CITY OF MINNEAPOLIS v. MINNEAPOLIS ST. RY. CO.(1907)
The case was tried upon amended bill and answer. The ground alleged for injunction in the amended bill was in substance that the ordinance of February 9, 1907, violated the terms of a previous and subsisting contract, prescribing the rates of fare to be charged by the company in the city of Minneapolis. It appears in the record that the railway company was organized on July 1, 1873, and that its alleged contract arises from an ordinance of the city of Minneapolis passed July 9, 1875, ratified by an act of the legislature of the state of Minnesota passed March 4, 1879. We shall have occasion later on to deal more specifically with this ordinance and ratifying act.
It is sufficient for the present purpose to say that it is the contention of the company, that, by the ordinance of July 9, 1875, and the ratifying act, it became the owner of an irrepealable contract for the term of fifty years from the date of its organization, by the terms of which it had the right to charge a fare not exceeding 5 cents for each person carried on any continuous line which might be designated by the city council of the city, such continuous line, however, not to exceed 3 miles in length. The contract, it is alleged, is violated by the ordinance of February 9, 1907, requiring the sale of six tickets for 25 cents.
The existence of the alleged contract is denied by the city upon several grounds. It is urged that the complainant company was so organized that its charter, and consequently its corporate life, expired thirty years after the date of its incorporation,-that is, on July 1, 1903; and therefore its contract rights ceased and terminated at that time. This contention is based upon the incorporation of the company, which [215 U.S. 417, 422] it is insisted, could only be under title 4 of the laws of Minnesota, which includes transportation and other lawful business, and limits corporations organized thereunder to a continuation for not more than thirty years. Bissell's Stat. (Minn.) 1873, p. 443.
It is the contention of the company that it was organized under title 1 of the laws of Minnesota (Bissell's Stat. 1873, p. 419, for a term of fifty years. Title 1 is headed, 'Of Corporations Empowered to Take Private Property for Public Uses,' and includes corporations 'for the purpose of building, improving, and operating railways, . . . and all works of internal improvement which require the taking of private property or any easement therein.' Pertinent provisions of title 1 as to incorporation are given in the margin.
Sec. 1. Any number of persons, not less than five, may associate themselves and become incorporated for the purpose of building, improving, and operating railways, telegraphs, canals, or slack- water navigation, upon any river or lake, and all works of internal improvement which require the taking of private property or any easement therein.
Sec. 2. They shall organize by adopting and signing articles of incorporation, which shall be recorded in the office of the register of deeds of the county where the principal place of business is to be, and also in the office of the secretary of state, in books kept for such purposes.
Sec. 3. . . .
Said articles shall contain:
First. The name of the corporation, the general nature of its business, and the principal place, if any, of transacting the same. Second. The time of commence and the period of continuance of said corporation. Third. The amount of capital stock of said corporation, and how to be paid in. Fourth. The highest amount of indebtedness or liability to which said corporation shall at any time be subject. Fifth. The names and places of residence of the persons forming such association for incoproration. Sixth. The names of the first board of directors, and in what officers or persons the government of the corporation and the man- agement of its affairs shall be vested, and when the same are elected. Seventh. The number and amount of the shares in the capital stock of said corporation. . . .
Sec. 4. When articles are filed, recorded, and published, as aforesaid, the persons named as corporators therein become a body corporate [provisions follow in this section as to management of business, amendment of articles of incorporation, etc.].
Sec. 5. No such corporation shall be formed to continue more than fifty years in the first instance, but it may be renewed from time to time for periods not longer than fifty years: Provided, that three fourths of the votes cast at any regular election for the purpose are in favor of such renewal, and those desiring a renewal purchase the stock of those opposed thereto at its current value. [215 U.S. 417, 423] Title 4 is, 'Of Corporations for Pecuniary Profit Other Than Those Named in Title 1.' The pertinent parts of that title are given in the margin.
