Opinion — Omaha v. Omaha Water Co.

CITY OF OMAHA v. OMAHA WATER COMPANY.

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE

EIGHTH CIRCUIT.

No. 159. Argued April 19, 1910.—Decided May 31, 1910.

In the absence of any provision in the submission, the award of ar-

bitrators or appraisers must be unanimous in matters of private

concern, but a majority can act when the matter submitted is one

which concerns the public.

The fact that public affairs are controlled by majorities is probably the

basis of the above rule although the reason for the distinction therein

contained is not altogether clear.

OMAHA v. OMAHA WATER CO. 181

218 U.S. Argument for Petitioner.

The purchase by a municipality, under authority and direction of the

legislature of the State, of a water supply system, and the determina-

tion of the price to be paid for an existing plant are matters of public

concern.

There is a distinction between an arbitration and an appraisal of value

and although arbitrators may not independently take testimony

as to disputed facts appraisers may, as in this case, properly examine

books and papers relating to the property, in the absence of counsel,

without being guilty of misconduct; and, in the absence of bad

faith, such examination will not vitiate the award.

The legislature of a State may authorize a municipality to purchase

& water system which extends beyond the city limits and to supply

water to adjacent sections; and so held that the city of Omaha has

such right, and that an appraisal of a water system is not bad, and

hence not binding on the city, because it includes the entire system,

parts of which are beyond the city limits.

There is a presumption against an intent to dismember a complete

waterworks system, and an ordinance to purchase such a system

- will not be construed as requiring such dismemberment, even if the

city had no power to use certain portions of the system.

Cost of duplication, less depreciation, of a water system, is less than the

commercial value of the system as a going concern; and, even though

the value of the unexpired franchise be expressly excluded from the

appraisal, where the parties contemplate the purchase of a complete

water system in operation, a reasonable amount should be included

in the appraisal for the “going value”’ over the value of the physical

properties.

A transaction of great magnitude such as the purchase by a city of a

water supply system will not be defeated because of minor obstacles;

and if the deed tendered includes a few properties to which title is

not perfect or if there are incumbrances on the properties, the court

can bring the proper parties in and the deed can be modified and in-

terests protected so as to carry out, and not defeat, the transaction.

Tue facts are stated in the opinion.

Mr. John Lee Webster, with whom Mr. Carl C. Wright

and Mr. Harry E. Burnam were on the brief, for petitioner:

The award is void because not concurred in by the

three appraisers. The election to purchase contemplated

the valuation to be ascertained by all three appraisers.

182 OCTOBER TERM, 1909.

Argument for Petitioner. 218 U.S.

The fact that each party selected an appraiser, and these

two the third appraiser, does not give the right by im-

plication or otherwise, to two appraisers alone to make an

award, and one so made is void. Willis v. Higginbotham,

61 Mississippi, 164; Harvin v. Denton, 87 Mississippi,

238; Weaver v. Powel, 148 Pa. St. 372; Lowe v. Brown,

22 Ohio St. 463; Stose v. Heissler, 120 Illinois, 433; Sher-

man v. Cobb, 10 Atl. Rep. 591; Memphis & Charleston Ry.

Co. v. Pillow, 56 Tennessee, 248; Jeffersonville Ry. Co. v.

Mounts, 7 Indiana, 669; Patterson v. Leavitt, 4 Connecti-

cut, 50; United Kingdom &c. v. Houston, 1 Q. B. L. R.

567.

The contract of submission will be construed as requir-

ing the award to be concurred in by all the appraisers or

arbitrators, unless by express words or necessary implica-

tion it authorizes an award by less than all. Richards v.

Holt, 61 Iowa, 529; Hubbard v. Great Falls Mfg. Co., 80

Maine, 39; Lowe v. Brown, 22 Ohio St. 463; Godfrey v.

Knodle, 44 Ill. App. 638; Oakley v. Anderson, 93 N. C.

108; Mackey v. Neill, 53 N. C. 214; Anderson v. Farnham,

34 Maine, 161; Owens v. Withee, 3 Texas, 161; Stose v.

Heissler, 120 Illinois, 433; United Kingdom &c. v. Houston,

1 Q. B. L. R. 567.

All must concur in the award to make it valid unless the

parties have agreed that it may be made by less than all.

Unless there is such an agreement clearly and unmis-

takably expressed the award will be held void when signed

by two and not concurred in by the third. Leavitt v.

