Citizens' Pipe Line Co. v. Twin City Pipe Line Co.

STATEMENT BY THE COURT.

Appellee, a public service or utility corporation, operating under two franchises, neither of them granting the exclusive right, supplying gas to domestic consumers and industrial plants in the city of Fort Smith, brought this suit to enjoin the appellant company from constructing a pipe line from the city limits and supplying gas to the Harding Glass Company, under ordinance of the city No. 1505, adopted on the 16th day of May, 1928, permitting it to do so. A copy of the ordinance was attached to the complaint as an exhibit.

The complaint alleges that the suit is brought as a taxpayer and also as an owner of property on one of the streets crossed by the route of the proposed pipe line; that at the time of the passage of the ordinance there was no such corporation in existence as the Citizens' Pipe Line Company; that by the terms of the ordinance said company was bound to accept the grant of the franchise within 30 days after the ordinance became effective; that an acceptance was filed by one C. H. Harding and Ben B. Johnson, as president and secretary, but the Citizens' Pipe Line Company's name was not signed thereto, nor was any such corporation in existence on the 28th day of May, 1928, the day of its acceptance; that appellee was operating a public utility under a franchise in the city of Fort Smith for the sale of natural gags for industrial purposes only, and limited by its franchise to a rate of 15c per thousand cubic feet, and required to pay the city of Fort Smith for the use of its streets and alleys 2 per cent. on its gross revenue on the sale of gas.

"(1) That the city commission was led to believe that the purpose of this ordinance and franchise was solely to sell natural gas to the Harding Glass Company. (2) That nothing in the ordinance attached to this complaint limits the sale of gas to said Harding Glass Company. (3) That no grant of a franchise to a public utility was intended, when, in effect, the ordinance is a grant to a pipe line company to use the streets and alleys of Fort Smith to sell gas, and is therefore a fraud upon the city commission of Fort Smith. (4) That the city attorneys acting for the city at that time advised certain members of the city commission that this ordinance was a grant of a franchise, and that, under the terms of said ordinance, the Citizens' Pipe Line Company could sell gas wherever it pleased along the route set out in said ordinance. (5) That by said ordinance the perpetual use of said streets is granted to the Citizens' Pipe Line Company for the use of a pipe line. (6) That the grant by said ordinance No. 1505 to the use of the streets is not limited in time, and is a perpetual grant to the use of the streets and alleys in Fort Smith."

A demurrer was filed, on August 27, 1928, by the Citizens' Pipe Line Company and adopted by appellant, the city of Fort Smith. It charges that the complaint does not state facts sufficient to constitute a cause of action against either or any of the defendants; does not show authority or right in the plaintiffs to bring or maintain the suit; that it shows the appellant company was a corporation in fact, and plaintiff was without right to question its existence as such at the time the ordinance was granted, and did not state facts sufficient to show an equitable cause of action. The demurrer being overruled and exceptions saved, the Citizens' Company answered, without waiving its demurrer, denying that it was without existence at the time of the passage of the ordinance, and alleging that, before that time, it was a corporation in fact, and denied that the ordinance was passed before it was in fact organized. Denied that it failed to accept the terms of the ordinance within 30 days and that its acceptance was filed solely by C. H. Harding and Ben B. Johnson, and alleged that Harding and Johnson were the officers of the defendant, duly authorized by the board of directors of the corporation to accept the ordinance, and it did accept it within the time allowed, through its officers acting in its behalf; denied that the city commission was misled in any way, and that the ordinance authorized the corporation to sell gas to any consumer other than the Harding Glass Company, as expressly limited in 2 thereof. Also denied that authority was given it by the ordinance to sell gas where it pleased along its line of pipe in the city. Denied that the ordinance was void for any reason. Alleged that the ordinance was accepted by the defendant for its use and benefit, and became a binding contract between it and the city of Fort Smith; and also denied that the ordinance was a general grant of a franchise to the defendant as a public utility, and that any such grant was asked for or given. Denied any intention to sell gas under the ordinance to any one except the Harding Glass Company, or any right to do so under its terms, and alleged that the glass company owned a majority of the stock in the defendant company, and had the right to ask the passage of the ordinance to allow it to transport gas by defendant company to its plant, etc. Denied also the right of appellee to question its corporate existence.

