Incorporated Town of Sibley v. Ocheyedan Electric Co.

194 Iowa 950

• Court: Supreme Court of Iowa
• Decided: April 8, 1922
• Status: Published

Opinions

Faville, J.

The appellant is an incorporated town, organized as a municipality under the laws of this state. The appellee is a private corporation, engaged in the business of distributing electric energy to the citizens of the town of Ocheyedan. It appears from the record that, sometime prior to the 14th of July, 1914, the appellant, by proper proceedings under the statutes of this state, established and constructed in said mu--nicipality a municipally owned electric light plant. It also appears that the incorporated towns of Ocheyedan, Harris, and Lake Park, lying some distance from Sibley, desired to obtain electric current from the said municipal plant at Sibley, for distribution to the inhabitants of the said three towns. In contemplation of supplying electric current for said outlying towns, it appears that the town of Sibley constructed the said electric light plant of larger capacity than would have been necessary for the distribution of electric current to the inhabitants of the said town of Sibley.

On or about the said 14th day of July, 1914, a written contract was duly entered into between the said incorporated town of Sibley and the appellee and the said incorporated towns of Harris and Lake Park, for the furnishing of electric current to said parties. The only party concerned in this ease as ap-pellee is the Ocheyedan Electric Company. The said contract provided that the town of Sibley should furnish electric current under the said contract for a period of twenty years from the date when current was first used under the said contract. It was provided by said contract that the said electric current “shall be metered by the incorporated town of Sibley, Osceola County, Iowa, at the present corporate limits.” The said contract fixed the rate at which said electric current was to be furnished, and provided:

“This contract to furnish electricity at the rate hereinbe-fore specified and for the purposes hereinbefore specified, shall be continued for the full period of twenty years as hereinbefore specified. ’ ’

In pursuance of said contract, electric current was furnished by the appellant to the appellee at the corporate limits of the town of Sibley, at which point the said current was taken upon a transmission line constructed by the appellee and carried for distribution to the town of Ocheyedan, as contemplated and provided in said contract. The rate fixed by the said contract was paid by the appellee and accepted by the appellant until on or about the 7th day of August, 1919, at which time the appellant adopted a city ordinance by which specific reference is made to the said contract of July 14, 1914, with the appellee, which said ordinance recited that:

“Whereas, at the time of entering into the aforementioned contracts the rate to be paid for such electric energy or current by second party \yas agreed upon and expressly stipulated in such contract, and whereas, the cost of producing such electric energy or current has materially increased since the dates of said several contracts, now therefore, it is hereby ordained by the council of the incorporated town of Sibley, Iowa (Section 1) that the rate for electric energy or current to be paid to said town of Sibley, by second parties under and by virtue of the terms of the aforementioned contracts, and the rate to be paid by any other town or towns similarly situated and under similar contracts which may hereafter be entered into, shall be as follows, to wit:”

Then follows a schedule fixing a substantially higher rate than was provided for in said contract.

The question for our determination in this ease is whether or not the appellant has the power, under the facts disclosed, to adopt, without the consent of the appellee, said ordinance increasing the rates as fixed by the said contract, and to recover from the appellee this increased rate.

I. It is a well recognized and generally established rule that municipalities have two classes of power: one legislative, public, and governmental; the other, proprietary and quasi private. Under the former, the municipality acts as a sovereignty, and governs and controls the inhabitants of the municipality. Under the latter, the municipality acts for the private advantage of the inhabitants of the city, and to a certain extent, for the city itself. The two powers are clearly separate and distinct, and the functions of the municipality in its legislative or governmental capacity should not be confused with its functions in its proprietary capacity. These general rules are well established, and have been recognized by us. First Nat. Bank v. City of Emmetsburg, 157 Iowa 555; Illinois Tr. & Sav. Bank v. City of Arkansas City, 76 Fed. 271; Esberg Cigar Co. v. City of Portland, 34 Ore. 282 (55 Pac. 961); City of Winona v. Botzet, 169 Fed. 321; City of Henderson v. Young, 119 Ky. 224 (83 S. W. 583); Baton v. City of Weiser, 12 Idaho 544 (86 Pac. 541); City of South Pasadena v. Pasadena Land & Water Co., 152 Cal. 579 (93 Pac. 490); Davoust v. City of Alameda, 149 Cal. 69 (84 Pac. 760); Marin Water & Power Co. v. Town of Sausalito, 168 Cal. 587 (143 Pac. 767); Pikes Peak Power Co. v. City of Colorado Springs, 105 Fed. 1.

