KNOXVILLE WATER COMPANY, Appt., v.

MAYOR AND ALDERMEN OF THE CITY OF KNOXVILLE, et al.

(See S. C. Reporter’s ed. 22-38.)

cuit court- case arising: under Fed¬ eral Constitution.— A case arising under the Constitution of the United States, of

Note. — As to Federal question as confer¬ ring jurisdiction on United States courts — see notes to Montana Ore-Purchasing Co. v.

353

Supreme Court of the United States.

Oct. Term,

which a Federal circuit court has original Jurisdiction without regard to the citizenship of the parties, Is made by a bill filed by a water company to restrain the municipal con¬ struction of a waterworks system on the ground that it had a contract with the munic lpality, giving it exclusive privileges, the obli¬ gations of which, it Insists, would be impaired by the establishment of municipal water¬ works, under the authority of subsequent legislation.

contract obligations — municipal con¬ struction of waterworks.— The obliga¬ tion of an agreement by a municipality to give a water company an exclusive franchise for thirty years as against “any other person or corporation” is not impaired by the munici¬ pal establishment of its own independent system of waterworks, under subsequent legis¬ lative authority.

special privileges— powers not de¬ vested by implication.— A municipal grant of a waterworks franchise is not to be construed by implication to devest the municipality of its power to construct an Independent waterworks system of its own.

[No. 123.]

Argued December 11, 12, 1905. Decided January 2, 1906.

APPEAL from the Circuit Court of the United States for the Eastern District of Tennessee to review a judgment sustain¬ ing a demurrer to, and dismissing, a bill to enjoin the municipal construction of a waterworks system on the ground that the complainant ha.d a contract with the munici¬ pality, giving it exclusive privileges, the ob¬ ligation of which, it insists, will be impaired by such action on the part of the municipal¬ ity. Affirmed.

The facts are stated in the opinion.

Mr. Charles T. Cates, Jr., argued the cause, and, with Messrs. R. E. L. Mount- castle and Samuel O. Shields, filed a brief for appellant:

A contract entered into ,within the au¬ thority of a municipal corporation shall re¬ ceive the same construction as though it had been entered into between individuals. The purpose of the contract was not to gov¬ ern the inhabitants of the city, but to ob¬ tain a private benefit for both the city and its inhabitants,— that is, the purpose was within the business and proprietary powers of the city, as distinguished from its gov¬ ernmental and legislative functions.

Boston & M. Consol. Copper & S. Min. Co. 35 C. C. A. 7 ; and Bailey v. Mosher, 11 C. C. A. 308. %

As to what laws are void as impairing obli¬ gation of contracts- — see notes to Franklin County Grammar School v. Bailey, 10 L.R.A. 405 ; Fletcher ▼. Peck, 3 L. ed. U. S. 162 ; 354

Illinois Trust & Sav. Banlc v. Arkansas City, 34 L.R.A. 518, 22 C. C. A. 171, 40 L. S. App. 257, 76 Fed. 271; Cunningham v. Cleveland, 39 C. C. A. 211, 98 Fed. 657; Western Sav. Fund Soc. v. Philadelphia, 31 Pa. 175, 72 Am. Dec. 730; Bailey v. New York, 3 Hill, 531, 38 Am. Dec. 669; Brumm v. Pottsville Water Co. 9 Sadler (Pa.) 483, 22 W. N. C. 137, 12 Atl. 855.

Courts may place themselves in the sit¬ uation of the parties who made the contract and view the circumstances as they viewed them, so as to judge o : the meaning of the words, and of the correct application of the language to the thing described.

Goddard v. Foster, 17 Wall. 123, 143, 21 L. ed. 589, 595; Guarantee Co. of N. A. v. Mechanics Sav. Bank d T. Co. 26 C. C. A. 146, 47 U. S. App. 91, 80 Fed. 766.

Although a contract may, in terms, bind but one party, yet the law will imply cor¬ responding and correlative obligations, when that is necessary to carry out the intention of the parties and prevent the contract from being ineffectual.

Churchward v. Queen, L. R. 1 Q. B. 173; Barton v. McLean, 5 Hill, 256 ; Manistee Iron Works Co. v. Shores Lumber Co. 92 Wis. 21, 65 N. W. 863; Delaware & E. Canal Co. v. Pennsylvania Coal Co. 8 Wall. 288, 19 L. ed. 353.

The law implies duties and obligations in a contract other than those which are expressed, and the implied duties and obli¬ gations are as much a part of the contract as those expressed. Or, to express it dif¬ ferently, what is implied in a statute, plead¬ ing, or contract is as much a part of it as what is expressed.

