Palestine Water & Power Co. v. City of Palestine

The city of Palestine instituted suit in the District Court of Anderson County to forfeit the franchises granted by it to one Gray and his assigns, which afterwards became vested in the defendant the Palestine Water and Power Company. The case was tried before the judge, a jury being waived, and he filed very elaborate findings of fact, from which we make the following condensed statement as applicable to the question presented by the application for writ of error.

On June 7, 1881, the city of Palestine, a municipal corporation duly organized under the general laws of the State of Texas, passed all ordinance by which it granted to Carroll E. Gray and his assigns the ex elusive right for fifty years "to establish, maintain and operate water works and buildings and to lay mains, pipes, etc., in and along the streets, alleys and public grounds of the city for supplying clear and wholesome water for all domestic and other purposes." Section 11 of that ordinance reads as follows: "In the event that said grantee, or his assigns, after said water works have been in successful operation, shall suffer a suspension of the supply of the water thereby causing an insufficient supply of clear, wholosome water for domestic and other purposes for a period exceeding sixty days, then and in that event the said grantee and his assigns shall forfeit all franchises hereby granted, and during any suspension all water rentals shall be suspended." This section was amended by ordinance passed June 21, 1881, so as to read as follows: "In the event that said grantee or his assigns, after said water works shall have been in successful operation, shall suffer a suspension of the supply of water thereby causing an insufficient supply of clear, wholesome water for domestic and other purposes for a period exceeding sixty days, then and in that event said grantee and his assigns shall forfeit all exclusive franchise herein granted, unless such suspension shall have been caused by the act of God or unavoidable accident, and during such suspension all water rentals shall be suspended."

On June 21, 1881, the city and Carroll E. Gray entered into a contract in writing which embodied the substance of the ordinances before referred to and copied above, which ordinances were made part of the contract.

The work was begun within the time specified and completed in accordance with the contract between the parties. The Palestine Water and Power Company was organized as a corporation under the general laws of the State of Texas and succeeded to all the obligations of Carroll E. Gray.

"The evidence clearly shows that the water furnished by the company in the summer of 1893, and since the summer of 1895 and up to three or four weeks ago, was neither clear nor wholesome, but was unfit for domestic purposes, and that the supply of even bad water was inadequate. The sources of water supply consist of ponds fed by surface water and some springs; the ponds have never been cleaned out and are filled for at least five or six feet with decayed vegetable matter and mud and accumulations of filth which flowed in from the natural water sheds constituting the principal source of supply and covering about three hundred acres of land, on which are situated several small farms and from one hundred and fifty to three hundred residences. The company owned about one hundred and sixty-two acres, part of the water shed, and this is enclosed, the ponds being in the enclosure, and the company has put part of the land in cultivation and willfully permitted cattle and horses to pasture in the enclosure and negligently permitted dead fish and reptiles to remain in the ponds and dead animals to remain within the area of the water supply. In the summer, by reason of insufficient storage capacity, the ponds became low and the water stagnant and impure, and nearly the whole year the water is more or less muddy and offensive in odor. The evidence shows that an abundant supply of clear, wholesome water from artesian wells could be had in the city and utilized by the company, and that no effort was made by defendant before the institution of this suit to obtain water supply, and the material allegations of plaintiff's petition have been proved substantially."

The city made frequent complaints to the defendant corporation as to the failure to comply with the provisions of the contract and the ordinances of the city, and there were frequent promises of remedying them, but it was not done. The city council of the City of Palestine being divided in opinion as to whether the city should establish and operate its own water works, submitted to the qualified voters the question in these forms — "for city ownership" — "against city ownership." The vote when taken was against the proposition that the city should construct and maintain its water works.

On the 9th day of April, 1896, after the vote had been taken, the city council passed a resolution instructing the city attorney to at once take the proper legal steps through the court to compel the Palestino Water and Power Company to furnish clear, good and wholesome water in the city of Palestine and in ample sufficiency. The city attorney instituted this suit on the same day, and on the 18th day of the same month N. Oscar Gray, vice-president of the Palestine Water and Power Company, and trustee for the holders of the bonds for said company, being joined by the bondholders themselves, applied to the Hon. David E. Bryant, Judge of the United States Circuit Court for the Eastern District of Texas, for the appointment of a receiver for that corporation, and the judge appointed a receiver, and in the order of appointment directed him to proceed at once to comply with the defendant's franchises requiring it to furnish to the citizens of the city of Palestine and to said city a sufficiency of clear, good and wholesome water for domestic and manufacturing purposes and for purposes of fire protection. The order authorized the receiver to apply the income and revenue derived from the operation of the water works as a "going concern," and "to apply said revenue in payment of expenses of operating the same." Subsequently the United States Circuit Court authorized the receiver to issue certificates to the amount of $30,000, with a lien upon the property, to raise money to pay for such repairs and improvements as might be necessary to comply with the franchises and contracts of the corporation with the city of Palestine.

