BANTA ANA WATER CO. 'V. TOWN OF SAN BUENAVENTURA.
339
strued. There appears to be a federal question here also. As has been said, the validity or invalidity of these defenses are not now in question. Southern Pac. R. Co. v. California, supra. See, also, Bradley, J., in Gold, etc., Co. v. Keyes, 96 U. S. 204. They are made, and are pertinent to the suit. They are federal questions, and within the jurisdiction of this court. 'l'his leaves this court no alternative. The motion to remand is refused.
ANA WATER CO. v. TOWN OF SAN BUENAVENTURA et al. (Circuit Court, S. D. California. May 29, 1893.)
1.
WATER COMPANJES-RATEs-Cm\THACTS WITH TOWN.
Act Cal. :\larch 10, 1006, § 12, incorporating the town of S., conferred on the trustees of the town power to provide for the prevention and extinguishment of fires, and to supply it with fresh water. Section 14 provides that they should have no power to contract debts in excess of $400. unless an amount of money sufficient to meet them was actually in the treasury, unappropriated to other purposes. Held" that the trustees might make such contract as they deemed expedient with individuals who would undertake to furnish a supply of water, and a provision in such contract that such individuals should have the unrestrained right to fix the rates to be for water furnished, so long as the same were general, is valid. This right to fix rates was conferred on the individuals in question as "parties of the first part" to the contract. They afterwards assigned all their rights and privileges under the contract to a water conmpany duly organized under the general law, and this assignment was ratified by an ordinance of the town. The new company completed the work, and fulfilled all the obligations of the first party to the contract. Helr]., that the right to fix rates passed to the company, as a right growing out of a valid contract, and it is not affected by, or subject to, the power reserved to the legislature to alter or repeal any provisions of the company's charter, which also provided a mode for fixing rates. Const. Cal. 1879, art. 14, § 1, which provides that thereafter the rates for water shall be fixed annually by the governing board of the city :)1' town in which it is furnished, and the legislation enacted for the purpose of carrying it into effect, are unconstitutional and void as to a contract made before the adoption of the constitution, which confers on the water company the sole right to fix rates, for they impair the obligation of the contract. l'\ew Orleans Gas Co. v. Louisiana Light, etc., Co., 6 Sup. Ct. Rev. 252, 115 U. S. <l50, followed. Act Cal. May 3, 18;):.!, which provides that any contract made between a city and n. water company organized under that act, for a supply of water, "shall be valid and binding in law, but shall not take from the city the right to regulate the rates for water," has no application to a contract made for the same purpose with individuals not organized under this act.
2.
SAME-AsSIGNMENT-CORPORATJONS.
S.
SAME-CONSTITUTIONAL LAW-OBLWATTON OF CONTHACTS.
4.
SAME-ACT OF INCOHPORATJON.
G.
SAME-CORPOHATJONS-SPECIAT, ACTS-ASSIGNMENT OF FHANcrrrSE.
eonst. Cal. 1849, art. 4, § 31, which declares that "corporations may be formed under general laws, but shall nC't be created by specictl act," does not prohibit the assignment of a franchise to a legally-organized corporation by persons having the lawful right to exercise and transfer the same. People v. Stanford, 18 Pac. Rep. 85, 19 Pac. Hep. 693, and 71 Cal. 371, followed.
340
FEDERAL REPORTER,
vol. 56.
In Equity. Suit by the Santa Ana Water 00mpanyagainst the town of San Buenaventura and others. Heard on demurrer to the bill. Demurrer overruled. W. H. Wilde and Wilson & I,amme, for complainant. Blackstock & Shepherd and George J. Denis, for defendants. ROSS, District Judge. The grounds of the demurrer which has been interposed to the bill in this case are-First, that the court has no jurisdiction of the subject-matter of the suit, or of the parties to it; and, second, that the bill is without equity. For the purposes of the present decision the allegations i>f the bill are, of course, to be taken as true. It appears therefrom that the defendant corporation is a municipal corporation created by an act of the legislature of the state of California, entitled "An act to incorporate the town of San Buenaventura," approved March 10, 1866, (St. 1866, p. 216,) by which the officers of the town were made to consist of a board of five trustees to be elected by the qualified voters of the town, a treasurer, a clerk, a marshal, a surveyor, and an attorney. It was provided by the act that the board of trustees should have power to make regulations for securing the health, cleanliness, and good order of the town; to provide for the extinguishment of fires; and to supply the town with fresh water. This act was subsequently amended, but in no particular important to be noticed here. At the time of the incorp<lration of the town it had no system of water supply, nor had it any such system when, on the 7th day of December, 1868, there was presented to the board of trustees a petition by Jose de Arnaz, Victor Ustassaustegui, and Francisco Molleda, asking for an exclusive privilege, for the term of 50 years, to supply the town with water for household, municipal, and irrigation purposes, and for the extinguishment of fires, upon terms and conditions upon which those parties then offered to construct a water system to supply the town with water. Upon the receipt of the petition the board of trustees, in order to better inform themselves as to the expediency of granting it, appointed three disinterested citizens of the town as commissioners "to examine into the better way and utility of bringing water into said town," with instructions to report to the board on the 12th day of December, 1868, in respect to the advisability of granting to the petitioners the rights and franchises asked for. On the 12th day of December, 1868, the board of trustees met in their council chamber in the town, pursuant to adjournment, at which time and place they proceeded to examine into the matter of the petition of Arnaz and his associates. The report of the commissioners, which was favorable to the granting of the petition, was received and examined, and after due consideration of the matter the board agreed to enter into an agreement with Arnaz and his associates, granting to them the franchise, rights, and privileges, subject to the terms and conditions of a contract to be drawn and executed by the parties. Subsequently, and at a regular
SANTA ANA WATER CO. fl. TOWN OF SAN BUENAVENTURA.
341
meeting of the board held in the council chamber on the 4th day of January, 186!), there was presented to the board for its consideration a written contract between the town and Arnaz and his associates, which contract was by the board examined and considered; and thereupon the board, by a resolution passed and spread upon its minutes, authorized and directed the president of the board and the clerk of the town to s,ign and execute the contract in the name, and as the act and deed, of the town, and at the same time and place the board also passed an ordinance, section 1 of which is as follows: "Section 1. 'l'h9 hoard of trustees of the town of San Buenaventura grant from this date 1he exclusive privilege of water to the said town unto Jose de Arnaz, Victor Ustassaustegui, and Francisco ::\Iolleda, for the term of tifty years, counting from this date; :md the president and secre· tary of said board are ordel'ed to sigt1 a legal contract with the said interested parties, conceding to them the said privilege for the said term of fifty year,;;, according to a passed by thi" board, and entered on the minutes of our proceedings, the 12th day of December. A. D. 1868."