Title 4. (This title is title 2 of chapter 34 of the Statutes of 1866.)
Of Corporations for Pecuniary Profit Other Than Those Named in Title 1.
Sec. 98 (45, as amended by act of March 10, 1873). Any number of persons, not less than three, who have or shall, by articles of agreement in writing, associate according to the provisions of this title under any name assumed by them, for the purpose of engaging in and carrying on the business of mining, smelting, or manufacturing iron, copper, or other minerals, or for producing the precious metals, or for quarrying and marketing any kind of ore, stone, slate, or other mineral substances, or for constructing, leasing, or operating docks, warehouses, elevators, or hotels, or as a mutual savings fund, loan, or building association, manufacturing gas, or for any kind of manufacturing, lumbering, agricultural, mechanical, mercantile, chemical, transportation, or other lawful business, and who have or shall comply with the provisions of this title, shall, with their associates, successors, and assigns, constitute a body corporate and politic under the name assumed by them in their articles of agreement; provided, no company shall take a name previously assumed by any other company. Any mutual saving fund, loan, or building association, as authorized to loan funds and to secure such loans by mortgage or other security, and any premiums taken by any such association for the preference or priority of such loans, shall not be deemed interest within the meaning of 1 of chapter 23 of the general statutes. Any such association is authorized and empowered to purchase at any sheriff's or other judicial sale, or at any other sale, public or private, any real estate upon which such association may have or hold any mortgage, judgment, or lien, or other encumbrance, or in which such association may have an interest, and the real estate so purchased, to sell, convey, lease, or mortgage at pleasure, to any person or persons whatsoever.
Sec. 99. (46, as amended by act of February 28, 1870). The provisions of 2, 3, 4, 7, 8, 9, 10, 11, 42, and 44 of title 1 shall apply to and be observed by corporations organizing under this title.
Sec. 100. (47 . . . The amount of capital stock in any such corporation shall in no case be less than $10,000 nor more than $500,000, and shall be divided into shares of not less than $10 nor more than $50 each, except that the capital stock of mutual building and loan associations may be divided into shares of $200 each, but the capital stock and number of shares may be increased at any regular meeting of the stockholders; provided, the capital stock, when so increased, shall not exceed $500,000.
... * *
Sec. 105(52). No corporation shall be formed under this title to continue more than thirty years.#e been organized under title 4. There have been no proceedings, so far as the record shows, to inquire into its corporate existence since the expiration of the thirty years, and this record discloses that a number of ordinances have been passed by the city of Minneapolis since July 1, 1903, requiring of the corporation the construction of additional lines of railway upon certain of the streets of the city of Minneapolis, and to otherwise discharge its duties as a continuing corporation. [215 U.S. 417, 424] Much of the elaborate briefs of counsel in this case is devoted to a discussion of the question of the organization of this corporation, and as to whether it was under the one title or the other. This is not a proceeding in quo warranto, and the jurisdiction of the Federal court rested upon the contention that the company has a contract right, protected from impairment by a legislative act of the state. It is only necessary to examine the question of the incorporation and organization of the company so far as is required to determine whether or not this alleged contract right exists, and whether it has been violated by the ordinance of the city of Minneapolis, attacked in the amended bill.
There can be no question that the attempted incorporation of this company was under title 1 of the statutes already referred to. It was incorporated by five persons. It states the business for which it was formed, 'to construct and operate [215 U.S. 417, 425] railways in the streets and highways of the city of Minneapolis and its suburbs in the county of Hennepin, state of Minnesota.' It states the time of the commencement of the corporation to be the 1st of July, 1873, and the period of continuance thereof to be fifty years thereafter. The shares of capital stock are twenty-five hundred at $100 each.
Under title 4 the corporate life is limited to not more than thirty years, and the shares of capital stock are to be not less than $10 or more than $50 each.
The corporation has continued to act since the expiration of the thirty years which would have been its corporate life had it of its affairs shall be vested, and when the same are elected.
