Candler v. City of Asheville

101 S.E.2d 470 (1958) 247 N.C. 398

Coke CANDLER, Harry P. Mitchell and John C. Vance, Members of the Board of County Commissioners of Buncombe County and ex officio trustees of South Buncombe Water and Watershed District, of Swannanoa Sanitary Sewer District, of Beaverdam Water and Sewer District, of Caney Valley Sanitary Sewer District, of Hazel Ward Water and Watershed District, of Venable Sanitary District, in behalf of all water consumers of Buncombe County whose property is connected to any of the water mains of any of said Districts; P. Morton Keary, Tom Cole, Frank Lowe, Mrs. Nell Busch, Hoyt Spivey and W. E. Creasman, Water Consumers in the abovenamed Districts whose properties are connected to water mains of said Districts, in their own behalf and in behalf of all residents of Buncombe County whose properties are connected to any of the water mains of the aforementioned Districts,
v.
CITY OF ASHEVILLE, a Municipal Corporation.

No. 93.

Supreme Court of North Carolina.

January 10, 1958.

Ward & Bennett, Roy A. Taylor, William M. Styles, Asheville, for plaintiff-appellants.

Robert W. Wells, Charles N. Malone, Frank M. Parker, Asheville, for defendant-appellee.

DENNY, Justice.

The numerous exceptions and assignments of error preserved and brought forward on this appeal, in our opinion, present only three questions which require our consideration and determination. (1) Did the trial court err in holding that Chapter 399 of the 1933 Public-Local Laws of North Carolina is unconstitutional and contrary to Section 17, Article I, of the Constitution of North Carolina, and the Fourteenth Amendment to the Constitution of the United States? (2) Did the trial court err in holding that the defendant City of Asheville is not estopped to assert the invalidity or unconstitutionality of the above Act? (3) Did the trial court err in holding that Ordinance No. 383, enacted by the City Council of the City of Asheville, on 11 August 1955, is lawful and valid and in full force and effect?

The correctness of the ruling of the court below on the first question posed, turns on whether or not the General Assembly has the power to prohibit a municipality from selling water to consumers residing outside its corporate limits at a higher rate than the rate fixed for consumers of water who reside within its corporate limits, where such outside consumers reside in a water or water and sewer district in which the taxpayers of the district have constructed the water or water and sewer facilities and are maintaining them out of ad valorem taxes levied on the real and personal property in the district.

A municipal corporation in this State has a dual capacity. One is governmental or political, and the other is proprietary or quasi-private. Asbury v. Town of Albemarle, 162 N.C. 247, 78 S.E. 146, 44 L.R.A.,N.S., 1189; Holmes v. City of Fayetteville, 197 N.C. 740, 150 S.E. 624; Millar v. Town of Wilson, 222 N.C. 340, 23 S.E.2d 42; Nash v. Town of Tarboro, 227 N.C. 283, 42 S.E.2d 209; Rhodes v. City of Asheville, 230 N.C. 134, 52 S.E.2d 371.

A municipality acting in its governmental capacity is an agency of the State for the better government of those residing within its corporate limits, and while public utilities, like water and lights, are now held to be a necessary municipal expense, Fawcett v. Mt. Airy, 134 N.C. 125, 45 S.E. 1029, 63 L.R.A. 870, even so, they are not provided by a municipality in its political or governmental capacity, except insofar as they may furnish water for extinguishing fires and for other municipal purposes, Harrington v. Town of Greenville, 159 N.C. 632, 75 S.E. 849; Howland v. City of Asheville, 174 N.C. 749, 94 S.E. 524, L.R.A.1918B, 728; Klassette v. Liggett Drug Co., 227 N.C. 353, 42 S.E.2d 411; and provide electric energy for lighting streets, Baker v. City of Lumberton, 239 N.C. 401, 79 S.E.2d 886; or for the operation of traffic light signals, Hamilton v. Town of Hamlet, 238 N.C. 741, 78 S.E.2d 770, or other municipal purposes, but, in its proprietary capacity it acts exclusively in a private or quasi-private capacity for its own benefit.

"In matters purely governmental in character, it is conceded that the municipality is under the absolute control of the legislative power; but, as to its private or proprietary functions, the Legislature is under the same constitutional restraints that are placed upon it in respect of private corporations." Asbury v. Town of Albemarle, supra [162 N.C. 247, 78 S.E. 149]. No one challenges the power of the State to fix rates for private utilities or for utilities operated in a proprietary capacity by a municipality.