The defendant company asked that the receiver be made a party defendant in the suit, which the court refused, and it also pleaded that it was ready to perform specifically its contract if the court should hold that it has incurred a forfeiture, and sets out the improvements contemplated to be made by it in the future. But there was no evidence showing any ability to perform the contract except by use of the money to be derived from the sale of the receiver's certificates. There is no other water works plant in the city, and the city depends on the defendant for its water supply and fire protection.

The trial court entered judgment forfeiting the franchise granted by the city and directing that all the pipes, mains, etc., belonging to the said defendant should be removed from the streets of the city of Palestine within sixty days after demand made by the city. The Court of Civil Appeals affirmed the judgment of the District Court.

This suit was instituted to revoke and set aside the contract between the city of Palestine and the Palestine Water and Power Company as well as to annul the ordinance which granted to the water and power company the right to occupy its streets and the State court thereby acquired jurisdiction of the subject matter, before the receiver was appointed by the United States Circuit Court. Riesner v. G., C. S. F. Ry. Co., 89 Tex. 656 [89 Tex. 656]. It was not necessary to make the receiver a party to the suit. If he desired to defend the action he had the right to make himself a party. City Water Co. v. The State, 88 Tex. 600 [88 Tex. 600]; Thompson on Corporations, Vol. 5, secs. 6893-4-5-6. The corporation, the Palestine Water and Power Company, cannot complain because the receiver was not made a party defendant, because, if he was a necessary party, the judgment will not affect any interest that he has in the subject matter of litigation and it would be of no benefit to the defendant to make the receiver a party.

The plaintiff in error claims that the city of Palestine cannot maintain this action, because: (1) The right to occupy the streets was derived from the State; (2) the city having contracted that a forfeiture should occur upon the happening of a certain event, thereby waived any ground of forfeiture not embraced in the contract, and because the city had elected to enforce the contract and cannot afterwards rescind it; (3) because the facts do not justify a rescission of the contract made made between the city and the plaintiff in error.

The case of Galveston Western Railway Company v. City of Galveston, 90 Tex. 398, is cited by plaintiff in error to support the proposition that the right to occupy the streets of the city of Palestine is derived from the State and not from the city. There is a marked difference between the law which grants to railroads the right to occupy the streets of a city and that by which the same privilege may be secured by this class of corporations. Besides, there is such a marked difference between the purposes of the two corporations as to make it necessary and proper to place a different construction upon the acts as they affect the one or the other. The case of Galveston and Western Ry. v. Galveston does not sustain the contention of the plaintiff in error upon this point; the right of the city to maintain the action was not involved in that case, but the decision was placed upon the ground that the city could not prescribe the condition of forfeiture which it was attempting to enforce in that proceeding.

By article 383, Revised Statutes, a city organized under the general laws of the State is declared to be "capable of contracting and being contracted with, suing and being sued, pleading and being impleaded, answering and being answered unto, in all courts and places, and in all matters whatever;" and article 419 of the Revised Statutes provides that such city shall "have the exclusive control and power over the streets, alleys and public grounds and highways of the city." From these provisions it will be seen that our cities are given large powers in the control of their streets and are fully authorized and empowered to maintain suits in all instances in which their rights are involved. We think there can be no doubt that the city of Palestine had the right to maintain this suit and that the State of Texas was not a necessary party to it.

The language of the contract and of the ordinance of the city is not such as to operate as a waiver of any right of action which the city might have independent of the terms of that contract. Neither were the acts of the city in taking the sense of the qualified voters upon the question presented such as to estop it from asserting any right that the city had. Indeed, we believe that a city council has no authority to waive the right of the public to revoke a franchise which has been abused by the grantee. Morris Cumings v. State, 65 Tex. 59.