On the same day, to wit, January 4, 1869, there was executed by and on behalf of the respective parties the contract in writing, by which Arnaz and his associates agreed to cause a dam to be built at a proper point in the San Buenaventura river, and by means of a flume, ditch, or pipe, at their option, within two years from the date of the contract, to introduce a sufficient supply of water for the use of the town, and by which the town, in consideration of the risl{ and expense to be incurred by Arnaz and his associates in the undertaking, granted to them, their successors and assigns, the free use of the streets and public grounds of the town for the laying of the necessary pipes, "exclusively," provided that Arnaz and his associates should furnish a sufficient supply of water for public use in case of fire, without charge, and for such public fountains as may be established by the authorities of the town, at such rates as may be agreed upon between the respective parties; "also, that the parties of the first part [Arnaz and his associates] shall have the unrestrained right to establish such rates for the supply of water to private persons as they may deem expedient, provided that such rates be genera!." It was further provided in and by the contract that the town should have the right, at the termination of 50 to purchase the works erected by Arnaz and his associates, or their assigns, at a fair valuation, and that, within the term of 1 year from the date of the contract, Arnaz and his associates should commence the erection of the necessary works, and finish the same within 2 years from the date of the contract. Within a year after the execution of the contract, Arnaz and his associates, under and by virtue of it, constructed a dam in the San Buenaventura river, and constructed ditches leading therefrom, by means of which they diverted the water of the river, and conducted it to the town, and therein built and constructed conduits in the streets of the town, and therefrom supplied the inhabitants with water, and provided water for the use of the town, and for the extinguishment of fires, and within two years after the date of
342
the contract completed a water system, in all things, in compliance with the provisions of the contract, and whereby they supplied water to the town for all municipal purposes, and supplied the inhabitants thereof with water for domestic use, irrigation, and all other purposes for which water is commonly used by the inhabitants of a community. On the 15th day of January, 1870, the complainant, the Santa Ana Water Company, was incorporated under an act of the legislature of the state of California entitled "An act for the incorporation of 'Water Companies," approved April 22, 1858, (St. 1858, p. 218,) and ever since then has been, and now is, a corporation existing and doing business in California, and having its principal place of business in the town of San Buenaventura; and, to this corporation, Arnaz and his associates, on or about the 26th day of January, 1871, sold and assigned -their dams, ditches, conduits, water rights and privileges, and all their right, title, and interest in and to the waterworks and system by which the town of San Buenaventura was then supplied with water, together with all the rights, privileges, and franchises obtained and held by them under and by virtue of the aforesaid contract with the town. On or about the 28th day of October, 1872, the board of trustees of the town passed an ordinance approving and ratifying the transfer of the property and rights from Arnaz and his associates to the complainant corporation, sections 1 and 2 of which ordinance are as follows: "Section 1. All the rights and pri vileges heretofore granted unto the sald Arnaz, Ustassaustegui, and Molleda be, and the same are hereby, continued and granted the Santa Ana Water Company, for fifty years from and after January 4, A. D. 1869. '.rhe transfer and assignment by said Arnaz, Ustassanst 'gui, and Molleda of said water company is hereby ratified :md approved. Sec. 2. The Santa Ana Water Company is hereby granted the exclusive right and plivilege of laying aU such main and service pipes in and through the several streets of the town of San Buenaventura, by such means and in such manner as said water company shall elect, for the purposes set forth in t.he certificate of incorporation of said company, and all other lawful purposes, for t.he said term of years: provided, however, that the main water pipe be laid in the main street of the town of San Buenavent.ura on or before July 1, 187S,-and to make, hold, and maIntain such aqueducts, dams, ditches, flumes, and reservoirs, for the purposes aforesaid within said town, as shall be necessary: provided, that just compensation shall be made to the owners of plivate propert.y by said company for such public use in the manner prescribed by law, if the parties cannot agree on the value of the same; and, for the protection of the property and works of said company, no person sball, without authority from said company, cut, tap, or otherwise interfere with, any water pipes, ditch, flumes, or reservoirs of said company, 01' bathe or wash therein, or cut or injure any shade trees planted or to be planted near the same for protection."
By an act of the legislature of the state of California entitled "An act to reincorporate and extend the limits of the town of San Buenaventura, in the county of Ventura, state of California, and also to change the name of Canada street, in said town, to that of Ventura avenue," approved March 29, 1876, (St. 1875··76, p. 534,) the ordinance last mentioned was approved and ratified. By an act of the legislature of the state of California entitled "An
SANTA ANA WATER CO. V. TOWN OF SAN BUENAVENTURA.
