207 U.S.

385
28 S.Ct. 135
52 L.Ed. 257

WATER, LIGHT, & GAS COMPANY OF HUTCHINSON,

KANSAS, Appt.,
v.
CITY OF HUTCHINSON et al. NO 53. WATER, LIGHT, &
GAS COMPANY OF HUTCHINSON, KANSAS, Appt., v.
CITY OF HUTCHINSON et al. NO 54.
Nos. 53, 54.
Argued November 13, 1907.
Decided December 23, 1907.

The ultimate question in these cases is the validity of ordinance No. 402
of the city of Hutchinson, which took effect March 17, 1897, and by
which the Water, Light, & Gas Company claims to have, for the period of
twenty years from such date, the exclusive right and privilege of
supplying the city and its inhabitants with water, and with light, heat, and
power by means of electricity and gas.
On the 19th of December, 1905, the city enacted and published ordinance
No. 651, granting permits to Emerson Carey and others, their successors
and assigns, to construct and operate a street railway in and along the
streets of the city, and to construct and operate electric and gas plants for
the purposes for which electricity may be used.
These suits were brought to command the city and those claiming under
ordinance No. 651, to 'desist from doing any acts or exercising any
pretenses of right to act' under the ordinance which will in anywise affect
the exclusive right of the Water, Light, & Gas Company 'to furnish the
city and its inhabitants with electric or gas light for lighting and heating
purposes or power, except for street cars and electric railways, and also
from making or proceeding to make any contract for furnishing light or
gas to said city and its inhabitants' until the expiration of the 'franchises
and contracts' of that company.
The cases went off on demurrers to the bills. The circuit court, assuming

that ordinance No. 402 was exclusive in its terms and was intended to be
so by the city, held that the city did not possess the power, either inherent
or under the law of its creation, to make a contract binding and exclusive
of all others, and entered decrees dismissing the bills. 144 Fed. 256.
The facts are: In 1885 the city granted to the Holly Manufacturing
Company, its successors and assigns, an exclusive right to build and
operate waterworks for twenty years. The company erected and operated
the works until the subsequent assignment of its rights.
In the same year the city granted to the Interstate Gas Company the right
to erect and maintain gas works for the period of twenty-one years; and in
1886 granted to Drake and Orton the right for the period of twenty years
to construct and operate an electric light plant. The latter right, and those
granted to the two companies, passed by successive assignments, with the
knowledge and consent of the city, to the Water, Light, & Power
Company, and existed in that company at the time of the passage of
ordinance No. 402.
The various companies expended in the aggregate on the construction of
their plants and equipment $400,000, to secoure which the Hutchinson
Water, Light, & Power Company executed a mortgage upon all the water,
light, and gas rights and franchises and properties.
Subsequently, the city became financially embarrassed, so that before the
year 1897 it had become indebted for hydrant rentals in the sum of
$12,800 in excess of its ability to pay.
On account of this default of the city the company became embarrassed
and hindered in the payment of interest on its mortgage, and its mortgage
bondholders took possession of its property, and operated the plant during
the year 1896 and until the readjustment of its affairs in the spring of
1897, resulting in the passage of ordinance No. 402.
By reason of its embarrassment the company found it expedient to scale
down its bonded indebtedness and secure a new franchise from the city,
and in ocnsideration of securing the same, and the readjustment of the
contract obligations between the company and the city, the bondholders
agreed to reduce and scale down their mortgage indebtedness from
$400,000 to $212,500.
On March 5, 1897, at the earnest and repeated solicitation of the city, and
in consideration of its inability to discharge its past indebtedness to the
company and to pay the current indebtedness thereafter, the company

