Sec. 71. Same.

THE CITY AND COUNTY OF SAN FRANCISCO v. THE SPRING VALLEY WATER-WORKS.1

1874. IN THE SUPREME COURT OF CALIFORNIA. 48 Cal. Rep. 493-535.

[Appeal from the district court. The general law providing for the incorporation of water-works companies took effect April 22, 1858. The next day the legislature enacted the "Ensign Act," permitting one Ensign and his associates, upon becoming incorporated under the general corporation laws, to supply water to San Francisco, use the city streets therefor, charge certain rates, have certain privileges, and be subject to certain burdens, not included in the general law relating to the incorporation of water companies.]

By the court, CROCKETT, J. On the former appeal, and at the first hearing of the present appeal, it was assumed, by both court and counsel, that the rights and obligations of the defendant were to be ascertained by reference to the act of April 23, 1858, authorizing Ensign and his associates to lay down water-pipes in the streets of San Francisco. But on the rehearing the point is made for the first time by the defendant that the Ensign act is unconstitutional and void, and consequently can confer no rights on the plaintiff nor impose any duties on the defendant. The eighth section of the act is in these words: "This act shall not take effect unless the parties named in section I shall, within sixty days after its passage, duly organize themselves in conformity with the existing laws regulating corporations now in force in this state."

It is contended that this is an attempt to confer corporate rights by a special act upon Ensign and his associates, in violation of section 31, article 4, of the constitution, which provides that "corporations may be formed under general laws, but shall not be created by special act except for municipal purposes. All general laws and special acts passed pursuant to this section may be altered from time to time or repealed." The act in question does not purport to organize Ensign and his associates as a corporation. On the contrary, it requires them to "organize themselves in conformity with the existing laws regulat ing corporations," as a condition on which they shall become entitled to the benefits and privileges enumerated in the act. It is clear, therefore, that the corporation, when formed, did not derive its corporate existence from the Ensign act; nor could it have done so under the constitution. But it is claimed that under this provision of the constitution, corporations must not only be formed under general laws, but that their rights, duties and obligations must be prescribed in the same method, and can not be created by special acts. On the other

1 Statement of facts abridged. Arguments omitted. Opinions of McKinstry (concurring) and Rhodes, J., dissenting, omitted.

hand, it is insisted that the constitution is wholly silent as to the powers and duties of corporations, and goes no further than to require that they shall be "formed" under general laws, and prohibits them from being "created by special act;" but left the legislature free to confer upon them, by either general laws or special acts, such powers as it shall see fit. If this theory be correct, the constitutional provision has imposed upon the legislature only the duty of providing by general laws the formulas by which corporations may be formed-the mere routine by which an artificial entity may be created-but has in no degree limited the power of the legislature to confer upon it by special grant, at its discretion, any powers or privileges of whatsoever nature. On this construction, it would be competent for the legislature to provide, by a general law, that any number of persons might become a body corporate, on filing a certificate stating their intention to that effect, and the name of the corporation; and the legislature might then, by special grant, confer on the corporation any powers, however great, and any privileges, however diversified. It might authorize it to construct railroads, to transact the business of banking or insurance, deal in lands and establish steamship lines. There would be no limit to its power in this respect. Nor, when once granted by special act, could these privileges be recalled or modified by the legislature. The grant, and its acceptance by the corporation, would have created a contract, the obligation of which could not be impaired by any subsequent legislation.

Long prior to the adoption of our constitution, experience had demonstrated the enormous evils resulting from legislation of this character. By means of hasty or corrupt legislation, great monopolies had been created, which were beyond legislative control.