343
act to create the county of Ventura, to establish the boundaries thereof, and to provide for its organization," approved March 22, 1872, (St. 1872, p. 484,) a certain portion of the county of Santa Barbara, within which was situated the town of San Buenaventura, became, and thereafter was, and now is, the county of Ventura. 'l'he complainant corporation laid and completed and utilized its main water pipe in the main street of San Buenaventura before July 1, 1873, and has in all respects kept and performed the covenants of the contract in question. Complainant was incorporated for the purpose of supplying the town of San Buenaventura, and its inhabitants, with pure, fresh water, for municipal, household, domestic, and other purposes, and since the year 1871 has been continuously, and is now, doing so. It has purchased and obtained extensive riparian rights in and to the waters of the San Buenaventura river, acquired lands, rights of way, and reservoir sites, has built reservoirs, constructed ditches, purchased and laid into a complete system for distribution many miles of mains, pipes, and lateral connections, by means of which it has 'supplied the town and its inhabitants with water. In acquiring its rights, and in the construction and establishment of its plant, it has expended the sum of $163,000, and the property it has so acquired and built up is of the value of $200,000. In order to procure the funds for the extension and enlargement of the waterworks, and to provide for the natural growth of the town, and the increase in the number of inhabitants, and to provide the increased supply of water necessary therefor, complainant has, during the five years last past, been compelled to borrow, and has borrowed, in addition to amounts of money furnished by the stockholders of the complainant, over $40,000, to secure the payment of which, and the interest thereon, complainant has mortgaged all of its property, rights, and franchises, which mortgage is now a subsisting lien thereon. The bill alleges that to give complainant a just and reasonable compensation for the service rendered, to provide for the necessary and usual wear and tear and repairs, to maintain and operate its plant, and to give to its stockholders a just and reasonable return upon the capital invested, complainant should make its rates and charges for water supplied to the town and its inhabitants so as to produce a present income of $25,000 per annum. That pursuant to the provisions of an act of the legislature of the state of California entitled "An act to enable the board of supervisors, any town council, board of aldermen, or other legislative body city and county, city or town, to obtain data and information from any corporation, company, or person supplying water to such city and county, city or town, requiring such board, town council, or other legislative body, to perform the duties prescribed by section 1 of article 14, of the constitution, and prescribing the performance or nonperformance of such duties," approved March 7, 1881, (St. 1881, p. 54,) the board of trustees requested complainant to furnish to the board, in the month of January, 1892, the detailed and verified statement prescribed in section 2 of that act of
344
the legislature. That thereafter, to wit, on or about the 30th day of January, 1892, the complainant, in compliance with that request, and with said section 2 of the act, furnished the board, and filed with its clerk, a detailed statement, verified by the oath of the president and secretary of complainant corporation, showing the name of each water-rate payer, his or her place of residence, the amount paid by each such water-rate payer during the year preceding the date of such statement, and also showing all revenue derived by complainant from all sources during that year, and an itemized statement of expenditures made by complainant for supplying water during that time. That from said statement it appeared, and so the fact is, that the receipts and expenditures made by complainant in and about the furnishing and supplying of water during the year were as follows, to wit: "Recelpts. From water rutes From all other sources.......... Total receipts for year For For For For $12,054 82 1,061 69
$13,116 51 "Disbursements. interest on indebtedness............................... $ 2,411R 10 taxes ........................··..·....·.·......·..... 786 39 operating expenses und repair........................ 4,203 60 dividends to stockholders............................. 5,500 00 $12,958 15
Expended in construction in extending system.............. Disbursements over receipts ..·..·.·.·........··.·.·······
1,530 83"
1,688 99
That on or about the 15th day of February, 1892, the defendant board of trustees of the town assumed to pass, and did pass, an Ol'dinance purporting to fix the maximum rates for supplying water to the town and its inhabitants, which should be charged by complainant for the year beginning July 1, 1892, and ending June 30, 1893, a copy of which ordinance is annexed to, and made a part of, the bill. That according to the best information and belief of the complainant the amount of money that will be required during the year beginning July 1, 1892, and ending June 30, 1893, to meet and pay the interest on its bonded and other indebtedness, state, county, and municipal taxes, the necessary repairs to maintain its property in good order and condition, and to provide for its operating and other necessary expenses, will exceed the sum of $9,000. That if the rates for supplying water to the town and its inhabitants are to be made as in the last-mentioned ordinance specified, the aggregate amount of money that could be collected from the town and its inhabitants for that year would not amount to over $8,500,-an amount insufficient to provide for the cost of maintenance, taxes, and operating expenses,-and that, upon the basis of the rates for supplying water specified in the ordinance, complainant would be deprived of all net income, or power to pay its stockholders any dividend upon its capital stock, and the owners of the stock would be deprived of all income and revenue from their said property.
BANTA ANA WATER CO. '1:. TOWN OF SAN BUENAVENTURA.
345
The bill alleges that the board of trustees of the town asserts its right to fix the charges that complainant shall make for water furnished to the town and its inhabitants by virtue of section 1 of article 14 of the constitution of the state of California, and by virtue of the aforesaid act of the legislature of the state of Oalifornia, approved March 7, 1881, the provisions of which, the complainant alleges, are inapplicable to complainant, whose charges for water so supplied, it is averred, should be fixed and determined as provided for in the contract made between the town and Arnaz and his associates, and by them assigned to complainant; and the purpose of the suit is to obtain a decree of this court so adjudging. Section 1 of article 14 of the present constitution of Oalifornia, adopted in 1879, is as follows: "The use of all water now appropriated, or that may hereafter be appropriated, for sale, rental, or distribution, is hereby declared to be a public use, and subject to the regulation and control of the state, in the manner to be prescribed by law: pro,lded, that the rates or compensation to be collected by any person, company, or corporation in this state for the use of water supplied to any city and county, or city or town, or the inhabitants thereof, shall be fixed, annually, by the board of supervisors, or city and county or city or town council, or other governing body of such city and county, or city or town, by ordinance or otherwise, in the manner that other ordinances or legislative acts or resolutions are passed by such body, and shall continue in force for one year, and no longer. Such ordinances or resolutions shall be passed in the month of February of each year, and take effect on the first day of July thereafter. Any board or body failing to pass the necessary ordinances or resolutions fixing water rates, where necessary, within such time, shall be subject to peremptory process to compel action, at the suit of anv party interested, and shall be liable to such further processes and penalties as the legislatllrp may prescribe. Any person, company, or corporation collecting water rates in any city and county, or city or town, in this state, otherwise tban as so established, shall forfeit the franchises and waterworks of such person, compan.v, or corporation to thl"! city and county, or city or town, where the same are collected, for the public use."
It was to carry out these provisions of the constitution that the legislature of the state passed the act approved March 7, 1881, and it was in pursuance of these constitutional and statutory provisions that the ordinance complained of was enacted. It is clear that if the contract entered into between the town and Arnaz and his associates, purporting to confer upon them and their assigns the exclusive privilege of supplying the town and its inhabitants with water for 50 years from the date of its execution, and to secure to them "the unrestrained right to establish such rates for the supply of water to private persons as they may deem expedient, provided that such rates be general," was a valid contract, and passed by assignment to the complainant corporation, the obligation of that contract was protected by the constitution of the United States against impairment by any act of the state, constitutional or statutory. New Orleans Gas 00. v. Louisiana Light, etc., 00., 115 U. So 650,6 Sup. Ot. Rep. 252; Waterworks Co. v. Rivers, 115 'D. S. 674, 6 Sup. Ot. Rep. 273. The acts complained of were done under and pursuant to a provision of the state constitution, supplemented by state legislation. Whether or not
346
the acts l!O done were in violation of the constitution of the United States necessarily presents a federal question, of which this court has jurisdiction. The provisions of the constitution of California in respect to the formation of corporations, and the organization of cities and incor· porated villages in existence at the time of the incorporation of the town of San Buenaventura, and at the time of the making of the contract between that town and Arnaz and his associates, and at the time of its assignment to the complainant corporation, were as follows: "Corporations may be formed under general laws, but shall not be created special act, except for Illunicipal purposes. All general laws and cial acts passed pursuant to this section may be altered from time to time, or repealed." Section 31, art. 4, Const. 1849. "It shall be the duty of the legislature to provide for the organization of cities and incorporated villages, and to restrict their power of taxation, as· sessment, borrowing money, contracting debts, and loaning their credit, so as to prevent abuses in assessment and in contracting debts by such municipal corporations." Section 37, rd.
