts, and ambiguities being resolved against the grant or privilege claimed. Richmond, F. & P. R. Co. v. Louisa R. Co., 13 How. 71, 81; Rice v. Railroad Co., 1 Black, 358, 380; Bank v. Skelly, Id. 436, 446; Stein v. Supply Co., 141 U. S. 67, 80, 11 Sup. Ct. 892.

In the leading case of Richmond, F. & P. R. Co. v. Louisa R. Co., supra, the proposition is thus stated:

. “This act contains the grant of certain privileges by the public to a private corporation, and in a matter where the public interest is concerned: and the rule of construction in all such eases is now fully,established to be this: That any ambiguity in the terms of the contract must operate against the corporation, and in favor of the public, and the corporation can claim nothing but what is clearly given by the act.”

In the late case of Stein v. Supply Co., supra, it is said:

“If the contract under which the plaintiff claims was doubtful in its moaning, the result would not be different; for, while it is the duty of the courts not to defeat the" intention of parties to a contract by a strained interpretation of the words employed by them, it is a settled rule of construction that, ‘in grants by the public, nothing- passes by implication’; and ‘if, on a fair reading of the instrument, reasonable doubts arise as to the proper interpretation to be given to it, those doubts are to be solved in favor of the state; and, where it is susceptible of two meanings, the one restricting and the other extending the powers of the corporation, that construction is to be adopted which works the least harm to the stale.’ In re Binghamton Bridge, 3 Wall. 51, 75. Guided by this rule, in respect to which there is no difference of opinion in the courts of this country, ■we are forbidden to hold that a grant, under legislative authority, of an exclusive privilege, for a term of years, of supplying a municipal corporation and its people with water drawn by means of a system of waterworks from a particular stream or river, prevents the state from granting to other persons the privilege of supplying, during the same period, the same corporation and people with water, drawn in like manner from a different stream or river.”

A “monopoly,” as understood in law, is defined by Mr. Justice Story as “an exclusive right granted to a few of something which was before of common right,” — citing 4 Bl. Comm. 159; Bac. Abr. “Prerogative," F 4; and quoting Lord Coke in his Pleas of the Crown (3 Inst. 181), to the effect that a monopoly is “an institution by the king, by his grant, commission, or otherwise, to any persons or corporations, of or for the sole buying, selling, making, working, or using of everything, whereby any persons or corporations are sought to be restrained of any freedom or liberty they had before, or hindered in their lawful trade”; and concluding that “it is not the case of a monopoly if the subjects had not the common right or liberty before to do the act, or possess or enjoy the privilege or franchise granted as a common right.” Charles River Bridge v. Warren Bridge, 11 Pet. 419, 607.

Of course, if the contract under consideration is not exclusive, it can in no‘ sense be taken as a monopoly, and, even if it be an exclusive contract, it would seem that, under the definition of Mr. Justice Story, it cannot be considered as granting a monopoly in law.

The case of New Orleans Gaslight Co. v. Louisiana Light & Heat Producing & Manufacturing Co., 115 U. S. 650, 6 Sup. Ct. 252, arose from the conflicting interests of two gas companies, the older of which had been granted, in express terms, an exclusive privilege of supplying the city of New Orleans and the peojile thereof with gas, and the suit was to enjoin the junior company from building its works to compete with complainant’s. Mr. Justice Harlan, the organ of the court in that case, uses language as follows:

