[263 U.S. 125, 126] Mr. Frank B. Kellogg, of St. Paul, Minn., for plaintiff in error.
Louis Hanitch and T. L. McIntosh, both of Superior, Wis., for defendants in error.
Mr. Justice McREYNOLDS delivered the opinion of the Court.
Since 1848 the Constitution of Wisconsin has contained the following clause:
Article XI, 1: 'Corporations without banking powers or privileges may be formed under general laws, but shall not be created by special act, except for municipal purposes, and in cases where, in the judgment of the Legislature, the objects of the corporation cannot be attained under general laws. All general laws or special acts enacted under the provisions of this section may be altered or repealed by the Legislature at any time after their passage.'
Chapter 359, Private and Local Laws of Wisconsin of 1866, incorporated plaintiff in error's predecessor, the Superior Water Works Company, and empowered it to make--
On October 15, 1887, in order to provide fire protection and secure pure and wholesome water, and in consideration of benefits to accrue therefrom, the village of Superior, a municipal corporation, by ordinance, granted to Superior Water Works Company, its successors and assigns, for a period of 30 years, the privilege of establishing, maintaining, and operating a complete system of waterworks. The ordinance specified the duties and obligations of the parties, and, among other things, provided that the village would abstain for 30 years from granting the right to lay water pipes in its streets to any other party and that the main source of water should be Superior Bay; but if the village at its expense should secure an indefeasible right to lay pipes across Minnesota Point in the state of Minnesota, etc., the company would take water from Lake Superior, and further that--
The corporation accepted the ordinance, constructed the plant and many extensions, spent large sums in connection therewith, and long continued to operate it.
In March, 1889, the territory constituting the village of Superior was incorporated as the city of Superior. The charter declared that--
It further empowered the city--
October 1, 1889, with the express assent of the Superior Waterworks Company and in consideration of the waiver of certain rights by the latter, the city of Superior amended section XIII Ordinance of October 15, 1887, so as to provide that, if purchased, the price to be paid for the waterworks plant should be ascertained by capitalizing the net earnings of the preceding year at 5 per centum. 1 Sections II and III of this ordinance follow: [263 U.S. 125, 130] 'Section II. This ordinance is passed upon the consideration to the city of Superior that the said city is hereby released and relieved from the duty, cost and expense of procuring, for said Superior Waterworks Company, the valid and indefeasible right to extend and lay its pipes across the bay of Superior and across Minnesota Point, to the shores of, and into Lake Superior, as provided in section II of said ordinance number one of the General Ordinances of the village of Superior and that all that part of said section No. II, commencing with the word 'provided' in the twentieth line thereof, down to and including the word 'completed' in the sixty-second line thereof, [263 U.S. 125, 131] is hereby repealed. And this said ordinance is passed upon the further consideration to the city of Superior, that by the acceptance hereof the said Superior Waterworks Company binds itself, its successors and assigns, to obtain at its own expense an adequate supply of good and wholesome water for domestic and public purposes from said Lake Superior and to furnish the same to the inhabitants of said city and to said city as provided in said ordinance number one as hereby amended within two years from the acceptance of this ordinance by said Superior Waterworks Company.
In compliance with the foregoint ordinance and agreement the supply lines of the water system were extended across Minnesota Point, in the state of Minnsota, and into Lake Superior. The company also acquired a parcel of land on that point and there installed wells, machinery and equipemtn which became an essential part of the system.
On November 1, 1889, the Superior Waterworks Company sold and transferred its plant with all appurtenant rights and privileges to plaintiff in error, the Superior Water, Light & Power Company. Three ordinances amended the grant of 1887 (in ways not now necessary to detail) in 1889, 1896, and 1899. Two of these provided for and received express acceptance by plaintiff in error.
In 1907 the Wisconsin Legislature enacted the Public Utility Law ( chapter 499, Laws 1907; Sections 1797m-1 to 1797m-109, Wis. Stat. 1919), which created the Railroad Commission, [263 U.S. 125, 132] a regulatory body, and authorized public utilities to surrender existing franchises and accept in lieu thereof 'indeterminate permits.' Chapter 596, Laws 1911, repealed the optional feature of the statute of 1907 and directed that every license, permit or franchise granted by the state or by any town, village or city to any corporation authorizing the latter to operate a plant for furnishing heat, light, water or power, etc., etc.--
One of the provisions to which reference is made gives the municipality the right to purchase upon terms to be fixed by the State Railroad Commission.
