COUNTY OF STANISLAUS, in the State of California, et al., Appts., v.

FAN JOAQUIN & KING’S RIVER CANAL & IRRIGATION COMPANY.

(See S. C. Reporter's ed. 201-217.)

Water rates — contract exemption from re¬ duction — reserved power to amend or repeal — due process of law — equal protection of the laws.

after authorize boards of supervisors to re¬ duce water rates so as to yield to the stock¬ holders less than 1% per cent per month on the capital actually Invested by a corpora¬ tion organized under Cal. Stat. 1853, p. 87, as amended by Cal. Stat. 1802, p. 540, was created by the provision of § 3 of the latter act, that every such company should have power to establish its rates, which should be subject to regulation by the appropriate board of supervisors, but should not be reduced by them below that point.

Noth. — Respecting legislative power to fix tolls, rates, or prices — see note to Winchester & L. Turnp. Road Co. v. Croxton, 33 L. R. A. 177.

On contract exemptions from legislative power to fix tolls, rates, or prices — see note to Detroit v. Detroit Citizens’ Street U. Co. 46 L. ed. U. S.

406

the reduction by a board of supervisors of water rates below a certain point was cre¬ ated in favor of the company organized under Cal. Stat. 1853, p. 87, as amended by Cal. Stat. 1802, p. 540, by the provisions of §

3 of the latter act, the legislature, in the ex¬ ercise of its reserved power to alter or re¬ peal, conferred by Cal. Const. 1849, art. 4,

§ 31, still could enact the provisions of Cal. Stat. 1885, p. 95, § 5, authorizing the super¬ visors to reduce the rates to not less than 6 nor more than 18 per cent upon the then value of the property actually used in sup¬ plying water to the public.

supervisors acting under the authority of Cal. Stat. 1885, p. 95, § 5, so as to give an annual income of 6 per cent upon the then value of the property of the water company actually used in supplying water to the pub¬ lic, does not necessarily amount to a taking of property without due process of law, or a denial of the equal protection of the laws.

[No. 80.] x

Argued November 13, 30, December 1, 1903.

Decided January 18, 1904.

APPEAL from the Circuit Court of the United States for the Northern District of California to review a decree setting aside an ordinance regulating water rates. Re¬ versed and the bill ordered dismissed with¬ out prejudice.

See same case below, 113 Fed. 930.

Statement by Mr. Justice Peckham: The county above named has appealed di¬ rectly to this court from a decree of the cir¬ cuit court of the United States for the northern district of California, setting aside an ordinance adopted by the board of super¬ visors of Stanislaus county on June 24, 1890, designating the water rates which were to be charged by the company (appel¬ lee) to its water consumers for *the ensuing[ year. The appeal here is on the ground that the case involved the construction or application of the Constitution of the Unit¬ ed States, under § 5 of the act of 1891. (20

Stat. at L. 820, chap. 517, U. S. Comp. Stat. 1901, p. 549.)

The company was incorporated in 1871, under an act of the California legislature approved in 1853 (Stat. of 1853, p. 87), as amended in 1802 (Stat. of 1802, p. 540). After its incorporation and the obtaining of the necessary land, the company built a ca¬ nal or reservoir at a cost, as alleged, of about a million dollars, and it is averred that the property was and is of that value. Subsequently to the completion of its works the company furnished water for irrigating purposes to its customers at rates fixed by it, which were not interfered with by the board of supervisors up to the time of the

192 U. S.

202-204

Stanislaos County v. San Joaquin & K ’s R. C. & I. Co.

adoption of the above-mentioned ordinance of June 24, 1896. Soon afterwards the company commenced this suit for the pur¬ pose of obtaining a decree setting the ordi¬ nance aside and declaring it to be null and void, and decreeing that the company was entitled to have the rates for supplying its water to its customers and the users there¬ of generally so fixed that they would in the aggregate furnish a reasonable and just compensation for the services rendered, and a fair, just, and equitable return therefor.

The act of 18G2 provided in § 3 as fol¬ lows:

“Every company organized as aforesaid shall have power, and the same is hereby granted, ... to establish, collect, and receive rates, water rents, or tolls, which shall he subject to regulation by the board of supervisors of the county or counties in which the work is situated, but which shall not be reduced by the supervisors so low as to yield to the stockholders less than 1 y2 per cent per month upon the capital ac¬ tually invested.” [Cal. Gen. Laws, 1850- 1804, par. 978.]

On March 12, 1885, the legislature passed an act (Cal. Stat. 18S5, page 95) providing for the fixing, by the board of supervisors of a county, of the rates to be collected by water companies. Section 5 of that act authorized the various boards of supervisors in the state to regulate and control the

water ‘rates that might be charged in their respective counties by any person, company, association, or corporation, and provided:

“Said boards of supervisors, in fixing such rates, shall, as near as may be, so ad¬ just them that the net annual receipts and profits thereof to the said persons, compa¬ nies, associations, and corporations so fur¬ nishing such water to such inhabitants shall be not less than 6 nor more than 18 per cent upon the said value of the canals, ditches, flumes, chutes, and all other property ac¬ tually used and useful to the appropria¬ tion and furnishing of such water of each of such persons, companies, associations, and corporations; but in estimating such net receipts and profits the cost of any exten¬ sions, enlargements, or other permanent im¬ provements of such water rights or water¬ works shall not be included as part of the said expenses of management, repairs, and operating of such works, but when accom¬ plished may and shall be included in the present cost and cash value of such work. In fixing said rates, within the limits afore¬ said, at which water shall be so furnished as to each of such persons, companies, asso¬ ciations, and corporations, each of said boards of supervisors may likewise take into estimation any and all other facts, circum¬ stances, and conditions pertinent thereto, 192 V. S.

to the end and purpose that said rates shall be equal, reasonable, and just, both to such persons, companies, associations, and cor¬ porations and to said inhabitants.” [Deer- ing's Anno. Codes & Stat. p. 140.]