United States v. Babbit, 1 Black, 55, 17 L. ed. 94; Rhode Island v. Massachu¬ setts, 12 Pet. 723, 9 L. ed. 1260; Union De¬ pot Co. v. Chicago, K. d N. R. Co. 113 Mo. 213, 20 S. W. 792; Parsons, Contr. 8th ed.

There is no more reason to permit a mu¬ nicipal corporation to repudiate its solemn obligations, entered into for value, than there is to permit an individual to do so. Good faith and fair dealings should be ex¬ acted of the one equally with the other.

Los Angeles City Water Co. v. Los An¬ geles, 103 Fed. 711.

This case ic iuied by the decision of this court in Walla Walla v. Walla Walla Wa¬ ter Co. 172 U. S. 1, 43 L. ed. 341, 19 Sup. Ct. Rep. 77.

McCanna & F. Co. v. Citizens’ Trust & Surety Co. 24 C. C. C. A. 20 ; and Montana Ore-Pur¬ chasing Co. v. Boston & M. Consol. Copper & S. Min. Co. 35 C. C. A 12.

On exclusive character of waterworks fran¬ chise — see note to Re Barre Water Co. 9 L.R.A. 195.

200 U. S.

Knoxville Water Co. v. Knoxville.

Vicksburg Waterworks Co. v. Vicksburg, 185 U. S. 65-82, 46 L. ed. 808-816, 22 Sup. Ct. Rep. 585.

While the action of municipal corpora¬ tions is to he held strictly within the pow¬ ers expressly or by necessary implication conferred upon them, yet, within these limits, they are to be favored by the courts. Pow¬ ers expressly granted, or necessarily im¬ plied, are not to be defeated or impaired by a stringent construction.

Dill. Mun. Corp. 4th ed. § 91, note 2; Smith v. Madison, 7 Ind. 86; Memphis v. Adams, 9 Heisk. 518, 24 Am. Rep. 331; Indianapolis v. Indianapolis Gaslight d Coke Co. 66 Ind. 407.

The rights conferred by said contract up¬ on appellant are entirely inconsistent with a reserved purpose, on the part of the city authorities of Knoxville, to rende/ the in¬ vestment of appellant absolutely worthless as soon as it might be completed, by the erection of waterworks of their own.

Troy Water Co. v. Troy, 200 Pa. 453, 50 Atl. 259; White v. Meadville, 177 Pa. 643, 34 L.R.A. 567, 35 Atl. 693.

Is not the city estopped to deny the ex¬ clusive character of appellant’s rights, even in the streets of the city, for the limited period of thirty years?

2 Dill. Mun. Corp. 4th ed. §§ 460, 675; Dennis v. Rainey, 8 Baxt. 501 ; Memphis v. Looney, 9 Baxt. 130; Sims v. Chattanoo¬ ga, 2 Lea, 695; London d N. Y. Land Co. v. Jellico, 103 Tenn. 320, 52 S. W. 995; Memphis Gaslight Co. v. Memphis, 93 Tenn. 612, 30 S. W. 25.

These are no longer open questions, but have been adjudicated in favor of the con¬ tention here made by appellant.

Knoxville v. Knoxville Water Co. 107 Tenn. 647, 61 L.R.A. 888, 64 S. W. 1075, 189 U. S. 434, 435, 47 L. ed. 887, 890, 23 Sup. Ct. Rep. 531.

The contracts relied upon by appellant are protected by the Constitution of the United States.

Walla Walla v. Walla Walla Water Co. supra ; Los Angeles v. Los Angeles City Water Co. 177 U. S. 558, 44 L. ed. 886, 20 Sup. Ct. Rep. 736; Detroit v. Detroit Citi¬ zens’ Street R. Co. 184 U. S. 368, 46 L. ed. 592, 22 Sup. Ct. Rep. 410; Vicksburg Wa¬ terworks Co. v. Vicksburg, 185 U. S. 65, 46 L. ed. 808, 22 Sup. Ct. Rep. 585; St. Paul Gaslight Co. v. St. Paul, 181 U. S. 142, 45 L. ed. 788, 21 Sup. Ct. Rep. 575.

Mr. John W. Green argued the cause, and. with Mr. John W. Culton, filed a brief for appellees:

The contract which complainant claims has been impaired does not, either in terms or bv implication, purport to be made by legislative authority or sanction. A mu-

200 U. S.

nicipal ordinance not passed under supposed legislative authority cannot be regarded as a law of the state, within the meaning of the constitutional prohibition against state laws impairing the obligations of con¬ tracts.

