Owensboro v. Cumberland Tel. & Tel. Co., 230 U.S. 58 (1913)

MR. JUSTICE DAY, dissenting:

I am unable to concur in the judgment and opinion announced in this case. In my opinion, the ordinance of December 4, 1889, granting to the Cumberland Telephone & Telegraph Company, its successors and assigns, the right to use the streets and alleys of the City of Owensboro for the purpose of erecting poles and stringing wires thereon to maintain a telephone system, did not grant a perpetual franchise, because of the limitation upon the authority of the City of Owensboro to grant a perpetual franchise.

The case is not controlled by the previous cases in this Court, such as the late case of Louisville v. Cumberland Telephone Co., 224 U.S. 649, which had to do with the construction of a legislative grant to a corporation having perpetual succession, and did not involve the construction of the charter of a Kentucky city, such as is here under consideration.

The power to grant a perpetual franchise to telephone and similar companies desiring to use the streets and alleys of the City of Owensboro is said to be derived under § 10 of the charter, conferring upon the common council, in its subsection 27, the right to regulate streets, alleys, and sidewalks, and all repairs thereof, in the city. Conceding that, if this power were conferred without limitation, it might authorize a grant in perpetuity of the character herein involved, the authority found in the subsection 27, as well as other municipal powers, are all granted to the common council by the legislature of the state upon the following terms, preceding the grant of authority:

§ 10. The common council shall have control of the finances and all property, real and personal, belonging to the city, and shall have full power to make, publish, amend, and repeal all ordinances for the following purposes, to-wit . . .

In other words, the authority granted to regulate the streets is limited by the express reservation that it shall be exercised subject to the power of the city to amend and repeal any ordinance so enacted.

In Greenwood v. Freight Co., 105 U.S. 13, wherein this Court held that a grant to a street railway company subject to the limitation of the right to amend, alter, or repeal was subject to future legislation ending the right of the street railway company to operate in the streets of the city, Mr. Justice Miller, who delivered the opinion of the Court, stated the origin of statutory and legislative reservations of this character enacted since the decision of Dartmouth College v. Woodward, 4 Wheat. 518, construing corporate charters as contracts between the public authorities and the grantees, beyond legislative control and within the protection of the contract clause of the federal Constitution. The learned Justice said (p. 20):

It became obvious at once that many acts of incorporation which had been passed as laws of a public character, partaking in no general sense of a bargain between the states and the corporations which they created, but which yet conferred private rights, were no longer subject to amendment, alteration, or repeal, except by the consent of the corporate body, and that the general control which the legislatures creating such bodies had previously supposed they had the right to exercise no longer existed. It was, no doubt, with a view to suggest a method by which the state legislatures could retain in a large measure this important power without violating the provision of the federal Constitution that Mr. Justice Story, in his concurring opinion in the Dartmouth College case, suggested that, when the legislature was enacting a charter for a corporation, a provision in the statute reserving to the legislature the right to amend or repeal it must be held to be a part of the contract itself, and the subsequent exercise of the right would be in accordance with the contract, and could not therefore impair its obligation.

In view of that policy, this Court held that, whatever rights remained to its other property, the authority to run cars upon the streets of the City of Boston, being subject to the reservation, terminated upon the repeal of the ordinance.

If there is such right to repeal, the authorities are conclusive that it may be exercised so as to terminate the rights of the company to further use the streets. In a recent case, Calder v. Michigan, 218 U.S. 591, this Court approved and reaffirmed this principle. In that case, the Grand Rapids Hydraulic Company had been incorporated by the Legislature of Michigan, and had constructed, and was then maintaining, an elaborate water system. The legislature repealed the charter, reservation to amend or repeal having been made in the original act. In aid of the contention that the repealing act was void under the Fourteenth Amendment to the Constitution, it was alleged that there were outstanding bonds and a mortgage on the company’s plant, including its franchise to own and operate its system; also that, the city being a competitor of the company, the city authorities had secured the passage of the repealing statute by unfair means. This Court said (pp. 598 et seq.):

The defendants now, on the ground that there are limits even to the operation of a reserved power to repeal, argue that we should consider these allegations. But we do not inquire into the knowledge, negligence, methods, or motives of the legislature if, as in this case, the repeal was passed in due form. United States v. Des Moines Navigation & Railway Co., 142 U.S. 510, 544. The only question that we can consider is whether there is anything relevant to the present case in the terms or effect of the repeal that goes beyond the power that the charter expressly reserves.

. . . By making a contract or incurring a debt the defendants, so far as they are concerned, could not get rid of an infirmity inherent in the corporation. They contracted subject, not paramount, to the proviso for repeal, as is shown by a long line of cases. Greenwood v. Freight Co., 105 U.S. 13; Bridge Co. v. United States, 105 U.S. 470; Chicago Life Insurance Co. v. Needles, 113 U.S. 574; Monongahela Navigation Co. v. United States, 148 U.S. 313, 338-340; New Orleans Waterworks Co. v.Louisiana, 185 U.S. 336, 353-354; Knoxville Water Co. v. Knoxville, 189 U.S. 434, 437-438; Manigault v. Springs, 199 U.S. 473, 480. It would be a waste of words to try to make clearer than it is on its face the meaning and effect of this reservation of the power to repeal.

. . . The only question before us now is the validity of the judgment ousting the defendants from "assuming to act as a body corporate, and particularly under the name and style of the Grand Rapids Hydraulic Company." This really is too plain to require the argument that we have spent upon it. We may add that it is a matter upon which the bondholders have nothing to say.

