In re Long Island Water Supply Co.

As now presented, tMs case involves simply a cold question of law. Were the rights of this water company to compensation for its franchises and contract with the town of Hew Lots mere gratuities, revocable or otherwise destructible at the will of the legislature or the pleasure of the town authorities? Or did they constitute permanent property, which, like any other property, was beyond legislative control except on the fundamental conditions that it must be fairly appraised and paid for before it can be appropriated to municipal use? The majority of the commissioners have reported that, in their opinion, the company’s franchise and contract did not give it any exclusive rights to purvey water in the town; that the provisions of the annexation act requiring compensation before the city could extend its mains into this territory did not alter the character of the company’s rights, and, because of the assumed power of the legislature to repeal the material provisions of that act, they certify that they have awarded a materially less sum for those rights than they would have awarded if they had believed they were exclusive and permanent .during the remainder of the term of the company’s franchise. The court, under the act of 1892, has nothing to do with fixing the value of these rights. It must affirm the award if satisfied that it has been made upon correct principles, or set it aside if error is apparent therein; hence the award must be set aside if these rights were exclusive and permanent, because on that hypothesis the valuation is materially inadequate.

Let us note a few points leading up to the main inquiry; they may enable us to present the question more sharply. The function of supplying water in a town, village, or city is not a public function. It is purely a private matter of business. A municipality is not bound, at common law, to furnish water, any more than to supply milk, for its inhabitants. Its power to furnish water is derived wholly by act of the legislature. Even when the power is thus given, its real character is not changed. It still remains a mere private business function. The distinction between the political or governmental functions of a town or city and those which it obtains by its own solicitation is broad anil clear,—too clear to excuse debate. It opens streets, establishes police, and attends to education and public health and matters of public concern. In these respects it represents the state, and exercises acts of sovereignty. But when it manages market places, ■wharves, or piers, and derives an income therefrom, it acts wholly in a private capacity. City of Petersburg v. Applegarth, 28 Grat. 321. The powers of the city to furnish water to its inhabitants or for qts own use are therefore of no higher order, nor are they entitled to any greater consideration, than those of this water company; nor are they to be encouraged in any respect because they will be of greater benefit to the consumer. Both are bound to furnish water at the sáme rates. Hence the question before us is stripped bare of any ideas of benefaction to anybody.. It is simply a question whether the city or this company shall enjoy

Let us now consider a few things which are necessarily implied in this business thus far. Why the necessity of resorting to this mode of accomplishing the result? The answer is that that was the only method then allowed by law for the accomplishment of such results. But why such a law? The answer is, because the nature of the business was such that the consumers, and not the inhabitants, of a town were to be benefited. Perhaps the great majority of the inhabitants of a rural town might never use water thus purveyed; hence it would not be fair for a town to raise money by taxation or assessment upon all its inhabitants to build waterworks which were likely to be used only by a few. The legislature therefore recognized the fact that the improvement must be secured, if at all, through some form of individual enterprise; and, again, that the expense of constructing the plant was necessarily so great that individuals would be slow to undertake such work upon private individual responsibility, and that the desired result would be more easily, certainly, and speedily accomplished through a corporation, in which individuals might risk only such sums as they put in. Hence the law under which this company was organized. It was deemed by the legislature, in its wisdom, the best practical method of accomplishing the desired results.

We may now pause to note a few points which were raised in the argument. In the first place, this corporation and its rights did not result from special legislation. It was organized under a general law, which applied to every town and every village in the state. All the powers which it derives from the law are possessed by every other like corporation. If this company possesses any special or peculiar rights, they have their root, not in the law, but in the contract which the town was authorized to make with this artificial person, which it thus created, or at least helped to create. Hence, no objection or criticism can be made on this company’s franchise or contract on the theory of special legislation. We are now considering the case irrespective of the annexation act; but that act granted no special rights or privilege to the water company at all. In effect, it simply said to the city of Brooklyn, “You may annex the territory, but you must not try to interfere with the contracts of the town now existing.” While it granted nothing to the water company, it was nevertheless a significant legislative recognition of the validity of the water company’s franchises for its whole term. Ziegler v. Chapin, 126 N. Y. 343 , 27 N.

