as

it is held, per Mr. Justice Day, that "under a broad grant of power, conferring, without restriction or limitation," upon a city, "the right to make a contract for a supply of water, it was within the right of the city council, in the exercise of this power, to make a binding contract, fixing a maximum rate at which water should be supplied to the inhabitants of the city for a limited term of years; and, in the absence of a showing of unreasonableness so gross strongly to suggest fraud or corruption, this action of the council is binding, and for the time limited puts the right beyond legislative or municipal alteration to the prejudice of the other contracting party." 27 Likewise, where it was provided by statute that a street railroad should not be constructed until the council "by ordinance shall have granted permission and prescribed the terms and conditions," it was held that the city might enter into a contract prescribing the rates of fare.28 And there are similar holdings in some of the state courts. Thus, in Alabama, it is held that authority conferred upon a city to contract for a supply of water includes authority to fix the rates therefor so as to be not subject to change,29 and a provision in the same section of the charter conferring power to regulate rates by such by-laws, resolutions and ordinances as may be necessary, was held not to preclude a binding contract beyond the power of subsequent impairment.30 So in New Jersey, a statute authorizing municipalities to grant a street franchise to street railroad companies under such "lawful restrictions" as they deem the interests of the public may require, is held to authorize a binding contract as to rates as a part of the franchise.31

27 Vicksburg v. Vicksburg Waterworks Co., 206 U. S. 496, 51 L. Ed. 1155. To same effect, see Wichita Water Co. v. Wichita, 234 Fed. 415, 422, construing Kansas statute and following Kansas decisions as to effect thereof.

Under power to provide for supplying the city with water," a city may contract with a water company in respect to rates to be charged consumers. Los Angeles City Water Co. v. Los Angeles, 88 Fed. 720.

Power granted to a city to contract for the construction and operation of waterworks on such terms and under such regulations as may be agreed on" constitutes authority to the mu

nicipality to agree with the contractor upon the rates which he may collect of private consumers during a reasonable term of years. Omaha Water Co. v. Omaha, 147 Fed. 1, 13, 12 L. R. A. (N. S.) 736, 8 Ann. Cas. 614.

28 Cleveland v. Cleveland City R. Co., 194 U. S. 517, 48 L. Ed. 1102.

29 Bessemer v. Bessemer City Water Works, 152 Ala. 391, 44 So. 663.

30 Bessemer v. Bessemer City Water Works, 152 Ala. 391, 410, 44 So. 663.

31"That regulations as to the rate of fare are properly classed among such 'restrictions' seems quite plain.”’ Atlantic Coast Elec. R. Co. v. Board of Public Utility Com'rs, 89 N. J. L. 407, 99 Atl. 395.

However, subsequent ratification by the legislature of an ordinance fixing rates is equivalent to a previous grant of authority to the municipality.32

How far the power to regulate rates is reserved by the constitution, a statute, or the ordinance granting a franchise, so as to preclude a binding contract as to rates, is noted hereafter.33

§ 4491. Effect of reservation of right to regulate rates. The constitution of the state, a general statute, the statute creating the municipality, the statute under which the corporation was created, or the ordinance granting the franchise, sometimes reserves the power to regulate rates. There is no impairment of contract, without regard to the existence of any contract as to rates made by the state or a municipality, where the power to regulate rates has been reserved by the state constitution, or a statute, in force when the contract was made.34 In such a case, the state or municipality has no power to make a binding contract as to rates which cannot be impaired by subsequent regulation of the rates; and this is so whether the reservation of power, in existence at the time of the alleged contract as to rates is entered into, is contained in the constitution,35

32 Minneapolis v. Minneapolis St. R. Co., 215 U. S. 417, 54 L. Ed. 259.

33 See infra, next section.

34 Louisville & N. R. Co. v. Garrett, 231 U. S. 298, 58 L. Ed. 229, aff'g 186 Fed. 176; Danville v. Danville Water Co., 178 Ill. 299, 69 Am. St. Rep. 304, 53 N. E. 118; Knoxville Water Co. v. Knoxville, 107 Tenn. 647, 61 L. R. A. 888, 64 S. W. 1075, aff'd 189 U. S. 434, 47 L. Ed. 887.

35 In Florida, a constitutional provision empowering the legislature to correct abuses and prevent unjust discrimination and excessive charges was held to be self-executing to the extent that contracts made thereafter were subject to the possibility of the exercise of such power; and it was held that a contract between a water company and the city of Tampa fixing the rates for water for thirty years as a part of the franchise was subject to change, under such constitutional provision, by lowering the rates, against the objection that thereby the

as

contract was impaired. Tampa v. Tampa Waterworks Co., 45 Fla. 600, 34 So. 631. This decision was affirmed by the Supreme Court of the United States in Tampa Waterworks Co. v. Tampa, 199 U. S. 241, 50 L. Ed. 170, which held that it could not be said "that the Supreme Court of Florida was wrong" in so deciding, but a strong dissenting opinion was filed by Justice Brown in which Justice Peckham concurred. In the opinion of the court rendered by Justice Holmes, in answering the contention that the clause is merely declaratory of powers which the legislature would have had without it, and which with or without it the legislature could cut down by contract," it was said that "the argument is not without force, but it did not prevail in this case and we are not prepared to overrule the Florida courts in their interpretation of their own laws. It is entirely possible to read the words as con