Pursuant to these provisions of the constitution of the state the legislature of California passed an act, approved March 10,1866, in· corporating the town of San Buenaventura, by the twelfth section of which the board of trustees of the town was given power, among other things, to provide for the prevention and extinguishment of fires, and to supply it with fresh water. By the fourteenth section of the act it was declared that the trustees "shall have no power to borrow money, nor to contract any debts or liabilities which shall, in the aggregate, exceed the sum of four hundred dollars, unless it shall first appear by the returns of the treasurer that there is actually in the treasury money, not otherwise appropriated, sufficient to meet and pay such liabilities." The power conferred by the legislature upon the board of trustees of the municipality to provide for the prevention and extinguishment of fires, and to pro· vide the town with fresh water, necessarily carried with it the im· plied power to make any and all proper contracts to accomplish those ends. There was no constitutional inhibition against such grant of power, and it was therefore not only within the province of the legislature to make the grant, but, having deemed it wise to make of the town a municipal corporation, it was appropriate, and, indeed, necessary, that provision either be made directly by the legislature for the supply of the town and its inhabitants with fresh water, or that such power be delegated to the governing body of the municipality; which was done in and by the twelfth section of the act. That the legislature contemplated that the power thus conferred upon the municipality should be exercised by meam; of a contract or contracts is shown by the fact that the town itself was, by the fourteenth section of the act incorporating it, denied the power to borrow money or to contract any debts or liabilities exceeding in the aggregate four hundred dollars, unless there should be in the treasury money, not otherwise appropriated, sufficient to pay such liabilities, and by the further fad that there were then existing law. enacted by the legislature, as will presently be shown,
347
providing for the organization of corporations for the supplying of cities and towns, with their consent, with fresh water, and confen-ing upon such corporations the same privileges, immunities, and franchises that should be granted to any individual or individuals. 'Whether or not the board of trustees was authorized, in view of other provisions of the statutes of the state, to confer, by contract, on any individual, individuals, or corporation, the exclusive privilege of supplJ'ing the town and its inhabitants with water, is not here involved. That feature of the contract in question need not, therefore, be considered. :No third party is asserting the right to introduce water into the town, nor is the town itself proposing to provide a supply. The question here concerns only that feature of the contract reserving to Arnaz and his associates "the unrestrained right to establish such rates for the supply of water to private persons as they may deem expedient, provided that such rates be general," and the effect of the assignment of the contract to the complainant corporation. 'rhe complainant was organized, as has been said, under the provisions of an act of the legislature of California, approved April 22, 1858, which was a general law passed for the incorporation of water companies. That act declared that any company organized under it should furnish pure, fresh water to the inhabitants for family uses, so long as the supply permitted, at reasonable rates, and without distinction of persons, upon proper demand therefor, and should furnish water, to the extent of its means, to the city and county, "in case of fire or other great necessity, free of charge." The act further declared that the rates to be charged for water should be determined by a board of commissioners, to be selected as follows: Two by the city and county, or city or town, authorities, and two by the water company, and, in case the four could not agree to the valuation, then and in: that case the four should choose a fifth person, and he should become a member of the board, and, if the four commissioners could not agree upon a fifth, then the sheriff of the county should appoint him, and that the decision of a majority of the board should determine the rates to be charged for water for one year, and until new rates should be established. The act also declared that the corporation should have the right, subject to the reasonable direction of the city or town authorities as to the mode and manner of exercising it, to the use of so much of the streets, ways, and alleys of the municipality as might be necessary for laying its pipes for conducting water. In the case entitled Spring Valley Waterworks v. Schottler, 110 U. S. 347, 4 Sup. Ct. Rep. 48, the question arose whether the right confelTed upon water companies organized under that act to participate in the fixing of the rates to be charged for water furnished by them constituted a contract protected by the constitution of the United States against impairment by subsequent action of the state. The court held that the provision in the statute of 1858 in respect to the fixing of water rates was but one of the corporate privileges granted by the state; that it was part and parcel of the charter of the corporation, and nothing else, and therefore fell within the
848
power reserved by section 31 of article 4 of the constitution of the state, in existence when the act was passed, to alter or repeal it. Chief Justice Waite, in delivering the opinion of the court, said: "The organization of the Spring Valley Company was not a business arrangement between the city and the company, as contracting parties, but the creation of a new corporation to do business w'itbin the state, and to be governed as a natural person or other corporations were or might be. Neifher are the charter rights acquired by the company under the law to be looked upon as contracts with the city and county of San Ii'rancisco. The corporation was created by the state. All its powers came from the state, and none from the city and county. As a corporation it can contract with the city and county in any way allowed by law, but its powers and obligations, except those which grow out of contracts la"wfully made, depend alone on the stat· ute under which it was organized, and such alterations and amendments thereof as may from time to time be made by proper authority. The provisiOJi for fixing rates cannot be separated from the remainder of the statute by calling it a contract. It was a condition attached to the franchises conferred on any corporation formed under the statute, and indissolubly connected with the reserved power of alteration and repeal."
