the action was to enjoin the defendant city from erecting and operating a waterworks system in competition with that of the plaintiff, who claimed the exclusive right to render such service by virtue of a contract wherein the said city agreed, ‘not to grant to any other person or corporation, any contract or privilege to furnish water to the City of Knoxville or the inhabitants thereof for a period of thirty years.' In speaking of this contract the court said: "We fail to find in it any words necessarily importing an obligation on the part of the city not to establish and maintain waterworks of its own during the term of the water company. . . The stipulation in the agreement that the city would not, at any time during the thirty years commencing August 1st, 1883, grant to any person or corporation the same privileges it had given to the water company, was by no means an agreement that it would never, during that period, construct and maintain waterworks of its own."

But even where the statute does not permit the municipal corporation to grant an exclusive franchise, the courts still hold that it may preclude itself by the terms of a franchise from itself entering into competition with its grantee. The case of Walla Walla vs. Walla Walla Water Co.,1 decided in 1898, is the leading one illustrating this principle of law. In sustaining an agreement on the part of the city, made under proper statutory authority for securing the supply of these public utilities by private capital, which expressly excluded the municipal corporation for the period of the franchise from engaging in competition with such private enterprise in supplying these utilities to itself and its inhabitants, the court took the position that it was in effect nothing more than an express promise to carry out the agreement of its franchise to the company in good faith;

1 172 U. S., I.

and held that such a limitation on its own power did not amount to the granting of a franchise exclusive of all competition which the charter of the city in question expressly provided could not be done.

The case of Vicksburg vs. Vicksburg Waterworks Co.,1 decided in May, 1906, is concerned with the question under discussion in the two former cases and its decision is based expressly on the Walla Walla case. The court indicated its intention to give full credit to the authority of the Knoxville Water Co. case by saying: "And unless the city has excluded itself in plain and explicit terms from competition with the [private] waterworks company during the period of this contract, it cannot be held to have done so by mere implication. The rule, as applied to waterworks contracts, was last announced in this court in Knoxville Water Co. vs. Knoxville." The court by Day, J., then proceeds to find in the franchise under construction in the case, an agreement binding on the city which excluded it from owning and erecting such a plant during the period of such franchise by virtue of the fact that it had been made in terms exclusive for such period. The court said: "We cannot conceive how the right can be exclusive, and the city have the right, at the same time, to erect and maintain a system of waterworks which may, and probably would, practically destroy the value of rights and privileges conferred in the grant."

2

From this holding Harlan, J., who wrote the opinion in the Knoxville Water Co. case, dissented, giving as his reason for so doing that, "it ought not, in my judgment, to be held upon the present record that the city has by ordinance or otherwise, precluded itself from establishing and maintaining, at its own expense, a system of water1 202 U. S., 453. 2 200 U. S., 22.

6

works for the benefit of its people. The contrary cannot be maintained, unless we hold that a municipal corporation may, by mere implication, bargain away its duty to protect the public health and the public safety as they are involved in supplying the people with sufficient water. Nothing can be more important or vital to any people than that they should be supplied with pure wholesome water. And yet, it is now held that it was competent for the city of Vicksburg, by mere implication, to so tie its hands that it cannot perform the duty which it owes in that regard to its people."

In the interest of municipal activity and for the better safeguarding of the welfare of the people living in cities, it is to be regretted that this highly practical position of Justice Harlan was not sustained by the prevailing decision in this case which, it would seem, in effect seriously attacks, if in fact it does not virtually overrule, the principle established in the Knoxville Water Co. case.

CHAPTER IX

MUNICIPAL REGULATION OF RATES FOR PUBLIC UTILITIES

THE courts, while holding that competition has great value in securing the public advantage in case of the operation of public utilities by private capital, have at the same time felt that it was unwise to trust to it alone. They have therefore endeavored to secure to municipal corporations the right to regulate private capital engaged in rendering public service where the exercise of such a right was consistent with a due regard to the private rights guaranteed by the constitution and with the general principles of the laws regulating the powers of municipal corporations.

The rule of law is now universally accepted that when private property is devoted to a public use, it is subject to public regulation and control. Property is clothed with a public interest and devoted to a public use when used in a manner to make it of public consequence, and to affect the entire community. When one devotes property to a use in which the public has an interest, he virtually grants to the public an interest in that use, and must submit to public control for the common good to the extent of the interest so granted.1

It is evident that when the State in the exercise of its sovereign power grants a charter, conferring the privilege of existing and operating as a legal entity upon the united interests of a number of individuals and constituting them 1 Munn vs. People of Illinois, 94 U. S., 113.

a body corporate, such a grant of special rights and privileges can be made subject to such conditions and regulations as the State may see fit to impose within constitutional limitations. Being the creature of statutory origin, the corporation possesses only the powers given by such origin upon the conditions stipulated by the State. And where the power to alter, amend or repeal is reserved in connection with the granting of the charter, such power may be exercised at any time thereafter without impairing the obligation of contracts, prohibited by our Federal Constitution, because the contract resulting from the acceptance of the franchise is made subject to such modification or rescission.1 As stated by the Supreme Court of Indiana in the case of Hockett vs. The State,2 the power of a State Legislature to prescribe the maximum charges which a telephone company may make for services rendered, facilities afforded, or articles of property furnished for use in its business, is plenary and complete."

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But this power of the State to regulate, which includes the power to fix the maximum rates that may be charged for the service, is a sovereign power which our courts hold can be delegated to municipal corporations only in express terms or by necessary implication. While the legislature has the right to fix the price at which gas, water, or electric lights shall be supplied by one who enjoys a monopoly of the business by reason of having such exclusive privilege, the courts will not presume such right to be vested in the municipality unless it has been granted by the Legislature expressly or by clear implication.

3

The case of In re Pryor, decided in 1895, establishes this principle. After granting a franchise to erect and

1 Spring Valley Water Works vs. Schlotter, 110 U. S., 347.

2 105 Ind., 250.

3 55 Kan., 724.