The complainant alleges in its bill that prior to March 12, 1885, at the time of the passage of the act of that date, the company and its incorporators had actually invested under the authority of the act of 1862 a capital amounting to $971,113.13 in money, all of which was actually, reasonably, and necessarily expended by the complainant in the purchase and construction of its ca¬ nals and other property actually used in and useful to the appropriation and furnish¬ ing of the water, and that the property was, on the last-named date, and still is, of the reasonable worth of $971,113.13. The com¬ plainant averred that if the act of 1885 was construed as repealing, ‘altering, or amend-

ing the provisions of the act of 1862, as to rates to be charged by the company, then that the act of 1885 was in violation of, and repugnant to, the provisions of article I.,

§ 10, of the Constitution of the United States, and, as thus construed, the act of 1885 impaired the obligation of the contract between the state of California and the com¬ plainant, entered into under the authority of § 3 of the act of 1862.

It was also averred that the rates, as fixed by the board under the act of 1885, would result in taking the property of the complainant without due process of law, and in depriving it of the equal protection of the laws.

An answer was put in, taking issue with the complainant on the averments in its bill, and a trial was had in the circuit court.

That court held (113 Fed. 930) that there was a contract under the act of 1802, as contended for by the complainant; that the act of 1885 could not be so construed as to permit the board of supervisors, in fixing water rates by its authority, to entirely dis¬ regard the capital actually invested in the property of the corporation under the act of 18G2, and that if otherwise construed the act of 1885 would run counter to the consti¬ tutional provision that no law impairing the obligation of a contract should be passed, and the statute would be subjected to the further objection that, as so con¬ strued, the state would deprive complainant of its property without due process of law, and would also deny to it the equal protec¬ tion of the laws, as provided for in the Federal Constitution, and that such provi¬ sion could not be held subordinate to the constitutional power conferred upon the state legislature to alter, amend, or repeal the general laws concerning corporations. It was also said by the court that it was the

407

204,205

Supreme Court of tiie United States.

Oct. Teum,

duty of the board of supervisors to ascer¬ tain the amount of the capital actually in¬ vested in the corporation, that is to say, the amount of capital actually paid in and invested in constructing the canals and ac¬ quiring the other property used and made useful in supplying water to the customers of the corporation in Stanislaus county, and this fact should have been considered by the

board in fixing the water rates which the complainant was entitled to charge under the statute; that when the board of super¬ visors fixed the rates no consideration was given by it to the evidence showing the amount of the capital actually put into the corporation, or the actual, reasonable, and proper cost of the works; that the evi¬ dence establishes the fact that the board failed to perform its duty in this respect, and that by reason thereof it deprived the complainant of its property without due process of law, and denied to it the equal protection of the laws.

The court found that the evidence showed that the rate fixed by the board of supervis¬ ors reduced the income of the company considerably below C per cent upon the cap¬ ital actually invested in the property of the corporation, and if a corresponding reduc¬ tion were made in Fresno and Merced coun¬ ties its income would, under the most fav¬ orable conditions, be reduced to less than 5 per cent per annum on the value of the prop¬ erty as estimated by the board of supervis¬ ors.

The court also held that the company had waived the right to fix rates as high as per¬ mitted under the act of 1802, by failing to make them as high as therein permitted, prior to the passage of the act of 1885, and the act of 1885, “providing that the net an¬ nual receipts as adjusted by the board of supervisors should not be less than 6 nor more than 18 per cent per annum, is there¬ fore properly applicable to the regulation of complainant’s rates.”

Mr. James P. Langliorne argued the cause, and, with Messrs. Duncan Bayne and Frederic D. McKenney, filed a brief for ap¬ pellants:

The water rates and basis for fixing them, provided for by the act of 1802, did not con¬ stitute an unalterable contract with com¬ plainant, but were matters of regulation of a public use subject to the alterations made by the act of 1885, under the power reserved to the state of California in each of its Consti¬ tutions to alter from time to time, or repeal, laws relating to corporations.