Hamilton Gaslight d Coke Co. v. Hamil¬ ton, 146 U. S. 266, 36 L. ed. 967, 13 Sup. Ct. Rep. 90.

Before this court can be asked to de¬ termine whether a statute has impaired the obligation of a contract, it must be made to appear that there was a legal contract subject to impairment, and some ground to believe that it has been impaired.

New Orleans v. New Orleans Waterworks Co. 142 U. S. 79, 35 L. ed. 943, 12 Sup. Ct. Rep. 142.

The presumption is against the creation of an exclusive franchise; and, where the grant itself does not in terms confer con¬ clusive rights, none will be implied.

Long Island Water Supply Co. v. Brook¬ lyn, 166 U. S. 685, 41 L. ed. 1165, 17 Sup. Ct. Rep. 718; Skaneateles Waterworks Co. v. Skaneateles, 184 U. S. 354, 363, 46 L. ed. 585, 591, 22 Sup. Ct. Rep. 400; Bienville Water Supply Co. v. Mobile, 175 U. S. 109, 44 L. ed. 92, 20 Sup. Ct. Rep. 40; Joplin v. Southicest Missouri Light Co. 191 U. S. 150, 156, 157, 48 L. ed. 127, 129, 130, 24 Sup. Ct. Rep. 43; Helena Waterworks Co. v. Helena, 195 U. S. 383, 49 L. ed. 245, 25 Sup. Ct. Rep. 40; Cooley, Const. Lim. 4th ed. pp. 493-495; Jackson County Horse R. Co. v. Interstate Rapid Transit R. Co. 24 Fed. 306; Clarksville d R. Tump. Co. v. Montgomery County, 100 Tenn. 417, 58 L.R.A. 155, 45 S. W. 345; Charles River Bridge v. IFarren Bridge, 11 Pet. 545, 9 L. ed. 823.

The public is favored by the courts where question's of this character arise.

Stein v. Bienville Water Supply Co. 141 U. S. 67, 35 L. ed. 622, 11 Sup. Ct. Rep. 892; Hamilton Gaslight d Coke Co. v. Hamilton, 146 U. S. 263, 36 L. ed. 967, 13 Sup. Ct. Rep. 90.

Persons dealing with public corporations are charged with notice of their right to contract upon the subject-matter, and in the manner contemplated. If there is no legal authority for the contract, that au¬ thority cannot be created through the appli¬ cation of any doctrine or principle of estop¬ pel, acceptance, or ratification. The con¬ tract cannot be enforced.

1 Abbott, Mun. Corp. §§ 249, 280.

In Nashville v. Hagan, 9 Baxt. 495, the supreme court of Tennessee held that the city of Nashville was not liable for the price of certain material, bought and used by it for the improvement of its waterworks sys¬ tem, because the contract therefor was made

355

25-28

Supreme Court of the United States.

Oct. Term,

without authority, and because there was no general law or ordinance authorizing the execution of said contract.

If a contract which a municipal corpora¬ tion had no power to make in the first in¬ stance should be held good upon the doctrine of estoppel or acquiescence, a new power other than the legislature would then accom¬ plish by indirection that which the law expressly declares cannot be accomplished by direction.

Westerly Watencorks Co. v. Westerly, 80 Fed. 611.

Mr. Justice Harlan delivered the opinion of the court:

This suit was brought by the Knoxville Water Company, a corporation of Tennes¬ see, against the city of Knoxville, a munici¬ pal corporation of the same state, and

against certain individual ’citizens of Ten¬ nessee, constituting the waterworks com¬ mission of that city.

Are the rights which the plaintiff sought to protect secured by the Constitution of the United States in any such sense as to make the case — the parties all being citi¬ zens of Tennessee — one arising under that instrument, and therefore one of which the circuit court could take original cogni¬ zance? An answer to these questions, it would seem, requires for their intelligent solution a somewhat extended statement of the facts.

The water company, by its charter granted in 1877, was authorized to estab¬ lish waterworks of sufficient capacity to furnish the corporate authorities and in¬ habitants of Knoxville with water. To that end it was empowered to lay down pipes through the streets, lanes, and alleys of the city; bringing into the city a sufficent supply of water by means of pipes or tanks, or in any other way; construct reservoirs; supply with water the inhabitants of the city and its environs, and all who may be along the lines of the company’s pipes ; erect hydrants or fire plugs; and contract with the inhabitants and with the corporate authorities of the city or any incorporated companies for the use of water, charging such price for the same as might be agreed upon between the company and the parties.