It will be observed that while the court held that each and every right conferred by the statute under which the company was incorporated was a part and parcel of its charter, and that only, and therefore subject to alteration or repeal, the right of any company to contract with the city or town in any way allowed by law was expressly recognized and declared. It has already been seen that in the act incorporating the town of San Buenaventura the legislature conferred upon the board of trustees of the town the power to provide for the prevention and extinguishment of fires, and to provide for the supplying of the town and its inhabitants with fresh water, and that the only limitation upon that power was that the board should have no power to borrow money, or to contract debts or liabilities, to exceed in the aggregate $400, unless there should be at' the time money in the treasury, not otherwise appropriated, sufficient to pay such debts or liabilities. :Not only was this no limitation upon the power of the board of trustees to contract with other parties for the introduction, at their expense, of water into the town; but, practically, it made it a matter of necessity for the board to make some contract with some individual, individuals, or corporation to that end, since it was denied the power to incur any debts or liabilities exceeding in the aggregate $400, without the money in hand to pay them. Arnaz and his associates were individual citizens. Thev were not in any way bound to enter into the contract with the board of trustees of the town. By the exercise of none of its prerogoatives as a governing power could the municipality compel them to do so. 'The contract required their assent, as well as that of the board of trustees. Of course, in entering into it, they did so subject to existing laws; but no then existing law has been pointed out, reserving to the state or the municipality the power to fix the water rates the town, through its board of trustees, contracted should be fixed by Arnaz and his associates. A statute of the state, approved :May 3, 1852, (St. 1852, p. 171,) providing for the incorporation of water companies, declared, in its third section:
BANTA ANA WATER CO.
v.
TOWN OF SAN BUENAVENTURA.
349
"This act shall not give to any company the right to supply any city with water unless it shall be previously authorized by an ordinance, or unless it be done in conformity with a contract entered into between the city and the company. Any contracts hereafter so made shall be valid and binding in law, but shall not take from the city the right to regulate the rates for water, nor shall any exclusive right be granted, by contract or otherwise, for a term exceeding twenty years."
By this act it was declared, as will be observed, that no contract entered into between a city and a company incorporated under the provisions of the act should "take from the city the right to regulate the rates for water." That provision had no application to Arnaz and his associates, for the reason that they were not incorporated under that or any other act. The doctrine is firmly established that the state may, by contract, restrict the exercise of some of its most important powers. Many of the cases holding that doctrine are referred to in New Orleans Gas Co. v. Louisiana Light, etc., Co., supra. In that case the court sllstained a grant by the legislature of Louisiana of an exclusive right to supply gas to the city of New Orleans and its inhabitants, and beld that the grant was protected by the contract of the constitution of the United States against impairment by a Rubsequent change in the constitution of Louisiana. In the course of its opinion the court said: "'Ve have seen, the manufacture of gas, and its distribution for public and private use by means of pipes laid, under legislative authority, in the streets and ways of a city, is not an ordinary business, in which every one may engage, but is a franchise belonging to the government, to be granted, for the accomplishment of public objects, to whomsoever, and upon what terms, it pleases. It is a business of a public nature, and meets a public necessity, for which the state may make provision. It is one Which, so far from affecting the public injuriously, has become one of the most important agencies of civilization, for the promotion of the public convenience and the public safety. It is to be presumed that the legislature of Louisiana, when granting the exclusive privileges in question, deemed it unwise to burden the public with the cost of erecting and maintaining gas works sufficient to meet the necessities of the municipal government and the people of Kew Orleans, and that the public would be best protected, as well as best served, through a single corporation, invested with the power, and charged with the duty, of supplying ;.',"lS of the requisite quality, and in such quantity as the public needs demanded. In order to accomplish that, in its judgment, the public welfare required. the legislature deemed it necessary that some inducement be offered to private cap'italists to undertake, at their own cost, this work. '1'hat inducement was furnished, in the grant of an exclusive privilege of manufacturing and distrilJUting gas by means of pipes laid in the streets of New Orleans for a fixed period, during which the company would be protected against competition from corporations or companies engaged in li1{e blisinpss. 'Without that grant it was inevitable eHher that the cost of supplying the city and its ppople would have been made, in some form, a charge upon the public, or the public wonltl have been deprived of the security in person, property, and business which comes from weU-lighted streets. It is not our province to der]are that the legislature unwisely exercised the discl'ption with which it was invested. Nor are we pn'pared to hold that the state was incapable, her authority in the premIses not being, at the time, limIted by her own organic law, of providing for supplying gas to one of her municipalities and its inhab'itants by means of a valid contract with a private corporation of her own creation."
The subsequent case of Waterworks Co. v. Rivers, 115 U. S. 674, 6 Sup. Ct. Rep. 273, involved the validity and effect of a contract between the city of New Orleans and the New Orleans Water
_._ _ _ - _ . _ - - - - - - - - ..
350
FEDERAl, REPORTER,
Company, whereby the former, acting under legislative authority, granted to the latter,for the term of 50 years, the exclusive privilege of supplying that city and its inhabitants "with water from the Mississippi, or any other stream or river, by mains or conduits, and for erecting and constructing any necessary works or .engines or machines for that purpose." Subsequently, under the sunction of a new state constitution, adopted after that contract was made, the city passed an ordinance allowing Rivers, or the lessee of the St. Charles Hotel, the right of way and privilege to lay a water pipe from the Mississippi river, at any point opposite the head of Common or Gravier streets, through either of those streets, to convey water to that hotel. 'Phe supreme court held the grant to Rivers to be inconsistent with the previous one to the waterworks company, and that the provision in the new con· stitution of Louisiana, and the ordinance under which Rivers proceeded, impaired the obligation of the city's contract with the waterworks company. It was said: "The right to dig up and use the streets and alleys of New Orleans for the purpose of placing pipes and mains to supply the city and its inhabitants with water is a franchise belonging to the state, which she could grant to such persoDs or corporations, and upon such terms, as she deemed best fOL" the public interests. And as the object to be attained was a public one, for which the state could make provision by legislative enactment, the grant of the franchise could be accompanied with such exclusive privileges to the grantee, in respect of the subject of the grant, as, in the judgment of the legislative department, would best promote the public health and the public comfort, or the protection of public and private property. was the nature of the plaintiff's grant, which, not being at the time prohibited by the constitution of the state, was a contract, the obligation of which cannot be impaired by subsequent legislation, or by a change in her organic law;" the constitutional prohibition upon 8tate laws impairing the obligation of contracts not, however, restricting "the power of the state to protect the public health, the public morals, or the public safety, as the one or the other may be involved in the execution of said contract," because "rights and privileges arising from contracts with a state are subject to regulations for the protection of the public health, the public morals, and the pUblic safety, in the same sense as are all contracts and all property, whether owned by natural persons or corporations."
