'.
tJ.
OCQNTO WATER CO.
29
NATIONAL FOUNDRY & PIPE WORKS, Limited, v·. OCONTO WATER Co. . et al. f.'l
'
(Citcuo£t
E. D.
Wisconsin. October 10,1892.)
L
MUNIOIiPAl. ,CORPORATIONS-CONTRACTS-FRAliCHISlIS.
.of the city of Oconto conferred the powers belonging to municipal corpOrallODsat common law, and contained the "general welfare" clause usual in city dhIlrter..s.' (La.w. S Wis. c. 56.) The general law confe.rring on cities the powe.r to lell:islate upon the construction and operation of waterworks had not been adopted 'city, so as to derive any powers therefrom. Held, that the city had no power to a franchise for .owlting and operating waterworks, and for other things collateral thereto. .
B.
CORP(lRATIONS-BoNDS':"VALIDITY-WHEN "ISSUED."
.A;wHltercompa.ny put forth bonds of the par value of '125,000. depositing $25,000 of them with a trust company under a deed of trust, and the other $100,000 in trust as collateral for an advance of $40,000. Thereafter advances of $27,000 were contraQted'for, and in part made. BeZel, that the bonds, although and not sold,.w,ere,.",issued," withln the meaning. of Rev. St. Wis. § 1753, whICh. declare!! voidanY,boniis issued by a corporation, except for money actually received. equa.l to 75 per cent. of their par value ; and the same were.not enforceable in the hands .;Of
Water QOInpany, S. D. Andrews, W. H. Whitcomb, On motionfof receiver and injunction. Granted. W. p;.OV<tn Dyke and Geo. H. Noyes, for complainant. .lV. li,".')f'ebster; for . '., .,., ;" ;
Bill by the National Foundry. & Pipe Works, Limited,
,
mstrictJudge. The conceded facts upon which the present for a receivera,nd for an injunction a.re based, so far .as now ,W them" th,ese: on the .2d day of In thIS court' In an actron at agaInst toe Oconto Water Company for $24,250.94 damagl1s and costs, PJW9 O"f e.,.x., ecutiP,n,.n..¥u(J,.?o.na, filed, "fhis b.. il.l a.gain.st the j.. ud,·.g,l).nd others t() Its property th payment ofth,e Wa:er Company Incorporated under the of WIscopsm, on the 8th. gay of July , 1890, forthe ,()f and 'operating a system of w/lterworks withinthe p('Oyof!to, and of supplying the cjty and its inhabitants water for anq,}or domestic, manufacturing, and other purpPSel;j, "ppthe 9th day of July, 1890, the city of Oconto adopted an ordipapqewllereby it was ordained "that theOconto Water. Company, its successors and assigns, be and are hereby authorized, subject to the limitations herein or by law provided, to construct, own, maintain, and operate waterworks in the city of Oconto; to lay pipes for the carrying aria distributing of water in any of the streets, avenues, alleys, lanes, bridges, or public grounds of the city, as now or may hereafter be laid and hold, as by law authorized, any and all real estate, out; and water necessary to that end and purpose, with all proper buildings, wells, conduits., or other means. of obsupply, with all necessary machinery and attachments to' the cityapc;l the inhabitants· thereof with good and ...p. ' \
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fIn tire and domestic purposes;f,lnd for this pttrpbWrHail etiter upOD' any 'Street,avenue; alley, lane;:stream',' bridge, or public ground under control- of 'the city, to take up any pavement or sidew,alk be necessary for the laying of such pipe and attachments." The ordinance further tinuance of, andprivilegeIJ for 11 period of purports to 30' linda $l,I'P:pl,i ofwater for alike specified ' The oity further undertakes, upon com'panyjto'adopt and arroi'Jinance 'protecting the'oompany "in the safe and unmoh'.sted enjoyment of the franchise hereby granted, of and "to carry intoetfectthe provisions'Qf this ordinunce"and,tbe, contract theretb.e ,water cOrnllllilly, "its successors and ,asslgns,'I-:+ilO ,runs theordmance,-"the power to make,adopt. and not w, for th!) cOJwenipnce and securIty ,of SAld,grantee,ltssuccesmrs oraSBlgus. as well as that of the public, in the operation of said mains. and may enforce such regulations bycuttingpff,tbe supplyqf or otherwise. alld have the right at hoilrs ofthe day'to, have accpss to tbe water pipes and 'meters of takers,W'prot,ect against &:buse or fraurl, and repair. Observe, orremo,ve'fhe ,'snIpe, and U1ay require all water takers to sign a. 