Covington v. Kentucky, 173 U. S. 231, 43 L. ed 679, 19 Sup. Ct. Rep. 383; Peik v. Chi¬ cago d K. W. R. Co. 94 U. S. 164, 24 L. ed. 97; Spring Valley Waterworks v. Schottler, 408

110 U. S. 347, 28 L. ed. 173, 4 Sup. Ct. Rep. 48; Georgia R. d Blcg. Co. v. Smith, 128 U. S. 174, 32 L. ed. 377, 9 Sup. Ct. Rep. 47; Hamilton Gaslight & Coke' Co. v. Hamilton City, 146 U. S. 25S, 36 L. ed. 963, 13 Sup. Ct. Rep. 90; Reagan v. Mercantile Trust Co. 154 U. S. 417, 38 L. ed. 1030, 4 Inters. Com. Rep. 575, 14 Sup. Ct. Rep. 1060; Covington d L. Tump. Road Co. v. Sandford, 164 U. S. 578, 41 L. ed. 560, 17 Sup. Ct. Rep. 198; Sioux City Street R. Co. v. Sioux City, 138 U. S. 98, 34 L. ed. 898, 1 1 Sup. Ct. Rep. 226 ; State, Morris d E. R. Co. Prosecutors, v. Railroad Taxation Commissioner, 37 N. J. L. 228; Phinney v. Sheppard d E. P. Hos¬ pital, 88 Md. 633. 42 Atl. 59; Ex parte Koehler, 23 Fed. 529 ; St. Louis d S. F. R. Co. v. Gill, 54 Ark. 101, 11 L. R. A. 452, 15 S. W. 18; St. Louis d S. F. R. Co. v. Ryan, 56 Ark. 245, 19 S. W. 839; Griffin v. Kentucky Ins. Co. 3 Bush, 592, 96 Am. Dec. 259; Watson Seminary v. Pike County Ct. F49 Mo. 57, 45 L. R. A. 675, 50 S. W. 880; Gas d Water Co. v. Dounington, 175 Pa. 341, 34 Atl. 799.

All this court has decided and said with reference to the right of a state, under its reserved constitutional power, reasonably to alter and amend statutory or other regula¬ tions of railroad rates and turnpike tolls, and as to exemptions from taxation, and as to the regulation of the exercise by private or by quasi-public corporations of public utilities, apply with special force to this case.

Fallbroolc Irrig. Dist. v. Bradley, 164 U. S. 112, 41 L. ed. 369, 17 Sup. Ct. Rep. 56.

The only qualification of, or limitation to, this rule is, as has been said in Shields v. Ohio, 95 U. S. 319, 24 L. ed. 357, that such alterations must be reasonable; they must be made in good faith, and be sustained within the scope and object of the act of in¬ corporation. Sheer oppression and wrong cannot be inflicted under the guise of amend¬ ment or alteration.

While the cost of the works is an element to be considered, yet it is not the basis or chief element. The value of the property used and useful and the service rendered constitute the basis of valuation in arriving at the rates.

Osborne v. San Diego Land d Town Co. 178 U. S. 39, 44 L. ed. 969, 20 Sup. Ct. Rep. 860; San Diego Land d Town Co. v. Jasper, 189 U. S. 441, 47 L. ed. 894, 23 Sup. Ct. Rep. 571 ; Smyth v. Ames, 169 U. S. 544, 42 L. ed. 848, 18 Sup. Ct. Rep. 418.

Depreciation of the works need not be in¬ cluded in their cost and valuation.

San Diego Land d Town Co. v. Jasper, 189 U. S. 446, 47 L. ed. 896, 23 Sup. Ct. Rep. 571 ; Redlands, L. d C. Domestic Water Co. v. Redlands, 121 Cal. 312, 53 Pac. 791.

192 U. S.

Stanislaus County v. San Joaquin & R ’s R. C. & I. Co.

What was paid by a company to its prede¬ cessor for property, or for property pur¬ chased at foreclosure sale or on reorganiza¬ tion, is not satisfactory evidence of the orig¬ inal cost.

Dow v. Beidelman, 125 U. S. 680, 31 L. ed. 841, 2 Inters. Com. Rep. 56, 8 Sup. Ct. Rep.

What money stockholders may have paid into a corporation is not satisfactory proof of the value of the corporate property in this class of cases.

Ibid.

In enforcing the constitutional prohibition against the deprivation of property without due process of law, this court requires only that the rates shall be reasonable as between the corporation and the rate-payers, consid¬ ering the use and value of the property em¬ ployed, the service rendered, and the extent of territory actually under irrigation able to pay.

San Diego Land ct- Town Go. v. Jasper, 189 U. S. 440, 47 L. ed. 896, 23 Sup. Ct. Rep. 571 ; San Diego Land & Town Go. v. National City, 174 U. S. 755, 43 L. ed. 1160, 19 Sup. Ct. Rep. 804; Smyth v. Ames, 169 U. S. 466,

42 L. ed. 819, 18 Sup. Ct. Rep. 418.

The actual income from the whole system is the test.

St. Louis d S. F. R. Go. v. Gill, 156 U. S. 649, 39 L. ed. 567, 15 Sup. Ct. Rep. 484.

The question of the reasonableness of the rates depends, not only upon the value of the works, but also upon the value of the service rendered.

Smyth v. Ames, 169 U. S. 547, 42 L. ed. 849, 18 Sup. Ct. Rep. 418; San Diego Land d Town Co. v. National City, 174 U. S. 755,

43 L. ed. 1100, 19 Sup. Ct. Rep. 804.

The estimate based on the acreage actually irrigated and producing revenue is the most just to all concerned.

San Diego Land d Town Go. v. Jasper, 189 U. S. 445, 47 L. ed. 895, 23 Sup. Ct. Rep. 571; Smyth v. Ames, 169 U. S. 547, 42 L. ed. 849, 18 Sup. Ct. Rep. 418; San Diego Land d Town Co. v. National City, 174 U. S. 755, 43 L. ed. 1160, 19 Sup. Ct. Rep. 804.

