City Water Co. v. City of Sedalia

The petition alleges, in substance, that the plaintiff is a corporation engaged in furnishing water to the City of Sedalia, a city of the third class, and its inhabitants; that on August 6, 1906, said city adopted an ordinance by which it was provided that the Sedalia Water Company, its successors and assigns, should supply water to said city and its inhabitants and, among other things, should install and maintain all necessary machinery, apparatus, reservoirs, basins, water mains, pipe lines, etc., and said city agreed to rent 198 fire hydrants as then located on the pipe system of said water company, and such additional fire hydrants as said city might order to be installed for the term of said contract, at an annual rental of $30 for each fire hydrant, payable in semi-annual installments on February 1st and August 1st of each year, and that said ordinance was accepted by said water company on August 29, 1906; that plaintiff became the successor of said water company, and owner and operator of the water works system thereof; that on October 29, 1914, plaintiff applied to the Public Service Commission of this State for an increase of its rates for water service; that defendant intervened, and that such proceedings were had that on April 3, 1916, said Commission made an order finding that the rates and charges aforesaid did not afford a reasonable return on plaintiff's investment, and plaintiff filed a new schedule increasing the rental of fire hydrants to $45 per hydrant, which was approved and became effective August 1, 1916; that thereafter, on like proceedings, the rate was increased to $55 per hydrant, effective January 1, 1920; that after August 29, 1906, on the order of the city, 46 additional fire hydrants were installed; that in the years 1916 and 1917, seven additional fire hydrants were installed on the order of the defendant.

The petition, in separate counts, pleads the semi-annual installments severally accruing; that defendant paid thereon at the rate of $30 per year for each hydrant, and in each count plaintiff prayed judgment for the unpaid balance, with interest.

The answer admits the various allegations of the petition, and pleads that the orders of the Commission increasing the rentals of the hydrants abrogated the contract and that until a new contract was made defendant was liable for such fire hydrants as it might use at the original contract price. It further avers that on December 16, 1918, at a hearing before the commission, plaintiff asked permission to discontinue fire hydrant service to the city, because of its refusal to pay the increased rentals, and that at said hearing the defendant insisted that said original contract was in full force, but if the commission or plaintiff did not wish to continue to operate under said contract, the city had been and was then paying for 87 designated hydrants for which it had no use, and which it was willing for plaintiff to eliminate and discontinue. It also averred that plaintiff waived its contract with the city when it made application for a change of rates, and that defendant is only liable to plaintiff for hydrants actually ordered and used after the orders of the Commission increasing the rates were made.

The reply denied all the allegations of the answer, and averred that the orders of the Commission changing the rates for fire hydrant rentals had only the effect of modifying the contract, and that said modified contract is still binding and obligatory upon the parties.

On the trial, before the court without a jury, the plaintiff read in evidence an itemized statement of the rentals according to the increased rates as they severally became due, credited with payments at the original contract rates, showing the balances claimed to be due on each installment, with the accrued interest. The defendant read in evidence the report of the Commission on its investigation and valuation of plaintiff's property, and its order approving the schedule of increased rates for the rental of the fire hydrants, and the list of the 87 hydrants filed with the Commission, which might be eliminated. This was all the evidence. There were no instructions asked or given. The finding and judgment were for the plaintiff for the sums claimed in the several counts of the petition, with interest. Motion for new trial having been overruled, the defendant appealed.

Appellant assigns as error: (1) that the court erred in holding that the Commission had power to make or modify a contract on behalf of the city; (2) that the court erred in not holding that the burden of proof was on the plaintiff to show that the contract was not for an expenditure in excess of the income and revenue of the city in any year provided for such year, within the meaning of Section 12 of Article 10 of the Constitution; (3) because there was no evidence that the expenditure and indebtedness provided for under the contract under the increased rates was not to an amount exceeding, in any year, the income and revenue provided for such year; (4) because the court erred in holding that the Commission had power to so modify the contract as to make it necessary for the city to fund its indebtedness and to provide taxation therefor in contravention of Sections 1 and 10 of Article 10 of the Constitution; (5) because, if any liability was shown, it was on a quantum meruit and not on a contract; and (6) because the judgment appropriates the city revenue without any act of the city or city council, contrary to the provisions of Section 9227, Revised Statues 1919.