Tbe legislature of this state-has conferred upon cities and towns the power to act in a proprietary capacity in respect to the establishment, maintenance, and operation of electric light plants. Said authority is found in Section 720, Code Supplement of 1913, and is as follows:

“They [cities and towns] shall have power to purchase, establish, erect, maintain and operate, within or without the corporate limits of any city or town, heating plants, waterworks, gasworks, or electric light or electric power plants, with all the necessary reservoirs, mains, filters, streams, trenches, pipes, drains, poles, wires, burners, machinery, apparatus and other requisites of said works or plants, and lease or sell the same. ’ ’

Section 724, Code Supplement, 1913, is as follows:

“They shall have power, when operating such works or plants, and shall have the power to sell the products of such municipal heating plants, waterworks, gasworks or electric light or electric power plants, to any. municipality, individual or private corporations outside of the city or town limits as well as to individuals or corporations within its limits, and to erect in the public highway the necessary poles upon which to construct transmission lines, and to assess from time to time, in such manner as they shall deem equitable, upon each tenement or other place supplied with water, gas, heat, light or power, reasonable rents or rates fixed by ordinance, and to levy a tax, as hereafter provided, to pay or aid in paying the expenses of running, operating, renewing, extending and repairing such works or plants owned and operated by such city or town, and the interest on any bonds issued to pay all or any part of the cost of their construction.”

It must be conceded that this statute is not a model' of lucidity and coherence.

Acting under these sections, the appellant established its municipal plant and made a contract to sell the products of such plant to the appellee, a private corporation outside the city or town limits. It is contended by the appellant that, under said Section 724, the power conferred upon the municipality to sell electric current to a private corporation outside the town limits was, by said section, coupled with the limitation that the city council should ‘ ‘ assess from time to time, in such manner as they shall deem equitable, upon each tenement or other place supplied with -water, gas, heat, light or power, reasonable rents or rates fixed by ordinance, and to levy a tax” to pay the expenses of the plant.

The literal language of the section does provide that the municipality, when operating its oAvn plant, shall have the power to sell the product to private corporations outside of the city limits. It also provides that the city shall have the power to ‘ ‘ assess from time to time, in such manner as it shall deem equitable, upon each tenement or other place supplied with water, gas, heat, light or power, reasonable rents or rates fixed by ordinance, and to levy a tax.1 ’

It is the appellant’s contention that the words “other place,” used in this section, are broad enough to include the “place” at the corporate limits where the electric current was delivered through meter to the transmission lines of the appel-lee, the private corporation outside of the city limits; and it is appellant’s contention that, under said section, the city council has the right, by ordinance, to fix the rates for such current so delivered at such place.

At the outset, it must be conceded that, unless expressly conferred by the legislature, a city council has no extraterritorial powers in the exercise of its legislative or governmental functions. A municipality exercises its legislative and governmental powers by the enactment of ordinances and the enforcement of the same. It can, by ordinance, act only within its territorial limits, unless expressly authorized by statute to do otherwise. Gosselink v. Campbell, 4 Iowa 296, 299; Marin Water & Power Co. v. Town of Sausalito, supra; City of South Pasadena v. Los Angeles Terminal R. Co., 109 Cal. 315 (41 Pac. 1093); Southwestern Tel. & T. Co. v. City of Dallas, (Tex. Civ. App.) 131 S. W. 80; Jones v. Hines, 157 Ala. 624 (47 So. 739); Borough of Gettysburg v. Zeigler, 2 Pa. Co. Ct. 326; Farwell v. City of Seattle, 43 Wash. 141 (86 Pac. 217); Donable’s Admr. v. Town of Harrisonburg, 104 Va. 533 (52 S. E. 174).

But a municipality may contract in its proprietary capacity in regard to matters and things entirely outside of its corporate limits. This is essential to the life of the municipality. It may buy for the use of-the municipality in the open market, in accordance with its needs, and malee binding and enforcible contracts for such purchases. It also may sell, in the world at large, such commodities belonging to the municipality as it may legally have a right and authority to sell. It is governed, in its proprietary capacity, by the same rules that govern private individuals 'or corporations. City of Henderson v. Young, supra; Illinois Tr. & Sav. Bank v. City of Arkansas City, supra; San Francisco Gas Co. v. City of San Francisco, 9 Cal. 453; Wagner v. City of Rock Island, 146 Ill. 139; City of Vincennes v. Citizens’ Gas Light Co., 132 Ind. 114 (31 N. E. 573).