The principle controlling the decisions cited is a just and plain one. The duty is imposed upon the legislative power that creates a municipal corporation to provide for the necessary elements of gas and water. It may, at its discretion, do so directly, or it may, in the absence of any constitutional inhibition, say, directly, or through the municipal corporation so created, to its individual citizens, in the language of the supreme court, (Binghamton Bridge, 3 Wall. 74:) "It you will embark with your time, money, and skill in an enterpriSe) which will accomodate 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, said the court in the case from which the quotation is taken, "is a contract with mutual considerations, and justice and good policy alike require that the protection of the law should be assured to it."
BANTA ANA WATER 00. 'II. TOWN OF SAN BUENAVENTURA.
351
I am of opinion, therefore, that the contract in question in the present case, in so far as it reserved to the parties of the first part the "unrestrained right to establish such rates for the supply of water to private persons as they may deem expedient, provided that such rates be general," and subject, also, to the implied condition that the rates be reasonable, was a valid contract, in the hands of Arnaz and his associates. Did their rights in that respect vest by the assignment in the com· plainant corporation? That any and every right conferred on com· plainant by its charter may be altered or repealed by the state is put at rest by the decision of the supreme court in Spring Valley Water· works v. Schottler, supra, and is no longer open to question. But that companies incorporated under the act of April 22, 1858, for supplying cities and towns with fresh water, may contract with such cities and counties, or cities or towns, in any way allowed by law, was also declared by the same decision. In People v. Stanford, 77 Cal. 371, 18 Pac. Rep. 85, and 19 Pac. Rep. 693, the supreme court of California decided that that provision of the constitution of the state declaring that "corporations may be formed under general laws, but shall not be created by special act" (article 4, § 31) does not prohibit the assignment of a franchise to ;a legally-organized corporation by persons having the lawful right to exercise and transfer the same; that that provision of the constitution of the state applies to the formation or creation of corporations, and to the powers directly conferred upon them by legislative enactment. The construction placed upon the constitution of the state by the highest court in existence under it is binding on this court, and under the construction thus adopted by the supreme court of California it is obvious that the complainant corporation was competent to take by assignment whatever rights the contract of January 4, 1869, conferred upon Arnaz and his associates, and that were assignable by them. The point is made on behalf of the defendants that by the terms of the contract the right to establish rates was a right personal to Arnaz and his associates. The contract does not fairly admit of such construction. That right is reserved to "the parties of the first part" to the contract, which in terms provides for its assignment. The grant of the use of the streets, etc., for the necessary purposes of the undertaking, is made to the parties of the first part, their successors or assigns; and the right is by the contract reserved to the town to purchase, at the expiration of 50 years, the works erected by the parties of the first part, or their assigns, at a fair valuation. By the terms of the contract the parties supplying water under it are required to furnish suffi· cient water for public use in case of fire, without charge, and for such public fountains as should be established by the authorities of the town, at rates to be agreed upon by the parties; that is to say, by the parties furnishing the water, on the one part, and the town authorities, on the other. And to the parties of the first part-that is to say, to the parties furnishing the water-is given the right to establish the rates for water supplied to private per-
352
sons. This, manifestly, is the fair and true interpretation of the contract; and that such was the understanding of it on the part of the board of trustees of the town is shown by the fact that after its assignment to the complainant corporation, and on the 28th day of October, 1872, the board of trustees enacted an ordinance ratifying and approving the assignment, the first section of which is as follows: "All the rights and privilege heretofore granted to the said Arnaz, Ustussaustegui, and Molleda be, and the same are hereby, continued and granted to the said Santa Ana Water Company, for fifty years from and after JaIlr uary 4th, A. D. 1869. The transfer and assignment by said Arnaz, Ustussaustegui, and Molleda of said franchise to said water company is hereby ratified and approved."
And this ordinance of the town was approved, ratified, and continued in force by an act of the legislature of the state entitled "An act to incorporate and extend the limits of the town of San Buenaventura, in the county of Ventura, state of California, and also to change the name of Canada street, in said town, to that of Ventura avenue," approved March 29, 1876. Under the views above expressed it becomes unnecessary to consider the objections made to the constitutionalty of the ordinance in question, based on the ground that its enforcement would prevent the stockholders of the complainant corporation from receiving any interest or dividends on their investments. Demurrer overruled, with leave to defendants to answer within the usual time. SMITH v. BIVENS et aL (CIrcuit Court, D. South Carolina. May 19, 1893.)
CONSTITUTIONAL LAW-DUE PROCESS OF LAW-FEl'i"CES.
Complainant owned a tract of land which was valuable solely for graze ing purposes, and from which he derived an income by letting it to pasture. At the time he acquired it the law of South Carolina required all owners of cattle and stock to keep thcm fenccd in, and gave the owners of lands upon which they might trespass the right to distrain and impound them. Thereafter the legislature passed an act exempting this land, with other tracts, from the provisions of the law, the effect of which was to require complainant either to fencc his whole tract against cattle, or to submit to have it trespassed upon, without redress, by any cattle whose owaers chose to let them run at large. Held, that this act is not within the police power of the state, and violates the federal constitution, inasmuch as it deprives complainant of his property without due process of law. Complainant filed his bill for an injunction against certaIn owners of trespassing cattle, alleging that defendants committed the injury complained of under the latter act. Defendants denied that they did anything under color of the act, but it was shown that they had applied to the legislature for its enactment, that before it was passed they had paid complainant for pasturage, and that since its passage they had refused to pay. HeliJ, that a federal question was involved, and the United States circuit court has jurisdiction of the bill. As the bill alleges that the land in question Is valuable for pasturage, and for no other purpose, and that by force of such act complainant is
COURTS-JURISDICTION-FEDERAL QUESTION.
8.
SAME-JURISDICTIONAL AMOUNT.
SMITH 11. BIVENS.
358
antirely deprived of his rights and property therein, the amount in con· troversy, for the purpose of jurisdiction, is the value of the land.
i.
SAME-INJUNCTION-MuL'l'IPLICITY OF SUITS.
A court of equity has jurisdiction to entertain such suit for an injunc· tion, for to leave complainant to his remedies at law would involve him in a multiplicity of suits.