Mr. W. B. Treadwell argued the cause and filed a brief for appellee:

That such an act as that of 1862 consti¬ tuted a contract is firmly settled by the de¬ cisions of this court.

Gordon v. Appeal Tax Ct. 3 How. 133, 11 L. ed. 529; Piqua Branch of State Bank v. Knoop, 16 How. 369, 14 L. ed. 977 ; Bridge Proprietors v. Hoboken Land d Improv. Go. 1 Wall. 116, 17 L. ed. 571; The Binghamton Bridge, 3 Wall. 51, 18 L. ed. 137 ; New Or¬ leans Gaslight Go. v. Louisiana Light d H. P. d Mfg. Go. 115 U. S. 650, 29 L. ed. 516, 6 Sup. Ct. Rep. 252 ; Los Angeles v. Los An¬ geles City Water Go. 177 U. S. 558, 44 L. ed. 192 U. S.

886, 20 Sup. Ct. Rep. 736; Stearns v. Min¬ nesota, 179 U. S. 223, 45 L. ed. 102, 21 Sup. Ct. Rep. 73; Detroit v. Detroit Citizens’ Street R. Go. 184 U. S. 368, 46 L. ed. 592, 22 Sup. Ct. Rep. 410.

However broad may be the terms of a state constitution or statute reserving the right to amend the charter of a corporation, that power is not without limit. Notwith¬ standing such a reservation, the vested rights of the corporation are as inviolable as in other cases; nor can such a power be so exercised as to destroy the grant.

Shields v. Ohio, 95 U. S. 319, 24 L. ed. 357 ; Holyoke Water-Power Go. v. Lyman, 15 Wall. 500, 21 L. ed. 133; Sinking Fund Gases, 99 U. S. 700, 25 L. ed. 496; Close v. Glenicood Cemetery, 107 U. S. 466, 27 L. ed. 408, 2 Slip. Ct. Rep. 267 ; New York d N. E. R. Co. v. Bristol, 151 U. S. 556, 38 L. ed. 269, 14 Sup. Ct. Rep. 437; United States v. Union P. R. Go. 160 U. S. 1, 40 L. ed. 319, 16 Sup. Ct. Rep. 190; Lake Shore d M. S. R. Co. v. Smith, 173 U. S. 684, 43 L. ed. 858, 19 Sup. Ct. Rep. 565 ; Johnson v. Goodyear Min. Go. 127 Cal. 4, 47 L. R. A. 338, 59 Pac. 304.

Such a reservation does not confer upon the legislature the right to alter or revoke such a contract as the one here in question, — - certainly not, so long as the state retains the consideration, or continues to enforce, as against the corporation, the stipulations on the part of the latter.

Sinking Fund Gomrs. v. Green d B. River Nav. Co. 79 Ky. 73; Detroit v. Detroit if- H. PI. Road Go. 43 Mich. 140, 5 N. W. 275; Miller v. New York d E. R. Co. 21 Barb. 513; Com. v. Essex Co. 13 Gray, 239; Re Parrott, 6 Sawy. 349, 1 Fed. 481; People v. O’Brien, 111 N. Y. 1, 2 L. R. A. 255, 18 N. E. 692; Ball v. Rutland R. Co. 93 Fed. 513; Hill v. Glasgow It. Co. 41 Fed. 610; State ex rel. White v. Neff, 52 Ohio St. 375, 28 L. R. A. 409, 40 N. K. 720; Orr v. Bracken County, 81 Ky. 593; Lothrop v. Stedman, 13 Blatchf. 134; Fed. Cas. No. 8,519; Sage v. Dillard, 15 B. Mon. 340; Stearns v. Minne¬ sota, 179 U. S, 223, 45 L. ed. 162, 21 Sup. Ct. Rep. 73; Los Angeles v. Los Angeles Water Go. 177 U. S. 558, 44 L. ed. 886, 20 Sup. Ct. Rep. 736; Detroit v. Detroit Citizens’ Street R. Go. 184 U. S. 368, 46 L. ed. 592, 22 Sup. Ct. Rep. 410.

The California Constitution confers upon the legislature no power to alter or repeal the charter of a corporation, and no power on the subject except to alter or repeal laws for the formation of corporations.

People v. O’Brien, 111 N. Y. 1, 2 L. R. A. 255, 18 N. E. 692.

Rates should be so fixed as to allow a rea¬ sonable income on the money actually ex¬ pended in construction, unless that amount

£09

205-208

Supreme Court of the United States.

Oct. Term,

of money was extravagantly, or unneces¬ sarily, or fraudulently expended.

Reagan v. Farmers’ Loan (6 T. Co. 154 U. S. 302, 38 L. ed. 1014, 4 Inters. Com. Rep. 560, 14 Sup. Ct. Rep. 1047 ; Smyth v. Ames, 109 U. S. 400, 42 L, ed. 819, 18 Sup. Ct. Rep. 418; San Diego Water Co. v. San Diego, 118 Cal. 556, 38 L. R. A. 400, 50 Pac. 033.

Mr. Justice Peckham, after making the foregoing statement, delivered the opinion of the court:

First. The question which first arises in

this case is whether *there was a contract with the company under the act of 1802, by reason of which the state could not there¬ after authorize the board of supervisors to reduce the rates so low as to yield less than 1% per cent per month upon the capital ac¬ tually invested.