Prior to 1882, — taking the allegations of the bill to be true, since the case went off in the circuit court upon demurrer to the bill, — the city of Knoxville determined to establish a system of waterworks, and to that end it purchased certain real estate. But that scheme having been abandoned, or having been ascertained to be unwise and impracticable at that time, the city advertised for bids and proposals by respon¬ sible parties for the erection of waterworks, 356

which, after being built, it was to have the option of purchasing at a time to be agreed upon.

The advertisement brought two competi¬ tive propositions, one by the city water company and the other by the present plain¬ tiff. The proposition of .the plaintiff was accepted, and thereupon the city and the plaintiff, on the 1st day of July, 1882, ’entered into an agreement or contract which

is the foundation of this suit.

' By that agreement the water company stipulated (omitting many minor details) :

That it would erect and establish on the land acquired by the city a system of water¬ works, with reservoir and all necessary mains, pipes, hydrants, machinery, build¬ ings, and other appurtenances and incidents sufficient to supply the city with water to be taken from the Tennessee river at the site purchased by the city for that purpose,

— the waterworks and fixtures throughout

N . n

to be of first-class materials, capable of furnishing 2,000,000 gallons of water every twenty-four hours, and affording an unin¬ terrupted daily supply to the city of such quantity as might be required, not exceed¬ ing the amount above specified, and the reservoir to be built on a specified site, and to have a capacity of 3,200,000 gallons of water. The company was to furnish water free of charge (except the rental of hydrants) from hydrants for the sprink¬ ling of streets and flushing of gutters and sewers along, on, or under such streets as were curbed, guttered, or sewered ; also, free of charge, water for all purposes of the fire department and for supplying the city hall buildings, office, and prison. It was to purchase at the price of $7,800 the property then already acquired by the city for the purpose of erecting waterworks, including lands, plans, specifications, draw¬ ings, maps, etc., and to pay therefor within thirty days from the execution of the agree¬ ment, and before the construction of said works. It engaged to supply private con¬ sumers with water at a rate not to exceed 5 cents per hundred gallons, the cost of introducing from the mains, and the cost of meter when used, to be borne by such private parties. The work of construction was to be commenced within thirty days from the execution of the agreement, and the works to be completed, ready for use, within twelve months thereafter. The com¬ pany was to maintain the waterworks stip¬ ulated to be built by it in such condition as would enable it to comply with its under¬ takings for the period of thirty years from January 1st, 1883, unless the city should become the owner of the same ’within that

period. At its own expense it was to estab¬ lish with the waterworks a system of tele-

200 U. S.

Knoxville Water Co. v. Knoxville.

28-30

graphic fire alarms of such quality and efficiency as those in general use in cities, consisting of two alarm boxes in each of the (then) eight wards of the city, with proper telegraphic connections with a cen¬ tral station.

In consideration of the promises and undertakings by the water company, as set out in the above agreement, the city covenanted and agreed, among other things, “not to grant to any other person or cor¬ poration, any contract or privilege to fur¬ nish water to the city of Knoxville, or the privilege of erecting upon the public streets, lanes, or alleys, or other public grounds, for the purpose of furnishing said city or the inhabitants thereof with water for the full period of thirty years from the 1st day of August, a. d. 1883, provided the com¬ pany comply with the requirements and obligations imposed and assumed by them under and by virtue of this agreement;” also, “to pay to said company for rent of the seventy-five hydrants hereinbefore stip¬ ulated to be erected $50 each per annum, payable in quarterly instalments on the last day of each quarter, beginning on the day upon which the city shall commence receiving a supply of water from said works, and for any additional hydrants erected for the use of the city it will pay in the same manner at the rate of not more -than $50 each per annum. . . .”

Recognizing the benefit and advantage ac¬ cruing to it and to its citizens from the construction of the waterworks and the erection of hydrants, the city also cov¬ enanted and agreed with the water com¬ pany “to pay, in addition to the annual rent of $50, as hereinbefore provided, and as an additional annual rent for the said seventy-five hydrants, a sum equal to that which, under the laws of the state and the ordinances and resolutions of the city, would be annually assessed as taxes for city pui'poses and uses on property of the same kind, quantity, and value as that owned by the said water company within the corporate limits of the city of Knox¬ ville: Provided, that the said additional

annual rental shall only *be paid for the term of five years next following 1st of August, 1894, and no longer.”