When the new schedules of rates were approved by the Commission, the city, by statutory certiorari, took the matter to the Circuit Court of Cole County for review, where the reasonableness of the rates fixed by the Commission was approved. On appeal to this court the judgment was affirmed. [State ex rel. City of Sedalia v. Pub. Serv. Comm., 275 Mo. 201.] The case was then taken on writ of error to the Federal Supreme Court (251 U.S. 547), where the writ was dismissed for want of jurisdiction, upon the authority of Pawhuska v. Pawhuska Oil Co.,250 U.S. 394.

I. The very questions raised on this record were thoroughly considered by GRAVES, J., in State ex rel. Sedalia v. Pub. Serv. Comm., supra, in an elaborate opinion concurred inModification by all the members of Division One. At the top ofof Water page 206, it is said:Rates.

"Under the facts of the record, the reasonableness of the rates fixed by the Public Service Commission cannot be seriously questioned. This leaves the single question as to whether or not the Public Service Commission had the lawful right to fix a rate, so far as the city is concerned, in excess of the ordinance rate. Such is the case when cleared of all driftwood."

Referring to the Public Service Commission Act of 1913, the learned opinion quotes from State ex inf. v. Kansas City Gas Co., 254 Mo. l.c. 534:

"That act is an elaborate law bottomed on the police power. It evidences a public policy hammered out on the anvil of public discussion. It apparently recognizes certain generally accepted economic principles and conditions, to-wit, that a public utility (like gas, water, car service, etc.) is in its nature a monopoly; that competition is inadequate to protect the public and, if it exists, is likely to become an economic waste; that State regulation takes the place of and stands for competition; that such regulation, to command respect from patron or utility owner, must be in the name of the overlord, the State, and to be effective must possess the power of intelligent visitation and the plenary supervision of every business feature to be finally (however invisibly) reflected in rates and quality of service. It recognizes that every expenditure, every dereliction, every share of stock or bond or note issued as surety is finally reflected in rates and quality of service to the public, as does the moisture which arises in the atmosphere finally descend in rain upon the just and unjustwilly nilly."

The opinion concludes:

"It is, however, clear that under our Section 5 of Article 12 of the Constitution of 1875 (a section not heretofore found in our Constitution) the Legislature itself cannot abridge the police power of the State. Nor can it authorize a municipal corporation to make a contract abridging or limiting such police power. So that if, as we have held, the fixing of rates for public service is an exercise of the police power, then under other rulings cited above, the Public Service Commission had a right to fix reasonable rates irrespective of the alleged contract. The great weight of authority so holds. Cases from a great number of states will be found in the briefs for the Public Service Commission. These discuss the question from different angles, but reach the same conclusion. We have preferred to rest the ruling in this case upon what this court has previously ruled, which rulings have been in the light of our own peculiar constitutional provision. Under it the sovereign police power of the State is preserved intact, irrespective of contracts with reference to rates for public service. Under it no contract as to rates will stand as against the order of the Public Service Commission for reasonable rates, whether such reasonable rates be lower or higher than the contract rate. Under the Constitution and the Public Service Commission Act, the Public Service Commission (supervised by the courts as to the reasonableness of rates) is exercising the police power of the State by its delegated authority from the Legislature. Its rates therefore constitutionally and legally supersede any and all contract rates. Other theories of case law need not be noted."