“Legislation of that character is not liable to the objection 1ha.t it is a mere monopoly, preventing citizens from engaging in an ordinary pursuit or business, open as of common right to all, upon terms of equality: for the right to dig up tlie streets and other public ways of New Orleans, and place therein pipes and mains, for the distribution of gas for public and private use, is a franchise, the privilege of exercising which could only lie granted by the state, or by the municipal government of that city acting- under legislative authority. Dill. Mun. Corp. (3d Ed.) § 691; State v. Cincinnati Gaslight & Coke Co., 18 Ohio St. 232. See, also, Boston v. Richardson, 13 Alien, 140. To the same effect, is the decision of the supreme court of Louisiana in Orescent City Gaslight Co. v. New Orleans Gaslight Co., 27 La. Ann. 138, 147, in which it was said: ‘The right to operate gasworks, and to illuminate a city, is not an ancient or usual occupation of citizens generally. No one has the right to dig up the streets, and lay down gas pipes, erect lamp posts, and carry on the business of lighting the streets and the houses of the city of New Orleans, without special authority from the sovereign. It is a franchise belonging to (he state, and, in the exercise of the police power, the stale could carry on the business itself or select one or several agents to do so.’ * * * In Bridge Proprietors v. Hoboken Co., 1 Wall. 113, it was decided that a statute of New Jersey empowering certain commissioners to contract for the building- of a bridge over the Hackensack river, and providing, not only that: the ‘said contract should be valid on the parties contracting "as well as on the state of New Jersey,’ but that it should not be lawful ‘for any person or persons whatsoever to erect any other bridge over or across the said river for ninety-nine years,’ was a contract whose obligation could not be impaired by a law of the state. Mr. Justice Miller, delivering the opinion of the court, after observing that, the parties who built the bridges had the positive enactment of the legislature, in the very statute which authorized the contract with them, that no other bridge should ho built, and That the prohibition against the erection of other bridges was the necessary and only means of securing to them the benefit of their grant, said: ‘Without tills they would not have invested their money in building the bridges, which were then much needed, and which could not have been built without some such security for a permanent and sufficient return for the capital so expended. On the faith of this enactment, they invested the money necessary to erect the bridges. These acts and promises on the one side and the other are wanting in no element necessary to constitute a contract.’ ”

And this from the Binghamton Bridge Case is quoted with approval:

“The purposes to be attained are generally beyond the ability of individual enterprise, and can only tie accomplished through the aid of associated wealth. This will not bo risked unless privileges are given and securities furnished in an act of incorporation. The wants of the public are often so imperative that a duty is imposed on the government to provide for them; and, as experience has proved that a state should not directly attempt to do this, it is necessary to confer on others the faculty of doing what the sovereign power is unwilling to undertake. The legislature, therefore, says to publie-spiritod citizens: ‘if you will embark, with your time, money, and skill, in an enterprise which will accommodate the public necessities, we will grant to you, for a limited period, or in perpetuity, privileges that will justify the expenditure of your money and the employment of your time and skill.' Such a grant is a contract, with mutual considerations, and justice and good policy alike require that the protection of the law should lie assured to it”

In Charles River Bridge Co. v. Warren Bridge Co., supra, we have ilie authority of Mr. Justice Story as follows:

“No sound lawyer will, I presume, assert that the grant of a right to erect a bridge oyer a navigable stream is a grant of a common right. Before such grant, had all the citizens of the state a right to erect bridges over navigable streams? Certainly they- had not, and therefore the grant Was no restriction of any common right. It was neither a monopoly, nor, in a legal sense, had it any tendency to a monopoly. It took from no citizen what he possessed before, and had no tendency to take it from him. It took, indeed, from the legislature, the power of -granting the same identical privilege or franchise to any other persons. But this made it no more a monopoly than the grant of the public stock or funds of a state for a valuable consideration.”

There is a long line of cases that affirm the independence and freedom of contracts like the one under consideration from the objection that they are void because a supposed monopoly is embodied in them, and many are cited in the briefs; but a review of them is not essential to illustrate our views, which are that the contract forming the basis of the plaintiff’s action in this case cannot and ought not to be construed as in any just sense granting an obnoxious exclusive privilege, or as granting to the City Water Company any monopoly inhibited either by public policy or by the provisions of the constitution of the state of Texas, wherein it is declared that “perpetuities and monopolies are contrary to the genius of free government, and should never be allowed.” Ordinarily, this would be conclusive in this case; but we find that five years after the rights in question were granted to the City Water Company, under a general state of the law that such contracts were meritorious and valid, and after the induced and necessary capital had been invested, the works organized and accepted by the city of Austin, and negotiable bonds had been floated on the market, secured by mortgage on the said works, with the direct consent of the city of Austin, as evidenced by the provisions of the contract, the supreme court of the state of Texas in City of Brenham v. Brenham Water Co., 67 Tex. 542, 4 S. W. 143, in dealing with a contract in all material respects similar to the one involved in this case, held that, although no exclusive privilege was in terms granted, yet necessarily the effect of the contract was to grant an exclusive privilege, and, further, that the contract thus necessarily granting an exclusive privilege was the granting of a monopoly, in violation of the constitution of the state of Texas. The opinion filed in the case by the learned supreme court was very elaborate, and purports to review the general jurisprudence on the subject; but for the reasons hereinbefore given, with all respect, we are compelled to differ from the reasoning and conclusion of the court.