This record therefore shows that the company undertook to organize under title 1, for the period of fifty years, has continued to act as such corporation, and was so acting at the time of the passage of the ordinance of February 9, 1907
We proceed to examine the question, Did the ordinance of July 9, 1875, together with the ratifying act of 1879, make a contract between the city of Minneapolis and the street railway company which would endure for the period of fifty years? Section 1 of the ordinance of July 9, 1875, provides:
Section 8 of the same ordinance provides:
Section 17 of the ordinance provides:
It also appears that the city filed its acceptance in writing of the ordinance on August 18, 1875. [215 U.S. 417, 427] In considering the terms of this ordinance and what it undertook to accomplish on its face, we are to bear in mind that public grants of this character are not to be extended by implication, and that all that is granted must be found in the plain terms of the act. This principle has been so frequently and recently announced in this court that it is unnecessary to cite the cases which have established it. Recognizing this principle, it must also be remembered that grants of the character of the one under consideration here, when embodying the terms of a contract, are protected by the Federal Constitution from impairment by subsequent state legislation, and notwithstanding the principle of strict construction, whatever is plainly granted cannot be taken from the parties entitled thereto by such legislative enactments. Statutes and ordinances of this character are not to be extended by construction, nor should they be deprived of their meaning, if it is plainly and clearly expressed.
Examining this ordinance in the light of these principles, there is no ambiguity in 8, which gives to the city the right to regulate the fares to be charged, provided the same are not reduced below 5 cents for each passenger over any one continuous line, to be designated by the city, of not more than 3 miles in length. By 1 of the same ordinance, the right and privilege of constructing and operating a railway line subject to the terms, conditions, and forfeitures named in the ordinance is granted to the street railway company 'during the term of its charter.'
What did this mean? The company had undertaken to organize, and filed its certificate of incorporation,-which is its charter under the laws of Minnesota,-and had therein stated its term of existence to be for fifty years from the 1st day of July, 1873. There was a positive requirement of the law that this period of duration should be stated in the certificate filed for the purpose of procuring incorporation, and it was there found, and was duly filed, recorded, and published as required by law. [215 U.S. 417, 428] It is unreasonable to suppose that the city and the company at that time entered into and inquiry or controversy as to whether the company could lawfully incorporate for more than thirty years. The charter referred to in the ordinance could not have been anything else than the certificate of incorporation required by law. Of this the city was bound to take notice; and when it granted the privileges 'during the term of the charter,' it could have meant nothing less than during the period named in the charter. As was declared by the supreme court of Minnesota in Duluth v. Duluth Gas & Water Co. 45 Minn. 210, 47 N. W. 781, a case involving the extent of rights conferred upon a water company by a city ordinance, 'The council must be held, when dealing with defendant, to know its character, its purposes and powers, as disclosed by its articles of incorporation.'
We come now to the terms of the ratifying act of March 4, 1879. This act is as follows: An Act to Confirm the Grant of the City of
Minneapolis to the Minneapolis Street
Be it enacted by the legislature of the state of Minnesota:
Sec. 1. That whereas the city of Minneapolis did, by an ordinance entitled, 'An Ordinance Authorizing and Regulating Street Railways in the City of Minneapolis,' passed by the city council of said city on the ninth ( 9th) day of July, one thousand eight hundred and seventy-five (1875), and approved by the mayor of said city on the seventeenth (17th) day of July, one thousand eight hundred and seventy-five (1875), and by an ordinance passed July third (3d), one thousand eight hundred and seventy-eight (1878 ), and amended July eighth (8th), one thousand eight hundred and seventy- eight (1878), and approved July tenth (10th), one thousand eight hundred and seventy-eight (1878), grant to the Minneapolis Street Railway Company the right to construct and maintain a street railway through the streets of [215 U.S. 417, 429] said city, with certain rights and privileges in said ordinance particularly set forth. Now the said right to construct and maintain said street railway through the streets of said city, with the rights and privileges as set forth and qualified in said ordinance, is hereby legalized and granted to said company.