agreed with the city to remit one half of the indebtedness then due; that is,
to scale it down to $6,400, and to reduce the sum thereafter annually
payable for hydrant rental from $12,800 to $6,000 for the years of the
contract, and to reduce the rental for hydrants thereafter located from $60
to $36, and reduce the number of hydrants from twelve to ten per mile.
These concessions and abatements were made on the condition of a
renewal and extension of the franchise and contract rights of the company.
And the city was to have, what it did not have before, the right to purchase
or otherwise acquire the light and gas properties at any time after ten years
from the date of the renewal and adjustment. In view of these
considerations and in pursuance of them the city passed ordinance No.
402, to take effect March 17, 1897, and by that ordinance 'granted to the
company, its successors and assigns, for the period of twenty years from
said date, the exclusive privilege of supplying the city and its inhabitants
with the public utilities of water, light, heat, and power by means of
electric current and gas.' But it was agreed that the right for furnishing
electric current or power should not be exclusive as to or for the operation
of street railways, nor exclusive as to any person residing in the city, or
any company doing business therein manufacturing gas or electricity for
his or its own use for light or fuel. A copy of the ordinance was attached
to and made part of the bill. The concessions and abatements would not
have been made by the company except for the consideration of the
exclusive rights and privileges granted; and the total of the reductions of
monetary demands made for what was due and to become due for the
period the water franchise had to run amounted to $65,240, which the
company remitted from its contract rights and demands against the city.
The mortgage bondholders of the Water, Light, & Power Company, for
the purpose of effectuating the promises and agreements between the
company and the city contained in ordinance No. 402, scaled down their
indebtedness from $400,000 to $212,500, and canceled their mortgage,
and accepted a substitute mortgage on the property, franchise, and
contracts and on its income of $212,500.
The Water, Light, & Power Company, on the 4th of October, 1902, sold
and transferred to the Water, Light, & Gas Company, the complainant, all
of its property rights and franchise, and complainant has since that date
been in possession of the same, and in the fulfilment of the duties and
obligations imposed on it by its purchase and said ordinance liabilities
with the consent of the city, and the city has ratified and approved the
same, and contracted and dealt with the complainant as the successor of
the Water, Light, & Power Company. The Water, Light, & Gas Company
has, since its purchase, expended large sums of money in the improvement
and enlargement of its properties and the service rendered by it, and has,

under the direction and order of the city, extended its water mains and
placed hydrants upon such extensions, and, as agreed by it, has reduced
the number of hydrants on its extended mains from twelve to ten per mile,
and generally has complied with the orders and requests of the city,
whether or not under the ordinance No. 402 it was required to comply
with such orders, all of which was done in reliance on the obligations of
the city and its good faith in carrying out all the terms and conditions and
provisions of ordinance No. 402; but the city, notwithstanding, through its
mayor and councilmen, on or about the 19th of December, 1905, enacted
and published ordinance No. 651, by which it assumed to grant to
Emerson Cary and others the right and privilege, for the term of twenty
years thereafter, of establishing and operating in the city a plant and
appliances for the manufacture and sale to the city and its inhabitants of
electric light and power and manufactured factured and natural gas, with
the right and privilege to lay and construct gas mains and pipes and erect
poles and wires and all other things necessary to the maintenance of said
public service in the streets, alleys, and public places of the city, in
opposition to the business of complainant.
It is alleged that ordinance No. 402 constitutes a contract between the city
and the complainant in respect to all the rights secured, and in particular in
respect to the exclusive rights and privileges thereby conferred, and that
the city, by and through ordinance No. 651, illegally and inequitably
impairs the same, in violation of the provisions of the Constitution of the
United States, which forbids the impairment of the obligation of contracts
by the several states of the Union.
Neither the city nor any of the grantees in ordinance No. 651 have paid or
tendered complainant the monetary abatement, or the reductions and
concessions paid or secured to the city in consideration of the enactment
of ordinance No. 402, or to secure complainant from loss from the
competition of the rival public service association or company. At the time
the public service enterprises were undertaken by the grantors of
complainant the city of Hutchinson had about 5,000 inhabitants, and, at
the time complainant succeeded to their rights, about 10,000; and at both
of said times it would have been impossible, and is now impossible, to
maintain rival or competing companies in the city so as to enable either to
earn a fair and reasonable income on the cost of their respective
properties, and at none of the times when the complainant or its grantors
undertook the work of furnishing said public necessities would it or they
have done so without being secured in the enforcement thereof for a
reasonable time against the competition of rival companies, nor could the
large sums of money have been obtained therefor except under like

