City of Niles v. Gas Electric Co.

Niles, Michigan, is a fourth class city organized under Act No. 215, Pub. Acts 1895, as amended (1 Comp. Laws 1929, §§ 1796-2217). In 1913 an ordinance was adopted by the city council and properly approved by the electors granting a gas franchise to the Niles Gas Light Company, its successors and assigns. The franchise was duly accepted by the company and is now held by its successor, Michigan Gas Electric Company, defendant herein. Section six of the franchise provides that the company, its successors, lessees or assigns shall furnish gas in the city at a maximum rate of one dollar per thousand cubic feet "during the life of this ordinance." A discount for prompt payment is specified in the ordinance. For substantially five years the corporation operated under the franchise as granted. But in 1918, 1920, 1929 and 1932 respectively, action was taken by the city council by which it was attempted to authorize a charge in excess of one dollar per thousand cubic feet for gas furnished by the holder of the franchise. None of these actions taken by the city council were submitted for ratification to the municipal electors; but gas was furnished at the respective increased prices. This suit was instituted by the city to have declared as invalid the action of the city council purporting to authorize the increased charge for gas, and to enjoin the defendant from discontinuing service upon refusal to pay the increased rate. A decree was entered granting plaintiff the relief sought and defendant has appealed.

Decision herein turns upon whether the provision in the franchise for furnishing gas at a maximum rate of one dollar per thousand cubic feet is a provision which is valid and binding throughout the 30-year period for which this franchise was granted. It is defendant's contention that if this limitation of one dollar per thousand cubic feet is or ever was valid at all it was not binding upon the corporation for more than 10 years from the date the franchise was granted. In making this contention defendant relies upon Act No. 215, chap. 27, § 8, Pub. Acts 1895 (1 Comp. Laws 1929, § 2107), which provides:

"SEC. 8. The council may contract from year to year or for a period of time not exceeding ten years with any person or persons, or with any duly authorized corporation, for the supplying of such city or the inhabitants thereof, or both, with gas, electric or other lights upon such terms and conditions as may be agreed; and may grant to such person, persons or corporation the right to the use of the streets, alleys, wharves and public grounds of such city as shall be necessary to enable such person, persons or corporation to construct and operate proper works for the supplying of such light upon such terms and conditions as shall be specified in such contract."

For reasons hereinafter stated, we think the quoted statute is not at all applicable to the instant case. At the outset it should be noted that the limitation of power to contract is a limitation upon "the council." It in no way limits the power of the municipality to contract when acting in a manner provided by law.

Therefore we must determine whether at the time this franchise was granted (1913) the municipality of Niles had the power by taking proper action to enter into a valid franchise contract of this character by which the contracting parties would be bound for a period of more than 10 years, to-wit: 30 years. We think the Constitution of 1908 did vest the municipality (not the city council) with such power. Prior to 1908 the common council, either by reason of statutory or charter authority, could and did grant irrevocable franchises without the ratification of the municipal electors. But this power was abrogated by the Constitution of 1908. Article 8 of the Constitution has to do with "Local Government." We quote:

"SEC. 25. Nor shall any city or village * * * grant any public utility franchise which is not subject to revocation at the will of the city or village, unless such proposition shall have first received the affirmative vote of three-fifths of the electors of such city or village voting thereon."

"SEC. 28. No person, partnership, association or corporation operating a public utility shall have the right to the use of the highways, streets, alleys or other public places of any city, village or township for wires, poles, pipes, tracks or conduits, without the consent of the duly constituted authorities of such city, village or township; nor to transact a local business therein without first obtaining a franchise therefor from such city, village or township. The right of all cities, villages and townships to the reasonable control of their streets, alleys and public places is hereby reserved to such cities, villages and townships."

