US SUPREME COURT DECISIONS

The legislative grant of an exclusive right to supply gas to a municipality and its inhabitants by means of pipes and mains laid through the public streets and upon condition of the performance of the service by the grantee, is a grant of a franchise vested in the state in consideration of the performance of a public service, and, after performance by the grantee, is a contract protected by the Constitution of the United States against state legislation to impair it.

In granting the exclusive franchise to supply gas to a municipality and its inhabitants, a state legislature does not part with the police power and duty of protecting the public health, the public morals, and the public safety as one or the other may be involved in the exercise of that franchise by the grantee.

A legislative grant of an exclusive right to supply gas to a municipality and its inhabitants by means of pipes and mains laid through the public streets, and upon condition of the performance of the service by the grantee, is no infringement of that clause in the Bill of Rights of Kentucky, which declares

"That all freemen, when they form a social compact, are equal and that no man or set of men are entitled to exclusive separate public emoluments or privileges from the community but in consideration of public services. "

Page 115 U. S. 684

On February 14, 1856, the Legislature of Kentucky enacted

"That all charters and grants of and to corporations or amendments thereof shall be subject to amendment or repeal at the will of the legislature unless a contrary intent be therein expressed."

By an act passed January 22, 1869, amending the charter of a gas company which was subject to that provision in the act of 1856, it was enacted

"That said gas company shall have the exclusive privilege of erecting and establishing gas works in the City of Louisville during the continuance of this charter, and of vending coal gas lights, and supplying the city and citizens with gas by means of public works,"

&c. Held that the latter act contained a clear expression of the legislative intent that the company should continue to enjoy the franchises then possessed by it for the term named in that act without being subject to have its charter in that respect amended or repealed at the will of the legislature.

This is a writ of error to the highest court of Kentucky. The general question to be determined is whether certain legislation of that commonwealth is in conflict with the clause of the national Constitution which forbids a state to pass any law impairing the obligation of contracts. The appellant, the Louisville Gas Company, contends that its charter, granting certain exclusive rights and privileges, constituted, within the meaning of that Constitution, a contract the obligation of which has been impaired by the charter subsequently granted to the appellee, the Citizens' Gaslight Company. The Court of Appeals of Kentucky sustained as constitutional the legislation under the authority of which the latter company is exercising the rights, privileges, and franchises conferred by its charter.

By an act of the General Assembly of Kentucky approved February 15, 1838, Sess. Acts 18371838, p. 206, the Louisville Gas and Water Company was created a corporation, to continue for the term of thirty years from January 1, 1839. It was made its duty within three years after its organization to establish in Louisville a gas manufactory of sufficient extent and capacity to supply that city and its people with such public and private lights as might from time to time be required, and within five years after the establishment of its gas works to erect and establish waterworks sufficient to supply the city with water for the extinguishment of fires, for the cleansing and sprinkling of streets and alleys, and for all manufacturing chanrobles.com-red

Page 115 U. S. 685

and domestic purposes, to which end it might lay down and extend pipes through any of the streets and alleys of the city, the company being responsible to the city for any damages resulting therefrom. The act imposed a limit upon the price to be charged for gas lights used by the city and gave the latter the right to subscribe for 4,000 shares in the company, payment for onehalf of which could be made in city coupon bonds for $200,000, redeemable at any time within three years after the expiration of the company's charter. It was made a fundamental condition that upon the termination of the company's charter, the city at its election could take the gas and water works at a fair estimate of what they would cost and be worth at that time, to be ascertained by the judgment of competent engineers, selected by the parties, or, in case they disagreed, by the Louisville Chancery Court. Under this charter, the company proceeded at once to erect gas works, including suitable buildings and machinery. It supplied itself with all necessary apparatus, laid down mains and pipes, and erected lamp posts for the purpose of lighting the streets. It supplied gas for the public buildings and for street lights as well as for domestic purposes. And it continued to do so during the term of its original charter.

By an act passed in 1842, the authority to erect waterworks was withdrawn by the legislature.

By an act entitled "An act to extend the charter of the Louisville Gas Company," approved January 30, 1867, a new charter was granted, to take effect January 1, 1869, and to continue in force for twenty years from that date unless the City of Louisville should exercise its privilege of purchasing the works established under the authority of the original charter. That act created a corporation by the name of the "Louisville Gas Company," with a capital stock of $1,500,000. It provided, among other things, that such stock should consist,

"first of the stock of the present Louisville Gas Company, on the 31st of December, 1868, at par value; secondly, of the contingent fund and undivided profits that the company may own at the expiration of the present charter, said fund to be capitalized pro rata for the benefit of the present stockholders, except