Sec. 2. This act shall take effect and be in force from and after its passage.
The ordinances of July, 1878, referred to in the ratifying act, concerned certain streets in the city of Minneapolis, and are not important to be considered in this connection.
It has not been suggested in the elaborate briefs presented by the learned counsel for the city, that the state legislature at that time had not the constitutional right to pass this ratifying act.
In Green v. Knife Falls Boom Corp. 35 Minn. 155, 27 N. W. 924, the supreme court of Minnesota sustained a special law conferring new and independent franchises and enlarged powers upon the boom company, a corporation organized under title 4, and originally not having the power of eminent domain, nor to take tolls, nor to obstruct the navigable portions of the St. Louis river.
By the special act the corporation was given power over the navigation and use of the river as respects the passage of logs, the power to exercise the right of eminent domain was conferred upon it, the right to charge toll upon all logs passed through their works, and to receive and take entire charge and control of timber which might run or be driven through the same, and to boom, scale, and deliver such timber, as provided in the act, with a lien upon all such logs, which might be enforced by sale.
It was held that, by a long course of legislation and practical construction, such legislation was justified and ought not to be disturbed. The constitutional amendment of 1881, it was said, made such legislation impossible thereafter, because the legislature is therein prohibited from enacting any special [215 U.S. 417, 430] or private laws in the following cases: '. . . For granting corporate powers or privileges, except to cities.' In this case the court referred to Ames v. Lake Superior & M. R. Co. 21 Minn. 241, in which it seems to be held that, under the former constitution, prohibiting the formation of corporations, except for municipal purposes, under special acts, such special acts stopping short of creating new corporations might be passed by the legislature. See opinion upon rehearing, pages 284, 285.
Looking to the terms of the act of March 4, 1879, we find that the right to construct and maintain the street railway upon the streets of the city, with the rights and privileges as set forth and qualified in the ordinance, is 'legalized and granted to said company.' Language could scarcely be plainer, and, if we are correct in construing the ordinance as granting the right and privilege of maintaining railways in the streets of Minneapolis for the charter term of fifty years, upon the terms therein mentioned, a vital part of which concerns the right of the company to charge a certain fare for passengers carried, it follows that this privilege, with the others, was vested in the company by the legislature of the state of Minnesota.
We may note in this connection that the mere fact that a contract may extend beyond the term of the life of a corporation does not destroy it. This principle was recognized by this court in Detroit v. Detroit Citizens' Street R. Co. 184 U.S. 368 , 46 L. ed. 592, 22 Sup. Ct. Rep. 410, in which it was held that a city ordinance granting the use of the streets of the city for a term which would extend the grant for sixteen years beyond the life of the corporation did not invalidate it. It was held that the limitation upon the corporate life of the company did not prevent it from taking franchises, or other property, the title to which would not expire with the corporation itself; and further, that, at the end of its corporate life, if such property were still in existence, it would be an asset divisible among the shareholders after the payment of debts, or it might, if [215 U.S. 417, 431] assignable, be transferred to any other person or company competent to hold it.
The ratifying act, being within the power of the legislature, vested this contract right in the company, notwithstanding the want of power in the city to make it at the time it was entered into. Nash v. Lowry, 37 Minn. 261, 33 N. W. 787.
The principle is well stated by Morawetz in his work on Private Corporations, vol. 1, 319, 2d ed.:
See, as to the effect of validating acts, Los Angeles v. Los Angeles City Water Co. 177 U.S. 558 , 44 L. ed. 886, 20 Sup. Ct. Rep. 736; Blair v. Chicago, 201 U.S. 400, 454 , 50 S. L. ed. 801, 823, 26 Sup. Ct. Rep. 427.