The acts of 1853 and 1802 are general laws, the former providing for the formation of corporations of the character named therein, and the latter amending that act, and especially providing for the incorpora¬ tion of canal companies, and the construc¬ tion of canals. No special charter was giv¬ en the company directly from the legislature otherwise than is contained in the powers granted by the two acts above named. A company, although organized under a gen¬ eral statute, may nevertheless thereby en¬ ter into and obtain a contract from the state which may be of such a nature that it can only be altered in case power to alter was, prior thereto, provided for in the Consti¬ tution or legislation of the state.

In East Saginaw Salt Mfg. Co. v. East Saginaw, 13 Wall. 373, 20 L. ed. 611, it was said by Mr. Justice Bradley, in delivering the opinion of the court, page 378, L. ed. p. 614, that —

“Corporations formed under general laws in place of special charters, like the Ohio banks under the general banking law of that state, are entitled to the benefit of spe¬ cific provisions and exemptions contained in those laws, which are regarded in the same light as if inserted in special charters. ‘The act is as special to each bank,’ says Justice McLean, delivering the opinion of this court, ‘as if no other institutions were in¬ corporated under it.’ In such cases the scope of the act takes in the whole period for which the corporation is formed. The language means that, during the existence of any corporation formed under the act, the stipulation or exemption specified in it is to operate.”

The language used in conferring power to fix rates in the act of 1862 is to be taken as if it were contained in a special charter granted by the legislature to this company. The question then arises whether language 410

such as is contained in the 3d “section of

that act, and which is set forth in the fore- fcoina statement of facts, amounts to a con- tract, to be protected by the Constitution of the United States. We think it does not.

It seems to us that language of this na¬ ture cannot properly be construed as a promise or pledge that the limitation as to rates may not be altered at any time when, in the judgment of the legislature, it may be proper so to do. Water rates which might have been perfectly reasonable at the time of the passage of the act of 1862, al¬ though amounting to iy2 per cent per month upon the capital actually invested, might, in the course of years, become exceedingly burdensome to those who used the water, and amount to a very unreasonable com¬ pensation to the company for the water it sold. Irrigation bj7 means of corporations formed to supply water was in its infancy in 1862 in California, and the risks neces¬ sarily taken in the organization of such companies, and the prosecution of their work, were then not only very large, but also extremely uncertain in character. Con¬ sequently, a rate of compensation was prop¬ er at that time which, in the course of years and the accumulated experience as to the necessary cost of such works, and of their successful operation, including the consider¬ ation of the risk attendant upon their oper¬ ation, would make a water rate, as pro¬ vided by the act of 1802, a very unreason¬ able overcharge. These facts must have been present in the minds of those who en¬ acted the legislation of 18G2, and it would be most unreasonable to suppose that it was intended by any such legislation to for¬ ever thereafter tie the hands of the state in regard to all companies organized under the act of 1862, and before the passage of the act of 1885.

The authority given by the act of 1862 en¬ abled the board of supervisors to condi¬ tionally regulate the rates. There is no promise made in the act that the legisla¬ ture would not itself subsequently alter that authority. The state simply authorized its agents, the boards of supervisors, to reg¬ ulate rates, but not to reduce them below a certain point. We do not think that from this language a contract can or ought to be “implied that the state might not there-[208J after authorize the boards to reduce them, or that it might not itself do so directly.

Even as between individuals, such an impli¬ cation would not be a reasonable one from the language used, and as the contract, if it existed, would take away from the legis¬ lature its otherwise undoubted right of reg¬ ulation upon a subject of great public im¬ portance, there is still less reason for imply-

102 U. S.

8tanislaus County y. San Joaquin & K.’s 11. C. & I. Co.

208-210

ing a contract which would prevent the state from using its power to that end for the fu¬ ture. The language of this portion of the act applies to the boards and limits their right of reduction leaving unhampered the right of the state to interfeVe directly or by au¬ thorizing the boards to reduce the rates be¬ low the point stated in the act. In order to make such a contract the language must be plain, and susceptible of no other reason¬ able construction. Freeport Water Go. v. Freeport City, 180 U. S. 587-599, 45 L. ed. 079 -088, 21 Sup. Ct. Rep. 493, citing Rail¬ road Commission Cases, 116 U. S. 307-325, 29 L. ed. 036-642, 6 Sup. Ct. Rep. 334, 388,

In our belief, the language of the act of 1802 does not and was not intended to form a contract, but simply amounted to the statement of the then pleasure of the legis¬ lature, to so remain until subsequently al¬ tered by it. The cases heretofore decided in this court are authority for this view. Some of them are now referred to.

In Christ Church v. Philadelphia County, 24 How. 300, 16 L. ed. 602, the following language was used in the statute: “The real property, including ground rents, now belonging and payable to Christ Church hospital, in the city of Philadelphia, so long as the same shall continue to belong to the said hospital, shall be and remain free from taxes.” A subsequent law provided lhat all property belonging to an associa¬ tion or incorporated company which was then by law exempt, from taxation should thereafter be subject to taxation in the same manner as other property. The later law was held not be in violation of the Constitution of the United States. It was held that language such as this was noth¬ ing but in the nature of a privilege, which existed only during the pleasure of, and might be revoked by, the sovereign power whenever it chose so to do.