security. The company has not, up to this time, and will not for many
years to come, have secured the repayment of the purchase price of said
public service and the cost of the betterments, extensions, and
improvements.
The company alleges that it does not seek to prevent the granting by the
city of a franchise or contract for the erection and maintenance of an
electric railway in the city or elsewhere.
An injunction was prayed against the doing or exercising any pretenses of
right under ordinance No. 651 which would in any way affect the
exclusive rights of the company to furnish electricity and gas for lighting
and heating purposes.
Messrs. John F. Dillon, Frank Doster, Harry Hubbard, Houston
Whiteside, and Howard S. Lewis for appellant.
[Argument of Counsel from pages 390-392 intentionally omitted]
Messrs. Max Pam, C. M. Williams, A. C. Malloy, and F. F. Prigg for
appellees.
Mr. Justice McKenna delivered the opinion of the court:

The circuit court assumed that ordinance No. 402 was in terms exclusive and
was intended to be made so by the city. We shall assume the same thing.
Indeed, it would be impossible to decide otherwise. It recites that the
Hutchinson Water, Light, & Power Company 'is the owner of certain exclusive
franchises and contracts with the city of Hutchinson,' under which it has
expended large sums of money, and that the city 'is desirous of modifying and
changing said franchise and contracts to the advantage of said city of
Hutchinson, without canceling or abridging any of the rights or privileges
vested in said company,' and that, therefore, in consideration of the surrender of
all existing contracts and franchises, except as therein specified, 'there is hereby
given and granted' to the company, 'its successors or assigns, the exclusive right
and privileges for the term of twenty years from the date of the passage and
approval of this ordinance, of supplying the city of Hutchinson, Reno county,
Kansas, and the inhabitants thereof, by a system of waterworks, with water . . .
with electric current for electric light and power, and for all other purposes for
which electric current may be used, except power for the operation of street
railways.' The city, it is clear, in express terms and for consideration received,
granted exclusive rights. The power of the city to do this is denied, and this

makes the question in the case. The circuit court ruled against the existence of
the power, applying to the statutes conferring power upon the municipalities of
the state the rule of strict construction. The ruling is challenged by appellants,
and it is contended that the general welfare clause and 'the municipal power to
furnish light carries with it the obligation to enter into all contracts and to
exercise all subsidiary powers which the circumstances of the case require.'
And it is further contended that, in Kansas, statutes delegating to cities the
power to furnish light and water have been liberally construed by the supreme
court of the state.
2

That grants to municipal corporations, like grants to private corporations, are

subject to the rule of strict construction, was announced by this court in Detroit
Citizens' Street R. Co. v. Detroit R. Co. 171 U. S. 48, 43 L. ed. 67, 18 Sup. Ct.
Rep. 732, following and applying the doctrine of previous cases. It was said
that the power to grant an exclusive privilege must be expressly given, or, if
inferred from other powers, must be indispensable to them, and that this
principle was firmly fixed by authority. See also Dill. Mun Corp. 4th ed. 80.
The case was concerned with a grant to a street railway, and, in the argument of
the cases at bar, a distinction is asserted between an exclusive privilege to
occupy the surface of streets and interfere with 'a matter of common and a
privilege to use the streets below the surface 'as incidental only and subsidiary
to the performance of a contract pertaining to another matter;' and on this
distinction, it is argued, the 'first must show an express grant of authority' to
make the right exclusive, but that the second is not limited by such requirement.
The distinction is only one of degree, and has not been considered as varying
the application of the rule of construction announced. In Freeport Water Co. v.
Freeport, 180 U. S. 598, 45 L. ed. 688, 21 Sup. Ct. Rep. 497, a statute of
Illinois was considered which gave power to cities and villages to provide for
the supply of water at such rates as might be fixed by ordinance and for a
period not exceeding thirty years. And passing upon these provisions as
constituting a contract precluding a change of rates from time to time, we said:
'The rule which governs interpretation in such cases has often been declared.
We expressed it, following many prior decisions, in Detroit Citizens' Street R.
Co. v. Detroit R. Co. supra, to be that the power of a municipal corporation to
grant exclusive privileges must be conferred by explicit terms. If inferred from
other powers, it is not enough that the power is convenient to other powers; it
must be indispensable to them.' See also Rogers Park Water Co. v. Fergus, 180
U. S. 624, 45 L. ed. 702, 21 Sup. Ct. Rep. 490; Joplin v. Southwest Missouri
Light Co. 191 U. S. 150, 48 L. ed. 127, 24 Sup. Ct. Rep. 43, and cases cited;
Owensboro v. Owensboro Waterworks Co. 191 U. S. 358, 48 L. ed. 217, 24
Sup. Ct. Rep. 82. The doctrine was recognized as existing in Walla Walla v.
Walla Walla Water Co. 172 U. S. 1, 43 L. ed. 341, 19 Sup. Ct. Rep. 77, and in