See also Hamilton Gas Light & Coke Co. v. Hamilton, 146 U.S. 258.

It is said, however, and that seems to be the ground which the decision of the court upon this point rests at last, that the reservation of the right to repeal does not clearly appear in the charter of Owensboro, as it did in the Massachusetts legislation considered in Greenwood v. Freight Co., supra, and it is said that such right, when it is claimed, must be clear and explicit. To my mind, the purpose of the Kentucky Legislature was evidenced with perfect clearness, for I think that the same law which gave the city the right, which otherwise would have rested with the legislature alone, of exercising authority over the streets, which in this case, it is held, authorized their use for telephone purposes, in unmistakable terms made such authority subject to the clearly stated and definite limitation named. Furthermore, the doctrine is well settled that legislative grants of municipal authority shall be construed most favorably to the public and against persons claiming thereunder -- a doctrine sanctioned by decisions of this Court. Moran v. Miami County, 2 Black 722; Citizens’ Street Railway v. Detroit Railway, 171 U.S. 48; Los Angeles v. Los Angeles City Water Co., 177 U.S. 558. Surely, if the intention of the Kentucky Legislature to reserve in the municipality the authority to repeal such grants as the one here involved is not clearly manifested, at least there is reasonable room for doubt, and such doubt must be resolved in favor of the public. If the doubt be determined in favor of the company, and a grant which is not clearly in perpetuity is held to be such, the effect is to tie the hands of the municipality from obtaining revenue from the use of property held by it in trust for all its people.

It is also said that the exercise of the reserved right to repeal in cases like this will have the effect to destroy contract rights upon the strength of which large investments may have been made. But this argument overlooks the proposition that, if the grant was made subject to the right to revoke by subsequent action of the authority which made the grant, then no contract was entered into between the parties beyond the control of the reserved power of the municipality, for, as Mr. Justice Miller said in the Greenwood v. Freight Co. case, under such

a provision . . . reserving to the legislature the right to amend or repeal, it must be held to be a part of the contract itself, and the subsequent exercise of the right would be in accordance with the contract, and could not therefore impair its obligation.

So, if this limitation in fact existed, the right to repeal was inherent in the authority which made the grant, and the grantee is conclusively presumed to be aware of this limitation, and to make his investments subject to the exercise of the reserved right. Calder v. Michigan, supra. Moreover, if limited grants are to be construed into perpetuities, then the control over streets for railway, telephone, and other kindred enterprises of enormous value are granted to private corporations without compensation for the use of such valuable rights which belong to the municipality. Recent cases in this Court have shown the great value of such privileges, and that investors are found who are willing to pay for the privilege of using the public streets for these purposes.

A single case is cited in the opinion of the Court to sustain the conclusion reached upon this branch of the case, and that is Hudson Telephone Company v. Jersey City, 49 N.J.L. 303. An examination of that case shows that it did not involve the question now under consideration. There, the telephone company was organized as such under the prevailing statutes of the state, and had obtained on certain conditions the permission of the municipality to use the streets in accordance with a provision in the statute that the designation of the streets to be used and manner of placing poles should first be secured. An ordinance was passed revoking the permission, although the company had complied with the conditions, and the court held that the revoking ordinance was invalid. The court noticed the power reserved in the corporation act to repeal, suspend, and alter charters and the power of the city council to repeal ordinances. The former was held to run to the legislature solely, and it was said that there was no provision in the act authorizing the municipality to revoke its permission. Of the latter, the court said that the power to repeal was a general power arising from the power to pass ordinances, and existed without the express charter powers, and that such general power would not sustain the rescission of an act authorized by other legislation.

A somewhat diligent search has failed to discover cases exactly in point construing a reservation of the character herein involved. The case of Lake Roland Elevated Railway Co. v. Baltimore, 77 Md. 352, followed and approved in United Railways v. Hayes, 92 Md. 490, is, however, closely analogous. In that case, the city granted a franchise to the railway company permitting it to lay tracks in the streets of the city, and also to erect an elevated railway in a certain street. A statute passed to confirm the action of the city with respect to that part of the ordinance granting a franchise which related to the elevated railway contained a reservation to the city of

the same power and control hereafter in reference to the enforcement, amendment, or repeal of said ordinance [granting the franchise] as it has or would have in respect to any ordinance passed under its general powers.

This reservation was held to authorize the repeal of the grant in question. The case upon this point meets the argument made in the opinion in this case that the right to amend, alter, or repeal would have existed without the statute, and cannot be held to cover the grant of franchise privileges to use the streets. Undoubtedly this right of repeal would have existed, and hence its insertion was unnecessary, unless it was to have some further purpose than that the law already gave -- the general power of a municipality to repeal ordinances of a legislative character. We think the intention in this case was the same as in the Maryland case, to preserve in the municipality authority over the streets in the interests of the public.

In my view, the case in its present attitude comes to this: the permission to place poles and string wires in the City of Owensboro was granted under a charter which expressly reserved the right to repeal by subsequent act of the municipal legislature. In the face of this authority, and presumably with knowledge of it, the company has entered upon the streets and made use of them for the purposes intended. Holding its grant subject to this superior right in the city to end it, I think the subsequent repealing ordinance was within the power of the municipality.

MR. JUSTICE McKENNA, MR. JUSTICE HUGHES, and MR. JUSTICE PITNEY concur in this dissent.