The legislature has expressly conferred upon the municipality the power to erect an electric light plant, to be owned and operated by the municipality. This is for the benefit of the municipality and the inhabitants thereof. How shall it sell its said product? Can it provide for the sale of the same by contract or by ordinance? Are the rates at which it is to sell said product to be fixed by contract or by ordinance ?

It is quite apparent that the legislature has the power to fix and determine the manner in which such corporation could dispose of the products of a municipally owned plant. Has it done so ? It has expressly provided that the product may be sold to two classes of buyers, — those within the city limits and those without the city limits; and it has expressly provided that the rents or rates to be paid for such product shall be assessed “from time to time, in such manner as the corporation shall deem equitable, upon each tenement or other place” supplied with the product, and that a tax may be levied to maintain the plant.- This provision certainly expressly directs the manner of the payment for the product of the municipal plant furnished to inhabitants of the municipality. It is clearly provided thát the rates shall be fixed by ordinance (which precludes it from being done by contract), and that the rates shall be “assessed” by the municipality, from time to time, in such a manner as shall be deemed equitable, against each tenement or other place supplied with the product. This all has to do with the manner in which the municipality shall deal with its own inhabitants. The rate is to be fixed by wbat is deemed an “assessment” against each “tenement or other place” supplied with the product. It is to be fixed “from time to time,” as equity may require. It is to be “a reasonable rental or rate,” and it is expressly provided that it shall be fixed by “ordinance,” which is the method by which a municipality exercises its legislative function.

We think it is also clear that the legislature expressly provided that the rate or rents to be paid for the product of said plant, in so far as it affected the inhabitants of the municipality, should be determined by the municipality, in the exercise of its legislative function: that is, not by contract, but by the enactment of an ordinance, which it was expressly provided could be changed from time to time, as might be equitable. We think it clear that the legislature expressly intended and provided that the fixing of the rates for a municipally owned plant, in so far as the inhabitants of the municipality were concerned, was the exercise of a legislative function on the part of the city, which was to be done by the enactment of an ordinance; and was subject to modification and change, from time to time, as the municipal authorities deemed equitable. The relation between the municipality and its inhabitants in regard to the establishment and maintenance of the rates for the product furnished by the municipality to its inhabitants is clearly and definitely enunciated in the statute.

Does any different rule apply with regard,to the sale by the municipality of the product of its plant to individuals or private corporations who are outside of the limits of the city?

As before stated, the legislature has conferred rrpon the municipality the power to establish such a plant and to manufacture and sell its product. By express limitation and provision, the sale or disposition of its product to the inhabitants of-the city is to be done by rates which are to be fixed by ordinance, in the exercise of the legislative power of the municipality. Is there any express grant of power to sell the product outside of the corporate limits, and if so, how is the selling price to be fixed and determined ?

To the first proposition, the statute itself gives the ready and complete answer; for, by its very terms, it is provided that tlie corporation may sell its• product “to any municipality, individual or private corporation outside the city or town limits. ’ ’ How can it so sell its product outside tlie municipal limits, and at wbat price ?

"We find no provision whatever in regard to this in the statute. The municipality is authorized to sell the product to those outside the corporate limits.

The clause of the statute referring to the enactment of an ordinance and the assessment of reasonable rates from time to time cannot be construed to be a limitation upon the granted power to sell the product outside the corporate limits. The municipality, acting in its legislative capacity, by the enactment of ordinances for the regulation of its citizens, which may be amended and modified from time to time, cannot so operate in its dealings with those entirely outside the municipality and beyond the power of its legislative control, unless expressly authorized by the legislature so to do. .

There is no expression in the statute as to how such product shall be" disposed of to those outside the municipality, except that the power is conferred upon the municipality to “sell” it. How shall it be sold?

With no limitation or prohibition expressed by the legislature, it is obvious that the municipality has the power to sell it in the ordinary and usual manner in which products are sold, — that is, by contract. Having the power to sell its product to the outside world, it had the inherent and necessary power to sell it by contract at such prices and on such terms as might be agreed upon between the municipality as a party on one side, and the buyer as the party on the other. The-question of good faith in executing this contract is in no way involved herein. The sole question is, Did this municipality, under the .terms of this statute, have the power and right to enter into a contract with a corporation for the sale of its product outside of the corporate limits, at a price and upon terms which were agreed upon between the parties?