The testimony showed the ordinance granting the franchise to W. J. Echols for construction and operation of a plant for furnishing gas to consumers in the city of Fort Smith, and its assignment to the appellee company, and also the ordinance granting a franchise to the Border Gas Company, the minutes of the city commission showing the passage of the ordinance 1505 on May 16, 1928. The title to the ordinance shows the granting to the Citizens' Pipe Line Company "the privilege and right to construct and operate a pipe line under certain streets in the city of Fort Smith." Section 1 grants to it "the right and privilege to construct, lay, own and operate a six-inch gas pipe line" from a designated point in Johnson Street under and along that street to its intersection with North Sixth Street, and across North Sixth Street to Kelley Highway, and along and under Kelley Highway to a point opposite the present Harding Glass Company and thence to the Harding glass plant. Section 2 provides: "The said Citizens' Pipe Line Company is authorized to construct and operate said gas pipe line and to transport, through said pipe line, gas for consumption and use at the Harding glass plant." Section 3 requires the pipe line company to keep its line in proper condition and protect the city from any damage and injury from its operation, and to replace the paving in the streets in as good condition as before the pipe line was laid, and to keep the ditches, alleys and streets along which the pipe line was laid properly filled. By 4 the company is required "to accept this grant or permission in writing within 30 days after the ordinance becomes effective," and that it shall become effective from and after its passage and publication.

The letter of acceptance of the ordinance was as follows:

"To the Honorable Mayor and Commissioners of the city of Fort Smith.

"Gentlemen: In harmony with your recent action in passing the ordinance for the laying of a pipe line by the Citizens' Pipe Line Company, this will notify your honorable body that the ordinance covering the same is hereby accepted by us, and under the conditions and stipulations governing the same.

"Assuring you of our appreciation of your cooperation, we are,

"Very truly yours, "(S.) C. H. Harding, President.

"Ben B. Johnson, Secretary. "Fort Smith, Arkansas, May 28, 1928."

A copy of the certificate of incorporation of the Citizens' Pipe Line Company filed in the county clerk's office on June 9, 1928, was introduced in evidence. There was also introduced a copy of the minutes of a meeting called for April 30, 1928, for organization of the Citizens' Pipe Line Company, and a copy of the minutes of the directors' meeting on the shame day, showing the election of C. H. Harding as president and Ben B. Johnson as secretary of the Citizens' Pipe Line Company, the instruction to petition the city council for the right to bring its gas into the city, for the appointment of a committee to arrange for the construction of a pipe line from the gas fields of the Citizens' Pipe Line Company to Fort Smith, with full power to act, and a further committee appointed to contract for and finance the construction of the pipe line from the gas fields in Oklahoma and Arkansas "to the Harding glass plant in Fort Smith." These minutes were signed by all the directors of the corporation. A copy of the contract made for the construction of the pipe line from the city limits of Fort Smith to the Harding glass plant was also introduced in evidence.

A motion for a temporary injunction was made after the filing of the complaint, showing that work had been begun by appellant laying pipe in the city of Fort Smith, etc., and the purpose of the suit would be defeated unless such injunction was granted. The temporary injunction was granted, to become effective on the filing of the bond required. On the 18th day of September, 1928, upon the hearing of the cause, the ordinance was declared void and the injunction made perpetual, and from the decree this appeal is prosecuted. (after stating the facts). The ordinance of the city of Fort Smith complained of, granting the right to appellant company to construct and operate its gas pipe line and to transport gas through it for consumption and use to the Harding glass plant, was attached as an exhibit to the complaint, and it has long been established that, in suits in equity, exhibits to the pleadings are considered as parts thereof, and such exhibits as constitute the ground of the action, defense or counterclaim will control the allegations of the pleadings. El Dorado v. Citizens' Light Power Co.,158 Ark. 550, 250 S.W. 882; Beavers v. Baucum,33 Ark. 722; American Freehold Land Mortgage Co. v. McManus,68 Ark. 263, 58 S.W. 250; Koons v. Markle, 94 Ark. 573,127 S.W. 959; Cox v. Smith, 99 Ark. 218, 138 S.W. 978.

It is also true that grants from the sovereign power are to be construed strictly against the grantee and in favor of the city or government making the grant. El Dorado v. Coates, 175 Ark. 289, 299 S.W. 355. By 2 of the ordinance, authority or permission is given to the Citizens' Pipe Line Company to construct and operate its gas pipe line "and to transport gas through it for consumption and use at the Harding glass plant." This language indicates no intention to grant a general franchise for supplying gas to all the consumers, both industrial and domestic, in the city of Fort Smith, who might desire to contract with the appellant company for use of gas, but is limited and restricted to the construction and operation of the pipe line and to transportation of gas for the consumption and use of the Harding glass plant only. It grants only the permission of the city to transport the gas brought from the fields of the appellant company across and along the streets of the city of Fort Smith to the Harding glass plant, the owner of the majority of the stock of appellant company, for use in its manufacturing plant. Appellant company had no right to cross the streets and alleys of the city with its pipe line or to furnish gas to other persons than the Harding glass plant, nor to it without the permission of the city first obtained, authorizing it to do so. Barnett v. Mays, 153 Ark. 1,239 S.W. 379; Sanderson v. Texarkana, 103 Ark. 534,146 S.W. 105; Adkins v. Harrington, 164 Ark. 280,261 S.W. 626. It expressly denied and disclaimed any right of a franchise under the terms of the ordinance and any intention of attempting to transport and supply gas to any consumer within the city of Fort Smith other than to the Harding glass plant, in accordance with the terms of the ordinance granting it this right.

