CHAPTER VII

SALE OF MUNICIPAL PROPERTY PROVIDING PUBLIC UTILITIES

THE ease with which municipal corporations may conduct business enterprises is also dependent, but in an inverse ratio, upon the power which such corporations have to alienate their property. For experience has shown that in almost all cases private corporations stand ready to take over the operation of municipal public utilities where municipal corporations are becoming embarrassed or are reported to have made a failure of their operation. Indeed it has frequently been charged that influences have been brought to bear to secure an inefficient operation by municipal corporations of such public utilities with the purpose of cultivating among the people a feeling hostile to municipal and favorable to private operation.

The attitude of the courts in regard to recognizing the power in municipal corporations to dispose of municipal plants has therefore an important bearing on the answer to the question which is herein attempted, viz., What is the attitude of the courts toward an increase in the sphere of municipal activity?

The supplying of cities and towns and their citizens with such public utilities as gas, water or electric light for public and private consumption by the municipal corporation is the performance of a public duty, and the property so used is charged with a public trust and is devoted to a pub[66

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lic purpose the same as other city property. Such property is dedicated irrevocably to the performance of this trust due the public and for its benefit and that of the inhabitants of the municipality. It is a fundamental principle that the trustee cannot disable itself from performing the trust by disposing of the property or means necessary to carry out the purposes of the trust relation without express authority from the party creating the trust or directing its administration. The power does not inhere in the trustee to defeat the carrying out of the trust by disposing of the trust property. The interests of the beneficiaries under the trust are guarded against any loss on this account by the courts holding that such property cannot be disposed of by the municipality unless under authority conferred specially by statute. The State alone, which attends to the matter of creating these trusts as well as to the selection of the trustees, has the power to provide for their destruction by sale or for their diversion as to trustees by lease or assignment. Having the sole power to create, the State alone has the ability to provide for a change of trustee or a winding-up of the trust entirely; so that in the absence of express legislative authority the courts refuse to imply the right in the municipal corporation, after having accepted the trust, to renounce its duties thereunder or to dispose of the trust property and thus defeat the further carrying out of the trust. The municipality must continue to perform the duties to the public after having once assumed the trust and undertaken to serve the public needs and those of the inhabitants."

When the power to own and operate such plants for supplying public utilities has been given and accepted by a city, a franchise is conferred upon it for the purpose of securing some advantage to the public and for the benefit

1 Dillon, Municipal Corporations, sec. 650.

of the inhabitants in their private capacity. Such beneficiaries have the right to complain in case of its reliquishment. This rule is based on the general principle of trusts as well as upon the rule that quasi-public corporations are formed in order to serve the public. The duty imposed is a personal one and the right to perform it together with the special privileges pertaining thereto is granted personally as a franchise, on condition that the grantee continue in personal control of such power and in the performance of its duties. The carrying out of the duties of serving the public under such a franchise is regarded as of special importance and the obligation is recognized as being peculiarily personal. Having selected a municipal corporation which is responsible and capable of executing the duties of the trust to the public for which are granted special privileges, amounting in most cases practically to a monopoly, the law does not permit the city to transfer its rights and the accompanying duties to another party which may or may not be responsible and capable of adequately serving the public and its inhabitants.

If at any time it may appear that the interests of the beneficiaries could be best served by some party other than the original grantee, the State which granted the franchise may in its discretion permit such change of grantees; but this must be provided for expressly by the statute. This rule of law is adhered to strictly because it is believed that the interests of the public are thereby subserved. For experience seems to have convinced the courts that the interests of the public are not the main object of private parties who engage in furnishing these public utilities. The desire for personal enrichment predominates over that of serving the best interests of the public. This fact necessitates that very extensive control be exercised over private grantees of such franchises or, what is still better security

that the public will be served adequately and at fair cost for the service, makes it necessary that the public serve itself directly or that it have the control which accompanies ownership, while the actual operation is provided for by a leasing of the plant owned by the city. This matter, however, is reserved for discussion after an examination of the authorities for the foregoing statements.

The case of Huron Waterworks Co. vs. Huron,1 decided in 1895, was an action to have an attempted sale of the waterworks plant of the respondent city to the appellant, a private corporation, declared void. Such plant had before such attempted sale been owned and operated by the city for supplying its public wants and for domestic purposes. The question decided in the negative by this case is as to whether the council of the city of Huron possesses the power, unaided by the state legislature, to sell and transfer the Huron waterworks system to the appellant. In addition to the power given the city expressly by statute to construct and maintain waterworks, the only statutory authority granted provides, “that the city of Huron . . . shall have power to make all contracts necessary to the exercise of its corporate powers, to purchase, hold, lease, transfer, and convey real and personal property for the use of the city . . . and to exercise all the rights and privileges pertaining to a municipal corporation.” In the course of its convincing opinion the court, after citing and discussing at length a number of leading authorities, expressed itself as follows: "Having, as we think, established the proposition that the waterworks of a city when constructed and owned by the city, are to be regarded the same as other city property held for public use, and therefore charged and clothed with a public trust, it would seem

17 S. Dak., 9.

to follow that such property cannot be sold and conveyed by the mayor and common council of the city unless under special authority conferred upon them to so sell and convey the same by the legislative power of the State. . . . From this examination of the authorities we conclude that there is no distinction between the nature of waterworks property owned and held by the city, and public parks, squares, wharves, quarries, hospitals, cemeteries, city halls, courthouses, fire engines, and apparatus, and other property owned and held by the city for public use. All such property is held by the municipality as a trustee in trust for the use and benefit of the citizens of the municipality, and it cannot be sold or disposed of by the common council of the city, except under the authority of the state legislature. But such property is so owned and held by the municipality as the trustee of the citizens of the municipality, for the use and benefit of such citizens. It has been acquired by the corporation at the expense of the taxpayers of the city, for their use and benefit, and the law will not permit the corporation to divest itself of the trust, nor to deprive the citizens of their just rights as beneficiaries in the same."

The case of Lake County Water & Light Co. vs. Walsh,1 decided in 1902, was an action to have set aside as fraudulent a deed of conveyance of the water and light plant of the city of East Chicago by said city to the appellant, a private corporation. In granting the relief asked for the court said in part: "It seems clear, upon the soundest reasoning and from the great weight of authority, that property held and used by a city for public purposes is held in trust for the inhabitants, and can not be sold or disposed of unless the city is specially authorized by the legislature

1 160 Ind., 32.