Capital was aggregated in the hands of large corporations with peculiar and oppressive privileges, frequently procured through venal legislation. There was no uniformity in the powers exercised by corporations pursuing the same business. So long as they derived their powers, privileges and immunities from special legislative grants, these, of course, varied according to the temper of the legislature, and the result was that each succeeding corporation had greater or less powers than its predecessors. With no limitation upon the discretion of the legislature in respect to the particular powers and privileges to be granted to each, nor as to the innumerable purposes for which corporations might be formed, nor as to the term of their duration, gross abuse necessarily resulted from such a system. Extraordinary privileges, oppressive powers, and onerous monopolies were conferred upon some and denied to others engaged in the same business. Their powers were frequently enlarged, and the terms of their duration extended by special grant. Under this system there was danger that large aggregations of capital would so practice upon the credulity or venality of legislative bodies as to secure the most oppressive monopolies, and seriously interfere with the enterprise and industry of the individual citizen. One of the latest and most startling illustrations of this danger is to be found in an act of the legislature of

Louisiana, passed in the year 1869, by which a corporation was created by special grant, with the exclusive right to establish and maintain slaughter-houses and landings for cattle for a period of twentyfive years in the city of New Orleans and several of the contiguous parishes. The constitution of Louisiana contains no limitation on the power of the legislature to confer corporate rights by special act, and the validity of this statute has been upheld by the supreme court of the state and of the United States.

But this unrestricted power to endow corporations with peculiar and exclusive privileges would be less dangerous if a succeeding legislature could correct the abuses practiced by its predecessor, and abolish or restrict the privileges once granted.

It was the special purpose of the framers of our constitution to guard against these abuses by providing that "corporations may be formed under general laws, but shall not be created by special act, except for municipal purposes. Nor were they content to leave it doubtful whether the legislature would have power to modify or abrogate these general laws or special acts to create municipal corporations so as to affect the rights of existing corporations. Hence, the constitution contains the further provision that all general laws and special acts "passed pursuant to this section may be altered from time to time, or repealed."

Under these provisions the source from which private corporations must derive their powers and immunities is perfectly apparent. They can only "be formed under general laws,' and can exercise no powers, except such as are derived from general laws. If this provis

ion means nothing more than that the legislature shall prescribe the mere formula by which a corporate entity may be called into life, and may then proceed to confer upon it by special act, at its discretion, extraordinary powers and privileges which it could not afterwards revoke or modify, because they were granted under special and not general laws, then, indeed, has the constitution signally failed to provide a remedy for the abuses already adverted to. On this construction, when a railroad corporation is once formed under a general law, the legislature, by special grant, may confer upon it extraordinary powers, greatly in excess of those exercised by other similar corporations. It may authorize it to engage in banking, mining or any other business enterprise, or to charge higher rates of fare then are permitted to other competing roads. In like manner it might discriminate in favor of a particular banking corporation, or confer special, or perhaps, exclusive privileges on a particular mining, insurance or manufacturing corporation. But, on the other, and the true construction of this constitutional provision, all private corporations must derive their powers from general laws, and not from special statutes. The general laws under which they were formed, and such others as shall afterward be enacted, must alone define their rights and powers. On . this theory, all private corporations, formed for similar purposes, will stand upon the same footing, enjoy the same rights, and be subject to

the same burdens, which can not be increased or diminished except by general laws, applicable to all.

Nothing short of some imperative rule of constitutional construction would justify us in holding at this late day, that, though corporations must be "formed" under general laws, it is, nevertheless, competent for the legislature, by special grant, to confer upon a corporation once organized, any powers, however extraordinary. We think, on the contrary, that no corporate rights or powers can be conferred by special grant, but must all be derived under general laws.

This brings us to the consideration of the Ensign act, so-called. The first seven sections confer upon Ensign and his associates certain privileges, and impose upon them certain duties in respect to furnishing the city and county of San Francisco with water for the extinguishment of fires and other municipal uses. Section 8, already quoted, provides that "this act shall not take effect unless the parties named in section shall, within sixty days after its passage, duly organize themselves in conformity with the existing laws regulating corporations now in force in this state." The grant, therefore, was not to take effect until Ensign and his associates had become a corporation under existing laws. It took effect as a grant, not to Ensign and his associates as private individuals, but to the corporation when formed. It was an attempt by the legislature to confer, by special grant, upon a private corporation about to be formed, certain peculiar privileges, and to subject it to certain duties not common to other corporations formed under the same general law. For the reasons already stated, this was not within the constitutional power of the legislature. Judgment and order affirmed.