It was further mutually agreed and understood between the parties that at the expiration of fifteen years from the time fixed for the completion of the waterworks, the city should have the right, upon giving one year’s notice of such purpose and inten¬ tion, to purchase from the company the waterworks provided for, and all the prop¬ erty, rights, franchises, and privileges thereto belonging; by negotiations, if the terms could in that way be agreed upon, 200 U. S. U. S.. Book 50.

or if not, then at any time for a considerar tion to be fixed and determined by ap¬ praisers; and if not purchased at the end of fifteen years, the waterworks plant, franchises, rights, privileges, etc., could be purchased by the city upon the same terms and conditions, and in the same way, at the expiration of each and every year there¬ after. But in no case was such right of purchase to exist or be exercised unless due notice thereof was given one year before the expiration of the period aforesaid or either of them. If the parties differed as to price, the matter, the agreement pro¬ vided, was to be determined by appraisers designated in a particular way, and whose award should be final and conclusive. It was further stipulated that the water com¬ pany should not transfer, set over, or assign the agreement for the construction of the waterworks to any company, corporation, or individual whatsoever.

By an ordinance adopted October 20th, i 1899, the city consented to the consolida¬ tion of the Knoxville Water Company and the Lonsdale-Beaumont Water Company, and made certain changes both in the con¬ tract between the latter company and the town of West Knoxville and in the above agreement of 1882. It is not necessary to set out these changes.

We come now to the act of the Tennessee legislature of February 2d, 1903, passed avowedly for the purpose of enabling the city to exercise the option it had under the agreement of 1882 and the ordinance of 1899 to purchase and acquire the plant and property of the water company, and maintain it for the benefit of its people.

To that end the act authorized the city *to issue bonds to an amount sufficient for

that purpose, upon the agreed valuation of the parties, or, in default of same, upon a valuation to be ascertained and fixed by appraisers, and to such additional amount as would be necessary in making additions to the plant, including real estate required for such additions. It was, however, pro¬ vided that bonds should not be issued un¬ less approved by the assent of two thirds of the qualified voters of the city, expressed at an election duly held to ascertain their wishes. The execution of the provisions of the act was committed to a waterworks commission, to be created by the city coun¬ cil, and to have the power to make all con¬ tracts for the maintenance and extension of the plant.

Subsequently, the legislature passed the act of April 3d, 1903, (also amending the above act of February 2d, 1903), whereby the city was authorized to acquire, own, and operate a system of waterworks, either by purchase or construction, and for that

30-32

Oct. Term,

Supreme Court of the United States.

purpose power was given to issue interest- bearing coupon bonds to an amount not exceeding $750,000, under the restrictions named in the act. The act created a water¬ works commission of five members, to be elected by the city council, and to have the entire supervision, under prescribed restric¬ tions, of the purchase or construction, operation and maintenance, of any system of waterworks established under the sanc¬ tion of the act. The act embodied, among others, a provision authorizing and direct¬ ing the commissioners to obtain from the water company a written proposition for the sale of its plant, franchises, etc., to the city of Knoxville, giving the price and terms of payment, together with the opin¬ ion of competent, disinterested experts as to the cost and present value of the plant; the commission to secure plans, specifica¬ tions, and estimates of the cost of the con¬ struction of a new system of waterworks, and to report all matters to the city council for its consideration, but not to close any contract for the purchase or construction of waterworks until it had been duly au¬ thorized to do so by the city council after the proposition shall have been ratified by a vote of the people.

equip, and maintain its own system of waterworks, then, for the purpose of secur¬ ing sites for pumping stations and other necessary purposes, including the laying of mains and water pipes, and sites for reser¬ voirs and filtering galleries, extensions, improvements and alterations, it was given the right of condemnation of grounds with¬ in and without its corporate limits.

There is no need to refer to other pro¬ visions of the agreement of 1882. But it may be said in this connection that an elec¬ tion was held on the 2d day of July, 1903; and the city council — having express authority to declare the result of the elec¬ tion — declared, by ordinance, that 1,818 votes had been cast in favor of, and only 239 votes against, an issue of bonds for the construction by the city of a system of waterworks. It may be also stated, in this connection, that after the passage of the two acts of 1903, and before the above election, some correspondence ensued be¬ tween the water commission and the water company in reference to the purchase of the latter’s plant. But the parties failed to agree as to the mode of ascertaining the value of the company’s plant, and negotia¬ tions ceased. It is not important to inquire which side, if either, was to blame in this matter. Suffice it to say that the city council, on or about May 20th, 1904, con¬ ceived . and was about to enter a plan of establishing a system of city waterworks 358

wholly independent of, and in competition with, that maintained by the water com¬ pany.

The present suit was brought upon the theory that the legislative enactments of 1903 were laws impairing the obligations of the contract of 1882 between the water company and the city, as well as upon the theory that the maintenance by the city of a system of waterworks in competition with those of the water company would inevitably destroy the value of the latter’s property, and be a taking, under the sanc¬ tion of the state, of the company’s property for public use without compensation, in vio¬ lation of the due process of law enjoined by the 14th Amendment.