Windsor, 54 Fed. Rep. 439; Harryman v. Harryman, 43

Maryland, 140; Byrd v. Harkrider, 108 Indiana, 376;

Willis v. Higginbotham, 61 Mississippi, 164; Weaver v.

Powel et al., 148 Pa. St. 372; Eames v. Eames, 41 Con-

necticut, 177; Towne v. Jaquith, 6 Massachusetts, 46;

Green v. Miller, 6 Johns. 39; Patterson v. Leavitt, 4 Con-

necticut, 50; Nettleton v. Gridley, 21 Connecticut, 531;

Jeffersonville Ry. Co. v. Mounts, 7 Indiana, 669; Smith v.

-

OMAHA v. OMAHA WATER CO. 183

218 U.S. Argument for Petitioner.

Waldon, 26 Georgia, 249; Lattin v. Gamble, 154 Michigan,

177.

This case is distinguishable from one where the terms

of the submission provide that a third party is an umpire,

to be selected in the event of a disagreement. The sub-

mission in case at bar does not make the third man an

umpire. Sherman v. Cobb, 10 Atl. Rep. 591; Lowe v.

Brown, 22 Ohio St. 463; Jeffersonville Ry. Co. v. Mounts,

7 Indiana, 669; Stose v. Heissler, 120 Illinois, 433; Godfrey

v. Knodle, 44 Ill. App. 638.

The case at bar is not a public appraisement which

would justify an award by a majority of the appraisers.

Such rule only prevails in cases of international con-

troversies, or where the appraisers are appointed under

a public law of the State and are acting in a public or

quasi-judicial capacity.

Contracts between cities and water and gas companies

are business contracts between private individuals.

Omaha Water Co. v. City of Omaha, 147 Fed. Rep. 1;

Wagner v. City of Rock Island, 146 Illinois, 139; Illinois

Trust Co. v. Arkansas City, 76 Fed. Rep. 271; Appeal of

Brum, 12 Atl. Rep. 855; Safety Ins. Wire & Cable Co. v.

Mayor, 66 Fed. Rep. 140; Cincinnati v. Cameron, 33 Ohio

St. 336.

The cases cited by the Court of Appeals to effect that

this appraisement was a matter of public concern do not

support that view.

A public appraisement is where the appraisers or

arbitrators are appointed under a state or national law

a° 1 act as quasi-public officers in the performance of a

public duty. Grindley v. Barker, 1 Bos. & Pull. 229;

King v. Beetson, 3 Term. 529; Withnell v. Gartham, 6

Tennessee, 388; Ex parte Rogers, 7 Cow. 525; Sinclair v.

Jackson, 8 Cow. 543; Young v. Buckingham, 5 Ohio, 485;

State v. McMillan, 29 S. E. Rep. 540; S. C., 52 8. C. 60;

Carroll v. Alsup, 107 Tennessee, 271; Cortis v. Kent Water

ee

184 OCTOBER TERM, 1909.

Argument for Petitioner. 218 U.S. 1

Works, 7 B. & C. 314; Cooley v. O’Connor, 12 Wall. 391;

The King v. Whitaker, 9 Barn. & Cress. 648; People v.

Walker, 23 Barb. 304; People v. Coghill, 47 California,

361; Hewitt v. Craig, 5 S. W. Rep. 280; S. C.,9 Ky. Law

Rep. 232. ,

The award is void because after the appraisers con-

cluded the formal hearing, they privately and against the

protest of the city, received and secretly examined, ex

parte, the books of the water company, under an under-

standing that the city should not be permitted to see or

know the contents of said books. The question to be '

considered involves a moral principle. The incident com-

plained of did not give the city a “square deal.” Such

an examination was misconduct and made the award

void. Catlett v. Dougherty, 114 Illinois, 568; Emery v.

Owings, 7 Gill. 448; Bassett v. Harkness, 9 N. H. 164;

Jenkins v. Liston, 13 Gratt. 535; Rand v. Peel, 74 Missis-

sippi, 305; National Bank v. Darragh, 30 Hun, 29; Warren

v. Tinsley, 53 Fed. Rep. 689; Cameron v. Castleberry, 29

Georgia, 495; Walker v. Frobisher, 6 Ves. 69; Strong v.