But, it is contended, if a contract is found to exist, its rights were lost by virtue of the ordinance of September 19, 1890, authorizing the street railway company to change its mode of operation from the use of horse power to electricity. It is insisted that, by the acceptance of the electrical-power ordinance, the company abandoned any rights it had under the ordinance of 1875 and the ratifying act of 1879; and, furthermore, that, by the express terms of the ordinance of September 19, 1890, the right to control the future rates of fare was thereby vested in the city to an extent unlimited except by constitutional inhibitions against confiscatory legislation.
As to the termination of the rights of the company by reason of the substitution of electricity for horse power, is there such abandonment of the rights originally secured that they no longer exist? It is contended that the original ordinance [215 U.S. 417, 432] was limited to the right to operate street railways horse or penumatic power, and that when the ordinance of September 19, 1890, was passed conditions were entirely changed, by horse or pneumatic power, and that was substituted, and rights existing under the original ordinance were terminated and abandoned.
Let us see if the ordinance of 1875 was limited to the use of animal or pneumatic power. Section 4 of that ordinance provides:
There can be no doubt that, in the then state of the art, the use of electric power as the means of operating the cars of the company was not specifically in contemplation. While pneumatic power is also suggested, there does not seem to be any means of operation by that method. That the use of other motive power might be developed in the progress of street railway operation, we think, was clearly indicated in the ordinance itself. For while animal or pneumatic power is [215 U.S. 417, 433] named, it is provided that no propelling power shall be used after it shall be proved a public nuisance, and that the company might connect with other street railroads upon which power is used similar to that authorized to be used by street railways by the city council, but steam-power cars, such as are in common use, should not be used upon the city tracks, unless so authorized by the city council.
In these terms of the ordinance it is evident that the parties had in mind that other propelling power might be developed, and it was the purpose of the city council to keep control if its use, so as to prevent it from becoming a public nuisance in the streets. There was no positive limitation to animal power, and the possible progress and improvement in the means of propelling cars, contemplated by the parties, was carried into effect when the city passed, and the company accepted, the ordinance of September 19, 1890. By that ordinance the railway company was authorized to operate all its existing lines, and all its lines to be thereafter constructed in the city, by electricity as the motive power.
Section 8 of that ordinance provides:
It is the contention of the city that, by the terms of this ordinance, the street railway company became subject to regulation by the ordinances of the city then in force, or thereafter adopted, including the right to regulate and control the amount to be charged for fares for the transportation of passengers. [215 U.S. 417, 434] In construing this section we must bear in mind that the company then had, as we have heretofore said, a contract upon the subject of fares, which limited the city in its right to regulate the same to a reduction not below 5 cents per passenger upon any one continuous line. It needs no argument to demonstrate that the right to charge passenger fares is of the very essence of the contract, essential to the operation and success of the enterprise. Detroit v. Detroit Citizens' Street R. Co. 184 U.S. 368, 384 , 46 S. L. ed. 592, 606, 22 Sup. Ct. Rep. 410.
In 6 of the ordinance of September 19, 1890, it is provided:
This is the only section which mentions the subject of fares, and it is therein provided that transfer checks may be issued at certain points to persons paying 'one full fare,' the transfer check to be used only by the person receiving the same, for one continuous passage. [215 U.S. 417, 435] The rate of fare had been fixed in the ordinance of July 9, 1875, and, if it was intended to change it, it would seem clear that the parties would have entered into new negotiations concerning it, and would have adopted, if that was desirable, some definite measure concerning it. The ordinance of July 9, 1875, was not attempted to be repealed, and is referred to in 8 of the ordinance of September 19, 1890, 'as the same as has been amended, and as now in force,' and adopted, 'so far as applicable,' concerning the things mentioned in 8.