] *East Saginaiv Salt M fg. Co. v. East Sag¬ inaw, 13 Wall. 373, 20 L. ed. 611, was a case where the court held that the language used was that conferring a bounty, and that it did not amount to a contract in such a sense that it could not be repealed, although it did grant an exemption from taxation of the property used for the purpose of obtain¬ ing salt. In regard to the language exempt¬ ing the property from taxation, the court said:

“The law in question says to all: You shall have a bounty of 10 cents per bushel for all salt manufactured, and the proper¬ ty used shall be free from taxes. But it does not say how long this shall continue ; nor do the parties who enter upon the bus¬ iness promise how long they will continue (he manufacture. It is an arrangement de- 192 U. S.

terminable at the will of either of the par¬ ties, as much so as the hiring of a laboring man by the day.”

In Tv deter v. Ferguson, 22 Wall. 527, 22 L. ed. 805, it was also held that an act of the legislature exempting property of a railroad company from taxation was not a contract to exempt it unless there were a consideration for the act; that, without it, the promise was of a gratuity, spontaneous¬ ly made, which might be kept, changed, or recalled, at pleasure, and that the rule ap¬ plies to the agreements of states made with¬ out consideration as well as to those of per¬ sons.

In Welch v. Coolc, 97 U. S. 541, 24 L. ed.

1112, the act of the legislative assembly of the District of Columbia of June 26, 1873, exempted from general taxes for ten years thereafter such real and personal property as might be actually employed within the District for manufacturing purposes. It was held that the language did not create an irrepealable contract with the owners of such property, but simply conferred a boun¬ ty, liable at any time to be withdrawn.

In Grand Lodge, F. & A. M. v. New Or¬ leans, 166 U. S. 143, 41 L. ed. 951, 17 Sup.

Ct. Rep. 523, the language exempted the property from taxation “so long as it is occupied as a Grand Lodge of the F. and A. Masons;” and it was held that it did not constitute a contract between the state and the plaintiff, but was a mere continu¬ ing gratuity, "which the legislature was at[210 liberty to terminate and withdraw at any time.

In Wisconsin A, M. R. Co. v. Powers, de¬ cided at this term (191 U. S. 379, ante,

229, 24 Sup. Ct. Rep. 107), the language of the act was : “That the rate of taxation fixed by this act or any other law of this state shall not apply to any railway or railroad company hereafter building and operating a line of railroad within this state north of parallel forty-four of latitude, until the same has been operated for the full period of ten years, unless the gross earnings shall equal $4,000 per mile.” After the railroad company had been organized, and while that act was in force, and on June 4, 1897, the state passed a law levying a specific tax up¬ on the property and business of every rail¬ road corporation operated within the state.

The road in question would have been en¬ titled to the exemption stated in the prior law if it were in force. The railroad con¬ tended that it had a contract by virtue of the language above set forth. This court held that no contract arose from the lan¬ guage used, and that consequently the sub¬ sequent act providing for taxation did not violate the Federal Constitution in regard to contracts.

'411

210-212

Supreme Coubt of the United States.

Oct. Teem,

Sufficient cases have been cited to show that language quite as strong as that used in the act of 1802 does not amount to a contract. It is true that the cases cited in¬ volved questions of alleged contracts for exemption from taxation , in regard to which it has been said that no presumption exists in favor of a contract by a state to exempt lands from taxation, and that every reasonable doubt should be resolved against it. Statutes of California, providing that the use of all water appropriated for sale, rental, or distribution should be a public use, and subject to public regulation and control, are valid ( San Diego Land & Town Co. v. National City, 174 U. S. 739, 43 L. ed. 1154, 19 Sup. Ct. Rep. 804), and com¬ panies formed for the purpose of furnishing water for irrigation purposes have been hold in that state to be public municipal corporations, and the use of the water for the purpose mentioned a public use. See cases cited in Fallbrook lrrig. Dist. v. Brad¬ ley, 164 U. S. 112, 159, 41 L. ed. 369, 388, 17 Sup. Ct. Rep. 56. To regulate or es-

tablisli rates for which ‘water will be sup¬ plied is in its nature the execution of one of the powers of the state, and the right of the state so to do should not be re¬ garded as parted with any sooner than the right of taxation should be so regarded, and the language of the alleged contract should in both cases be equally plain. Owensboro v. Owensboro Waterworks Co. 191 U. S. 358, ante, 217, 24 Sup. Ct. Rep. 82.

In our judgment the language of the act of 1862 did not amount to a contract that the rates for the use of water should never be lowered below the amount provided for in that act.

Second. But assuming there was a con¬ tract, we think the rates could be changed under that provision of the Constitution of the state adopted in 1849, article 4, § 31, which provided:

“Corporations may be formed under gen¬ eral laws, but shall not be created by spe¬ cial act except for municipal purposes. All general laws and special acts passed pur¬ suant to this section may be altered from time to time or repealed.”

This court has had frequent occasion to discuss the meaning and extent of the power thus reserved, as it exists in about all the states, either by constitutional or statutory provisions.