*The substantial relief asked was a per-

petual injunction restraining the city, its agents or officers, and the waterworks com¬ mission, from entering into any contract for the construction of a separate, inde¬ pendent, and competing 'plant, and from issuing any bonds for such a purpose.

Upon the question of the jurisdiction of the circuit court to take cognizance of this case, without regard to the citizenship of the parties, but little need be said. The water company, as we have seen, insists that the agreement of 1S82 constituted a contract, whereby it acquired, for a given period, an exclusive right, by means of pipes laid in the public ways and a system of works established for that purpose, to supply water for the use of the city and its inhabitants. It also insists, as just stated, that the obligation of this contract will be impaired if the city, proceeding under the acts of the legislature and under the or¬ dinances in question, establishes and main¬ tains an independent, separate system of waterworks in competition with those of the water company. These questions hav¬ ing been aptly raised by the company’s bill, the case is plainly one arising under the Constitution of the United States.

The fundamental question in the ease is whether the city, by the agreement of 1882, or in any other way, has so tied its hands by contract that it cannot, consistently with the constitutional rights of the water company, establish and maintain, a sep¬ arate system of waterworks of its own. If the city made no such contract, that will be an end of the case; for, in the absence of a contract protected by the Constitution of the United States, the circuit court could not take cognizance of the dispute between the parties, all citizens of Tennessee; and it could not be said that any taking of private property for public use could arise merely from the construction and maintenance by the city of a waterworks plant.

The principles which must control in

200 U. S.

1905

Knoxville Water Co. v. Knoxville.

32-35

determining the scope and obligations of the agreement of 1882 have been clearly out¬ lined in our decisions. We may assume, for purposes of the present discussion, but without deciding, that the city of Knox- 133] ville *was invested by the legislature with full authority, or that, under its general municipal powers, it could bind itself by contract, to give to a single corporation or company the exclusive right, for a specified period, to supply water for the use of itself and its inhabitants. It will yet be conceded that whatever authority it possessed in this matter was granted solely for the public good, and that in every sub¬ stantial, legal sense the agreement with the water company is to be deemed a public grant, entitling that company to exercise certain public functions that appertain to the city as a municipal corporation.

Although the doctrines which must con¬ trol in determining the scope of such a grant are clearly settled and are familiar, it may be well to recall the words of some of the adjudged cases. In Charles River Bridge v. Warren Bridge, 11 Pet. 420, 544, 547, 548, 9 L. ed. 773, 822, 824, the doc¬ trine announced was that government, pos¬ sessing powers that affect the public inter¬ ests, and having entered into a contract involving such interests, is not, by means merely of implications or presumptions, to be disarmed of powers necessary to ac¬ complish the objects of its existence; that any ambiguity in the terms of such a con¬ tract must operate against the corporation, and in favor of the public, and the corpora¬ tion can claim nothing but what is clearly given by the act; that it can never be assumed that the government intended to diminish its powers of accomplishing the ends of its creation; and that those who in. ist that the government has surrendered any of its powers, or agreed that they may be diminished, must find clear warrant for such a contention before it can be heeded. “Grants of franchises and special privileges are always to be construed most strongly against the donee, and in favor of the public.” Such were the words of this court in St. Clair County Tump. Co. v. Illinois, 96 U. S. 63, 68, 24 L. ed. 651, 652. The universal rule in doubtful cases — this court said in Oregon It. & Nav. Co. v. Oregonian R. Co. 130 U. S. 1, 26, 32 L. ed. 837, 842, 9 Sup. Ct. Rep. 409 — is that “the construc¬ tion shall be against the grantee, and in favor of the government.” As late as Coosaw Min. Co. v. South Carolina, 144 U. S. 550, 562, 36 L. ed. 537, 542, 12 Sup. Ct. Rep. 689, 691, this court said: “The

doctrine is firmly established that only *that which is granted in clear and explicit terms passes by a grant of property, fran- 200 U. S.

chises, or privileges in which the govern¬ ment or the public has an interest, t Statutory grants of that character are to be construed strictly in favor of the public, and whatever is not unequivocally granted is withheld; nothing passes by mere impli¬ cation. J This principle, it has been said,

‘is a wise one, as it serves to defeat any purpose concealed by the skilful use of terms to accomplish something not ap¬ parent on the face of the act, and thus sanctions only open dealing with legisla¬ tive bodies.’ Slidell v. Crandjcan, 111 U.