The statute (section 1797m-1) declares the term--
Plaintiff in error has not voluntarily submitted to the Public Utility Law. [263 U.S. 125, 133] On October 15, 1917, the prescribed 30-year limitation expired and plaintiff in error requested the city of Superior either to grant further right to mantain the system of water works or to purchase the same as provided by the ordinance of 1887 as amended in 1889. The city failed to make the grant, denied its obligation to purchase, and took steps under provisions of sections 1797m-1 to 1797m-109, Wisconsin Statutes, to condemn the entire plant. Thereupon plaintiff in error instituted the present cause against the city, its mayor and councilmen. The complaint sets out the foregoint facts, alleges repudiation of the obligation to purchase and the steps taken for condemnation, and asks a decree requiring the city specifically to perform its agreement, for an injunction restraining further efforts to condemn and for general relief.
The trial court overruled a general demurrer but this action was reversed by the Supreme Court (174 Wis. 257, 181 N. W. 113, 183 N. W. 254), which held that the act of 1907 (chapter 499), as amended in 1911, was permissible under the reserved power to alter, amend or repeal acts providing for formation or creation of corporations, and that it had substituted an 'indeterminate permit' for the rights granted to the plaintiff in error by the municipality. 'A new franchise was therefore granted to the defendant in lieu of its original franchise by the enactment of chapter 596, Laws 1911. Thereafter its franchise was that of the indeterminate permit, and it was subject to the provisions of the Public Utility Law. This also was its franchise on October 1, 1917, when it is claimed its original franchise expired. The Public Utility Law had superseded everything of a franchise nature embodied in the original ordinance granted to it by the village of Superior and the subsequent and succeeding amendments thereto.' And also that it was immaterial whether or not a contract between the city and the water company resulted from the clause of the original [263 U.S. 125, 134] ordinance providing for extension of the grant or purchase after thirty years, because 'even though it be considered as a contract, we think it gives rise to no obligation on the part of the city to purchase the plant according to its terms.'
The court further said (174 Wis. 288, 181 N. W. 124):
Considering the opinions of this court, it seems clear enough that a valid contract resulted from the dealings [263 U.S. 125, 135] between the city of Superior and plaintiff in error whereby each became obligated to do certain specified things. The company agreed to construct, maintain and operate an adequate waterworks system. The city obligated itself to recognize the company's exclusive right to maintain and operate the system for a definite period, 30 years, and also to purchase the entire plant at a price fixed in the manner specified if at the conclusion of such period it should refuse to grant an extension. The rights so acquired by plaintiff in error were property. Pearsall v. Great Northern Ry., 161 U.S. 646 , 16 Sup. Ct. 705; Detroit v. Detroit Citizens' St. Ry. Co., 184 U.S. 368, 384 , 22 S. Sup. Ct. 410; Cleveland v. Cleveland City Ry. Co., 194 U.S. 517, 536 , 24 S. Sup. Ct. 756; Vicksburg v. Vicksburg Waterworks Co., 206 U.S. 496 , 27 Sup. Ct. 762; Louisville v. Cumberland Telephone Co., 224 U.S. 649, 664 , 32 S. Sup. Ct. 572; Grand Trunk Western Ry. Co. v. South Bend, 227 U.S. 544, 556 , 33 S. Sup. Ct. 303, 44 L. R. A. (N. S.) 405; Owensboro v. Cumberland Telephone Co., 230 U.S. 58, 73 , 33 S. Sup. Ct. 988; Old Colony Trust Co. v. Omaha, 230 U.S. 100, 117 , 33 S. Sup. Ct. 967; Detroit United Ry. v. Michigan, 242 U.S. 238, 253 , 37 S. Sup. Ct. 87; Northern Ohio Trac. Co. v. Ohio, 245 U.S. 574, 585 , 38 S. Sup. Ct. 196, L. R. A. 1918E, 865; Columbus Ry. & Power Co. v. Columbus, 249 U.S. 399, 407 , 39 S. Sup. Ct. 349, 6 A. L. R. 1648.
Concerning the relation between the parties the court below declared:
But it held the Legislature had power to change this contract under the reservation permitting alterations, in section 1, art. 11, of the state Constitution, and that the act of 1911 did modify the contract by substituting for rights thereby secured an 'indeterminate permit.'
Through its contract with the city the water company acquired valuable property rights. They were not directly created by any statute enacted under section 1, art. 11, of the state Constitution, but were the outcome of agreement [263 U.S. 125, 136] with a fully empowered corporation. They did not arise from the mere exercise of a governmental function legislative in character, but from contract expressly authorized by the Legislature. None of the decisions of the Supreme Court of Wisconsin prior to 1889 to which we have been referred2 construes the reservation in the state Constitution as having the extraordinary scope accorded to it below, and certainly, in the absence of some very clear and definite pronouncement, we cannot accept the view that it then had the meaning now attributed to it.