The Water and Power Company was organized as a corporation to carry out the contract between Gray and the city. Its charter must have specified the purpose of its organization to be "to supply water to the public in the city of Palestine, Texas," It could do no other business nor could it do that at another place. While its charter was issued under the general law of the State, it was as much a corporation of that locality as was the city itself, and derived its right to occupy the streets of that city from art. 705 of the Revised Statutes, which reads thus: "Any gas or water corporation shall have full power to manufacture and sell and to furnish such quantities of water or gas as may be required by the city, town or village where located, for public or private buildings, or for other purposes, and such corporation shall have the power to lay pipe, mains and conductors for conducting gas or water through the streets, alleys, lanes and squares in the city, town or village, with the consent of the municipal authorities thereof, and under such regulations as they may prescribe."

Considering the foregoing article with reference to the subject upon which the Legislature was acting and the purpose to be accomplished, we think the use of the language "under such regulations as they may prescribe" had the effect to commit that class of corporations to the control and government of the cities in which they are located. It was not intended to restrict the city to giving or refusing consent, but that consent might be accompanied with such regulation as the city might prescribe, within its powers of government and control over such corporations, as well as those found necessary after the water works had been constructed. The corporation was created solely to operate within the limits of the city of Palestine and for the purpose of dealing with it and its citizens alone, and it did not affect the citizens of any other portion of the State. The public policy of the State in the case of railroad companies would necessarily preserve the road as against the action of any local authority, while on the other hand the same public policy might well commit the corporation created alone for local purposes to exclusive local government, as was done in this class of cases. We conclude that the right to occupy the streets of Palestine was derived from the consent of the city, which for sufficient cause might be revoked upon application of the city.

In the view we take of the case it becomes unnecessary to determine whether under the terms of the ordinance and contract a forfeiture of all franchises granted would occur, or only a forfeiture of the exclusive character of such franchises, because, in our opinion, the judgment of the District Court is sustained by the law independent of the terms of forfeiture which were prescribed in the ordinance and the contract.

Section 52, of Booth on Street Railways, states the law in this language: "The failure to construct and operate a street railway according to the terms and conditions of the charter under which the right of way is granted may be a sufficient ground for the forfeiture of its franchise in the streets. A slight failure in those respects will not be an adequate cause for such proceedings, nor can the forfeiture be based upon a gross failure which is but temporary. In the nature of things, each case must depend upon its own particular facts. But as a general rule it may be stated that if the company grossly fails in the performance of vital duties essential to the efficiency of the service which it is bound to give, such conduct will constitute a misuser of its franchise on account of which it may be forfeited to the State. The right exists at common law, and may be asserted not only for the violation of express charter duties, but also for a wanton disregard of regulations imposed by the State or municipality in the exercise of their reserved powers." Farmers Loan Trust Co. City of Galesburg,133 U.S. 156; The City of Detroit v. The Detroit City Railway Co., 37 Mich. 558; People v. Hillsdale Chatham Turnpike Road Co., 23 Wend., 254; State v. The Madison Street Railway Co., 72 Wis. 612; Angell Ames on Corporations, secs. 775 and 776; Morris Cumings v. State,65 Tex. 59.