Vicksburg v. Vicksburg Waterworks Co. 202 U. S. 453, 50 L. ed. 1102, 26

Sup. Ct. Rep. 660. In the two latter cases the power of the respective cities to
make a contract precluding them from building waterworks and operating their
own water systems was declared. In the Vicksburg case it was pointed out that
the power of the city to exclude itself from building waterworks of its own was
recognized to exist by the supreme court of Mississippi.
3

In Vicksburg v. Vicksburg Waterworks Co. 206 U. S. 496, 51 L. ed. 1155, 27

Sup. Ct. Rep. 762, a contract of the city, fixing a maximum rate, was sustained
upon the authority of the decisions of the supreme court of the state, holding
that, under a broad grant of power conferring, without restriction or limitation
upon the city, the right to make a contract for a supply of the water, it was
within the right of the city council, in the exercise of that power, to make a
binding contract fixing the maximum rate at which the water should be
supplied to the inhabitants of the city for a limited term of years.

This case is especially relied on by appellant as establishing a right in the city

of Hutchinson to grant an exclusive franchise under the statutes of the state,
both from their letter and as construed by the supreme court of the state. A
consideration of the statutes and decisions, therefore, becomes necessary.
Those quoted by the circuit court in its opinion are inserted in the margin. They
confer power to provide for the general welfare, and enable a city to construct
water and lighting plants of its own or 'to make contracts with any person or
company for such purposes,' and give such person or company 'the privilege of
furnishing light for the streets, lanes, or alleys of said city for any length of time
not exceeding twentyone years.'

In addition to these sections, appellant cites others, which give to the city the
power to make all contracts in relation to its property and affairs necessary to
the exercise of its corporate or administrative powers, the power to open and
improve streets, purchase or condemn land for hospital and waterworks, to
make regulations to secure the general health of the city, to enact ordinances for
any of the above-mentioned purposes, and 'for maintaining the peace, good
government, and welfare of the city, and its trade and commerce.' Also a section
which gives to gas and water companies the power to manufacture and furnish
gas and water and to lay down pipes and mains in the streets 'with the consent
of the municipal authorities thereof and under such regulations as may be
prescribed,' and a section giving power to such authorities 'to contract with any
such corporation for the lighting or supplying with water the streets, lots, lanes,
squares, and public places in any such city, town, or village.'

It is from these provisions that the water company deduces the power of the

city to make the privileges granted exclusive, and special stress is put upon the
provision of 65, which we have quoted. Counsel say: Language more
explicitly expressing an absolute measure of power could hardly be framed. The
power is given to light the streets, to make contracts for the lighting of the
streets, and to confer the privilege of lighting the streets for a specific term of
years.' And, further counsel say: 'It will be observed that the grant of power is
to confer 'the privilege of furnishing light.' The definite article 'the' is used.
Power to confer the privilege implies ex vi termini, the exclusive privilege, not
a fractional or communal privilege. The privilege conferred exists as a concrete
and integral whole, and therefore when conferred must pass in its entirety. The
city possessed the privilege of lighting its own streets as a function of its
municipal authority. It was that privilege in its integral and exclusive form
which the legislature authorized the city to confer.' We cannot concur. The kind
of privilege is defined, not the extent of it. It is exclusive of some persons, but
not of all. It is exclusive of those who have not a grant from proper authority.
There are privileges which may exist in their full entirety in more than one
person, and the privilege or franchise or right to supply the inhabitants of a city
with light or water is of this kind. A grant of power to confer such privilege is
not necessarily a grant of power to make it exclusive. To hold otherwise would
impugn the cited cases and their reasoning. It would destroy the rule of strict
construction. The foundation of that rule requires the grant of such power to be
explicitexplicit in the letter of the grantor, if inferred ferred from other
powers or purposes, to be not only convenient to them, but indispensable to
them. And these conditions are imperative,too firm of authority to be
disregarded upon the petition of equities, however strong.
7