S. 412, 438, 28 L. ed. 321, 330, 4 Sup. Ct.

Rep. 475.” We have never departed from or modified these principles, but have re¬ affirmed them in many cases. §

It is true that the cases to which vve have referred involved in the main the construc¬ tion of legislative enactments. But the principles they announce apply with full force to ordinances and contracts by munic¬ ipal corporations in respect of matters that concern the public. The authorities are all agreed that a municipal corporation, when exerting its functions for the general good, is not to be shorn of its powers by mere implication. If, by contract or other¬ wise, it may, in particular circumstances, restrict the exercise of its public powers, the intention to do so must be manifested by words so clear as not to admit of two different or inconsistent meanings.

Turning, now, to the agreement of 1882, we fail to find in it any words necessarily importing an obligation on the part of the city not to establish and maintain water¬ works of its own during the term of the water company. It is said that the *com-

pany could not possibly have believed that the city would establish waterworks to be operated in competition with its system, for such competition would be ruinous to the water company, as its projectors, on a

■fRice v. Minnesota & N. W. R. Co. 1 Black,

358, 380, 17 L. ed. 147, 153 ; Northwestern Fer¬ tilizing Co. v. Hyde Park, 97 U. S. 659, 666, 24 L. ed. 1036, 1038 ; Hannibal & St. J. It. Co. v. Missouri River Packet Co. 125 U. S. 260, 271,

31 L. ed. 731, 735, 8 Sup. Ct. Rep. 874 ; Central Transp. Co. v. Pullman’s Palace Car Co. 139 U.

S. 24, 49, 35 L. ed. 55, 64, 11 Sup. Ct. Rep. 478 ;

Stein v. Bienville Water Supply Co. 141 U. S. o', 80, 35 L. ed. 622, 627, 11 Sup. Ct. Rep. 892;

State v. Pacific Guano Co. 22 S. C. 50, 83, 86.

Jl-Iolyoke Water Power Co. v. Lyman, 15 Wall. 500, 21 L. ed. 33 ; The Binghamton Bridge (Chenango Bridge Co. v. Bingn.,mton Bridge Co.) 3 Wall. 51, 75, 18 L. ed. 137, 143.

§ United States v. Arredondo, 6 Pet. 691, 738,

8 L. ed. 547, 564 ; Mills v. St. Clair County, 8 How. 581, 12 L. ed. 1206 ; Richmond* F. & P. R.

Co. v. Louisa It. Co. 13 How. 81, 14 L. ed. 60 ; Dubuque & P. R. Co. v. Litchfield, 23 How. 66,

88, 16 L. ed. 500, 509 ; Newton v. Mahoning County, 100 U. S. 561, 25 L. ed. 712.

359

35-37

Supreme Court of

moment’s reflection, could have perceived when the agreement of 1882 was made. On the other hand, the city may, with much reason, say that, having once thought of having its own waterworks, the failure to insert in that agreement a provision precluding it, in all circumstances, and during a long period, from having its own separate system, shows that it was not its purpose to so restrict the exercise of its powers, but to remain absolutely free to act as changed circumstances or the public ex¬ igencies might demand. The stipulation in the agreement that the city would not, at any time during the thirty years com¬ mencing August 1st, 1883, grant to any person or corporation the same privileges it had given to the water company, was by no means an agreement that it would never, during that period, construct and maintain waterworks of its own. For some reason, not distinctly disclosed by the record, the city abandoned the scheme it had at one time formed, of constructing its own system of waterworks. And it may be that it did not, in 1882, intend or expect ever again to think favorably of such a scheme. It may also be that the water company, having knowledge of what the city had done or attempted prior to 1882, deliberately concluded to risk the possi¬ bility of municipal competition, if the city would agree not to give to other persons or corporations the same privileges it had given to that company. The city did so agree, and thereby bound itself by contract to the extent just stated, omitting, as if purposely, not to bind itself further. The agreement, as executed, is entirely con¬ sistent with the idea that while the city, at the time of making the agreement of 1882, had no purpose or plan to establish and operate its own waterworks in compe¬ tition with those of the water company, it refrained from binding itself not to do so, although willing to stipulate, as it did stipulate, that the grant to the water com¬ pany should be exclusive as against all other persons or corporations. We are

tlierefore “constrained by the words of the agreement to hold that the city did not assume, by any contract protected by the Constitution of the United States, to re¬ strict its right to have a system of water¬ works, independent altogether of the sys¬ tem established and maintained by the water company. If this interpretation of the contract will bring hardship and loss to the water company, and to those having an interest in its property and bonds, the result (omitting now any consideration of the question of power) is due to the ab¬ sence from the agreement between the par¬ ties of any stipulation binding: the city 360

the United States. Oct. Term,

not to do what, unless restrained, it now proposes to do.

