maintenance and operation" of the lines of the company does not authorize the municipality to change the rates of fare fixed in the franchise.47

§ 4492. Charter itself as contract precluding subsequent regulation of rates. The charter itself may constitute a contract within the rule forbidding impairment of contracts, so that where the charter itself fixes the rate, or vests in the corporation the right to fix such rates as it chooses, the state cannot thereafter regulate the rates, unless power has been reserved to amend or repeal the charter.48 The power of a state legislature or of a commission or of a municipality to regulate rates may be precluded, as to a particular company, by provisions in its charter.49 But to effect this result the exemption must appear by such clear and unmistakable language that it cannot reasonably be construed consistently with the reservation. of the power by the state.50 Where it is claimed that the charter of the company itself fixes the charges, or authorizes the company to fix its charges, so that any change by the state constitutes an impairment of contract, the governing rule is the same as in case where the alleged contract as to charges is made by a municipality, and was clearly stated in 1885 by the Supreme Court of the United States as follows: "This power of legislation is a power of government, continuing in its nature, and if it can be bargained away at all it can only be by words of positive grant, or something which is in law. equivalent. If there is reasonable doubt, it must be resolved in favor of the existence of the power. In the words of Chief Justice Marshall in Providence Bank v. Billings, 4 Pet. 514, 561 'its abandonment ought not to be presumed in a case in which the deliberate purpose of the State to abandon it does not appear. For instance, a general power given to a corporation by its charter to fix or establish rates does not preclude the legislature from regulating the rates.52 So where the charter of a railroad company provided

47 Minneapolis v. Minneapolis St. R. Co., 215 U. S. 417, 54 L. Ed. 259, aff'g 155 Fed. 989.

48 See, generally, supra, Chap. 57. 49 Dow v. Beidelman, 125 U. S. 680, 31 L. Ed. 841; Ruggles v. Illinois, 108 U. S. 526, 27 L. Ed. 812; Middlesex Turnpike Co. v. Freeman, 14 Conn. 85; Stone v. Yazoo & M. V. R. Co., 62 Miss. 607, 52 Am. Rep. 193; Iron R. Co. v. Lawrence Furnace Co., 29 Ohio St. 208.

51

50 Georgia Railroad & Banking Co. v. Smith, 128 U. S. 174, 32 L. Ed. 377; Winchester & L. Turnpike Road Co. v. Croxton, 98 Ky. 739, 33 L. R. A. 177, 34 S. W. 518; Com. v. Covington & C. Bridge Co., 14 Ky. L. Rep. 836, 21 S. W. 1042.

51 Stone v. Farmers Loan & Trust Co., 116 U. S. 307, 325, 29 L. Ed. 636.

52 Southern Pac. Co. v. Campbell, 230 U. S. 537, 551, 57 L. Ed. 1610, aff'g 189 Fed. 182; Minneapolis East

that "the charge of transportation shall not exceed" a certain sum for freight nor "five cents per mile for every passenger, "the Supreme Court of the United States held that there was no binding contract precluding a subsequent reduction of such rates by the state.53 A fortiori, charter power conferred upon a bridge company to "take reasonable tolls" does not include authority to fix tolls not. subject to reduction by the state.54 Furthermore, if the constitution of the state reserves the right to repeal or amend charters, the rates fixed by the charter or pursuant to authority granted by the charter, may be changed by the state or by a municipality in a proper case.55 Moreover, since the federal prohibition against impairment of contracts refers to the states and not the United States, there is no impairment of charter rates by an act of Congress regulating street railroads in the District of Columbia.56

§ 4493. Franchise as constituting an actual contract as to rates. Except in Indiana where it is held that where a city grants a franchise which makes no provision as to rates, a subsequent regulation of rates by the city is forbidden upon the theory that the contract created by the franchise would thereby be impaired,57 it is universally held that a contract relating to rates will not be construed as fixing the rates, so as to be not subject to change without impairing the obligation of a contract, unless the language is clear and unmistakable, and where the meaning of a grant or contract in regard thereto is ambiguous or doubtful, it will be construed favorably to the rights of the public to change the rates.58 As said in regard

ern R. Co. v. Minnesota, 134 U. S. 467, 33 L. Ed. 985; Illinois Cent. R. Co. v. People, 95 Ill. 313, aff'd 108 U. S. 541, 27 L. Ed. 818; Ruggles v. People, 91 Ill. 256, aff'd 108 U. S. 526, 27 L. Ed. 812; State v. Southern Pac. R. Co., 23 Ore. 424, 31 Pac. 960. See also Chicago, B. & Q. R. Co. v. Jones, 149 Ill. 361, 391-394, 24 L. R. A. 141, 41 Am. St. Rep. 278, 37 N. E. 247, writ of error dismissed 166 U. S. (mem. dec.), 41 L. Ed. 1184. Contra, see State v. Laclede Gaslight Co., 102 Mo. 472, 22 Am. St. Rep. 789, 15 S. W. 383, 14 S. W. 974.