In this State, the power to regulate and to establish the rates to be charged by intrastate railroads, motor vehicle carriers of passengers and freight, power companies, etc., has been delegated to the North Carolina Utilities Commission. However, the right to establish rates for municipally owned electric light plants, water, or water and sewer systems, has never been given to the Utilities Commission.

In State ex rel. Utilities Commission v. State, 239 N.C. 333, 80 S.E.2d 133, 140, this Court, speaking through Barnhill, J., later C. J., said: "This right to grant franchises to public service corporations and to fix or approve the rates to be charged by them for the services rendered the public rests in the Legislature. The General Assembly may act directly or it may delegate its authority to an administrative agency or commission of its own creation. However, no Act undertaking to delegate the rate-making function of the Legislature is valid unless the General Assembly prescribes rules and standards to guide the legislative agency in exercising the delegated authority. Motsinger v. Perryman, 218 N.C. 15, 9 S.E.2d 511; State v. Harris, 216 N.C. 746, 6 S.E.2d 854, 128 A.L.R. 658; Hamlet Hospital & Training School for Nurses v. Joint Committee, 234 N.C. 673, concurring opinion at page 684, 68 S.E.2d 862; Carolina-Virginia Coastal Highway v. Coastal Turnpike Authority, 237 N.C. 52, 74 S.E.2d 310."

In 43 Am.Jur., Public Utilities and Services, section 83, page 624, et seq., it is said: "In accordance with its right to regulate and control public utilities, a state may, under its police power and within constitutional limitations, regulate and prescribe reasonable rates at which charges may be made by public utilities for their services to the public. The function of rate making is purely legislative in character, whether it is exercised directly by the legislature itself by the enacting of a law fixing rates or by the granting of a charter wherein the rates are regulated, or is exercised by some subordinate administrative or municipal body to whom the power of fixing rates has been delegated; in any of such cases, the completed act derives its authority from the legislature and must be regarded as an exercise of the legislative power."

In the last cited authority, section 94, page 636, we find this statement: "The well recognized general rule is that when a governmental body has the power to regulate the rates for charges for services by public utilities to consumers, that power includes the power to fix any maximum rate which is fair and just to the consumer if it will also produce a proper return to the public utility."

It is clear that the power to establish rates is a governmental function and not a proprietary one. It is likewise clearly established in this jurisdiction that municipalities "are creatures of the Legislature, public in their nature, subject to its control, and have only such powers as it may confer. These powers may be changed, modified, diminished, or enlarged, and, subject to the constitutional limitations, conferred at the legislative will. There is no contract between the state and the public that a municipal charter shall not at all times be subject to the direction and control of the body by which it is granted." Holmes v. City of Fayetteville, supra [197 N.C. 740, 150 S.E. 628].

In the case of St. Joseph Stock Yards Co. v. United States, 298 U.S. 38, 56 S. Ct. 720, 725, 80 L. Ed. 1033, in speaking for the Court, Chief Justice Hughes said: "The fixing of rates is a legislative act. In determining the scope of judicial review of that act, there is a distinction between action within the sphere of legislative authority and action which transcends the limits of legislative power. Exercising its rate-making authority, the Legislature has a broad discretion. It may exercise that authority directly, or through the agency it creates or appoints to act for that purpose in accordance with appropriate standards. The court does not sit as a board of revision to substitute its judgment for that of the Legislature or its agents as to matters within the province of either. * * * When the Legislature itself acts within the broad field of legislative discretion, its determinations are conclusive. When the Legislature appoints an agent to act within the sphere of legislative authority, it may endow the agent with power to make findings of fact which are conclusive, provided the requirements of due process which are especially applicable to such an agency are met, as in according a fair hearing, and acting upon evidence and not arbitrarily."

Likewise, in City of Seymour v. Texas Electric Service Co., 5 Cir., 66 F.2d 814, 817 (certiorari denied 290 U.S. 685, 54 S. Ct. 121, 78 L. Ed. 590), it is said: "* * * In owning and operating a utility plant a city acts not in a governmental but in a proprietary capacity, (but) when the council, exerting the power to regulate, comes to fix rates it represents not the city, as proprietor, but the state, as regulator. It exerts not the contractual power of the city, but the sovereign power of the state." See also Shirk v. Lancaster City, 313 Pa. 158, 169 A. 557, 90 A.L.R. 688.