While there is no case precisely like the present one in all its facts, the adjudged cases lead to no other conclusion than the one just indicated. We may well repeat here what was said in a somewhat similar case, where a municipal corporation established gas works of its own in competition with a private gas company which, under previous authority, had placed its pipes, mains, etc., in public streets to supply, and was supply¬ ing, gas for a city and its inhabitants: “It may be that the stockholders of the plain¬ tiff supposed, at the time it became incor¬ porated, and when they made their original investment, that the city would never do what evidently is contemplated by the or¬ dinance of 1889. And it may be that the erection and maintenance of gas works by the city at the public expense, and in com¬ petition with the plaintiff, will ultimately impair, if not destroy, the value of the plaintiff’s works, for the purposes for which they were established. But such considera¬ tions cannot control the determination of the legal rights of parties. As said by this court in Curtis v. Whitney, 13 Wall. 68, 70,

20 L. ed. 513, 514: ‘Nor does every statute which affects the value of a contract impair its obligation. It is one of the contingen¬ cies to which parties look now in making a large class of contracts, that they may be affected in many ways by state and national legislation.’ If parties wish to guard against contingencies of that kind they must do so by such clear and explicit language as will take their contracts out of the established rule that public grants, “susceptible of two constructions, must re-

ceive the one most favorable to the public.” Hamilton Gaslight & Colce Co. v. Hamilton,

140 U. S. 258, 268, 36 L. ed. 963, 968, 13 Sup. Ct. Rep. 90; Skaneateles Waterworks Co. v. Skaneateles, 184 U. S. 354, 363, 46 L. ed. 585, 590, 22 Sup. Ct. Rep. 400.

So in Joplin v. Southicest Missouri Light Co. 191 U. S. 150, 156, 4S L. ed. 127, 129,

24 Sup. Ct. Rep. 43, which involved the question whether a city could establish its own electric plant in competition with that of a private corporation, the court said:

“The limitation contended for is upon a governmental agency, and restraints upon that must not be readily implied. The ap¬ pellee concedes, as we have seen, that it has no exclusive right, and yet contends for a limitation upon the city which might give it (the appellee) a practical monopoly. Others may not seek to compete with it, and if the city cannot, the city is left with a useless potentiality, while the appellee exercises and enjoys a practically exclusive right. There are presumptions, we repeat,

200 U. S.

Owensboro Waterworks Co. v. Owensboro.

37-39

against the granting of exclusive rights, and against limitations upon the powers of government.”

Again, in the recent case of Helena Waterworks Go. v. Helena, 195 U. S. 383, 392, 49 L. ed. 245, 250, 25 Sup. Ct. Rep. 40, where a city established its own system of waterworks in competition with that of a private company, the court, observing that the city had not specifically bound itself not to construct its own plant, said: “Had it been intended to exclude the city from exercising the privilege of establishing its own plant, such purpose could have been expressed by apt words, as was the case in Walla Walla v. Walla Walla Water Go. 172 U. S. 1, 43 L. ed. 341, 19 Sup. Ct. Rep.

of such a plant by the city will render the property of the water company less val¬ uable and, perhaps, unprofitable; but if it was intended to prevent such competition, a right to do so should not have been left to argument or implication, but made cer¬ tain by the terms . of the contract.” To the same effect, as to the principle involved, are Washington & G. Tump. Go. v. Mary¬ land, 3 Wall. 210, 213, 18 L. ed. 180, 182; Stein v. Bienville Wafer Supply Go. 141 U. S. 67, 81, 35 L. ed. 622, 628, 11 Sup. Ct. Rep. 892; Long Island Water Supply Co. v. Brooklyn, 166 U. S. 685, 41 L. ed. 1165, 17 Sup. Ct. Rep. 718.

It is, we think, important that the courts

should adhere firmly *to the salutary doc¬ trine underlying the whole law of munici¬ pal corporations and the doctrines of the adjudged cases, that grants of special priv¬ ileges affecting the general interests are to be liberally construed in favor of the public, and that no public body, charged with pub¬ lic duties, be held, upon mere implication or presumption, to have devested itself of its powers.

As, then, the city of Knoxville cannot be held to have precluded itself by contract from establishing its own independent sys¬ tem of waterworks, it becomes unnecessary to consider any other question in the case. The judgment of that court dismissing the bill must he affirmed.

It is so ordered.

Mr. Justice Brown, Mr. Justice White, Mr. Justice Peckham, and Mr Justice Folmes dissented.