repairs, but also to provide means for replacing the parts of the plant when these can no longer be used. § 510. Depreciation allowance apparently refused by United States Supreme Court in 1903 but recognized in later cases. In San Diego Land and Town Co. v. Jasper, 189 U. S. 439, 446, decided April 6, 1903, the Supreme Court apparently refuses an annual depreciation allowance. Justice Holmes says: We will say a word about the opposite contention of the appellant, that there should have been allowance for depreciation over and above the allowance for repairs. From a constitutional point of view we see no sufficient evidence that the allowance for six per cent on the value set by the supervisors, in addition to what was allowed for repairs, is confiscatory. However, in Knoxville v. Water Company, decided in 1909, Justice Moody states that it is not only the right but the duty of a water company to charge rates adequate to provide for depreciation of all kinds. His statement is quoted at length above, § 431. The right of the company to an adequate allowance for depreciation is unmistakably recognized in the opinion by Justice Lurton in Lincoln Gas and Electric Light Co. v. City of Lincoln, quoted above in § 482, and also in the statement by Justice Holmes in Cedar Rapids Gaslight Company v. Cedar Rapids, March 11, 1912, quoted above in § 499. CHAPTER XXI Going Concern in Purchase Cases § 520. Purchase of Kansas City water plant, 1894. 521. Kansas City water plant purchase-Opinion of Justice Brewer. 522. Kansas City water plant purchase-Double allowance for established business. 523. Kansas City water plant purchase-Justice Brewer's decision not based on precedent. 524. Justice Brewer in Railroad Tax Case, 1894, refers to additional value from operation as a single line. 525. Massachusetts Supreme Judicial Court, 1897-Purchase of Newburyport water plant. 526. Gloucester, Mass., water plant purchase, 1899-1901. 527. Gloucester appraisal upheld by Massachusetts court. 528. Purchase of Holyoke, Mass., gas and electric plant, 1902. 529. Rhode Island water plant purchase, 1901-Allowance for going concern refused. 530. Mobile, Ala., water plant appraisal, 1903-No allowance for going value. 531. Purchase of Norwich, Conn., lighting plant, 1904. 532. Purchase of Galena, Kan., water plant, 1906. 533. Maine water plant condemnation cases, 1902, 1904-Value of structure in use. 534. Pennsylvania Water Plant Condemnation Case, 1909. 535. Omaha v. Omaha Water Co., Supreme Court of the United States, 1910. 536. Summary. $ 520. Purchase of Kansas City water plant, 1894. The first case involving a separate allowance for going concern or going value is National Water Works Company v. Kansas City, decided in 1894.1 This is still the leading case upon the subject. Under authority of a state statute, Kansas City, Mo., granted a franchise November 15, 1873, National Water Works Company v. Kansas City, 62 Fed. 853, 10 C. C. A. 653, 27 L. R. A. 827, 27 U. S. App. 165, July 2, 1894. to the National Water Works Company for the erection and operation of a waterworks. The franchise provided: 'if, at the expiration of twenty years from the time this grant shall take effect the same shall not have been renewed, or the city shall not have become owner of said works, the city shall then be required to purchase and become sole owner of said water works as aforesaid, and pay therefor a price agreed upon by the parties, or ascertained as they may agree; or, if the price cannot be thus agreed upon, then the city shall pay the fair and equitable value of the whole works, to be ascertained by said circuit or other court of record as aforesaid, in such manner as said court shall determine on the petition of either party for the purpose." On the expiration of the franchise the city refused to renew it and the company applied to the court for an order requiring the city to purchase the plant. The court appointed two commissioners to appraise "the fair and equitable value of the whole works at the time.” The commissioners reported a valuation of $2,546,112. The Circuit Court of the United States for the western district of Missouri determined that the fair and equitable value of the whole works was $2,714,000. Both parties appealed to the Circuit Court of Appeals, Eighth Circuit. In arguing the appeal the city asked for a valuation based on cost of reproduction less an allowance for depreciation and existing defects, and the company asked for a valuation based on a capitalization of the net income. The court while rejecting the capitalization method conceded that something should be added for "established business" and accordingly increased the valuation to $3,000,000. § 521. Kansas City water plant purchase-Opinion of Justice Brewer. The case of National Water Works Co. v. Kansas City, 62 Fed. 853, 10 C. C. A. 653, 27 L. R. A. 827, 27 U. S. App. 165, decided July 2, 1894, United States Circuit Court of Appeals, was argued before Circuit Justice Brewer, Circuit Judge Sanborn and District Judge Thayer. Justice Brewer states the conclusions of the court (at page 864): The difficult question, however, still remains; and that is, what is "the fair and equitable value" which, by the statute and the ordinance, the city is to pay for the water works? This amount was found by the Circuit Court to be $2,714,000. The company insists that the test is to take the income or earnings, and capitalize them. The earnings pay 6 per cent. on four millions and a half. In other words, the company has produced a property which earns 6 per cent. on four millions and a half; and that, it is claimed, is the fair valuation of the property, 6 per cent. being ordinary interest. On the other hand, the city insists that the franchise has ceased, and that basing the value upon earnings is in effect valuing a franchise which no longer exists, and which the city is not to pay for; that the true way is to take the value of the pipe, the machinery, and real estate, put together into a waterworks system, as a complete structure, irrespective of any franchise,-irrespective of anything which the property earns, or may earn in the future. We are not satisfied that either method, by itself, will show that which, under all the circumstances, can be adjudged "the fair and equitable value." Capitalization of the earnings will not, because that implies a continuance of earnings, and a continuance of earnings rests upon a franchise to operate the waterworks. The original cost of the construction cannot control, for "original cost" and "present value" are not equivalent terms. Nor would the mere cost of reproducing the waterworks plant be a fair test, because that does not take into account the value which flows from the established connections between the pipes and the buildings of the city. It is obvious that the mere cost of purchasing the land, constructing the buildings, putting in the machinery, and laying the pipes in the streets-in other words, the cost of reproduction-does not give the value of the property as it is to-day. A completed system of waterworks, such as the company has, without a single connection between the pipes in the streets and the buildings of the city, would be a property of much less value than that system connected, as it is, with so many buildings, and earning, in consequence thereof, the money which it does earn. The fact that it is a system in operation, not only with a capacity to supply the city, but actually supplying many buildings in the city, not only with the capacity to earn, but actually earning, makes it true that "the fair and equitable value" is something in excess of the cost of reproduction. The fact that the company does not own the connections between the pipes in the streets and the buildings-such connections being the property of the individual property owners-does not militate against the proposition last stated, for who would care to buy, or at least give a large price for, a waterworks system without a single connection between the pipes in the streets and the buildings adjacent. Such a system would be a dead structure, rather than a living and going business. The additional value created by the fact of many connections with buildings, with actual supply and actual earnings, is not represented by the mere cost of making such connections. Such connections are not compulsory, but depend upon the will of the property owners, and are secured only by efforts on the part of the owners of the waterworks, and inducements held out therefor. The city, by this purchase, steps into possession of a waterworks plant,-not merely a completed system for bringing water to the city, and distributing it through pipes placed in the streets, but a system already earning a large income by virtue of having secured connections between the pipes in the streets and the multitude of private buildings. It steps into possession of a property which not only has the pledge to earn, but is in fact earning. It should pay therefor not merely the value of the system which might be made to earn, but that of a system which does earn. Our effort has been to deduce from the volume of testimony that which, in this view of the situation, can be safely adjudged "the fair and equitable value." The original cost of the works is not accu |