From these provisions of the Constitution which were in force at the time this franchise was granted it is too plain for argument that a franchise of this character could then and can now be obtained only from the municipality in which the rights thereunder are to be exercised. And further it is settled law in this State that the constitutional provision above quoted reserving to municipalities the reasonable control of their streets confers upon such municipalities authority to fix reasonable rates to be charged for services to be rendered by a public utility seeking a franchise which grants the right to use such streets, alleys or public places. City of Kalamazoo v.Kalamazoo Circuit Judge, 200 Mich. 146.

Since municipalities are vested with the above-noted powers incident to making franchise contracts, the legislature may not restrict the exercise of such powers, except to the extent that limitations are found in the Constitution itself. And further, if at the time of the adoption of our present Constitution any statutory enactment contained such a limitation, it became inoperative upon the adoption of the Constitution. The Constitution, schedule, § 1, provides that the statute laws in force at the time the Constitution was adopted, but "not repugnant to this Constitution," shall remain in force until they expire by their own limitations, or are altered or repealed. And on the contrary, subject to certain limitations with which we are not here concerned, it follows by necessary implication that any statutory provision then existing which contravened a provision of our present Constitution became inoperative when the Constitution was adopted, unless otherwise expressly provided therein. However, we do not hold that the statutory limitation of 10 years was rendered inoperative by the subsequently adopted constitutional provisions; but instead that the statutory limitation applies only to the "council" and not to the municipality when its action is in accord with the Constitution and applicable valid legislative enactments.

The only limitation found in the Constitution upon the powers "reserved" to the various municipalities and those with which we are now concerned is the following portion of article 8.

"SEC. 29. No franchise or license shall be granted by any municipality of this State for a longer period than thirty years."

Here again it is worthy of note that the constitutional limitation is one upon the power of the "municipality," rather than a limitation (as applied to this case) upon the power of the city council only. It is difficult to understand why the framers of our Constitution placed the limit of 30 years upon the power of a "municipality" to grant a franchise, if the limitation of 10 years provided in Act No. 215, chap. 27, § 8, Pub. Acts 1895, above-noted, applied to the "municipality," rather than to the "council," as expressly worded in the act itself. Sections 28 and 29 of article 8 of the Constitution should be read together; and when so read the constitutional limitation of 30 years is applicable to the franchise rights which municipalities are authorized to grant under section 28. Thus by necessary implication, if not in express terms, the Constitution has vested in or reserved to the municipalities the power to grant franchises for a maximum period of 30 years. This power cannot be minimized by the legislature. And, if ratified by a three-fifths vote of the electors (Const. 1908, art. 8, § 25), a franchise, the terms of which do not provide otherwise, is irrevocable.

A franchise is a contract. Village of Otsego v. AlleganCounty Gas Co., 203 Mich. 283. It is proper to embody therein a provision for a reasonable rate to be paid for the services to be rendered by the public utility accepting the franchise. Cityof Kalamazoo v. Kalamazoo Circuit Judge, supra, in which the following is approvingly quoted:

" 'The city had the unquestionable right to grant to any person, firm or corporation a franchise to occupy its streets and alleys for conveyance of gas to customers. But it was under no compulsion to convey such right to any one. The subject of grant rested in contract like any other matter. As the price of the right the city was at perfect liberty to demand that the charges for gas furnished the city and its inhabitants should not exceed certain prices. The appellee was at perfect liberty to reject or accept the city's proposal. The terms proposed on the one hand and accepted on the other made a contract as valid and enforceable as if made by two individuals,' City ofNoblesville v. Noblesville Gas Improvement Co., 157 Ind. 162,169 (60 N.E. 1032).

" 'We see no reason why a town may not make a contract to accomplish a function with which it is charged or empowered, binding it and the other party. He, accepting, is plainly bound, and cannot say the town's act is void.' St. Mary's v.Hope Gas Co., 71 W. Va. 76 (76 S.E. 841, 43 L.R.A. [N. S.] 994)."