It may be observed that the commissioners all admit that good faith and fair dealing required that the town should not permit competition in the business until the company should at least be reimbursed for its outlay. I fully agree that such an obligation arose certainly in making the contract contemplated by this law; but I cannot understand the theory upon which the commissioners have limited this obligation to mere reimbursement. Let us consider this point carefully, because it is the marrow of the case. The statute certainly contemplated that a contract or contracts of some sort should be made between the company and the town authorities for the establishment of “rates and cost to consumers.” Section 5. This, of course, involved just what the power to contract always involves,—the fixing of any terms and conditions which may be agreed on by the contracting parties. The town authorities and this company then made the contract in question, the main feature of which is that the company bound itself to furnish water for public and private use in certain prescribed localities at certain rates, viz. the same rates established for like service in the city of Brooklyn. How it seems to me that the commissioners decided the case the moment they conceded that any obligation of good faith and fair dealing arose at all to exclude competition. That was all there was of the case. If the obligation existed at all, it was predicated upon, indeed, sprang from, the character of service and contract relation contemplated by this statute. That obligation of good faith and fair dealing was therefore a part of the contract; indeed, the marrow and substance, the very essence, of the contract. It extended not only to the company itself, but to all persons who should invest in the capital or

“When we consider the mode required by the statutes and the constitution to he pursued in disposing of this franchise, the inference as to its perpetuity seems to be irresistible; for it cannot be supposed that either the legislature or the framers of the constitution intended to offer for public sale property the title to which was defeasible at the option of the vendor, or that such property could be made the subject of successive sales to different vendors, as often as popular caprice might require it to be done. Neither can it be supposed that they contemplated the resumption of the property, which they had expressly authorized their grantee to mortgage and otherwise dispose of, to the destruction of interest created therein by their consent We are there

fore of the opinion that the Broadway Surface Railroad Company took an estate in perpetuity in Broadway, through its grant from the city, under the authority of the constitution and the act of the legislature. It is also well settled by authority in this state that such a right constitutes property, within the usual and common signification of that word. Railroad Co. v. Kerr, 72 N. Y. 330 ; People v. Sturtevant, 9 N. Y. 263 . When we consider the generality with which investments have been made in securities based upon the corporate franchises throughout the whole country, the numerous laws adopted in the several states providing for their security and enjoyment, and the extent of litigation conducted in the various courts, state and federal, in which they have been upheld and enforced, there is no question but that, in the view of legislatures, courts, and the public at large, certain corporate franchises have been uniformly regarded as indestructible by legislative authority, and as constituting property in the highest sense of the term. It is, however, earnestly contended for the state that such a franchise is a mere license or privilege enjoyable during the life of the grantee only, and revocable at the will of the state. We believe this proposition to be entirely repugnant to justice and reason, but contrary to the uniform course of authority in this country. The laws of this state have made such interest taxable, inheritable, alienable, subject to levy and sale under execution, to condemnation under the exercise of the right of eminent domain, and invested them with the attributes of property generally.”

It thus seems plain that since this town was estopped by its obligation of good faith and fair dealing from doing or permitting any act which would permit rivalry in this business, the city, which was its mere successor, ought, in common honesty, to be bound by a similar obligation, and to precisely the same extent. If the town could not lawfully permit any other water corporation to enter this territory, how could it lawfully permit the municipal corporation, which exercises its water purveying functions as a mere private business, to enter the field? The obligation on the part of the town to exclude competition did not grow out of its want of power to erect waterworks itself, but out of the implied contract which it made when it granted this franchise, and the subsequent written contract which it made, fixing rates, etc. Hence a mere act enlarging the city boundary cannot justify the inference of a purpose on the part of the legislature to evade, or allow the town to evade, its contract obligations to this company. No one would think of applying such a rule to any other obligation of the town. It therefore follows that if the annexation act had contained no prohibition at all against the city, it would have been a violation of good faith, nay, of common honesty, for it to have attempted to enter the territory, and set up a water business in rivalry with this company.

