"the right to regulate the water rates charged by said parties of the second part, or their assigns, provided that they shall not so reduce such water rates, or so fix the price thereof, to be less than those now charged by the parties of the second part for water," it was held that the contract could not be impaired by reducing the rates thereafter so as to be lower than the rates existing at the time of the contract.70

No contract can be said to exist where there is no consideration for the grant by the legislature of the power to charge a certain rate.71

A statute or ordinance fixing rates, where not a part of the charter nor a franchise, does not constitute a contract so as to preclude a subsequent change of the rates so fixed.72 And a statute giving the legislature power to fix rates for railroads "provided that no reduction shall be made unless the net profit" of the road shall amount to 12 per cent "and then so as not to reduce the future probable profits below said per centum" does not constitute a contract precluding a greater reduction of rates.73

§ 4494. Power of municipality to change rate as distinguished from power of state. A phase of the law which has received very little consideration is whether a municipality may be precluded by a franchise contract from reducing the rates fixed by the franchise while at the same time the legislature or a public service commission is not prevented from reducing the rates so fixed. So far as the decisions are concerned, in determining whether there has been an impairment of contract, the courts have almost invariably not referred to as important, nor taken into consideration, the nature of the alleged impairing legislation but have treated acts of municipalities as on the same level and governed by the same rules as acts of the legislature or of a public service commission. It has already been noticed that a municipality may make a binding contract as to rates, at least so far as the public service corporation is concerned, although it has no power to make a contract as to rates which will bind the state. Now if the power conferred upon the municipality is not broad enough to bind the state, is it broad enough to bind the municipality? Can a municipality which has made a rate contract be precluded thereby from afterwards reduc

70 Los Angeles v. Los Angeles City Water Co., 177 U. S. 558, 44 L. Ed. €886.

71 People v. Public Service Commission, 140 N. Y. App. Div. 839, 125 N. Y. Supp. 1000.

VII Priv. Corp.-31

72 Freeport Water Co. v. Freeport
City, 180 U. S. 587, 45 L. Ed. 679.
73 Houston & T. C. R. Co. v. Storey,
149 Fed. 499, 505.

74 See § 4490, supra.

ing the rate while the state is not so precluded? This question was incidentally referred to in West Virginia as follows: "We do not say that the contract as to rates contained in the franchise was not good as between the water company and the city as long as the legislature did not exercise its superior and supreme power over the subject of the rates. From the general powers to establish waterworks and to contract and be contracted with, impliedly the city had power to contract in the matter of rates for water furnished the public so long as the legislature did not exercise its reserved [the word "reserved" is apparently used here as equivalent to "nondelegated"] power in that particular. But that implied power was inferior to the reserved power. It was subject to the right of the legislature to prescribe different rates at any time. The legis lature not having expressly delegated to the city power by which it could inviolably agree as to the rates, could exercise power in that particular regardless of the franchise provisions." 75 In Washington, it was said that "such [rate] contracts when entered into without express legislative authority, are permissive only, and subject to the exercise of the sovereign power of the state, and do not partake of the quality of contracts as that term is employed in the contract clause of the Federal Constitution." 76 So this matter was referred to in Wisconsin as follows: "No specific authority having been conferred on the city to enter into the contract in question, the right of the state to interfere whenever the public weal demanded was not abrogated. The contract remained valid between the parties to it until such time as the state saw fit to exercise its paramount authority, and no longer. To this extent, and to this extent only, is the contract before us a valid subsisting obligation."77

What is believed to be the true rule which should govern, so far as the municipality is concerned, is this: A rate contract entered into between a municipality and a public service corporation as a condition of the right to use the streets, although not authorized by the legislature so as to bind the state, is binding, where the state does not interfere, not only upon the public service company,78 but also upon the municipality, so far as it is acting in the exercise of

75 Benwood v. Public Service Commission, 75 W. Va. 127, L. R. A. 1915 C 261, 83 S. E. 295.

76 State v. Superior Court for King County, 67 Wash. 37, L. R. A. 1915 C 287, Ann. Cas. 1913 D 78, 120 Pac. 861. 77 Manitowoc v. Manitowoc & N. P. Co., 145 Wis. 13, 28, 140 Am. St. Rep.

1056, 129 N. W. 925. See also opinion
of Chief Justice Winslow in Milwau-
kee Elec. Railway & Light Co. v. Rail-
road Commission of Wisconsin, 153
Wis. 592, L. R. A. 1915 F 744, Ann.
Cas. 1915 A 911, 142 N. W. 491, aff'd
238 U. S. 174, 59 L. Ed. 1254.
78 See $4493, supra.