As late as 1909, in State ex rel. Northern Pacific Ry. Co. v. Railroad Commission, 140 Wis. 145, 157, 121 N. W. 919, 932, that court announced:
See, also, Water Power Cases, 148 Wis. 124, 136, 134 N. W. 330, 38 L. R. A. (N. S.) 526.
The integrity of contracts-matter of high public concern-is guaranteed against action like that here disclosed by section 10, art. 1, of the federal Constitution, 'No state shall ... pass any ... law impairing the obligation of contracts.' It was beyond the competency of the Legislature to substitute an 'indeterminate permit' for rights acquired under a very clear contract. Vicksburg v. Vicksburg Waterworks Co ., 206 U.S. 496 , 27 Sup. Ct. 762; Detroit United Ry. v. Michigan, 242 U.S. 238, 253 , 37 S. Sup. Ct. 87. The erroneous conclusion concerning this federal question led to the decree below. Accordingly it must be set aside and the cause remanded for further proceedings not inconsistent with this opinion.
[ Footnote 1 ] Section. I. Ordinance No. 5 of the General Ordinances of the village (now city) of Superior, entitled 'A ordinance amending and re- enacting section XIII of an ordinance authorizing the Superior Waterworks Company, its successors or assigns, to construct, operate and maintain a system of water works in the village of Superior, Douglas county, Wisconsin, and contracting with said company for a supply of water for the use of said village and the inhabitants thereof, and defining their rights, privileges and powers,' is hereby amended by striking out of said ordinance all of said ordinance after the words 'section XIII,' where the said words 'section XIII' occur, in the thirteenth line thereof and inserting in lieu thereof the following: This ordinance is passed upon the express condition that at the expiration of twenty years after the date of the passage of this ordinance and of every fifth year thereafter, the city of Superior may, at its option, purchase from the said Superior Waterworks Company, its successors or assigns, the entire plant of the said Superior Waterworks Company, its successors or assigns, and including all franchises theretofore granted to said Superior Waterworks Company, its successors or assigns, by the village or city of Superior, by paying therefor, in cash, an amount of money, of which the net earnings of said Superior Waterworks Company, for the next year preceding the purchase thereof, by said city, shall be five per centum. Such purchase shall be made in the following manner, to wit: The common council at its first regular meeting after the expiration of said twenty years, or of any fifth year thereafter, may pass an ordinance declaring its intention to purchase said plant and franchises appropriating the necessary funds therefor and directing the city clerk of said city, to serve upon said Superior Waterworks Company, its successors or assigns, a copy of said ordinance, together with a notice that at the expiration of one year from the date of the service of said notice, the said city will pay to said Superior Waterworks Company, its successors, or assigns, the price of said plant and franchises, determined as by this ordinance provided, and will assume possession of said plant and franchises. Commencing with the day following the date of the service of such notice, the said Superior Waterworks Company, its successors or assigns, shall keep an accurate account of all receipts and disbursements of said company, in a set of books kept expressly for that purpose and for no other, which said books shall at the expiration of each quarter year thereafter be open to the inspection of the city comptroller of said city. At the expiration of one year from the date of the service of the notice above provided for, the said Superior Waterworks Company, its successors or assigns, shall submit to the comptroller of said city, the said books of account, and the price to be paid for said plant and franchises shall be determined therefrom, as hereinbefore provided and upon the payment, in full, of said price, the said Superior Waterworks Company, its successors or assigns, shall surrender to said city its plant and franchises complete. The words 'net earnings' as used in this ordinance, shall mean the gross earnings of said waterworks, less the actual operating expenses thereof.
[ Footnote 2 ] Madison, Watertown & Milwaukee Plankroad Co. v. Reynolds, 3 Wis. * 287; Pratt v. Brown, 3 Wis. *603; Nazro v. Merchants' Mutual Insurance Co., 14 Wis. *295; Kenosha, Rockford & Rock Island R. R. Co. v. March, 17 Wis. * 13; Whiting v. Sheboygan & Fond du Lac R. R. Co., 25 Wis. 167, 3 Am. Rep. 30; State of Wisconsin v. Milwaukee Gaslight Co., 29 Wis. 454, 9 Am. Rep. 598; West Wisconsin R. R. Co. v. Board of Supervisors of Trempealeau County, 35 Wis. 257; Attorney General v. Railroad Co., 35 Wis. 425.