It is true that by the ordinance of July 9, 1875, there was no right to reduce the passenger fare below 5 cents over any one continuous line not more than 3 miles in length, to be designated by the city council. By the terms of the ordinance of September 19, 1890, transfers were to be allowed, so that, for one full fare, a passenger might receive a continuous trip very considerably exceeding 3 miles in length,-it is stated in one of the briefs to include a trip of 11 miles. But we do not understand that the acceptance of this regulation had the effect to abrogate the contract as to the right to charge a fare of 5 cents over one continuous line, that is, for one continuous passage. Acquiescence in a regulation which may not have been deemed injurious, and may have been deemed wise and expedient, does not preclude a contest against the enforcement of regulations which are injurious and violative of contract rights. Los Angeles v. Los Angeles City Water Co. 177 U.S. 558, 579 , 44 S. L. ed. 886, 895, 20 Sup. Ct. Rep. 736.
This right to future control under 8 was to include the 'construction, maintenance, and operation' of the lines of the street railway company. Did this undertaking have the effect to abrogate the contract right already existing, and to subject the company for the future, as to the right to charge fares, to the discretion of the city council? Or do the terms 'construction, maintenance, and operation' have reference to the manner of carrying on the business of the road, the laying of its tracks, the use of the streets, the keeping up of [215 U.S. 417, 436] the equipment, the safety of the passengers and the public, and similar matters not involving the right to charge fares? We think these terms refer to the latter class of rights and privileges. Such is the import of the words used, and the subject of rates of fare is not mentioned. The case already referred to, Detroit v. Detroit Citizens' Street R. Co. 184 U.S. 368 , 46 L. ed. 592, 22 Sup. Ct. Rep. 410, is an instructive one upon this point. In that case it was held that a street railway company having a valid contract giving it the right to charge 5 cents for the transportation of each passenger did not lose that right by accepting the terms of an ordinance reserving the right to make such further rules, orders, and regulations as to the city council may seem proper. 184 U.S. 399 .
We therefore reach the conclusion that when the ordinance complained of, that of February 9, 1907, was enacted by the city council, the company was the owner of a valuable contract right secured to it by the ordinance of July, 1875, ratified by the enactment of the legislature of the state of Minnesota on March 4, 1879, which secured to the company for fifty years from July 1, 1873, the contract right to charge 5 cents per passenger for one continuous trip. We think that the requirement of the ordinance, that the company should operate its roads by the sale of tickets six for a quarter, as required by the ordinance of February 9, 1907, was an enactment by legislative authority which impaired the obligation of the contract thus held and owned by the complainant company. We therefore reach the conclusion that the decree of the circuit court enjoining the execution of the ordinance, for the reasons stated, should be affirmed.
An examination of the decree, however, shows that it goes beyond the necessities of the case in specifically decreeing that the complainant company is a corporation organized under title 1 of chapter 34 of the Statutes of Minnesota for the year 1866, with charter rights as alleged in the amended bill. It also decrees that the contract under the ordinances of July 9, 1875, and July 18, 1878, as ratified by the act of [215 U.S. 417, 437] March 4, 1879, constituted a contract for and during the term of complainant's charter, as alleged in the amended bill. In the amended bill it is alleged that the charter rights of the company were extended to March 1, 1937; this is undoubtedly averred because of the amendment to the charter which appears in the record, extending the term of the company's corporate life until that time. The decree as it stands might be construed as establishing a contract to endure until March, 1937.
All that was necessary to adjudge was that the company, by virtue of the ordinance of July 9, 1875, as amended in July, 1878, as ratified and confirmed by the act of the legislature of the state of Minnesota of March 4, 1879, constituted a valid contract for the term of fifty years from July 1, 1873, which is still so far in force as to prevent the city council from reducing the rate of fare below the sum of 5 cents for each passenger for one continuous passage, and enjoining the city from publishing and enforcing the ordinance of February 9, 1907, because the same impaired the obligation of the subsisting contract aforesaid.
The decree of the Circuit Court should be modified so as to meet these requirements, and, so modified, affirmed.