53 Georgia Railroad & Banking Co. v. Smith, 128 U. S. 174, 32 L. Ed. 377. 54 Tallassee Falls Mfg. Co. v. Com

missioner's Court of Tallapoosa County, 158 Ala. 263, 48 So. 354.

55 Supra, chapter on Amendment and Repeal of Charter.

56 District of Columbia v. Capital Traction Co., 41 App. Cas. (D. C.) 115. 57 Rushville V. Rushville Natural Gas Co., 164 Ind. 162, 166, 3 Ann. Cas. 86, 73 N. E. 87; Lewisville Natural Gas Co. v. State, 135 Ind. 49, 21 L. R. A. 734, 34 N. E. 702, overruling Rushville v. Rushville Natural Gas Co., 132 Ind. 575, 15 L. R. A. 321, 28 N. E. 853. To same effect, see Agua Pura Co. of Las Vegas v. Mayor, etc., of City of Las Vegas, 10 N. M. 6, 50 L. R. A. 224, 60 Pac. 208.

58 Cedar Rapids Gaslight Co. V.

to a claimed exemption from rate regulation in a charter, and this rule is applicable here, "the exemption must appear by such clear and unmistakable language that it cannot be reasonably construed consistently with the reservation of the power by the State."' 59 Whether an ordinance actually does fix an absolute rate not subject to change is a difficult question to answer.60 "The intention of the parties," said Justice Grubb in a recent federal decision, "is to be arrived at not alone from the language of the particular clause fixing the rates, but from the entire contract, from the place the rate clause occupied in the contract with relation to the imposition of obligations on the respective parties, from the situation of the parties to the contract, and the circumstances surrounding them at the time it was executed.'' 61 On the one hand, a provision that the company shall not charge or receive a higher rate than a specified one has been construed as not a mere limitation upon the right of the company to charge, but a grant of the right to charge that sum

Cedar Rapids, 223 U. S. 655, 667, 56 L. Ed. 594; Portland Railway, Light & Power Co. v. Portland, 201 Fed. 119, 125; Omaha Water Co. v. Omaha, 147 Fed. 1, 6, 12 L. R. A. (N. S.) 736, & Ann. Cas. 614. See also, on this question, note in L. R. A. 1915 C 261, 268.

In Stanislaus County v. San Joaquin & King's River Canal & Irrigation Co., 192 U. S. 201, 207, 48 L. Ed. 406, the legislature had granted to counties the power to regulate water rates subject to a limitation in a general law under which a canal and irrigation company was incorporated that these counties might not reduce the rates below such prices as would produce 12 per cent per month on the capital actually invested. Under this state of the law the canal company was incorporated and constructed irrigation works. Thereafter the legisla ture granted to the counties the power to reduce the rates below the limit previously specified, and the court held that the limited grant of power to the counties constituted no agreement with the canal company that the state

would not give to the counties more power, and that the latter might lawfully reduce the rates under the later power granted. In this case Justice Peckham said: "The authority given by the act of 1862 enabled the board of supervisors to conditionally regulate the rates. There is no promise made in the act that the legislature would not itself subsequently alter that authority. The State simply authorized its agents, the boards of supervisors, to regulate rates, but not to reduce them below a certain point. We do not think that from this language a contract can or ought to be implied that the State might not thereafter authorize the boards to reduce them, or that it might not itself do so directly."

59 Georgia Railroad & Banking Co. v. Smith, 128 U. S. 174, 182, 32 L. Ed. 377.

60 See Birmingham Waterworks Co. v. Birmingham, 211 Fed. 497, 504-511, reviewing decisions on this question at length.

61 Birmingham Waterworks Co. v. Birmingham, 211 Fed. 497, 505.

without reduction by the state or municipality.62 But there is authority apparently supporting a contrary conclusion, although the facts of the particular case often are of major importance.63 In a case appealed from the Illinois Supreme Court to the Supreme Court of the United States, it was held that a municipality is not bound by the contract rates for the entire period of the franchise because of a provision in the franchise that the grantee "shall charge the following annual rate to consumers of water during the existence of this franchise," since merely a regulation of the right to charge rates, and there is no stipulation that it will be the only instance of regulation.64 So, in the Knoxville Water Company case, decided in 1903, by the Federal Supreme Court, the franchise contract provided that the company agreed to supply private consumers with water "at a rate not to exceed five cents per one hundred gallons." The city thereafter reduced such rate and the company claimed impairment of contract. The court said: "The trouble at the bottom of the company's case is that the supposed promise of the city on which it is founded does not exist. If such a promise had been intended it was far too important to be left to implication. In form the words of this part of the instrument are the words of

62 United States. Cleveland V. Cleveland City R. Co., 194 U. S. 517, 48 L. Ed. 1102, aff'g 94 Fed. 385; Detroit v. Detroit Citizens' St. Ry. Co., 184 U. S. 368, 46 L. Ed. 592.