1

its business or administrative powers,79 but is not binding upon the municipality where it acts in the exercise of a delegated legislative power to regulate the rates already fixed by it by contract, since in the latter case the municipality acts as an agent of the legislature, and the general rule is that an ordinance which is legislative in character is a law within the federal prohibition against impairing the obligation of contracts while acts in an administrative capacity, no matter how unlawful, do not constitute an impairment of a contract within the federal prohibition.80

§ 4495. Right of corporation or commission to increase rates. Of course, if a municipality has no power to contract as to rates so as to preclude interference therewith by the state, rates fixed in a franchise granted a public service company may not only be reduced but also may be increased by the legislature or by a state public service commission.81 In other words, unless the state actually divests itself of the right to exercise the police power to fix rates, it may, through its public service commission, fix the rates of a public utility company although thereby the rates fixed by the municipal franchise are raised.82

On the other hand, it has been held that, even if a municipality has no power to fix the rates by contract in granting a franchise so as to prevent the state from interfering, yet such a contract is binding as between the parties thereto so as to preclude the public service corporation from raising its rates against the protest of the municipality.83 In other words, if a city contracts with a public utility, on granting a street franchise or an extension of it, that rates shall

79 For instance, if the municipality should refuse to pay the rates for service furnished the municipality, at the rate fixed by the franchise, it undoubtedly could not set up that it had no power to enter into the contract so as to make it binding as an irrevocable contract, provided it had power to grant the right to use the streets. 80 In support of this theory, see American Waterworks & Guarantee Co. v. Home Water Co., 115 Fed. 171, and see note in 12 Ann. Cas. 503.

It follows that if no power is delegated to a municipality to regulate rates, there is no impairment of contract. Louisville v. Cumberland Tele

phone & Telegraph Co., 155 Fed. 725, 12 Ann. Cas. 500.

81 Dawson v. Dawson Tel. Co., 137 Ga. 62, 72 S. E. 508; State v. Superior Court for King County, 67 Wash. 37, L. R. A. 1915 C 287, Ann. Cas. 1913 D 78, 120 Pac. 861. See also § 4490, supra.

82 Woodburn v. Public Service Commission, 82 Ore. 114, L. R. A. 1917 C 98, Ann. Cas. 1917 E 996, 161 Pac. 391, telephone company.

83 Manitowoc v. Manitowoc & N. Traction Co., 145 Wis. 13, 140 Am. St. Rep. 1056, 129 N. W. 925.

If a public utility expressly contracts as to its rates, with a munici

not exceed a certain sum, the company is bound thereby, where the state does not interfere, and cannot increase the rates during the life of the contract,85 provided of course the contract is a valid one as between the parties thereto.86

That the legislature or a commission has the power, where no constitutional rights are involved, to permit a public service company to increase its rates, is beyond question.87 And in Massachusetts it is held that the commission may increase rates notwithstanding the license or franchise granted by the municipality to use the streets creates a contract fixing the maximum rates, and the rates fixed by the commission are above such rates.88 This raises the further question as to whether a contract rate is subject to waiver by the state although the municipality does not consent. For instance, a municipality makes a contract fixing rates, and the state thereafter, acting through the legislature, or through its public service commission, increases the rate above the maximum fixed by the municipal contract. The question then arises, conceding that the contract is a valid one, whether anyone can complain. Naturally the corporation whose rates are increased will not complain. Can the municipality object on the ground of impairment of contract? In a New Jersey case, where the public service commission had increased rates under such conditions the court said: "While the municipality itself has not assented to a change in rate, the state, its creator and parent, has done so through a specially constituted agency. If the water

pality, the commission may forbid it to increase such rates. Trenton & M. County Traction Corporation v. Inhabitants of City of Trenton, 90 N. J. L. 378, 101 Atl. 562.

84 Reading v. United Traction Co., 236 Pa. 197, 84 Atl. 666; White Haven Borough v. White Haven Water Co., 209 Pa. 166, 58 Atl. 159; Barre v. Barre & M. Power & Traction Co., 88 Vt. 304, 92 Atl. 237.

Rates of fare fixed in a street franchise are binding upon the public utility. Interurban Railway & Terminal Co. v. Cincinnati, 93 Ohio St. 108, 112 N. E. 186.

85 Selectmen of Westwood v. Dedham & F. St. R. Co., 209 Mass. 213, 95 N. E. 81; State v. Seattle Elec. Co., 71 Wash. 213, 43 L. R. A. (N S.) 172, 128 Pac. 220.

86 Stipulation as to rates in franchise granted water company was held not binding upon the water company where it was for an unlimited time. Bellevue Borough v. Ohio Valley Water Co., 245 Pa. 114, 91 Atl. 236; Turtle Creek Borough v. Pennsylvania Water Co., 243 Pa. 415, 90 Atl. 199.

87 State v. Superior Court for King County, 67 Wash. 37, L. R. A. 1915 C 287 with note, Ann. Cas. 1913 D 78, 120 Pac. 861.

88 Arlington Board of Survey v. Bay State St. R. Co., 224 Mass. 463, 113 N. E. 273, which is explainable only by the statement that "in granting locations for street railways, boards of selectmen and boards of aldermen are public officers and not agents of their respective towns and cities."

company were here complaining that its contract rights were being impaired, a different question would be presented; but the contract right of one of the state's creatures may be waived by the creator." 9 And in Washington, it has been suggested that a city cannot raise the question of impairment of its contract, where the state commission raises the rates contracted for by the city, where the city had reserved the right to alter, amend or annul the franchise.90

§ 4496. Regulations as impairing contracts between corporation and third person. Contracts between a public service corporation and private consumers or patrons as to rates for the supply or service furnished are subject to modification by the state or municipality, where acting within its powers, without impairing the obligation of contracts.91 The reason for this rule is that contracts