Page 115 U. S. 686

fractional shares, which shall be paid in cash, and thirdly, new stock may be issued and sold by the new company, when required, to the extent of the capital stock, the sales to be made at public auction, after ten days' notice in the city papers; should said stock be sold above its par value, such excess shall not be capitalized or divided among the stockholders, but be employed in the first extensions made by the company after the sale of said stock;"

that the business of the company should be to make and furnish gas to the City of Louisville and its residents; within two years after its charter took effect, should extend the gas distribution to Portland, and lay down mains, and erect street lights in certain named streets in that part of the city; should extend mains wherever the private and public lights would pay eight percent on the cost of extension, until its entire capital was absorbed in the gas works and extensions -- continuing the use of the pipes and conductors already laid down, and, with the consent of the city council, extending the pipes and conductors through other streets and alleys of the city. It was also provided that the company should put up gas lamps at certain distances apart on the streets where there were mains, supply the same with gas, and light and extinguish the same, and charge the city only the actual cost thereof, such charges not to exceed the average charges for similar work or service in the Cities of Philadelphia, Baltimore, Cincinnati, Chicago, and St. Louis, and the charges against other consumers not to be greater than the average price in said cities; that the stockholders, exclusive of the City of Louisville, should elect five directors, while the general council of the city should effect four; that the city might, upon the termination of the charter, purchase the gas works at a fair estimate of what they would be then worth, and that the charter should be valid and in force when accepted by those who held the majority of stock in the old company, all of whose property should belong to the new company.

When the act of 1867 was passed, the city owned 4,985 shares of the stock of the old company. All the gas with which its streets were then lighted or which was furnished to its people was supplied by that company. chanrobles.com-red

Page 115 U. S. 687

On the 22d of January, 1869, an act was passed amending that of January 30, 1867. Its preamble recites that the City of Louisville and the stockholders of the old company had accepted the extended charter, and desired that the amendments embodied in that act should become part of that charter. The amended charter repealed so much of the act of 1867 as allows a profit of eight percent on the cost of extensions, and, among other things, provides that the company shall extend its main pipes whenever the public and private lights, immediately arising from said extension, will pay seven percent profit on the cost thereof; that the company shall put lamp posts, fixtures, etc., along the street mains as they are extended, at a distance apart of about two hundred feet; shall keep the lamps in order, furnish gas, and light and extinguish the same, each light to have an illuminating power of about twelve sperm candles; shall furnish public lights to the city at actual cost, which shall in no event exceed annually $35 per lamp; that the charges to private consumers shall be so graded that the company's profits shall not exceed twelve percent per annum on the par value of the stock, ten percent of which may be drawn by stockholders in semiannual dividends, and the remaining twp percent to be laid out for extensions, not to be capitalized except at the end of five years. The fifth and sixth sections of the last act are as follows:

"5. That said gas company shall have the exclusive privilege of erecting and establishing gas works in the City of Louisville during the continuation of this charter, and of vending coal gas lights and supplying the city and citizens with gas by means of public works, provided however this shall not interfere with the right of any one to erect, or cause to be erected, gas works on their own premises for supplying themselves with light."

"6. That no alteration or amendment to the charter of the gas company shall be made without the concurrence of the city council and the directors of the gas company."

By an Act approved March 21, 1872, the Citizens' Gaslight Company of Louisville was incorporated for the term of fifty years with authority to make, sell, and distribute gas for the chanrobles.com-red

Page 115 U. S. 688

purpose of lighting public and private buildings, streets, lanes, alleys, parks, and other public places in that city and its vicinity. It was authorized, the general council consenting, to use the streets and other public ways of the city for the purpose of laying gas pipes, subject to such regulations as the city council might make for the protection of the lives, property, and health of citizens. That body did so consent by ordinance passed December 13, 1877.

The Louisville Gas Company having claimed that the foregoing section of the Act of January 22, 1869, granting the exclusive privileges therein defined, constituted a contract the obligation of which was impaired by the charter of the plaintiff, and that the latter's charter was therefore void, the present suit was brought by the Citizens' Gaslight Company in the Louisville Chancery Court for the purpose of obtaining a perpetual injunction against the assertion of any such exclusive privileges and against any interference with the plaintiff's rights as defined in its charter. Among the rights asserted by the latter under its charter was "to make, sell, and supply coal gas for lighting the public buildings and other places, public and private," in Louisville and the adjoining localities, by means of pipes laid in the public ways and streets. The court of original jurisdiction dismissed the suit. Upon appeal to the Court of Appeals, the decree was reversed with directions to issue a perpetual injunction restraining the Louisville Gas Company from claiming and exercising the exclusive right of manufacturing and supplying gas to the City of Louisville and its inhabitants. This writ of error was sued out to review that judgment. chanrobles.com-red

Page 115 U. S. 691