Kansas. In re Pryor, 55 Kan. 724, 29 L. R. A. 398, 49 Am. St. Rep. 280, 41 Pac. 958.

Michigan. Boerth v. Detroit City Gas Co., 152 Mich. 654, 18 L. R. A. (N. S.) 1197, 116 N. W. 628.

Mississippi Gulf & S. I. R. Co. v. Adams, 90 Miss. 559, 45 So. 91; Stone v. Yazoo & M. Val. R. Co., 62 Miss. 607, 52 Am. Rep. 193.

Missouri. State v. Laclede Gaslight Co., 102 Mo. 472, 22 Am. St. Rep. 789, 15 S. W. 383, 14 S. W. 974.

New Jersey. Atlantic Coast Elec. R. Co. v. Board of Public Utility Com'rs, 89 N. J. L. 407, 99 Atl. 395.

63 Home Telephone & Telegraph Co. v. Los Angeles, 155 Fed. 554; Dow v. Reidelman, 49 Ark. 325, 5 S. W. 297; Georgia R. Co. v. Smith, 70 Ga. 694,

aff'd 128 U. S. 174, 32 L. Ed. 377; Winchester & L. Turnpike Road Co. v. Croxton, 98 Ky. 739, 33 L. R. A. 177, 34 S. W. 518; Com. v. Covington & C. Bridge Co., 14 Ky. L. Rep. 836, 21 S. W. 1042, overruling Hamilton v. Keith, 5 Bush (Ky.) 458. See also People's Gas Light & Coke Co. v. Chicago, 194 U. S. 1, 48 L. Ed. 851.

64 Rogers Park Water Co. v. Fergus, 180 U. S. 624, 45 L. Ed. 702, in which case Mr. Justice White filed a dissenting opinion based on his dissenting opinion in Freeport Water Co. v. Freeport City, 180 U. S. 587, 45 L. Ed. 679, which was concurred in by Justices Brewer, Brown and Peckham. In Illinois, the state court held that an ordinance granting the right to use streets and fixing the rates for a period of years is not a contract that the rates shall not be changed. Rogers Park Water Co. v. Fergus, 178 Ill. 571, 53 N. E. 363, aff'd 180 U. S. 624, 45 L. Ed. 702.

65

the company alone. They occur in the part of the contract which sets forth the company's undertakings, not in the part devoted to the promises of the city or in that which contains the still later mutual agreements. We do not mean that under other circumstances words which on their face only express a limit might not embody a contract more extensive than their literal meaning.' This case was followed by the Federal Supreme Court in 1911.66 It is to be kept in mind, however, that the construction of a franchise contract as to whether it really contracts for a permanent minimum rate is influenced to some extent by the determination of the existence of an express statute authorizing the municipality to contract as to rates, and that the existence of a contract will be more readily assumed where there is such express authority.67 And it has been said that "it may very well be that language used by a legislature in merely conferring authority upon a company to fix certain charges for fare might not be regarded as amounting to a contract, when the same language used by parties in fixing rates under a legislative authority and direction to agree upon them, would be regarded as forming a contract because the statute provided specifically for that mode of determining them." 68

An ordinance authorizing the construction of waterworks for a specified number of years and the charging of certain rates for that time "or other rates that may be established by the grantee and approved by such council" does not preclude the municipality from establishing different rates thereafter if the rates fixed are found to be unreasonable.69 But where an agreement in a lease by a municipality of its waterworks provided that the municipality reserves

65 Knoxville Water Co. v. Knoxville, 189 U. S. 434, 436, 47 L. Ed. 887. 66 An ordinance granting a renewal of a franchise which provides therein that "in consideration of the privileges herein granted to said company it shall furnish to the inhabitants of said city gas for lighting at a price not to exceed" a certain sum and "twenty cents per thousand cubic feet discount if consumers pay on or before the tenth of each month after consumption," does not constitute a contract on the part of the city that the price should be kept high enough to allow a discount for prompt payment, and hence a reduction of the

rate cannot be claimed to violate the contract clause of the Federal Constitution. Cedar Rapids Gaslight Co. v. Cedar Rapids, 223 U. S. 655, 667, 56 L. Ed. 594, aff'g 144 Iowa 426, 48 L. R. A. (N. S.) 1025, 138 Am. St. Rep. 299, 120 N. W. 966.

67 See Detroit v. Detroit Citizens' St. R. Co., 184 U. S. 368, 388, 46 L. Ed. 592, and also the review thereof in Knoxville Water Co. v. Knoxville, 189 U. S. 434, 437, 47 L. Ed. 887.

68 Detroit v. Detroit Citizens' St. R. Co., 184 U. S. 368, 388, 46 L. Ed. 592.

69 Creston Waterworks Co. v. Creston, 101 Iowa 687, 70 N. W. 739.