or in a general statute,36 or in the statute creating the municipality,3 37 cr in the statute under which the corporation was created, or in

the ordinance granting the street franchise. For instance, if the power to "regulate" rates is expressly conferred upon a city by statute, then the city cannot by contract divest itself of the power conferred upon it by the legislature.39 So if a statute confers the right upon municipalities "to prescribe and fix maximum rates and charges," but another section provides that they shall "at all times during the existence" of the franchise grant "have the right by ordinance to fix a reasonable schedule of maximum rates to be charged," then there is no power to make a contract as to rates which will preclude the state or municipality from thereafter changing the rate.40 And statutes sometimes are so broad in permitting franchises to be regulated that it is held that any provision in the franchise in regard to rates is subject to change thereafter without impairing the obligation of any contract.

prices for the same as may be agreed upon between said company and said parties.'' The incorporation was under a general act which provided that "this act is in no way to interfere with or impair the police or general powers of the corporate authorities of such city, town or village, and such corporate authorities shall have power by ordinance to regulate the price of water supplied by such company.” The water company made a contract with the city which consisted of three distinct parts, first, the promises of the water company, second, those of the city, and third, their mutual undertakings: In the first part the company undertook to "supply private consumers with water at a rate not to exceed five cents for 100 gallons."' The court held that these were in form the words of the water company, that they were subject to the express reservation by its act of incorporation of the power of the city to regulate the price of water furnished by the company and that they did not constitute an agreement with the city that it would not reduce the rate below that specified in the contract.

39 Ft. Smith Light & Traction Co. v. Ft. Smith, 202 Fed. 581, citing

So a statute requiring the

Cedar Rapids Gaslight Co. v. Cedar Rapids, 223 U. S. 655, 56 L. Ed. 594, where, however, the statute expressly provided that the power was not to be abridged by ordinance, resolution or contract.

40 Wyandotte County Gas Co. v. Kansas, 231 U. S. 622, 58 L. Ed. 404, aff'g 88 Kan. 165, 127 Pac. 639.

"Conceding that there are forms of expression used in the statute which taken isolately might be considered as having conferred the power to fix a contract rate, such concession is not decisive, since we must consider the statute as a whole. And when we do so, to divorce the expressions referred to, from the context would be, not to interpret and apply, but to distort the statute. Especially is this conclusion necessary when the broad scope of the provisos which we have quoted is taken into view, since they in effect forbid the making of contract rates as to both water and gas by commanding that the governmental power to see to it that only reasonable rates are exacted shall be perpetually preserved and exerted." Wyandotte County Gas Co. v. Kansas, 231 U. S. 622, 629, 58 L. Ed. 404, aff'g 88 Kan. 165, 127 Pac. 639.

41 Iowa Railway & Light Co. v.

city council to fix reasonable rates to be charged by public service corporations for services must be read into every contract made by the city after its enactment, and an ordinance fixing rates does not impair the obligation of any contract made by the city after the passage of the statute. Likewise, where the act under which a water company was incorporated provided that the municipality should have "power by ordinance to regulate the price of water supplied by such company," it was held that such provision should be read into any contract made by a municipality as to water rates, so as to authorize it to reduce the rates fixed by the street franchise without impairing the obligation of any contract.43 Of course, if the charter of the municipality provides that "at all times the power and right reasonably to regulate in the public interest the exercise of the franchise or right so granted shall remain and be vested in the council and said right or power cannot be divested or granted," the municipality cannot irrevocably bind itself by an agreement as to rates. So a municipality may fix rates at the end of a certain number of years where the grant of the franchise reserves the right to fix the rate after the lapse of a certain number of years.45

On the other hand, mere general provisions in the ordinance contract reserving the right to make reasonable rules does not constitute a reservation of the right to change the rates fixed by the contract.46 And the fact that a franchise granted a street railway company reserves the right of future control as to "construction,

Jones Auto Co., Iowa - 164 N.
W. 780.

42 Ft. Smith Light & Traction Co. v. Ft. Smith, 202 Fed. 581, constru ing Arkansas statutes; Arkadelphia Elec. Light Co. v. Arkadelphia, 99 Ark. 178, 137 S. W. 1093; Lackey v. Fayetteville Water Co., 80 Ark. 108, 96 S. W. 622.

43 Knoxville v. Knoxville Water Co., 107 Tenn. 647, 61 L. R. A. 888, 64 S. W. 1075, aff'd 189 U. S. 434, 47 L. Ed. 887.

44 Portland Railway, Light & Power Co. v. Portland, 201 Fed. 119.

45 Logansport & W. V. Gas Co. v. Peru, 89 Fed. 185, holding that in such case, in fixing the price, the municipality may consider the earnings of the company in the past.

46 An ordinance granting a fran

chise to a street car company required two lines to be maintained so as to cross each other at right angles, and the giving of transfers. It also stipulated that the rates of fare, which were fixed, should not be reduced. It was held that a provision in the ordinance reserving to the municipality the right to make reasonable rules "as may from time to time be deemed necessary to protect the interests, safety, welfare or accommodation, and running of cars for the public in relation to said railways" did not authorize the municipality to compel an additional route to be established so as to affect the right to collect a second fare in some instances. People v. Detroit United Ry., 156 Mich. 659, 121 N. W. 321.