Strong, 9 Cush. 560; Hewitt v. Reed City, 124 Michigan,

6; Vessel Owners’ Towing Co. v. Taylor, 126 Illinois, 250;

Elmendorf v. Harris, 23 Wend. 638; Dobson v. Groves, 9

Q. B. 637; Western Female Seminary v. Blair, 1 Disney,

370; In re Plews and Middleton, 6 Q. B. 845; In re Tidswell,

33 Beav. 213; Passmore v. Pettit, 4 Dall. 270; Wood v.

Helme, 14 R. I. 325; Jackson v. Roane, 90 Georgia, 669;

Wilkins v. Van Winkle, 78 Georgia, 557; Rosenau v. Legg,

82 Alabama, 568; Knowlton v. Mickles, 29 Barb. 465;

Sisk v. Gary, 27 Maryland, 401; Cleland v. Hedley, 5 R. I.

163; Lattin v. Gamble, 154 Michigan, 177-181; Luiz v.

Linthicum, 8 Pet. 165; McFarland v. Mathis, 10 Arkansas,

560; Eastern Counties Ry. Co. v. Eastern Union Ry. Co.,

68 Eng. Ch. 609.

These cases also hold that the court will not permit an

inquiry into the ex parte evidence, but will set aside the

OMAHA v. OMAHA WATER CO.

218 U.S. Argument for Petitioner.

award, and it was not necessary for the city to introduce

evidence that the arbitrators were improperly influenced

by the ex parte evidence, but the award will be held to be

void, even though it appears that the appraisers were

respectable gentlemen, or did not consider the ex parte

evidence, or were not influenced thereby.

An arbitrator who takes instructions from one side is in

law acting corruptly. Strong v. Strong, 9 Cush. 560;

Western Female Seminary v. Blair, 1 Disney, 370.

The general rule is that valuers of property, although

called appraisers, or referees, or commissioners, in re-

ceiving evidence and in making awards, are governed

by the law relating to arbitration. Continental Ins. Co.

v. Garrett, 125 Fed. Rep. 589; Christianson v. Norwich Ins.

Co., 84 Minnesota, 526; Mason v. Fire Ins. Assn., 122

N. W. Rep. 423; Hills v. Home Ins. Co., 129 Massa-

chusetts, 345; Washburn v. White, 197 Massachusetts,

540; Insurance Co. v. Hegewald, 161 Indiana, 631; Manf.

Builders’ Ins. Co. v. Mullen, 48 Nebraska, 620; Sherman

v. Cobb, 15 R. I. 570; Lowe v. Brown, 22 Ohio St. 463;

Godfrey v. Knodle, 44 Ill. App. 638; Stose v. Heissler, 120

Illinois, 433; Emery v. Owings, 7 Gill. 448; Redner v.

N. Y. Fire Ins. Co., 92 Minnesota, 306; Earle v. Johnson,

84 N. W. Rep. 332; Hart v. Kennedy, 47 N. J. Eq.

51.

The award is void because the appraisers exceeded their

authority in appraising and including in the award the

sum of $562,712.45 for going value. Knorville v. Water

Co., 212 U.S. 1; Willcox v. Consolidated Gas Co., 212 U. 8.

19, 52.

The award includes property ‘the city is without au-

thority to purchase, and used only to supply other towns.

A municipality acts under delegated power and can

exercise only such rights and powers as are expressly con-

ferred or necessarily implied from express grants; and all

grants of power are to be strictly construed. Citizens’ St.

OCTOBER TERM, 1909.

Argument for Petitioner. 218 U.S.

Ry. Co. v. Detroit Ry. Co., 171 U. S. 48, 53; City of Fort

Scott v. Eads Brokerage Co., 117 Fed. Rep. 51, 54; State

v. Irey, 42 Nebraska, 189.

Cities have no power to levy taxes for the purpose of

maintaining or to own or construct waterworks for the

benefit of adjoining municipalities. Sutherland-Innes Co.

v. Village of Evart, 86 Fed. Rep. 597; Ottawa v. Carey,

108 U. S. 121; Quincy v. City of Boston, 148 Massachu-

setts, 389; Arnold v. Pawtucket, 21 R. I. 15; Duluth v.

Gas & Water Co., 45 Minnesota, 210; Farwell v. City of

Seattle, 43 Washington, 141; Town of Bristol v. Water

Works, 23 R. I. 274.

The only exception is where there is express statutory

authority to that end. West Hartford v. Water Commis-

sioners, 68 Connecticut, 323; Pittsburg v. Brace, 158

Pa. St. 174.