We are of the opinion that it had such power; that the contract was valid and binding; that it can be upheld and enforced ; and that the municipality has no right or power, by the enactment of any ordinance, to attempt to rescind, abrogate, or annul such contract.

It must be and is a general rule that, where a municipal corporation possesses authority to enter into contract for the sale of its product to those outside the corporate limits,-the terms and declarations of such contract rest within the" sound discretion of the municipal authorities, and when such contracts have been fairly entered into, they can only be overthrown by the courts in cases of fraud, abuse, or excess of the authority, or other like grounds justifying the rescission of contracts generally. Marin Water & Power Co. v. Town of Sausalito, supra.

The situation in the instant case is not to be confused with the cases where cities and towns deal with a corporation operating under a franchise granted by the municipality, and within the limits of the municipality. We have no such situation here. We are expressly limiting our decision to the question of the power of a municipal corporation to sell the product of a municipally owned plant to a party entirely outside the municipality, and to deliver such product to said buyer. We hold that, under the statute, this can be done, and that the city can make a valid contract for such sale of said product to such outside party, which contract will be upheld and enforced.

Applying these rules to the instant case, we hold that the appellant had a right to establish a municipally owned electric light plant; that it had a right to sell its product to the appel-lee, which was wholly outside the corporate limits of said municipality ; that it had a legal right to make a contract for the sale of said product to the appellee for a certain and definite period and for a fixed, certain, and definite price; and that it had no right thereafter to seek by ordinance, and without the consent of appellee, to abrogate or rescind said contract and to 'substitute another price for the one fixed in the contract. Cases involving rates within the municipality and matters between a municipality and a franchise holder can in no manner throw light on the question presented here; and hence we do not discuss the same.

II. It is suggested that the appellee is amenable to the provision of the ordinance because the place of delivery was within the city limits. We do not so construe the contract. It must be construed, in the light of the circumstances surrounding the parties. The language used is that the delivery is to be made “at the corporate limits;” “at the present corporate limits;” “furnished at the corporate limits;” “at the point where said electric current is sold to the party of the second part; ” “ at the town limits of Sibley as- aforesaid; ’ ’ and ‘ ‘ the total amount of current delivered to the transmission line is to be metered at the present corporate limits. ’ ’

This contract was made in contemplation of the provision of Section 724, supra, by which the municipality was selling its product to “a private corporation outside of the city or town limits.” The contract was evidently made in pursuance of said statute, and a delivery of this, product “at the corporate limits” did not make the purchaser amenable to the ordinances of the city. The delivery was “to the transmission line,” “at the corporate limits.” As we understand the record, the transmission line was wholly without the corporate limits.

Section 725 of the Code Supplement of 1913 does not apply to the facts of this case. Said section pertains solely to the regulation of rates and service within the corporation, respecting the products furnished to the inhabitants of said corporation. It has no reference whatever to the sale by the corporation of its product to one entirely outside of the corporate limits.

III. It appears from the record that the appellee, after the passage of the ordinance in question, had offered to pay to the appellant the contract rate, which the appellant refused to accept; and that appellant insisted upon the rate fixed by the ordinance. It is now claimed by appellant that, in any event, the appellant is entitled to judgment against the appellee for the contract price. It is very clear to us, from the record, that the failure by the trial court to allow this amount was the result of mere inadvertence and oversight. The case was tried and presented to the lower court upon the questions discussed herein, and it is very obvious that the finding of the lower court, in favor of the appellee, was in no way intended to defeat the right of the appellant to recover the amount that was admitted to be due under the contract. Counsel for appellee concedes that this was a mere oversight, and that appellant is entitled to judg-meat for tbe amount due from appellee under the contract. The original decree should have so provided, and undoubtedly such finding and judgment would have been entered in the original decree, had the attention of the court and counsel been called to the matter at that time. An appeal was wholly unnecessary to determine this question. If the parties cannot agree upon a modification of the decree as entered in the lower court in respect to the payment of the amount due under the contract, an application may be made by appellant to the trial court for a modification of the decree in this respect, or said application may be presented to this court, as the appellant shall elect. The costs of the appeal will not be affected by this order respecting the modification of the decree, but will be taxed to the appellant.

The finding' of the lower court upon the issue involved in this appeal is — Affirmed.

Stevens, C. J., Weaver and Arthur, JJ., concur. Evans, Preston, and De Grast?, JJ., dissent.