Tomlinson v. Jessup, 15 Wall. 454, 21 L. ed. 204, held that the object of reserving a power to amend or repeal (p. 458, L. ed. p. 206) was —

“To prevent a grant of corporate rights and privileges in a form which will preclude legislative interference with their exercise if the public interest should at any time

412

require such interference. It is a provision intended to presei ve to the state control over its contract with the corporators, which, without that provisiton, would be ir- repealable, and protected from any meas¬ ures affecting its obligation.”

It was also said ( p. 459, L. ed. p. 206) :

“The reservation affects the entire rela¬ tion between the state and the corporation, and places under legislative control all rights, privileges, and immunities, derived by its charter directly from the state.”

In Shields v. Ohio, 95 U. S. 319, 24 L. ed. 357, it was stated that by virtue of the power to alter, revoke, or repeal an act, as provided in ‘the Constitution of Ohio, §

2, article 1, the legislature did not impair the obligation of a contract in prescribing rates for passenger transportation by a new consolidated company, although one of the original companies, prior to the adoption of the Constitution, was organized under a charter which imposed no limitation as to rates.

In Close v. Clcnu ood Cemetery, 107 U. S.

466, 27 L. ed. 408, 2 Sup. Ct. Rep. 267, it was again held that a power reserved in the legislature to alter, amend, or repeal a charter authorizes it to make any alteration or amendment of the charter granted sub¬ ject to it, which will not defeat or substan¬ tially impair the object of the grant, or any rights vested under it, and wrhieh the leg¬ islature may deem necessary to secure ci¬ ther that object or any public right.

The same principle was decided in Sink¬ ing Fund Cases, 99 U. S. 700, 720, 25 L. ed. 496, 501 ; New York & N. E. R. Co. v. Bristol, 151 U. S. 556, 38 L. ed. 269, 14 Sup. Ct. Rep. 437, and United States v.

Union 1\ R. Co. 160 U. S. 1, 33, 40 L. ed.

319, 330, 16 Sup. Ct. Rep. 190.

Covington v. Kentucky, 173 U. S. 231, 43 L. ed. 679, 19 Sup. Ct. Rep. 383, decided that language describing certain property, and providing that it should be and remain forever exempt from state, county, and city tax, did not prevent the legislature from withdrawing such exemption, and subjecting the property to taxation, in view of the statute that all charters and grants of the corporations should be subject to amend¬ ment or repeal at will of the legislature.

Mr. Justice Harlan, in delivering the opin¬ ion of the court, said (p. 238, L. ed. p. 682,

Sup. Ct. Rep. p. 386) :

“We are of opinion that the exemption from taxation embodied in that act did not tie the hands of the commonwealth of Ken¬ tucky so that it could not, by legislation, withdraw such exemption, and subject the property in question to taxation. The act of 1886 was passed subject to the provision in a general statute of Kentucky, above re-

' 192 U. S.

Stanislaus County v. San Joaquin & K.’s R. C. A I. Co.

212-215

ferred to, that all statutes ‘shall be subject to amendment or repeal at the will of the legislature, unless a contrary intent be therein plainly expressed.’ If that act in any sense constituted a contract between the city and the commonwealth, the reservation

in an ’existing general statute of the right to amend or repeal it was itself a part of that contract.”

To the same effect is Knoxville Water Co. v. Knoxville, 189 U. S. 434, 47 L. ed. 887, 23 Sup. Ct. Rep. 531.

These cases also hold that there is a limitation, even to the power of amend¬ ment, when reserved in the constitution or a statute of a state. Some of the cases, al¬ though holding that the power to amend or repeal was properly exercised in them, also state that the power is not without limit; that the alterations must be reasonably made, in good faith, and consistent with the scope and object of the act of incorpora¬ tion, and that sheer oppression and wrong could not be inflicted under the guise of amendment or alteration; that beyond the sphere of the reserved powers the vested rights of property in corporations in such cases are surrounded by the same sanction and are as inviolable as in other cases. In reiterating this view of the power, we think that a mere reduction of rates, while still leaving reasonable, fair, or just compensa¬ tion for the use of the property, is not pro¬ hibited, and we are quite clear that, even assuming there was a contract, the legis¬ lature nevertheless had the power to so alter and amend the act of 1862 as to pro¬ vide for the fixing of rates as set forth in the act of 1885.

It is not confiscation, nor a taking of property without due process of law, nor a denial of the equal protection of the laws, to fix water rates so as to give an income of 6 per cent upon the then value of the property actually used for the purpose of supplying water as provided by law, even though the company had, prior thereto, been allowed to fix rates that would secure to it 1 y2 per cent a month income upon the cap¬ ital actually invested in the undertaking. If not hampered by an unalterable contract, providing that a certain compensation should always be received, we think that a law which reduces the compensation there¬ tofore allowed to 6 per cent upon the pres¬ ent value of the property used for the pub¬ lic is not unconstitutional. There is noth¬ ing in the nature of confiscation about it.

'The original cost may have been too great; mistakes of construction, even though honest, may have been made, which necessarily enhanced the cost; more prop¬ erty may have been acquired than nec¬ essary or needful for the purpose in- 192 U. S.

tended. Other circumstances might exist which would show the original rates much too large for fair or reasonable com¬ pensation at the present time. Notwith¬ standing such facts, are the shareholders in the company to be forever entitled to 18 per cent upon this cost, and does a reduc¬ tion in amount, as provided for in the act of 1885, take away property, in violation of the provisions of the Federal Constitu¬ tion ? We think not.