In Equity. Bill for injunction by Henry A. M. Smith against Joseph Bivens and others. Injunction granted. A. D. Cohen, for complainant. C. O. Tracy, for defendants. SIMONTON, District Judge. The complainant is the owner of about 8,000 acres of land, in one body, in Oolleton county, in this· state. The land is valuable for grazing purposes, and beyond this has little value. Complainant has been using it for such purposes, and has been in the enjoyment of an income therefrom, derived from a per capita royalty paid by owners of cattle placed in this pasture. When he purchased this property the law of South Carolina required all owners of cattle and stock to keep them fenced in, and, in case they strayed on the lands of others, gave to the Owners of such lands the right of distraining and impounding them. No proprietor was required to fence his lands used for any purpose but pasture, and the provisions of the law protected him from trespass. In December, 1891, the general assembly of South Oarolina passed an act to exempt certain territory in Colleton county from the operation of this law. Under the provisions of the act some 32,000 acres, in which territory was embraced this land of complainant, were exempted from the provisions of the general law. ,The complainant was thus compelled either to build a substantial fence around his whole tract, of a character to keep out cattle, hogs, and other stock, or his lnnds could be grazed upon by the cattle and stock of any person who chose to turn them out. The defendants are cattle and stock owners, neighbors of the lands of complainant, and anterior to the passage of the act in question had used the privilege of grazing on the lands of the complainant, and had paid the per capita royalty charged therefor. They were notified during the year 1891 of the intention of the complainant to increase the royalty per head, and one and all declined to pay it, or to contract on those terms. Nevertheless, since the passage of the act, their stock and cattle have been at large, and have con· stantly trespassed upon this land of the complainant. This, per· haps, could not be prevented in any other way than that provided in the general law; that is, by fencing in the stock and cattle, and not permitting them to run at large. The bill is filed to protect the complainant in the cumplete possession and use of his own land. It charges that the defendants were largely instrumental in procuring the passage of the act of i the legislature above referred to, and that they are protected under the color of that act; that he has no remedy at law to meet his case; and that an attempt to seek such a remedy would involve him in a multiplicity of suits. He charges that the said act viov.56F.no.7-23
354
J'EDERAL REPORTER.
lates the provisions of the constitution of the United States, and is null and void. The prayer is for an injunction. The answer denies the principal allegations of the bill, admits the passage of the act of the general assembly referred to in the bill, and maintains that it is not in conflict with the constitution of the United States. Especially, it challenges the jurisdiction of the court, as well its jurisdiction as a court of the United States as its jurisdiction as a court of equity. These questions must be first disposed of. It is contended that this court has not jurisdiction because the matter in controversy does not exceed in value the sum of $2,000, exclusive of interest and costs. The complainant avers that the . testimony sustains the averment that the land is valuable as grazing or pasture land only. It further appears that the complainant has been using it for this purpose, and that he realized in one year at least $500 for its use. This was due simply to the fact that he could control the grazing on his own land. Until the passage of this act he could exercise his control. Since its passage he has lost it, and with it his income. Oapitalized, this income is 4 percent. on $12,500, 41 per cent. on $12,000, 5 per cent. on $10,000, 6 per cent. on $8,333, and 7 per cent. on $7,100. Let us look at it from another point of view. The land of complainant was purchased by him solely for grazing and pasture purposes. It has value for this purpose, and none other. 'fhe testimony shows that this is the general character of the land in this vicinity, and that the land of complainant is specially valuable for this purpose. The act of the legislature destroys the control by complainant of his property for this purpose, and to this extent impairs its value. The land contains 8,000 acres. The value of the land in that neighborhood, as shown by the testimony, is not less than 33 cents per acre, that is to say at least $2,640. This is the matter complained of, and measures the injury for which complainant seeks redress. The case comes within Railroad 00. v. Ward, 2 Black, 492, or as it is stated in Railway 00. v. Kuteman, 54 Fed. Rep. 552, in a suit for an injunction, the amount in dispute is the value of the object to be gained by the bill. Another objection set up in the answer by way of demurrer is that the bill and answer, with the testimony, show that no federal question is involved, and that parties on both sides are citizens of the same state. The bill charges that the act of the general assembly, 22d December, 1891, is unconstitutional, null, and void, in that it deprives the complainant of his property without due process of law; that it denies to him the equal protection of the law, as given to the rest of the citizens of this state; that it impairs the contract entered into with complainant; that it lessens and affects and impairs the value of complainant's land, without due compensation; and that it subjects the property of complainant to the use and benefit of defendants and the public without compensation. The defendants, in argument, deny that the act of the general assembly is used by them as a shield for their protection, or that they invoke the same. They insist that the only difference between
SMITH t1. BIVENS.
855
them and complainant is this. They admit his right to charge them fol' the use of his land, and they find themselves unable to pay the increased charge which he has made. The bill alleges that the act of the general assembly protects the defendant, and that it is unconstitutional, null, and void. The answer denies that it is unconstitutional, and made this a distinct issue in the pleadings. Beside this, under the law, as it stood before the passage of the act, the owner of stock was compelled to keep them in so that they could not trespass on lands of others. For doing this they were exposed to certain action on the part of the landowner. The act in question repealed all this, and the landowner trespassed upon had no remedy. Indeed, the action of the stock was no longer a trespass. The purpose of the bill is to obtain relief from this. It is clear from the testimony that stock of the defendants-the most, if not all, of them-graze on the land of complainant. He can legally demand nothing from their owners for the use of this land, if the act be valid; and their willingness to pay something is a gratuity, and does not create a legal demand, or make that a trespass which the law does not. From this state of things the complainant seeks relief. He does so by alleging that the act is unconstitutional. Defendants deny this. Necessarily, they get, if they do not seek, the protection of the act. Besides this, the defendants paid the charge of complainant for the use of the land for one year. But during that year they were parties to an application to the legislature for an amendment of the law which would free them from thIs obligation. We cannot, of course, inquire into or impugn the motives of the legislature in passing the law. But in