The court below appears to have followed City of Brenham v. Brenham Water Co. in disposing of the present case, and the question is thus presented for , our solution whether the decision of the supreme court of Texas declares a question of local policy, and presents a construction of the constitution of the state of Texas which the courts of the United States in similar cases are bound to follow. The general rule is declared in Claiborne Co. v. Brooks, 111 U. S. 410, 4 Sup. Ct. 489; Detroit v. Osborne, 135 U. S. 492, 497-499, 10 Sup. Ct. 1012; Flash v. Conn, 109 U. S. 371, 3 Sup. Ct. 263; and in many others cited on the briefs.

The precise question in this case appears to have received elaborate and careful consideration in Burgess v. Seligman, 107 U. S. 33, 2 Sup. Ct. 10, where, after a review of the authorities in a case where two decisions of the supreme court of the state of Missouri, construing a statute of the state, had been rendered after rights under the statute had been acquired, the supreme court of the United States declared as follows:

“We do not consider ourselves bound to follow the decision of the state court in this case. When the transactions in controversy occurred, and when the case was under the consideration of the circuit court, no construction ot' the statute had been given by the state tribunals contrary to that given by the circuit court. Tlie federal courts have an independent jurisdiction in the adininis! ration of state laws, co-ordinate with, and not subordinate to, that of the state courts, and are bound to exercise their own judgment as to the meaning and effect of those laws. The existence of two co-ordinate jurisdictions in the same terri-' tory is peculiar, and the results would be anomalous and inconvenient but for the exercise of mutual respect and deference. Since the ordinary administration of the law is carried on by the state courts, it necessarily happens that by the course of their decisions certain rules are established which become rules of property and aclion in the state, and have all the effect of law, and which it would be wrong to disturb. This is especially true with regard to the law of real estate and the construction of state constitutions and statutes. Such established rules are always regarded by the federal courts, no less than by the state courts themselves, as authoritative declarations of what the law is. But, where the law has not been thus settled, it is the right and duty of the federal courts to exercise their own judgment, as they also always do in reference to Die doctrines of commercial la.w and general jurisprudence. So when contracts and transactions have been entered into, and rights have accrued thereon under a particular state of the decisions, or when there has been no decision, of the state tribunals, the federal courts properly claim the right to adopt their own interpretation of the law applicable to the case, although a different interpretation may be adopted by the state courts after such rights have accrued.”

Applying the principles thus declared in Burgess v. Seligman, supra, —which, by the way has never been questioned in the supreme court, — ■ we conclude that, for the purposes of this case, the decision in City of Brenham v. Brenham Water Co., supra, should not control our decision in the present case.

The fourth and fifth special exceptions, the ruling on which is assigned as error, relate to the item for $3,369.33, claimed as follows:

“To water for flushing the gutters, for fire buildings, city hall and office, public schools, fifteen public watering troughs, city cemetery, for the year ending December 31, 1896, amounting to the company’s municipal tax for same year. Value of plant as appraised by the city’s equalization board, $190,000; rate of taxation, $1.77%, as per section 11 of contract.”