The fact that its charter authorized it to own and control pipe lines for the transportation and sale of gas to operate as a public utility was not sufficient to constitute it a public utility. In Clear Creek Oil Gas Co. v. Ft. Smith Spelter Co., 148 Ark. 260,230 S.W. 897, the court said:

"It was within the charter rights of the appellant to operate a business as a public utility in the production, transportation or sale of natural gas, but it was not limited to such operations as a public utility, and was not bound to so operate. It was authorized to do business in the production, transportation or sale of the commodities named, other than as a public utility. The question therefore is not merely whether appellant was authorized to operate as a public utility, but whether it elected to do so under the power thus conferred. It had a right to exercise those powers or not to do so, and, in the event of its election not to do so, it could enter into private contracts not subject to public control or regulation. In other words, appellant was not necessarily a public utility because its charter authorized it to become one in operation of its business, nor was it, under its charter, a public service corporation merely by the operation of a private business of the kind enumerated."

The appellee was without right to question the power of the city to pass this ordinance granting the permission to appellant company to furnish gas to this particular consumer, since it had no exclusive franchise for supplying gas to the consumers of the city of Fort Smith. El Dorado Gas Co. v. Coates, 175 Ark. 289,299 S.W. 355; Natural Gas Fuel Corp. v. Norphlet Gas Fuel Co., 173 Ark. 174, 294 S.W. 52.

The complaint does not allege that any damage will be done to the property of appellee on Sixth Street, or that it owns any property abutting on Sixth Street at or near the point where the pipe line crosses said street, nor does it allege or attempt to prove any specific injury to its property on Sixth Street, or that the construction of the pipe line across such street would constitute a nuisance causing specific injury to its property, and it therefore had no standing as a property owner to enjoin its construction. Packet Co. v. Sorrels,50 Ark. 466, 8 S.W. 683; Welbourn v. Davis,40 Ark. 83; Rufner v. Phelps, 65 Ark. 410,46 S.W. 728.

No other taxpayer joined appellee in the demand for injunctive relief, and certainly the granting of the city's permission to cross its streets and alleys with the pipe line transporting gas to the Harding glass plant did not constitute "an illegal exaction" within the meaning of 13, article 16, of the Constitution, authorizing appellee to bring the suit as a citizen and taxpayer to protect the inhabitants of the city against the use of the permit. Merwin v. Fussell, 93 Ark. 336,124 S.W. 1021; Waldrop v. K. C. S. Ry., 131 Ark. 453,199 S.W. 369, L.R.A. 1918B, 1081. Although the complaint alleges that the Citizens' Pipe Line Company is not required to pay the city 2 per cent. of its gross earnings from the sale of gas to the Harding Glass Company, which it was permitted to furnish under the ordinance, and, while the testimony shows that appellee company is required under the terms of its franchise to pay to the city 2 per cent. of its gross revenues derived from the sale of gas, appellee cannot complain that this is an illegal exaction on the part of the city, since it voluntarily contracted to pay such percentage of its revenues to the city in consideration of the grant of its franchise. Then, too, the city has authority, under act 124 of 1921, to make reasonable and fair rates to be charged by public utilities, and if the city should exercise this right and lower the rates authorized to be charged by appellee company, certainly it would furnish no ground for a taxpayer to complain in a suit in equity that he was injured because the amount received by the city under the 2 per cent. clause was less on account of the reduction of the rates.

Appellee did not attempt to have the ordinance reviewed by the circuit court as to its legality, validity or fairness within the 60 days allowed therefor under 19 of act 124 of 1921.

It is next insisted that appellant company acquired no right under the ordinance, not having been organized as a corporation or accepted in writing, as such corporation, the permission granted, within the time allowed therefor. In answer to this it may be said that, even if the corporation was not organized before the passage of the ordinance, the permission had been applied for by those who, it was agreed, should represent it in petitioning the city council, and it was accepted by such individuals for the corporation as "president" and "secretary," and the corporation was legally organized before the expiration of the time granted for acceptance of its terms by the ordinance, and the same persons who accepted the ordinance elected president and secretary of the corporation, and the undisputed testimony shows that no objection was or has been made by the city to such acceptance of the ordinance granting the permission to construct the pipe line, and, but for the wrongful issuance of injunction, the work thereon would have proceeded to completion already.

It follows that the court erred in holding the ordinance void and enjoining the appellants from proceeding with the construction of the pipe line under the permission granted by the city authorizing it to be done, and the decree must be reversed, and the cause remanded with directions to dismiss the complaint for want of equity, and for any further necessary proceedings in accordance with the principles of equity and not inconsistent with this opinion. It is so ordered.

MEHAFFY, J., dissents.