A decree of specific performance should not be entered.

Such a decree will not be entered where the purchaser

would only obtain an equitable title. Wesley v. Eells, 177

U. S. 37; City of Tiffin v. Shawhan, 43 Ohio St. 178; Guild

vy. Atchison, Topeka & Santa Fe Ry., 57 Kansas, 70. A

court of equity will not decree a specific performance

except where the right is clear. Willard v. Tayloe, 8

Wall. 557, 565; Hennessy v. Woolworth, 128 U. S. 438, 442;

McCabe v. Matthews, 155 U. 8. 550, 553; Hildreth v. Duff,

148 Fed. Rep. 676.

Although the proof might not authorize the court to

set aside the award, it may be sufficient for a court of

equity to refuse specific performance. Shoop v. Burnside,

78 Kansas, 871, 876; Banaghan v. Malaney, 200 Massa-

chusetts, 46.

The award fixes the value of the property as of the date

of the award, while the law requires the valuation to be

fixed as of the date of the election to purchase. Bristol v.

Bristol, 25 R. 1. 189; Water Co. v. Cherryvale, 65 Kansas,

219; Caldwell vy. Frazier, 65 Kansas, 24; Water Co. v.

OMAHA v. OMAHA WATER CO. 187

218 U.S. Argument for Respondent.

Rockport, 161 Massachusetts, 279; C., M. & St. P. Ry. Co.

v. Stewart, 19 Fed. Rep. 5.

Mr. Howard Mansfield and Mr. R. S. Hall, with whom

Mr. Herbert C. Lakin was on the brief, for respondent:

There was no misconduct, improper procedure, con-

cealment or secrecy on the part of the board of appraisers

in the examination of the water company’s books, nor

were the books offered in evidence in any technical sense.

The company was entirely within its rights in restricting

the examination of its books to the sole purpose of the

appraisal.

The board of appraisers was not subject to the rules of

procedure governing arbitrations. Laudz v. Linthicum, 8

Pet. 165; Bliss v. Supervisors, 15 N. Y. Supp. 748; 1

Words and Phrases, 487, 490; Garr v. Gomez, 9 Wend.

649, 651; Hall v. Norwalk Fire Ins. Co., 57 Connecticut,

105; Continental Ins. Co. v. Garrett, 125 Fed. Rep. 589.

The subject of the present review is not an arbitration

but an appraisal; and the determination of the matter

submitted to the board of appraisers is not an award, but

an appraisement.

The vital distinction between an arbitration and an

appraisal has been clearly and uniformly recognized from

remote time by the courts. Leeds v. Burrows, 12 East, 1;

Lee v. Hemingway, 3 Nev. & M. 860, note to Parkes v.

Smith, 15 Q. B. 305; Collins v. Collins, 26 Beav. 306;

Eads v. Williams, 4 De Gex, MaeN. & G. 674; Bottomley

v. Ambler, 32 L. T. N. 8. 545; Fry on Specifie Performance,

2d ed., § 341; Garr v. Gomez, 9 Wend. 649; Garrard v.

Macey, 10 Missouri, 161; Curry v. Lackey, 35 Missouri,

389 (1858); Kelly v. Crawford, 5 Wall. 785; G. & C. Sts.

Ry. Co. v. Moore, 64 Pa. St. 79; Palmer v. Clark, 106

Massachusetts, 373; N. E. Trust Co. v. Abbott, 162 Massa-

chusetts, 148; Norton v. Gale, 95 Illinois, 533; Stose v.

Heissler, 120 Illinois, 433; James v. Schroeder, 61 Michi-

188 OCTOBER TERM, 1909.

Argument for Respondent 218 U.S.

gan, 28; Noble v. Grandin, 125 Michigan, 383; M. E.

Church v. Seitz, 74 California, 287; Guild v. Railroad Co.,

57 Kansas, 70; Wurster v. Armfield, 175 N. Y. 256; Norwich

Gas & El. Co. v. Norwich, 76 Connecticut, 565; Earle v.

Johnson, 81 Minnesota, 472, distinguished; Colombia v.

Cauca Co., 190 U. 8. 524.

The three engineers were, from the outset, regarded by

the counsel for both parties, as constituting a board of

appraisers and not a board of arbitrators, and by agree-

ment of both parties were given the widest latitude of

procedure.

The objection as to the examination of the books comes

too late. Drew v. Drew, 33 Eng. Law & Eq. 9.