ascertaining the attitude of the parties to the act, and in inquiring whether they rely on it or not, we can ascertain the steps they took to secure its passage, and from these judge of their motive. "The character of a case [whether it be federal or not] is determined by the questions involved. Osborn v. Dank, 9 "-''heat. 738. If from the questions it appears that some title, right, privilege, or immunityon which the recovery depends will be defeated by one constru<lc tion of the constitution, or sustained by the opposite construction, the case will be one arising under the constitution and laws of the United States." Starin v. City of New York, 115 U. S. 257, 6 Sup. Ct. Rep. 28. Of the positions talcen in the bill upon which it is daimed that this act is unconstitutional, we cannot consider that charging that it is the taking of private property for public use. The inhibition of the constitution of the United States on this subject applies only to acts of the general government. Barron v. Baltimore, 7 Pet. 243. And although the supreme court of this state has held in Fort v. Goodwin, 15 S. E. Rep. 723, that a similar act violated the state constitution, this would not give this court jurisdiction. The federal constitution, however, does inhibit the state from depriving any person of life, liberty, or property without due process of law. 14th Amend. § 1. "Due process of law" has never received any exact definition. Freeland v. Williams, 131 U. S. 407, 9 Sup. Ct. Rep. 763. Mr. Chief Justice Fuller, in Caldwell v. Texas, 137 U. S. 691,
856
11 Sup. Ct. Rep. 224, says: ''Law, in its regular course of administration through courts of justice, is due process, and, when secured by the law of the state, the constitutional requisition is satisfied." In the case at bar the complainant, owner of a tract of land, and as such owner entitled to its exclusive use and enjoyment, is by an act of the legislature, and without more, deprived of this exclusive use and enjoyment. By the stroke of a pen, it is gone. This seems a clear illustration of what is forbidden in the constitution. The only remaining inquiry is, is this act of the general assembly of the state of South Carolina the exercise of police power? If so, it is above the constitution. The police power is among the reserved powers of the states. New York v. 1\filn, 11 Pet. 102. It cannot be accurately defined. It is described as the power to prescribe regulations to promote the health, peace, morals, education, and good order of the people, and to legislate so as to increase the industries of the state, develop its resources, and add to its wealth and prosperity. Barbier v. Connolly, 113 U. S. 31, 5 Sup. Ct. Rep. 357. Where the purpose of the law is the adoption of measures appropriate or needful for the protection of public morals, the public health, and the public safety, there is no question that it is within the police power. Mugler v. Kansas, 123 U. S. 631, 8 Sup. Ct. Rep. 273. But when the enactment goes beyond that, while we are bound to indulge every possible presumption in favor of the validity of a statute, (Sinking Fund Cases, 99 U. S. 700,) it does not at all follow that every statute, even if it be enacted ostensibly for these ends, is to be accepted as a legitimate exertion of police power. We are relieved from doubt as to this question by the supreme court of South Carolina. In Fort v. Goodwin, 36 S. C. 452, 15 S. E. Rep. 723, the court discusses the constitutionality of an act of assembly exempting a large body of swamp in Lexin6>i:on county from the operation of the stock law. The court, considering the question, hold that the effect of the act is the taking of private property, in the sense of the constitution. The court says: "It mllY possibly be inferred that it is for the benefit of those whose business is to rais(\ stock. It increases the burdens of the fr"holders within the inclosure, who make objection that their lands are to turned into a public pasture, * * * and thus required to fence any portion of their lands which they may wish to cultivate. As we think, the legislature cannot accomplish purpose."
It is a delicate thing to declare a state statute unconstitutional. "But the supreme court of South Carolina, in the case above quoted, and in Utsey v. Hiott, 30S. C. 367, 9 S. E. Rep. 338, have declared similar acts invalid, upon the principles above stated, and in a recent case, still in manuscript, Sanders v. Venning, (23d March, 1893,) 17 S. E. Rep. 134, confirm these cases. This case presents a federal question, and is within the jurisdiction of this court. With regard to the general equity jurisdiction, there can be less question. By the operation of the act the complainant is exposed constantly to trespasses upon his land, and to the use and destruction of his property. vVere he limited to relief
CENTRAL RAILROAD 01: BANKING CO. 11. FARMERS' LOAN & TRUST CO.
857
and harassed by endless and unsatisfactory litigation. As long as the act remains of force this cannot be prevented. The of cattle are not required to fence them in, and in despite of the efforts of complainant, and we may say even against the wishes of the cattle owners, these trespasses will go on. No damages will be awarded. Let the injunction issue in accordance with the prayer of the bill.
at law he would be involved constantly in a multiplicity of suits,
CENTRAL RAILROAD & BANKING CO. OF GEORGIA v. FARMERS' LOAN & 'fHUST CO. OF NEW YORK et a1. (Circuit Court, S. D. Georgia, E. D. April 24, 1893.) R.uLROAD COMPANIES COMPANY. ApPOINTMENT OF RECEIVER RIGIITS OF SUBSIDIARY
H. was appointed receiver of tho C. R. Co., in acordance with the prayer of a bill by that company alleging that it operated and controlled several lines of railway, among others the P. R. Co., was unable to pay thll interest on its bonds, and that a receiver was necessary in order to prevent dismemberment and disastrous litigation. 'fhereafter A. filed a petition in the cause showing his appointment as receiver of the P. R. Co. by a state court after the appointment of H. as receiver of the C. H. Co., and pray· ing that H. be directed to surrender the road to petitioner. Held, C. R. Co., being a creditor of the P. lL Co., and a majority stockholder therein, but having no rights of ownership in the property of the roal!, had no right to its possession and control, and, as the receiver of the C. R. Co. had no greater rights, that the prayer of the petition must be granted.
In Equity. Bill by the Central Railroad & Banking Company of Georgia against the Farmers' Loan & Trust Company of New York and others. John H. Averil, receiver of the Port Royal & Augusta Railway Company, filed a petition in the suit praying that a receiver of plaintiff company, having control of the Port Hoyal & Augusta Railway Company as a part of plaintiff company's system, be compelled to surrender such road to petitioner. Prayer of petitioner granted. For other proceedings in this case see 50 Fed. Rep. 338; 54 Fed. Rep. 556. Smythe & Lee and A. C. King, for Averil. Lawton & Cunningham and .T. Ganahl, for respondents. PARDEE, Circuit Judge. On July 4, 1892, the Central Railroad & Banking Company of Georgia, a corporation existing under and by virtue of the laws of the state of Georgia, filed a bill in this court against the Farmers' Loan & Trust Company and others. The first paragraph of said bill is as follows: "That heretofore, to wit, on March 3, 18!l2, Mrs. Rowena M. Clarke, a stockholder of said Central Hailroad & Banking Company of Georgia, exliibited and filed In said COllrt her bill of complaint against sail! company, and also sgainst the Richmond & Danville Hailroad Company and the Richmond and West Point Terminal Hailway & 'Warehouse Company Bnd the Georgia Pacific Railway Company, which said bill ot complalnt