The legislature has authorized a municipal corporation that owns a waterworks system to furnish water to any person, firm, or corporation outside its corporate limits, where the service is available. G.S. § 160-255. Likewise, the Legislature has seen fit to adopt G.S. § 160-256, which in pertinent part provides: "The governing body, or such board or body which has the management and control of the waterworks system in charge, may fix such uniform rents or rates for water or water service as will provide for the payment of the annual interest on existing bonded debt for such waterworks system, for the payment of the annual installment necessary to be raised for the amortization of the debt, and the necessary allowance for repairs, maintenance, and operation, and when the city shall own and maintain both waterworks and sewerage systems, including sewerage disposal plants, if any, the governing body shall have the right to operate such system as a combined and consolidated system, and when so operated to include in the rates adopted for the waterworks a sufficient amount to provide for the payment of the annual interest on the existing bonded debt for such sewerage system or systems, for the payment of the annual installment necessary to be raised for the amortization of such debt, and the necessary allowance for repairs, maintenance and operation. * * * Provided, however, that for service supplied outside the corporate limits of the city, the governing body, board or body having such waterworks or lighting system in charge, may fix a different rate from that charged within the corporate limits * * *".

Unquestionably, the above statute contains ample standards to guide a municipality in exercising the delegation of authority to fix fair and just water rates. Moreover, Chapter 399 of the 1933 Public-Local Laws of North Carolina merely established separate classifications as between services supplied outside the corporate limits of the City of Asheville, "where the service is available," to persons, firms, and corporations not located within a water or water and sewer district, and to persons, firms, and corporations outside the corporate limits of the City of Asheville, whose property is now connected or may hereafter be connected with the main of any water district which has paid or issued bonds for the payment of the expense of constructing such water or water and sewer system.

The Legislature by adopting the above Act did not establish the rates to be charged to consumers in the water or water and sewer districts involved, although it had the right to do so; but it did direct the City of Asheville not to charge rates to the persons, firms, and corporations in these districts in excess of the rate or rates fixed from time to time by the governing body of the City of Asheville to be paid by persons, firms, and corporations within the corporate limits of the City. The governing body of the City of Asheville is free to raise or lower its present rates if in its judgment the rates are too high or too low.

This Court has heretofore held that Section 4, Article VIII, of our Constitution does not forbid the Legislature from passing special acts, amending charter of cities, towns, and incorporated villages, or conferring upon municipal corporations additional powers, or restricting the powers theretofore vested in them. Kornegay v. City of Goldsboro, 180 N.C. 441, 105 S.E. 187; Holton v. Town of Mocksville, 189 N.C. 144, 126 S.E. 326; Webb v. Port Commission, 205 N.C. 663, 172 S.E. 377; Deese v. Town of Lumberton, 211 N.C. 31, 188 S.E. 857.

In Kornegay v. City of Goldsboro, supra [180 N.C. 441, 105 S.E. 189], it is said: "The defendant is a public corporation, and section 1 of article 8 ``would seem clearly to have reference to private or business corporations, and does not refer to public or quasi public corporations acting as governmental agencies.'" Mills v. Board of Commissioners, 175 N.C. 215, 95 S.E. 481.

The Court, in this same case, in discussing the validity of the special act under consideration, said: "* * * Is it not clear that the true intent of the last section (section 4 of Article VIII) is to impose the duty of passing general laws relating to cities and towns, leaving it to the discretion of the Legislature to enact special acts as the needs of the municipalities may require?" The Court then continues: "The reason for making this distinction is that the needs of the different communities are so diverse that no Legislature could foresee the emergencies that would arise in different localities, or the necessity for additional powers, dependent on changing conditions, and could not provide for them by general legislation, and the present case is an apt illustration of the wisdom of this course."

In the case of Holton v. Town of Mocksville, supra [189 N.C. 144, 126 S.E. 328], Connor, J., speaking for the Court, said: "Section 4 of article 8 of the Constitution imposes upon the General Assembly the duty to provide by general laws for the improvement of cities, towns, and incorporated villages. It does not, however, forbid altering or amending charters of cities, towns and incorporated villages or conferring upon municipal corporations additional powers or restricting the powers theretofore vested in them. We find nothing in section 4, article 8 of the Constitution rendering this act unconstitutional, nor does the act relate to any of the matters upon which the General Assembly is forbidden by section 29 of Article 2 to legislate. Kornegay v. City of Goldsboro, 180 N.C. 441, 105 S.E. 187."

In our opinion, since a municipality has no legal right either in its governmental or proprietary capacity to sell water to consumers residing outside its corporate limits without legislative authority, the Legislature has the power to fix the terms upon which such sales shall be made; provided, such terms permit the establishment of a rate or rates which will be fair and just to the consumer and will produce a proper return to the municipality.

In the instant case, it will be presumed that the City Council of the City of Asheville acted in good faith in establishing water rates for its own consumers residing within its corporate limits and that it based the rates on the provisions contained in G.S. § 160-256. There is nothing on this record which tends to show that the rate or rates to be charged the consumers in these water or water and sewer districts are unjust and confiscatory.

