Freeport Water Company v. Freeport
This is an action of assumpsit brought by the plaintiff in error against the defendant in error in the circuit court of Stephenson county, state of Illinois, for the price of water delivered by plaintiff in error to defendant in error between January 1, 1896, and July 1, 1896.

The cause of action was based upon a contract arising from an ordinance passed by defendant empowering the plaintiff to construct certain waterworks in the city of Freeport, and the renting from the plaintiff by the city of certain fire hydrants.

To the defenses of a subsequent ordinance reducing the rental of such hydrants, it was replied that the latter ordinance impaired the obligation of the first ordinance as a contract, and therefore violated the Constitution of the United States.

The case was presented upon a demurrer to the pleas of the defendant. The demurrer was overruled by the circuit court, and the plaintiff electing to stand by its demurrer, judgment was entered for the defendant for costs. On appeal to the supreme court the judgment was affirmed (186 Ill. 179, 57 N. E. 862), and to that action this writ of error is directed.

The facts presented by the pleadings are as follows:

The plaintiff is a corporation organized and existing under the general laws of the state, and the defendant is a municipal corporation organized under the general act of the state entitled 'An Act to Provide for the Incorporation of Cities and Villages,' approved April 10, 1872, and in force July 1, 1872, and the acts amendatory thereof.

That on the 6th of June, 1882, defendant enacted an ordinance giving and granting to Nathan Shelton or his assigns the exclusive right and privilege, for the term of thirty years from the 1st of July, 1882, to supply the city of Freeport and its citizens with water suitable for domestic and manufacturing purposes. The city reserved the right of purchasing the works at the end of thirty years. If such right should not be exercised, the rights and privileges of the plaintiff were to be extended for a further period of twenty-five years. There were the usual provisions for the use of the streets, the character of the works and appliances, the quality of the water, and provision was made for the extension of the system as the growth of the city and its needs might require.

Section 7 of the ordinance was as follows:

'The said Nathan Shelton or his assigns shall erect double-nozzle fire hydrants upon all mains ordered laid by said city council in said city at the rate of not less than ten to each mile of said mains, and shall erect said fire hydrants whenever and wherever said city council shall direct. And said city shall pay to said Nathan Shelton or his assigns as an annual rental for the first 100 of said hydrants the sum of $100 each, for all said hydrants over 100 and up to 150 an annual rental of $80 each, and for all of said hydrants over 150 an annual rental of $50 each, which said rentals shall be payable semiannually on the 15th days of January and July in each year; and the pay of each hydrant shall commence when each hydrant is actually ready for use and the city officially notified thereof, and shall continue during the full term specified in this ordinance, unless said city shall sooner become the owner of said waterworks as hereinbefore provided, in which event said rental shall cease. The pay of any hydrant shall cease whenever any hydrant is out of repair, or unfit for use, or incapable of throwing a stream as provided for in this ordinance.'

The city was given the right to use water free of charge from the hydrants on streets curbed and guttered, for flushing and washing the gutters, and from any hydrant, upon giving notice, for flushing any and all sewers; also water free of charge for the use of the fire department and for the city hall, public offices, public schools, churches, and for four public drinking fountains if the city should erect the same.

Maximum rates to consumers were fixed for purposes which were especially enumerated, and it was provided that 'rents for other purposes not herein named will be fixed by meter measurement, as may be agreed upon between the consumer and the water company, not exceeding the following rates.' The rates were specified.

Section 13 was as follows:

'This ordinance shall become binding as a contract between the city of Freeport, Illinois, and Nathan Shelton or his assigns, upon the filing with the city clerk of a written acceptance thereof by Nathan Shelton or his assigns, provided the same shall be done within thirty days from the passage and publication of this ordinance; and this ordinance when so accepted shall not be altered, amended, or changed in any way without the concurrence and consent of both parties thereto and interested therein, or their successors or assigns.'

On June 27, 1882, Shelton filed a written acceptance of the terms and conditions of the ordinance. On August 8, 1882, he assigned all his rights to plaintiff, of which defendant had notice. Plaintiff has complied with all things required of Shelton or of it, has constructed 121 hydrants as required by § 7 and as ordered by defendant, which were in operation on January 1, 1896, and defendant paid all rentals which became due January 1, 1896; and that there was due for rentals subsequent to that date, and up to the 15th of July, 1896, the sum of $5,840.

The pleas of the defendant in substance alleged that it was a municipal corporation organized under the general laws of the state for the incorporation of cities and villages, and that, in pursuance of the statutes of the state relating to waterworks, it passed the ordinance of June 6, 1882.

It was alleged in plea No. 1 that the water rates fixed by such ordinance 'were then unjust, unreasonable, and oppressive to the citizens and taxpayers of said city, and so remained and continued to be unjust, unreasonable, and oppressive from said enactment thereof up and until the subsequent action of the council of said city had in relation thereto. . . . ' This charge was substantially repeated in the other pleas, and it was alleged that the new rates were just and reasonable. The ordinance of February 11, 1896, was set out in full. The following is all that is necessary to be quoted:

'Sec. 1. That the Freeport Water Company, a corporation, now furnishing to the city of Freeport and its inhabitants water for fire protection, domestic uses, and manufacturing purposes, and other uses and purposes, shall be entitled to charge and receive therefor, and for the use of water meters, the rates and prices hereinafter fixed and no more.

'Fire Protection and Public Uses.