'ctmtract to' ooserve'all tensonableregulatious, 88 a con· sideration for furnishing water." The ordinancehriderfukes also to regu,late the charges to consumers, II quarterly in ad vance, "except rates, which be paid in ad'Vance for the season," and provides, that the company sh'tl11 have the right, at, Will, to supply consu'mers at the meter at the that 'connections between the mains arid 'ihe consumer shall bema4e at the expenseofthe consumer, , ·,", ,':, .' " " '. The of the ",Mch it recovered Its judgment, was for ii'o.n which ,were used, in. construction of.thtwaterwotks pla:fit. contract therefor dated AuThe pipe wall delivered during the months of September, November oBhat year, and laid in the stre,etsof the city, On day of Septemb!"r the defendantS & WhitcOmb agreemen(with the water company, bywhich An'drews & WhjtCoinb agreed to l6an. to the company a sum not exceeding '$40,000, upHn,interest, to be ftlrnish'ed between thatdate and January 1,1891. The 9contoWaterCoril}llluy, in consideration of the premti'a'nsfer in trust ,to Andrews & WhitJses; agreed' to'tt,iake comb "of the' Oconto waterworkS franchise as issued to said Oconto Water Compariy," together withthe,entire issue ofStockor the company, to $100,000 'amounting to'$100,009, and in the first m,qttgage bonds of to be se¢tired on the entire 'Oconto waterworks franchise, and the andpriVi.leges of said company; the aeed-oftru,st to be to some trust to be agreed upon 1'he stock and bonds weteto be'"de'liv'aroo toAhdrews & Whitcomb as collateral security for the money to
all
:NATIONAL FOUNJ)RYk PIPE WORKS V; OCONTO WATER
co.
31
be advanced, and uponpaymeut of the loan, with 1 percent. interelilt, and the further sum of $0,000, were to be returned to the company. Afterwards, and about Oct(j)ber 1, 1890, in fulfillment ,of tpst agreement, l!Jl a.ssigpment iS .in the RU$WEjr ,"the rights and franchi861il. acquired by under and invjrtue of said city ordina:nce. No. 153 of saidcity.of wasexec1,lted by the water company, and delivered to Andrews & Whitcomb,. This document was anteda,ted: tc) SeptEltnper 18, 1890, and by its terms sells, trans.. fers, andj;letsoV!'lr to Andrews & WW,tcomb "all the rights. privileges, imof whatsoever name and nature, which were granted unto the said Water Company in and by that certain, or.diqa:n()e, passed, l;>y. the COmlllOJ;l oouncilor. said city of Oconto, by the saidcjty on the 9th day of July, 1890, eaidoI1linaJ;lce being entitled 'An ordinance providing for a supply qf water'w t1;le'cityof.QcontQ, Wis., its inhabiulllts, and authorizing to construct, the Oeonfo, Water Company, its successors and operate, and ,maintain waterwOI:ks, therein.'" This"contract .was as eurity repayment of the .lOPin contem plated :by the agreement of Septem,beJ' 1890. .Certificfltes for the entire issue of the stock of the company were delivered'lto Andrews & Whitcomb,e;Kcept as to three shares mflde:out by their direction in the Dames Qfothers. The issue ·of BtQck was held by them as collateral security, as provided in the 1890. agreement of. September Mil. of the directors held October 29, 1890; action was had, autbo,riziagJhe issue of firstwortgage gold bonds of the company, to the amount of$125,000, of $l,QOO each, numbered consecutively frow 1 to 125, both inclusive, payable in 25 years, with interest pons attached; 100 of such bonds to be negotiated and sold, to provide funds for_tbe.completion ofthe system; the remaining bonds to be negotiated and sold, to pro\1idefunds for the extension of the system as may therealler be deemed advisable; sucb bonds to be secured by trust deed to the;MinneapoIis Trust Company upon the franchises and rights oCtbe company. The action of this meeting of the board of directors was confirmed at a meeting of the stockholders held.subsequentlyon the same day, ,The bonds and.the trust deed were prepared and executed, and bore 1,1890. The trust deed was recorded in Oconto COUQty, Noveml:ler 13, 1890, in volume 52. of Deeds, p. 394. On the 18th day of November, 1890, .the officers of the company delivered to Andrews & Whitcomb 100 of such in accordancewith the agreement of September 13, 1890; the other 25 bonds behag lodged with the trust company. The sum of $40,000 mentioned in the agreement of S lptembcr 13, 1890, was actually loaned to the company by Andrews & Whitcomb on or prior.to December 23, 1890, the Illst sum of 85,000 being advanced on that day, and they received the notes of the company. for the total loan pursuant to the terms of the agreement. ,On March 13,,1891, the company contracted with Andrews & Whitcomb for a. further loan of an amoupt not to exceed $12,000, .to COmplete the work; they .t,ohold.the security then held by them as col1 I
32
FEDERAL REPORTER,
voL 52.