In our opinion in the Kalamazoo Case we stated:

"It seems, therefore, clearly admissible, under the language of the Constitution here under consideration, that the municipalities of the State having 'reasonable control of their streets,' may affix reasonable conditions for their use by public utilities, and that, among such reasonable conditions, is the fixing of a reasonable rate."

If the framers of our Constitution had any thought of withholding from a municipal corporation the power to include in a franchise, which it might grant for a period in excess of 10 years, a maximum limit of price or rate to be charged during the franchise period for the services to be rendered, it is astounding that they did not expressly so provide. It is difficult to conclude that the members of the constitutional convention intended that municipalities might enter into 30-year franchise contracts with public utilities but that such municipalities should not have the power to embody in such contracts the element which would be of primary importance to the citizens of the municipality, namely, the maximum rate or price to be paid for the service.

Neither party to this appeal is asserting that the franchise is a nullity, wholly void. But appellant seeks to segregate the one provision by which the rate of service is fixed and to have this particular provision held invalid, while all the rest remain in force. Unless the parties are held bound by each and every provision of this franchise, it would seem reasonably certain that the electors whose votes ratified the franchise had been misled into voting to accept something which they could not lawfully obtain, namely, to have gas furnished "during the life of this ordinance" at a maximum of one dollar per thousand cubic feet.

To hold in accord with appellant's contention is to say that the cities of this State are powerless to enter into an irrevocable franchise for a period of more than 10 years which franchise contains a valid provision fixing a maximum rate at which the public utility is to provide the service specified in such franchise. Such a holding would seem to be in glaring conflict with the quoted provisions of the Constitution which clearly provide that an irrevocable franchise for not more than 30 years may be granted by a city provided it is approved by a three-fifths vote of the municipal electors. If the franchise contract is valid, we are not and cannot be concerned with whether its terms are favorable to one party or the other.

"It is possible for a State to authorize a municipal corporation by agreement to establish public service rates and thereby to suspend for a term of years not grossly excessive the exertion of governmental power by legislative action to fix just compensation to be paid for service furnished by public utilities. Detroit v. Railway Co., 184 U.S. 368, 382 (22 Sup. Ct. 410). Vicksburg v. Vicksburg Water Works Co., 206 U.S. 496,508, 515 (27 Sup. Ct. 762). St. Cloud Public Service Co. v.City of St. Cloud, 265 U.S. 352, 355 (44 Sup. Ct. 492). And where a city, empowered by the State so to do, makes a contract with a public utility fixing the amounts to be paid for its service, the latter may not be required to serve for less even if the specified rates are unreasonably high. Detroit v.Railway Co., supra, 389. And, in such case, the courts may not relieve the utility from its obligation to serve at the agreed rates however inadequate they may prove to be. St. Cloud PublicService Co. v. City of St. Cloud, supra." Railroad Commissionof California v. Railway Corp., 280 U.S. 145, 151 (50 Sup. Ct. 71).

Decision herein is in no way affected by ordinances or resolutions of the common council of Niles not approved by the municipal electors and under the assumed authority of which the defendant or its predecessor has received for its service a rate in excess of that provided in its franchise.Stetson v. City of Seattle, 74 Wn. 606 (134 P. 494). Nor does the public utilities commission have power during the life of this franchise contract to fix a new rate in excess of the maximum rate at which defendant has undertaken to furnish gas to the plaintiff city and its citizens.

"In no case shall the commission have power to change or alter the rates or charges fixed in, or regulated by any franchise or agreement heretofore or hereafter granted or made by any city, village or township." 2 Comp. Laws 1929, § 11009, as amended by Act No. 138, Pub. Acts 1931.

Appellant's contention herein presented cannot be sustained., The rights of the parties to this suit are fixed by the terms of the franchise contract, and the city's rights thereunder should be held to be enforceable. Such was the decree entered in the circuit court and it should be affirmed on this appeal, with costs to appellee.

POTTER, C.J., concurred with NORTH, J.

The late Justice NELSON SHARPE took no part in this decision.