'Sec. 2. Said corporation shall be entitled to charge and receive from the city of Freeport for all water furnished for fire protection and other public uses and purposes as hereinafter defined and enumerated an annual rental or rate of fifty dollars ($50) for each double-nozzle fire hydrant now in use in the said city of Freeport, or any that may be ordered hereafter by the city council of the city of Freeport, such rental to be payable in seminnual instalments on the fifteenth (15th) day of January and July, provided that it shall be shown by a certificate signed by the committee on water, city engineer, and chief of fire department that test of the works of said corporation has been made within six (6) months, and that such works have been in such condition as to furnish at all times and for any length of time a fire pressure sufficient to throw six (6) fire streams from six (6) hydrants chosen by the committee on water, each through fifty (50) feet of 2 1/2 inch hose and 1-inch nozzle from each hydrant so chosen to a height of one hundred (100) feet, or maintain its equivalent in pressure at the nozzles of the hydrants. Where the works of said corporation are not shown to be maintained in condition to furnish such fire pressure the rental shall be one half the amount hereinbefore fixed. The above rate and rental shall be in full payment for all water furnished as follows: For fire protection, including the furnishing and setting of fire hydrants for all water used by the fire department in extinguishing fires and in practice, for all water used by the committee on water for cleaning, washing, flushing gutters and sewers, in said city, and for all water used for the city hall, fire and police stations, and other city offices, for drinking fountain in park when desired, and for all public schools and churches in the city.'

The ordinance further established in detail maximum rates for water to be furnished for domestic and manufacturing uses and other uses when furnished without meter; also rates when furnished or measured by meter. There was a penalty provided for charging greater rates than those established.

The ordinance was to take effect from the date of its passage, and the right of further regulation was reserved.

The rates established by the ordinance of February 11, 1896, were considerably less than those established by the ordinance of June, 1882.

The assignment of error presented the contentions in various ways that the ordinance of February 11, 1896, and the statutes in pursuance of which it was claimed to have been passed, violated the Constitution of the United States in that the ordinance and statutes impaired the obligation of the contract made by the ordinances of June, 1882, with plaintiff, and deprived it of its property without due process of law.

The statutes of the states which are urged as applicable to the contentions of the parties are cited in the margin.

Messrs. George C. Fry and James W. Hyde for plaintiff in error.

Mr. A. J. Hopkins for defendant in error.

Mr. Justice McKenna, after stating the case as above, delivered the opinion of the court: The supreme court of the state based its decision on its opinions in the case of Danville v. Danville Water Co. 178 Ill. 299, 53 N. E. 118, and 180 Ill. 235, 54 N. E. 224. In that case the same statutes were involved as in the case at bar, and the contract which was claimed was based upon a substantially similar ordinance to that involved in the pending controversy.

It is not clear from the opinion of the court whether it intended to decide that municipal corporations could not be invested with the power to bind themselves by an irrevocable contract not to regulate water rates. If so, we cannot concur in that view. We have decided to the contrary many times, and very lately in Los Angeles v. Los Angeles City Water Co. (1900) 177 U.S. 558, 44 L. ed. 886, 20 Sup. Ct. Rep. 736. See also Walla Walla v. Walla Walla Water Co. 172 U.S. 7, 43 L. ed. 344, 19 Sup. Ct. Rep. 77, where the subject is more extensively discussed and the cases reviewed. See also New Orleans Waterworks Co. v. Rivers, 115 U.S. 674, 29 L. ed. 525, 6 Sup. Ct. Rep. 273.

We do not mean to say that if it was the declared policy of the state that the power of alienation of a governmental function did not exist, a subsequently asserted contract would not be controlled by such policy. In Stevenson v. Scholl Directors, 87 Ill. 255, and in Davis v. School Directors, 92 Ill. 293, it was held that a school board could not make a contract for the employment of teachers to extend beyond the current year, and this was put upon the ground of the inability of one board to control the exercise of the functions of its successor. In East St. Louis v. East St. Louis Gaslight & Coke Co. 98 Ill. 415, 38 Am. Rep. 97, decided in May, 1881, the doctrine of those cases was not adopted as applicable to, a contract for gas rates, nor was it rejected. One justice asserted it with great emphasis, quoting those cases. The court, however, left it disputable, placing the decision on other grounds. There was at least admonition in those cases to persons entering into contracts with municipalities. If there was anything more, we need not decide, as there are other grounds for judgment.

The supreme court did decide in the Freeport Case (1) that, the water company having been incorporated under the general incorporation act of the state, approved April 18, 1872, the provisions of the act entered into and formed a part of its charter, and that by § 9 of the act (inserted in the margin )the right of the legislature to regulate and provide for the rates at which the company should supply water to the city was reserved; and (2) that the language of the act of April 9, 1872, and in force July 1, 1872 (inserted in the margin), did 'not necessarily imply the power to make and fix rates.' The court further said in 178 Ill. at page 309, 53 N. E. p. 122: 'The authority 'to contract for a supply of water for public use for a period not exceeding thirty years' does not necessarily imply that the price of the supply should be fixed for the entire period. The supply could be made for the entire term, but the price is to be determined from time to time, and the rates to be settled by the rules of the common law. Carlyle v. Carlyle Water, Light, & Power Co. 52 Ill. App. 577.' It is true that we do not necessarily have to follow this decision. When § 10, article 1, is invoked we decide for ourselves the fact of contract,-not only its formal execution, but its legal basis in law, and therefore construe for ourselves the statutes of the state upon which it is claimed to rest. In such case, we have also said, we are disposed to incline to agreement with the state court. These principles hardly need the citation of cases. They have become elementary. We may quote, however, the language of Mr. Justice Bradley in Burgess v. Seligman, 107 U.S. 20, 27 L. ed. 359, 2 Sup. Ct. Rep. 10. After stating the peculiarity of the existence of two co-ordinate jurisdictions in the same territory, and the necessity for the exercise of mutual respect and deference to avoid anomalous and inconvenient results, and yet asserting the necessity in the Federal courts of the right to exercise an independent judgment, the learned Justice said: 

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