laMPiihb·the'loan undel',the agreemenfiOfSeptember 13, ther seblnlity 'for all additionnlloans tberetofore made by them, amounting:'Uf'4;4:39.79, and f6rthe loan of $12,000 so contracted'to'be made. This la1Wr SUm wasadvanded to thectnnpa:ny on the 13th day of March" and' waausedin tliepurchase of material for the plant and ,for carrying ontne'work of construction. It was ascertained that further funds'Wel'e 'essential, ,a'nd on the 16th day of MaYi 1891;; the parties conttl1cted·for another loan by Andrews & Whitcomb,' ,not to exceed $15,000, upon like terms to those of the contract of Mal.'Ch 18, 1891; undet' ·which agreemerttAndrews & 'Whitcomb advabeed$8;763:33, whlclfWas.used in coirtpletion of the pliant. . Ofrtlle 1nlidayofJube,1891, the loans remaining unpaid \'Andrews &; Whitcortlbinstitute6 Buitagainst the Oconto WaterCompany in the circtiitoourt of Ocont6 county, and on the 18th day of August, 1891, upon' of appearance to' the sUlit,.· a decree was rendered that they recuvlu"Of the Oconto Water Company the sum of $63,887 .23, the afuount "of 'the loans, wIth interest, and the costs ·of the action, which ah10unt was declared tobea lien upob"al1 the rights;<privileges, imniunities, franchises, and"powers; of whatsoever name 61' nature, which granted the said defendant in and bya certain 'ordinance passed by council of the city of Oconto, Wis., and approved by the maybrof said city, July9,1890, sai<.lordinance beingor'dinance No. 153 of said city, and being entitled. I An ordinanceprovidingfbr a supplybnvatertothe city "of Oconto arid its inhabitants; and authorizing the Oconto Water Company, its successors and assigns; to construct, ate,' Im.d' maintain waterworks therein,' alid-upon $100;000 in the capital stock Ofthe defendant, now held in pledge by the plaintiffs, ahd upon $100,000i,n :the first mm'tgage bondS ofthe said defendant, now also held in' pledge by the'plaiintiffs." The decree provided fora sale of the property.. upon which a lien was declared, which was had, Andrews & Whitoomb beconiingthe; :The sale was the court on tbEr29th Septllfuber j 1891, ahd. an instl'umentwas execu'tedby theteferee,d'onvllying t6'Andrews & Whitcomb tMproperty mentioned, ltJ?d in the language of the decree, under which they took actual possession of the waterworks system, and have since retained possession,'claiming to own the same, upon the ground that' by the sale they acquired title to the Jranehisesof the Oconto Water Company,snd tha:tthe title to all tangible' property essential to the use and enjoyment oithe franchise pa'ssedto them the'tewith. . ' At the threshold of the inquiry, the court is confronted with the question as to;whatrights Andrews & Whitcomb acquired under the agreement of September 13, 1890, the instruments executed pursuanttheret6, and the of the rights therehy acquired. The grant to them was of "all the rights, privileges, immunities, and powers, of whatever name or nature, which were granted unto the said Oconto Water :Ordinance of the city of, What rights could the city lawfl1llyi-grant, and what were granted? The solution of thequestions depenas, upon the pOWtlrs conferred;tlpOll that municipality. The
NATIONAL FOUNDRY & PIPE WORKS'll. -OCONTO WATER CO.