We come, then, to consider the force and effect of these prohibitions. It is said that they were repealable. But what of that? Their adoption gave no new rights. Hence it is certain that their repeal could take no rights away. In my view they stand as plain legislative recognition of the nature and character of this company’s rights in and against this town. Since these rights to the franchise itself rested in the contract between the company and the town, they were unrepealable because of the limitations, not only of the state constitution, but of a fundamental provision of the federal constitution. These rights constitute well-

It seems to me that there can be no two sides to this question, either in reason or authority. The city of Brooklyn, if it desires to acquire property for a private speculation, must pay the owners just compensation, i. e. what it is worth in dollars and cents to such owners. This view- is so clearly in accord with all the judicial decisions in this country that not a case holding otherwise is cited by the counsel for the petitioner upon their brief. In conclusion I may add that the annexation act and the decisions of the court of appeals treat the company as in exclusive possession of the territory of the town during the term of its charter. They treat such possession as lawful, and entitled to protection against its only possible peril. These successive legislative and judicial interpretations of the company’s position are in accord with the policy of the state. They do not in any way contravene that provision of the state constitution which forbids the passage of a local or private bill granting an exclusive franchise. Neither do they contravene the constitutional provision that general and special acts passed for the formation of corporations may be altered from time to time or repealed. This latter provision prepared the way for new legislation, but does not authorize the impairment of any contract made under existing law.

We come, then, to the question of the practical disposition of the case. As already observed, the court has a power to correct their error in the matter of valuation. Under the act of 1892 the court must confirm or set aside the award. The power to appraise resides in the commissioners. I reach this conclusion re

This opinion is necessarily long, for the reason that I have not had time to condense it, and I have yielded to a desire to make it so plain that any person of ordinary intelligence can understand it fully,—can be convinced, as I am, that reason and authority both leave no other alternative but the one herein indicated. Several other points are raised by the defendants, but they are of minor importance, and need no comment.

Since the foregoing was written, my attention has been called to the exhaustive opinion of Mr. Justice Brewer in Monongahela Nav. Co. v. U. S., decided by the United States supreme court March 27, 1893, ( 13 Sup. Ct. Rep. 622 ,) which covers most of the points already discussed. Here was an express act of congress not to value the franchise. It is well held that the value of property taken in such a proceeding as this is a judicial, and not a legislative, question. Here was an attempt to take a franchise under a federal right of eminent domain, which is superior even to that of the state, and yet his honor truly puts it thus:

“The franchise is a vested right. The state has power to grant it. It may retake, as it may take, any other private property for public- use, upon the payment of just compensation. A like, though Superior, power exists in the national government. It may take it for public purposes, and take it against the will of the state, but it can no more take the franchise which the suite has given than it can take any private property belonging to an individual.”

And, again, in closing the opinion:

“Our conclusion is that with the ownership of the tangible property, legally held in this place, the company also has a vested right to receive tolls for its use. But such franchise is as much a vested right of property as the ownership of the tangible property; but the right of the national government, under its grant of power to regulate commerce, to condemn and appropriate this land, then belonging to the navigation company, is subject to the limitations imposed by the fifth amendment,—that private property shall not be taken for public use without just compensation; that such just, compensation-requires the payment for the franchise to take tolls, as well as for the value of the tangible property; and that the assertion by congress of its purpose to take the property does not destroy the state franchise.”

If all this may be held of a power which is superior to that of the state legislature, what remains to be said to belittle the value of this company’s franchise on the theory that it may be repealed?