It is clear, under the facts disclosed on this record, that every purchaser of water in these water or water and sewer districts, from the City of Asheville, at the rates fixed for consumers of water within the city limits of Asheville, are paying as much of the debt service and interest, as well as the cost of operating, repairing, and maintaining the water and sewer systems of the City of Asheville, as any resident of the City who purchases a like amount of water. Moreover, in addition thereto, the persons, firms, and corporations in these water or water and sewer districts are being taxed to pay the debt service, including interest on bonds issued to construct the water or water and sewer system in these respective districts, as well as taxing themselves for the repair and maintenance of such water or water and sewer system. Asheville contributed nothing to the construction of these systems, neither does it contribute anything to the cost of repairing and maintaining them. Asheville renders no service except to pump the water into the water systems, read the meters, which it did not furnish and does not service, and to bill the consumers.

It further appears from the record that a little over twenty-eight per cent of the meters through which the City of Asheville furnishes water are outside its corporate limits and the City derives a little over twenty-seven per cent of its total income from its water system from these outside consumers.

In our opinion, in light of all the facts and circumstances revealed on this record, the Legislature had the power to enact Chapter 399 of the Public-Local Laws of 1933, and that such Act is constitutional and valid and is binding on the City of Asheville insofar as it pertains to the right to sell water to persons, firms, and corporations who obtain water through mains constructed and maintained at the expense of the taxpayers in these water or water and sewer districts. We further hold that such Act does not violate Section 17, Article I, of the Constitution of North Carolina, or the Fourteenth Amendment to the Constitution of the United States.

The City of Asheville, however, still has the right to establish a different rate for service outside its corporate limits to persons, firms, and corporations not located or residing in a district that has constructed and maintained at its own expense its water or water and sewer systems. Atlantic Construction Co. v. City of Raleigh, 230 N.C. 365, 53 S.E.2d 165; Fulghum v. Town of Selma, 238 N.C. 100, 76 S.E.2d 368. In Atlantic Construction Co. v. City of Raleigh, supra, we held that in the absence of any constitutional or statutory restriction the rates and fees that may be charged to residents outside the corporate limits of a city or town are matters to be determined by its governing body in its sound discretion. It is optional with the City of Asheville as to whether or not it will continue to furnish these districts with water, but if it does do so, it must do so on the prescribed terms. Furthermore, the City is not authorized to contract for the sale of water to outside consumers except with respect to its surplus water.

The appellee contends the statute is unconstitutional because it provides that it shall be unlawful for the City to sell its water to outside consumers above the rate established for consumers inside the corporate limits of the City. This contention is without merit. While ordinarily the violation of a regulation established by a rate-making body subjects the violator to a penalty, in many instances such violation is declared to be a misdemeanor. G.S. § 60-6; G.S. § 62-121.72(3); G.S. § 62-128.

We do not consider the case of Missouri P. R. Co. v. Tucker, 230 U.S. 340, 33 S. Ct. 961, 57 L. Ed. 1507, and similar cases cited by the appellee, as controlling on the facts in the present case. In those cases, the complaining party or parties had no voice in the establishment of the rates; nor were they given the right to be heard. Here, the complaining party was left free to fix the rate which the General Assembly directed should be the maximum rate to be charged where certain factors or conditions exist. Moreover, the complaining parties in the cases cited by the appellee were compelled by law to operate under the rate or rates promulgated. Such is not the case here. As we have heretofore pointed out, the City of Asheville is under no duty to sell water to consumers residing outside its corporate limits. Fulghum v. Town of Selma, supra. However, under the facts revealed by the record, it would seem that the City, in view of its control of the sources of water in the area, does have a moral duty to furnish water to these districts.

On the second question posed, we hold that a municipality cannot be estopped from enforcing its legal ordinances or from contesting the validity of an act it deems unconstitutional. City of Raleigh v. Fisher, 232 N.C. 629, 61 S.E.2d 897 and cited cases.

In light of the conclusions we have reached, we hold that Ordinance No. 383, enacted by the City Council of the City of Asheville, on 11 August 1955, is invalid insofar as it established a different rate or rates for persons, firms, and corporations within these water or water and sewer districts and the rate or rates established for persons, firms, and corporations within the City limits of Asheville. The Ordinance is valid insofar as it applies to persons, firms, and corporations outside the City of Asheville, but not within a district that has established and maintains, at its own expense, the water or water and sewer system.

The judgment of the court below is

Reversed.