33
city by its charter is vested "with tha general powers possessed by municipal corporations at common law," and with certain governmental powers specifically defined in its charter, and with authority to act and enforce ordinances under the "general welfare" clause usual in charters of municipal corporations, and specific power is vested touching various matters of municipal concern. Laws Wis. 1882, c. 56. The general power is conferred upon cities to borrow money, and to issue negotiable bonds for the purchase or erection of waterworks. Rev. St. § 942. By chapter 125, Laws 1879, (Sanb. & B. St. § 930a,) the commOn council of every city is authorized to permit, subject to such rules and regulations as ,may be imposed, the laying of pipes in tbe street::> of the city, and their maintenance and use for the purpose of conveying water or steam under the surface of the streets. By thegeneml statute entitled "OfCities,"-Laws 1889, c. 326, (Sanb. & B. St. c.40a,)-cities are. authorized to own and operate waterworks, and to legislate on all matters with reference to their construction, operation, management, and protection,--section 925n.· In the chapter entitled "Organization of Corporations," (Rev. St. Wis. c. 86,) under which the Oconto Water Company confessedly had being, it is enacted that corporation formed for the purpose of constructing and operating waterworks in any city or village of this state may make and enter into any contract· with snch city or village to supply such city or village with water for fire and other purposes upon such terms and conditions as may be agreed upon, and may, by the consent of, and in the manner agreed upoIil with, the proper authorities of such city or village, use any street, al:ley, lane, park, or public grounds for laying water pipes thereinj '" '" * and any such city or village may, by contract duly executed by the proper authorities, acquire the right to ueethe water supplied by sueh corporation, or such .portion thereof as it may desire, upon such terms and conditions as may be agreed upon by such corporation and the authorities of such city or village." Section 1780, as amended. These are all the statutory provisions which I have been able to find, touching the question of municipal authority and corporate franchise here presented. It may be difficult to enumerate the common-law powers of a municipal corporation. It is certain, however, that the conferring of franchises UpOll other corporations is not one of them. Under its charter, by a well-known principle of law, it can exercise no power not expressly granted, or fairly to be implied. It may be that, by virtue of its duty to care for the public health and safety, a city has the power to contract fora supply of waterj but it cannot, without express legislative authority, construct, maintain, or operate waterworks. Dill. Mun. Corp. (4th Ed.) § 27. Without like authority it cannot grant exclusive right to use the streets, and a distributing plant located in the streets is essentially a monopoly. The right to use the public highways for gas pipes or water mains rests in legislative authority directly granted or delegated to municipalities. So, likewise, the right to operate waterworks is of legislative origin, and can only be conferred by a IDunicipal corporation v.52F.no.1-3
34
·
j
.:-t·
vol. 52. _
"'bent upresslyauthorized. ,by the :auprime legislative power of the,state. in epactment, of the· ordinanCe in :<!J1lestion,Ellltettained a broadand generouS' 'riew:ofits own pGwers, It was pleased to confer! or attempt to eohfer; upon 'this 'water compliLDYPthe power to !'construct, own, maintain, andoperate'waterworkadnthe cbity of.Oconto, * * * to acquire asbr lawauthorize:d, all real estate,easements, and water rights'necessary to> that end,and p\lrpose,withall necessary and of obtaining water supproper ,btiUding.$, :with ply, with 'all[ :machinery, and ,attaChmerits, thereto'!' in addition to ' the. .tight'to"Q8El the:.streets·and,pul:¥ic; grounds of't he citY'for its water m8.ins 'Q.udi piJ}!les) anduDdmtook,to.regulafeoontlracts,and dealings between ,thtY,water company of the city, using water" and ,fe> bestbw upon the ,dtiri1panythe right of access to the homes of coni311mers(ofwater, and.t<> regulate its exercisa,',!f the right to conprivileges' ana fmnohises,andto"exercise inquisitorial powers, is effective to signed'. 'No· 'ordiuauce1howeltet,cah enlarge, '.vary, or diminish the p'()Werll cof'a D1unicipaU1iy_; " , .. , ;Whenoe: CM)G thatp(iwer?: J\find no warrant for it." The charter 'ofthe oity" does not ,confer ,it.· No general law, applicable to oity df'Oconi,0 grants it." q The chapter entitled, " Of Cities" {Snub. &: B.S·· , in r1889, (Laws 1889, c.326.) It providea' thatmo I city! then incorporated,sha1.l be affected by 'the pro\1isions oUheaot,. unless it shall adopt the same for 'its government in the manI ner 'provided; ,I (6mb. & B.St.:§ 925d.) The present charter of the city of,Ocontowas There is no suggestionin -the l'ecordthatithera,i.'ty. of Oconto has ever adopted the provisions of tM general law"and'weare notat liberty to assume that it :has. Failing such oity is not affeCted by, and derives I DQ fforo,: that generld, ;law,; assuming that the, chapter has relation towateTworksownec1'iuidioperated by a corporation other than the · The city is therefore only auof pipes in the streets, and their mainthorized to permit the tenanoe and \l8e'i( (SeotioD:98Qa.) That is: not 'll grant of power.to bestow a franchise) but permission:tosuffer an easement. The law of its incorporatic:m4onifersupon the Ocdnto Water Company ita franchise (1) to own and'operate th\! waterworks; an4 (2) touse,the streets of the city. S.nb.& rThEf,'fomter power is without condition; the latter is subJeetto of themnuidpality.' The practical. effi· caey of theft'ancliise may, depend'upon ,thediscl'tltionary act, of the city. Tne franchised' derived from that discretion, but from the will of'thEHegitllatur6i'FbeJlaw: authorizes the aity to assent'to the exercise of a: granted.thy! Jthec statute. The grant of power to the watercompany...-..aB to the! 'UlJe ,Of ·the streets-becomes operative only upon the happening of that contingenoy of munidpal,assent. That is , nota grant-of pawer' to a .city to confer lifranchise. Sims v; Railway Co., 37 The matter is' somewhat analogous to the case 1
It cannot bedoubtedi 'tbat,the'common council 'of the cityoCqconto,