In regard to this item the petition sets out:

“That under and by the terms of section 11 of the said contract it was mutually agreed and understood and contracted between the parties to said contract that the furnisliment of water by the said water company to the said city of Austin (for the several purposes named in the item above), year by year, the said City Water Company should be compensated therefor in a sum equal to the amount of taxes that might, from year to year, be, and which were, year by year, assessable against the works, property, and plant of said City Water Company, by said city of Austin, according to its yearly rate of taxation. That up to January 3, 1893, it was the custom, habit, practice, and dealing between the City Water Company until 1887, and from thence to the first date just above, to pass accounts under seciion 11 of contract, on the first of the year, yearly receipted, — that is to say, the said companies successively would tender their check for cash for the sum of taxes due from City Water Company to defendant, and defendant would tender its warrant back for an equal sum as payment for water under said section 11; thus each party in good (faith) construing and fairly complying with the terms of said section according to its true intent, purpose, and moaning on this suhject-matter; but that defendant city, in violation of said section 11 of said contract, is seeking to collect taxes from plaintiff against the waterworks plant and fixtures (entirely exclusive of electrical appliances and plant), the sum of 83,369.33, and lias refused to pay for said water under section 11, or to allow an offset, the agreed contract price, under the terms, arrangements, and agreements set out in said section 11 and practiced up to January 1, 1893. That plaintiff in all things fully complied with its contract, including section 11, for furnishing water ready for reception and use on the water contract to he furnished, and is therefore entitled to recover,” etc.

The exceptions are, in effect, that section 11 is an exemption of the property of the water company from taxation, which is contrary to and not allowed hy law; and, further, that the allegations of the petition are not sufficient to warrant a recovery, even if otherwise a recovery could he had. The second view of the exception is unimportant, for, if a recovery can he had under section 11, the pleadings can he amended, if they are not sufficient as they are. We do not construe the contract as granting an exemption from taxation. “Exemption” means free from liability, from duty, from service. It is a grace, a favor, an immunity; taken out from under the general rule, not to he like others who are not exempt; to receive, and not make a return. This being the meaning of the term, the transaction presented in section 11 is not an exemption from taxation. The city needed the water for the several purposes named. To supply it required time, expense, and labor. These things were of value. The taxes to he levied were to he legal obligations for money. The obligations were of value. On a comparing of values, the parties being competent to contract, it was concluded that the values were equal, and the one should be offset by the other. There is no claim that the one value was not as great as the other. No imposition on the one hand, nor favoritism on the other,, can he inferred.

In Grant v. City of Davenport, 36 Iowa, 405, 406, it is said :

“The last clause of section 12 of the ordinance provides: ‘And in consideration of the foregoing provisions, the said company during the term of twenty-five years shall be exempt from- municipal taxation on the franchise hereby granted, and all property owned by said company and actually required for the economical management of the works aforesaid.’ This portion of the ordinance, it is claimed, is violative of the constitution, which declares that the property of corporations shall be liable to taxation the same as individuals. If we placed the same construction upon the ordinance as the counsel for appellants seem to, we should probably conclude with him in his legal positions and conclusions thereon. But it seems to us that, when the whole ordinance is construed together, it does not amount to an exemption from taxation. It, in effect, applies the taxes as they would otherwise become due in part payment or in part consideration of the water rent. The city pays the amount of money specified and the taxes on the franchise, and the property required for the management of the works, as water rent. It might have required' the payment of the taxes, and then returned the amount as part pay for water rent. The manner of doing it cannot defeat the power to do it.”

The difference between the ordinance thus considered and the one here is that one used the words “shall be exempt,” while this provides that the freedom from taxes shall he in “consideration” for water used for the various purposes named. See Portland v. Water Co., 67 Me. 135; 137; Illinois Cent. R. Co. v. McLean Co., 17 Ill. 291; Illinois Trust & Sav. Bank v. City of Arkansas, 22 C. C. A. 171, 76 Fed. 271.

Eren if section 11 should he construed as granting an exemption from taxation, and therefore void, the contract is not necessarily and thereby void, and for water actually furnished by the City Water Company, under section 11, a recovery may be bad on a quantum valebant. The judgment of the circuit court is reversed, and tiie case remanded, with'instructions to overrule the general demurrer and special exceptions to the plaintiff’s petition, and thereafter proceed according to law and in conformity with the views herein expressed. ,