It is, however, contended that the statutes of Kansas fulfil the rule by the
construction put upon them by the supreme court of the state, and the case is
therefore brought, it is further contended, within the rule of Vicksburg v.
Vicksburg Waterworks Co. 206 U. S. 496, 51 L. ed. 1155, 27 Sup. Ct. Rep.
762. The Kansas cases relied on are Eureka Light & Ice Co. v. Eureka, 5 Kan.
App. 669, 48 Pac. 935; State v. Topeka, 68 Kan. 177, 74 Pac. 647; Cherryvale
Water Co. v. Cherryvale, 65 Kan. 219, 69 Pac. 176. In those cases the court did
say, in determining what duties were imposed or powers conferred upon the
city, that the statute should be liberally construed to effectuate the general
purpose of the legislature, but the powers under consideration were different
from the powers herein involved, otherwise those cases would not be
reconcilable with Paine v. Spratley, 5 Kan. 545, and Coffeyville Min. & Gas
Co. v. Citizens' Natural Gas & Min. Co. 55 Kan. 178, 40 Pac. 326. In Paine v.
Spratley the general principles respecting the power of municipal corporations
were said to be those which we have expressed. In Coffeyville Min. & Gas Co.
v. Citizens' Natural Gas & Min. Co. one of the companies, claiming an

exclusive right, sought to test the validity of two city ordinances, granting the
other the use of the streets, and to restrict it from using the privileges granted.
For this purpose the court said the plaintiff company clearly had no standing in
court, because the city authorities alone were charged with the duty of
preventing encroachment on the streets, and they, alone, could test the validity
of the ordinance. The court said further: 'The city did not, in terms, attempt to
give the plaintiff company a right to the exclusive use of the streets and alleys
for the purpose of laying its pipes. If it had attempted to do so it could not, for
want of power.'
8

The conclusion from these cases is reinforced by a change in the statutes

conferring power upon the cities of the state. Section 65, supra, was 30 of the
statutes of 1868, and as such gave to a city the power to make the contracts
therein expressed, and give 'the exclusive privilege of furnishing gas to light the
streets, lanes, and alleys of said city for any length of time, not exceeding
twenty-one years.' This provision was repeated in 59 of the statutes of 1872.
But in 1885 that section was amended, so as to omit the words 'the exclusive
privilege.' Statutes 1885, p. 147, 7. And as thus amended it was re-enacted in
1901. Statutes 1901, 1000.

Decrees affirmed.

Sec. 35. The mayor and council of each city governed by this act shall have the
care, management, and control of the city and its finances, and shall have power
to enact, ordain, alter, or repeal any and all ordinances not repugnant to the
Constitution and laws of this state, and such as it shall deem expedient for the
good government of the city, the preservation of the peace and good order, the
suppression of vice and immorality, the benefit of trade and commerce, and the
health of the inhabitants thereof, and such other ordinances, rules, and
regulations as may be necessary to carry such power into effect.
Sec. 65. The council may provide for and regulate the lighting of the streets,
and the erection of lamp posts, and the numbering of the buildings in the city,
and the construction of sewers, and the council shall have power to make
contracts with any person, company, or association for such purposes, and give
such person, company, or association the privilege of furnishing light for the
streets, lanes, or alleys of said city for any length of time not exceeding
twentyone years.
Sec. 83. That cities of the second class of the state of Kansas are hereby granted
full power and authority, on behalf of said cities, to purchase, procure, provide,

and contract for the construction of and construct waterworks, electric light and
gas plants for the purpose of supplying such cities and the inhabitants thereof
with water, light, and gas for domestic use and any and all other purposes.