In this case much of the total amount expended in the course of the construction of the works was not proved by those who made such expenditures, and the items and total amount of the cost of construction were only proved by the books. What such books did not prove was the reasonableness of that cost, its propriety or necessity. There were statements that appeared in the min¬ utes of the meetings of the shareholders which were put in evidence, that showed at least a dispute as to the proper cost of the works, and at one of these meetings a share¬ holder said there had been a waste in the management of the affairs of the company amounting to $350,000, which was caused by the chief engineer, who had been in charge of the canal, and that his mistakes had cost the company a good deal of money.

There would seem to have been more of a dispute as to who was responsible for this loss than over the fact of loss. At another meeting held in December, 1881, the presi¬ dent had said in his remarks to the meet¬ ing that, in his opinion, with careful man¬ agement the canal would pay a fair revenue on what it ought to have cost. Although these minutes did not conclusively prove the fact of the excessive cost of the work, yet, where the books of the company were sub¬ stantially the only evidence of the amount expended, and there was no other satisfac¬ tory evidence of the reasonableness of the expenditures, it would not be surprising if the board should have ’regarded the state-

ments in the minutes relating to excessive cost as a justification, if not a requirement, for the reduction of the cost of construction, upon which rates might be fixed, by at least the amount mentioned, — $350,000.

Other considerations, in the shape of facts, circumstances, and conditions perti¬ nent to the alleged cost of the work, and appearing in the course of the inquiry, may have been considered by the supervisors, and the conclusion arrived at, after a considera¬ tion of all the material facts, that the rates fixed would result in justice to both the company and the consumers, as called for by the act.

Judging by this record, we are unable to say the board of supervisors failed to pro-

413

215-217

Supreme Court of the United States.

Oct. Term,

vide just and fair compensation for the use of the property by the public.

In San Diego Land & Town Co. v. Nation¬ al City, 174 U. S. 739, 43 L. ed. il54, 19 Sup. Ct. Rep. 804, it was held (following Smyth v. Ames, 169 U. S. 40G, 543, 544, 42 L. ed. 819, 848, 18 Sup. Ct. Rep. 418), that what the company was entitled to demand in order that it might have just compensa¬ tion was a fair return upon the reasonable value of the property at the time it was being used for the public. The appellants in that case contended that in fixing what were just rates the court should take into consideration the cost of the plant and of its annual operation, the depreciation of the plant, and a. fair profit to the company above its charges for its services. It was observed by the court that undoubtedly all these matters ought to be taken into con¬ sideration and such weight be given them, when rates are being fixed, as, under all the circumstances, would be just to the company and to the public. The same principle is reaffirmed in San Diego Land & Town Co. v. Jasper, 189 U. S. 439, 442, 47 L. ed. 892, 894, 23 Sup. Ct. Rep. 571.

After taking such facts into considera¬ tion, the company might still be directed to receive rates that would be nothing more than a fair and just compensation or re¬ turn upon the reasonable value of the prop¬ erty at the time it was being used for the supplying of the water to the public.

To take the amount actually invested into “estimation” docs not mean necessarily that [21 6] such amount is to control the ‘decision of the question of rates. Other language would have been employed to express that thought. The cost may be estimated, says the act, but that leaves open a reference to the other facts adverted to in the latter part of § 5, and it is upon a consideration of the whole case fiiat the board is to determine what shall be reasonable, just, and equal to all parties. The record would seem to show that the board did take these various mat¬ ters into consideration in coming to the conclusion it did in regard to the value of the property, although giving much less weight to such alleged cost than the com¬ pany thought was proper. The board added over $25,000 to the amount proved as the present cost of the construction of the ca¬ nals, based on the prices of material, sup¬ plies, and labor, of the date when the es¬ timate was made, that estimate being $312,- 000, while the board fixed the valuation at $337,000.

Much of the capital was invested between twenty and thirty years ago, and to be able still to realize G per cent upon the money originally invested is more than most peo¬ ple are able to accomplish in any ordinary 414

investment, and more than is necessary in order to give just compensation for proper¬ ty at the time it is used for the public pur¬ pose originally intended.

It is, of course, impossible to say what rates may be adopted in the other counties through which this canal runs, and that is one of the embarrassments under which the parties suffer from the language of the stat¬ ute of 1885. Heretofore the company has fixed its own rates therein. Exactly how the question may be hereafter determined as to the percentage of income, where there are three different boards of supervisors who may fix rates for their respective coun¬ ties, each differing from the other, is not made clear by the statute. The complain¬ ant admits that the rates provided for by the supervisors under the act of 1885, if applied to all three counties, would allow complainant an income of substantially G per cent on $337,000, being $25,000 more than the present cost of the work would be, as shown by uncontradicted and satis¬ factory evidence. Those rates exist in the other counties at present.

‘Hereafter, in case the other counties [21 7] should fix rates in such manner that, taken as a whole, the rates in the three counties would not insure an income of at least 6 per cent, as provided for in the act of 1885, the company would, of course, not be bound to accept such rates, and a decree in this case would not bind it in regard to the propriety of rates for the future, as fixed by the ordinance of 189G for the county of Stanislaus.

The judgment of the Circuit Court must he reversed and the bill dismissed without prejudice.

So ordered.