The appraisement cannot be set aside, except on posi-

tive proof of corruption, partiality or actual misconduct.

Republic of Colombia v. Cauca Co., 106 Fed. Rep. 337;

Brush v. Fisher, 17 Michigan, 469.

The terms of the contract reserving to the city of

Omaha the right to purchase the waterworks necessarily

authorized a valuation by a majority of the board of

appraisers.

The distinction between appraisements in private and

in public concerns is obvious. Colombia v. Cauca Co.,

190 U. S. 528. The acquisition by a city of a system of

waterworks is a matter of public concern. Long Island

Water Supply Co. v. Brooklyn, 166 U. 8S. 685; Wagner v.

Rockland, 146 Illinois, 139; Minneapolis Mill Co. v. Water

Commissioners, 56 Minnesota, 485. See also Winters v.

Duluth, 82 Minnesota, 127; Water Co. v. Eau Clair, 132

Wisconsin, 411; De Portibus Maris, 1 Harg., Law Tracts,

78; Munn v. Illinois, 94 U. 8. 113. See also Budd v.

New York, 143 U. 8. 517; Slingeriand v. Newark, 54

N. J. L. 62; Kennebec Water District v. Waterville, 9%

Maine, 234.

Public policy requires that in a matter of public con-

cern the determination of a majority of the appraisers,

OMAHA v. OMAHA WATER CO. 189

218 U.S. Argument for Respondent.

where all meet to consider the matter, must be taken as

the act of the whole. Grindley v. Barker, 1 Bos. & Pul.

229; McCoy v. Curtice, 9 Wend. 17; Cowan v. Murch, 97

Tennessee, 590, 598; Carroll v. Alsup, 107 Tennessee, 257,

271; Washington v. Nichols, 52 N. Y. 478 ; Green v. Miller,

6 J. R. 39; Ex parte Rogers, 7 Cow. 526, 529; Young v.

Buckingham, 5 Ohio, 485; Colombia v. Cauca Co., 190

U.S. 524; Gas Co. v. Wheeling, 8 W. Va. 320; St. Paul Gas

Light Co. v. St. Paul, 181 U. S. 142; Light Co. v. Mont-

gomery, 87 Alabama, 245.

None of the decisions cited by counsel for the city

conflicts with the rule that unanimity is not necessary in

matters of public concern. See Patterson v. Leavitt, 4 Con-

necticut, 50; Harryman v. Harryman, 43 Maryland, 140;

Lowe v. Brown, 22 Ohio St. 463; Hubbard v. Great Falls

Mfg. Co., 80 Maine, 89; Weaver v. Powell, 148 Pa. St. 372;

Cortis v. Kent Water Works Co., 7 B. C. 314.

The going value of the company’s system of water-

works, as distinguished from the unexpired franchise, is

an integral and essential element of the appraised valua-

tion of the property. Water Works Co. v. Kansas City,

62 Fed. Rep. 853; Gloucester Water Supply Co. v. Glouces-

ter, 179 Massachusetts, 365; Gas & Electric Co. v. Norwich,

76 Connecticut, 565; Knozville v. Water Co., 212 U.S. 1;

Willcox v. Consolidated Gas Co., 212 U. S. 19, distin-

guished.

The valuation by the board of appraisers was prop-

erly made as far as practicable as of the date of their re-

port.

By the terms of the ordinance of election the scope of

the city’s purchase was nothing less than the entire sys-

tem of waterworks owned and operated by the Omaha

Water Company, wherever located.

By the action of the parties, construing the ordinance

with a view to the powers conferred by the statute, the

scope of the contemplated purchase became irrevocably

OCTOBER TERM, 1909.

Argument for Respondent. 218 U.S.

fixed. It cannot now be altered. Knox County v. Na-

tional Bank, 147 U. S. 91; Manhattan Life Ins. Co. v.

Wright, 126 Fed. Rep. 82. See also District of Columbia

v. Gallaher, 124 U. 8. 505, 510; Insurance Co. v. Dutcher,

95 U. 8. 269, 273.

The city is equitably estopped from now claiming that

it has never been its purpose to acquire the entire system

of the complainant. Reynolds v. Adden, 136 U. S. 348;

Hackett v. Ottawa, 99 U.S. 86, 96; County of Randolph

v. Post, 93 U. 8. 502, 513; Bissell v. Jeffersonville, 24

How. 287, 300; Sullivan Timber Co. v. Mobile, 110 Fed.