In Pawhuska v. Pawhuska Oil Company, supra, the city granted a franchise to the oil company which provided that it should have its pipe lines in the streets and that it should furnish the city and its inhabitants with gas at flat or meter rates at the option of the consumers, and that the rates should not be in excess of fixed standards. Under the Act of 1913, it was provided that the corporate commission of the State shall have general supervision over all public utilities, with power to fix and establish rates, and to prescribe rules, requirements and regulations affecting their service. The Commission, after a hearing, made an order which recites that the evidence disclosed that the franchise rates had become inadequate and unremunerative and that supplying gas at flat rates was productive of wasteful use. The order abrogates all flat rates, increases the meter rates and requires that the gas be sold through meters to be supplied and installed at the company's expense. On appeal by the city, the Supreme Court of the State affirmed the order. [166 P. 1058.] A writ of error was issued by the Federal Supreme Court to review this judgment. In the course of his opinion, at page 399, Mr. Justice VAN DEVANTER quoted from the opinion in New Orleans v. New Orleans Water Works Co., 142 U.S. 79, as follows:

"In this case the city has no more right to claim immunity for its contract with the Water Company, than it would have had if such contract had been made directly with the State. The State, having authorized such contract, might revoke or modify it at its pleasure."

In Woodburn v. Pub. Serv. Comm., 82 Or. 114, L.R.A. 1917C, 98, 161 P. 391, it is said:

"When Woodburn granted the franchise to the telephone company, the city exercised its municipal right to contract, and it may be assumed that the franchise was valid and binding upon both parties until such time as the State chose to speak; but the city entered into the contract subject to the reserved right of the State to employ its police power and compel a change of rates, and when the State did speak, the municipal power gave way to the sovereign power of the State." See Salt Lake City v. Utah Light T. Co., 173 P. 556, 3 A.L.R. 715.

II. The rule thus established is that every contract between cities of this State and a public utility is always subject to modification by the paramount power of the State, and when a change is so made it is binding upon the city, the change having been made by the State as the representative of theContinued city. Hence it follows that the contention that theContracts. increase in the rates of the hydrant rentals abrogated the contract is untenable. The contract, as modified by the Commission, is binding and obligatory upon both parties until such time as the Commission may determine to reopen the case.

III. The defendant offered in evidence a list of 87 fire hydrants which it claimed should be eliminated. No action was taken by the city, the water company or the CommissionUseless on this offer. Hence the matter is not before us.Hydrants.

IV. The other assignments of error are not here for consideration on this record. They were not pleaded in the defendant's answer. They were first raised in the motion for new trial. It may be that the action of the Commission inRates in raising the annual rental of the fire hydrants fromExcess of $30 to $55 each would result in increasing theRevenue. indebtedness of the city in one or more years to a sum in excess of the revenue provided for such years. If that be true, the natural and appropriate place to raise such a constitutional question was in the defendant's answer and not in the motion for new trial.

V. The answer admitted the execution of the contract sued upon, that is, that it was legally executed, but pleaded that it had been abrogated by the action of the Commission in increasing the rental rates without the consent of the city. That was the sole defense. The rule announced in Thornburg v. School District, 175 Mo. 12, has no application. The action in that case was upon certain bonds which plaintiff alleged had been issued by the school district. The answer admitted that the bonds were issued by the persons then holding the position of directors of the district, but averred that their issue was not authorized by an election as required by law, and that the aggregate amount of the bonds so issued exceeded five per centum of the value of the taxable property of the district; consequently the bonds were invalid. On the issue so tendered by the answer, it was held that the burden was on the plaintiff to prove that the requirements of the law had been complied with in the issue of the bonds. It is obvious that the rule invoked has no application to this case. Plaintiff was not required to offer evidence on an issue not made by the pleadings.

VI. The questions raised on this appeal were res adjudicata, but that the appeal was, therefore, vexatious and for delay is anon sequitur. Cases are not wanting in which this court has been set right on a second appeal in the same case. [Bagnell Timber Co. v. Railway, 242 Mo. 11, overruling S.C. 180 Mo. 420; Hamilton v. Marks, 63 Mo. 167, overruling S.C. 52 Mo. 78; Murphy v. Barron, 275 Mo. 282, 228 S.W. 492.] We are not persuaded that this appeal was for vexation or delay, or that the taxpayers of the City of Sedalia should be penalized as for a vexations appeal.

The judgment is affirmed. All concur except D.E. Blair, J., not sitting.