The foregoing opinion was delivered at the April term, 1874, and a rehearing having been applied for, the following opinion, denying the same, was delivered at the July term, 1874.

In the former opinion on this appeal, we held that the act of April 23, 1858, known as the "Ensign Act," is in violation of art. iv, § 31 of the constitution, which provides that "corporations may be formed under general laws, but shall not be created by special act, except for municipal purposes." A rehearing is asked, partly on the ground that this clause of the constitution has received a different construction in the case of the California State Telegraph Company v. Alta Telegraph Company (22 Cal. 398), and that this decision has become a rule of property in this state, and ought not now to be disturbed, even though it was erroneous. After a careful examination of that case, I am satisfied that it can not be sustained, either on reason or authority. Mr. Justice Crocker, in delivering the opinion of the court, refers to several adjudged cases as supporting the conclusions at which he arrived, but an examination of these cases shows that they were misapprehended by the court, and do not support the decision. *

[After discussing the cases of Aurora v. West, 9 Ind. 85; Gifford v. New Jersey R. & T. Co., 2 Stockton Ch. R. 171; C., P. & A. R.

v. Erie, 27 Pa. St. 380, relied upon by Justice Crocker in the former decision, and holding they did not involve the question here proceeds:]

The only remaining case referred to was the Syracuse City Bank v. Davis (16 Barb. 188). The constitution of New York provides that "the legislature shall have no power to pass any act granting any special charters for banking purposes; but corporations or associations may be formed for such purposes under general laws." The Syracuse City Bank was organized under the general law; but in some trifling particulars, the forms prescribed by the general law were not complied with, and the legislature passed a curative act, to the effect that the bank should be deemed a valid corporation, and to have been duly incorporated notwithstanding these informalities. The court held the curative act to be valid, on the ground that it did not create a corporation, but only remedied defects in the organization of one already created. That proposition has no analogy to the question involved here, which relates to the power of the legislature to confer upon an existing corporation, by special act, other powers than those derived from the general law. These are the only cases referred to by Mr. Justice Crocker, and none of them support his ruling.

On the other hand, authorities are not wanting in support of the opposite construction of the clause of the constitution. In Low v. The City of Marysville (5 Cal. 214) the question was whether it was competent for the legislature, by special act, to authorize the city. (a municipal corporation) to subscribe for stock in a steamboat company organized to establish a line of steamers plying between that city and San Francisco. In delivering the opinion of the court, Chief Justice Murray holds that "the powers of municipal corporations must be confined strictly to police or governmental purposes," and that the power conferred upon the corporation to subscribe for stock in a railroad could not be granted by special act; "for as it would have been in violation of the constitution to create an incorporation by special act, for other than municipal purposes, it follows that it would be equally unconstitutional to confer special power on a corporation already created. In other words, it would be doing by two acts that which the legislature could not do by one, and corporations for almost every purpose might be created by special act, by first incorporating the stockholders as a municipal body." This reasoning, I think, is unanswerable, and the decision is a direct adjudication upon the question involved here.

The constitution of Ohio contains these clauses:

"Section 1. The general assembly shall pass no special act conferring corporate powers.

"Section 2. Corporations may be formed under general laws; but all such laws may, from time to time, be altered or repealed."

In Atkinson v. The M. & C. R. Co., 15 Ohio St. Rep. 35, the court, in construing these clauses, says: "Constitutional provisions would be of little value if they could be evaded by a mere change of forms. These provisions of the constitution are too explicit to admit of the least doubt that they are intended to disable the general assem