The case of Farmers Loan Trust Co. v. City of Galesburg, above cited, in its facts is very much like the case under examination. The city of Galesburg, by an ordinance which in its language is remarkably similar to that under which the plaintiff in error claims, and by a contract, granted to Nathan Shelton and to his assigns the right to use streets of the city. The water company was formed under the laws of the State of Illinois and assumed the obligation of the grantee in the said ordinance and contract. The object of granting the franchise in that case was expressed to be "for supplying the said city and the inhabitants thereof and of the adjacent territory with water for public and private uses" and again it was provided that "the water supplied by said works shall be good clear water and the source of the supply shall not be contaminated by the sewerage of the said city." The water company failed to perform its part of the contract in furnishing either the quantity or quality of water which was required, and the city of Galesburg filed a suit to annul and cancel the ordinance by which its consent was given to the use of its streets and to rescind the contract entered into by it with Shelton. Judge Blatchford for the court said: "The principal contention on the part of the appellants is, that, on the acceptance of the ordinance by Shelton, a right in the franchise vested in him which could not be defeated even though he afterwards failed to comply with its terms; that the failure of the Water Company to furnish water in the quantity and of the quality called for by the ordinance was only a breach of condition subsequent; and that a court of equity will not lend its aid to divest an estate for such a breach. But it seems to us, that, in respect to a contract of the character of the present one, the ability of the Water Company to continue to furnish water according to the terms of the ordinance was a condition precedent to the continuing right of Shelton and his assigns to use the streets of the City and to furnish water for a period of thirty years; and that when, after a reasonable time, Shelton and his assigns had failed to comply with the condition as to the quantity and quality of the water the City had a right to treat the contract as terminated, and to invoke the aid of a court of equity to enforce its rescission. A suit for a specific performance of the contract, or a suit to recover damages for its nonperformance, would be a wholly inadequate remedy in a case like the present. The danger to the health and lives of the inhabitants of the City from impure water, and the continued exposure of the property in the City to destruction by fire from an inadequate supply of water, were public questions peculiarly under the care of the municipality; and it was entitled and bound to act with the highest regard for the public interests, and at the same time, as it did, with due consideration for the rights of the other parties to the contract." The language of the learned judge as quoted above is so applicable to the facts of the case now under consideration that it leaves little to be said in the further discussion of the question.

The Palestine Water and Power Company adopted and acted upon the ordinance which granted the franchise enjoyed by it in the following language: "To establish, maintain and operate water works and buildings and to lay mains, pipes, et ceteræ, in and along the streets, alleys and public grounds of the city for supplying clear and wholesome water for all domestic and other purposes." The execution of the purpose for which the corporation was organized is here expressed as the condition upon which the franchise was granted, accepted by the water company and relied upon by the city. The facts found by the trial judge show that the water company was guilty of a most flagrant disregard of its obligation to the city, and instead of furnishing clear and wholesome water as it was obliged to do, it furnished to the inhabitants of that city water which endangered the health and lives of that people if in fact it did not cause sickness and death to prevail among them. The city remonstrated with the officers of the water company from time to time against their disregard of the agreement to furnish good and wholesome water, which remonstrances were utterly ignored by the water company but repeated by the city until forbearance ceased to be a virtue and became on the part of the officers of that city little less than a reprehensible neglect of the highest interests of that people. Failing to get any redress at the hands of the water corporation, the city instituted this suit, and then, for the first time, the water company came forward and offered to perform its contract without showing the ability to do so. It is claimed in this case that the trial court should, in the exercise of a just and wise discretion, have permitted the water company to perform its contract after judgment had been entered against it, instead of forfeiting the franchise granted. We quote the language of Judge Cowen, used in the case of People v. Hillsdale Chatham Turnpike Road Company, in which a similar contention was answered, as follows: "When a cause of forfeiture has arisen, whether from non-feasance or otherwise, no case nor dictum can be found that it shall be legally atoned for by subsequent good behavior. * * * The argument goes to prove that a corporation may practice all manner of abuse by commission or omission if it be careful to stop before the attorney-general can be informed and institute a prosecution." In this case the water company did not mend its ways, nor offer to do so, until after the suit had been brought, and we think that, under the circumstances, the trial court did not abuse its discretion — if indeed it had any discretion in the matter — by refusing to extend the time of performance.

As said in Farmers Loan Trust Co. v. Galesburg, cited above, a suit for specific performance or for damages would not have afforded adequate protection or redress to the city. The property of the corporation was incumbered with bonds to a large amount, doubtless equal to if not greater than its value, and a judgment for damages could not have been satisfied out of the property. Besides, no money compensation could correct the evils which were suffered by the city in its deprivation of wholesome water. In a suit for specific performance no court could have adequately enforced the rights and given sufficient protection to the people of that city. A decree that the company should furnish "clear and wholesome water could have been enforced only by placing an officer of the court in charge, and operating the works. To revoke the franchise which the water company had so flagrantly abused is a harsh remedy and may cause loss to fall upon those who hold the bonds, but it is the only adequate means by which a city can surely protect itself against such wrongs as were practiced in this case. Bondholders of such corporations are entitled to protection to the extent that the corporations perform their duties under the law, but they take such bonds with the knowledge that continuance of the charter rights and other franchises granted to corporations depend upon their faithful performance of the duties to the public for which they were created."

We find no error in the judgments of the District Court and Court of Civil Appeals and both judgments are therefore affirmed.

Affirmed.