Rep. 186, 197; Brooks v. Laurent, 98 Fed. Rep. 647;

Garber v. Doersom, 117 Pa. St. 162; Munroe v. Dan-

bury, 24 Connecticut, 199; Tarr v. Mayor of Crete, 32

Nebraska, 568; Water Co. v. Omaha, 156 Fed. Rep.

922.

An equitable estoppel may arise in such a case, appli-

cable to a municipal corporation as well as to any other

corporation or to an individual. Water Co. v. City of

Aspen, 146 Fed. Rep. 8; Indianapolis v. Consumers’ Gas

Trust Co., 144 Fed. Rep. 640; Fayetteville v. Water, L. &

P. Co., 135 Fed. Rep. 400; cases supra and Peabody v.

Westerly Water Works, 20 R. I. 176.

None of the cases cited by counsel for the city is in

conflict with this decision.

Upon the exercise of the option the obligation of the

defendant to complete the purchase became absclute and

the question cannot be raised as to power to purchase.

Castle Creek Water Co. v. City of Aspen, 146 Fed. Rep. 8;

Water Co. v. Braintree, 146 Massachusetts, 482; Fayette-

ville v. Water, Light & Power Co., 135 Fed. Rep. 400;

Ralls County Court v. United States, 105 U. 8. 733; Sala v.

New Orleans, 2 Woods, 188.

No valid equitable considerations appear against a

decree of specific performance being entered as directed

by the Circuit Court of Appeals. +

OMAHA v. OMAHA WATER CO. 191

218 U.S. Opinion of the Court.

Mk. Justice Lurton delivered the opinion of the court.

This is a bill seeking the specific performance by the

city of Omaha of a contract for the purchase and sale of

the system of waterworks owned by the appellee com-

pany. The waterworks plant in question was constructed

in pursuance of legislative authority and municipal ordi-

nance, which need not be considered, for neither party

questions the sufficiency of either. The fourteenth sec-

tion of the ordinance of 1880, under which the waterworks

were constructed by the predecessor of the appellee, was

in these words:

“The city of Omaha shall have the right at any time

after the expiration of twenty years to purchase the said

waterworks at an appraised valuation, which shall be as-

certained by the estimate of three engineers, one to be

selected by the city council, one by the waterworks com-

pany and these two to select the third: Provided, That

nothing shall be paid for the unexpired franchise of said

company.”

In 1903 the city elected to exercise this option and a

board of appraisers was appointed, one by each of the

parties and a third by the two so selected. This board

of appraisers organized and proceeded to take evidence,

and, after considering the matter for about three years,

made an appraisement, fixing the value of the system at

$6,263,295.49. The appraiser appointed by the city did

not concur. The city rejected the award. Whereupon

the company filed this bill, which, upon final hearing,

was dismissed upon the sole ground of misconduct of the

appraisers, other objections not being passed upon. Upon

appeal this decree was reversed and the cause remanded

for a decree in pursuance of the opinion of the appellate

court. 162 Fed Rep. 232.

The case is here upon a writ of certiorari allowed at a

former term.

OCTOBER TERM, 1909.

Opinion of the Court. 21é U.S.

Three major objections have been urged against the

appraisement. First, that it was not concurred in by all;

second, that the appraisers heard certain evidence with-

out notice or giving the city an opportunity to hear or

rebut; and, third, that the property valued includes a

distributing system beyond the corporate limits of Omaha,

by which certain suburban villages are supplied, and that

to that extent the city made no contract to buy, and if it

did, had no power to do so.

These in their order:

1. The only matter to be determined was the value of

the waterworks system, which had long served the public.

Its construction had been authorized by legislative enact-

ment under which the municipal ordinance was passed.

One section of this ordinance provided that the city at

the end of twenty years might, at its election, purchase

the works at a value to be determined by appraisers. The

contention is that the refusal of one of the appraisers to

concur in the valuation fixed by the majority defeated

the appraisal. The matter in question was in no proper

sense an arbitration. The contract was in all of its terms

agreed upon. One party was to sell and the other to buy

at a valuation determined by the board of appraisers, and

unanimity was not stipulated for. Unanimity was hardly

to be expected in a board made up as this was. When a

matter of purely private concern is submitted to the de-

termination of either arbitrators or appraisers the rule

seems to be that there must be unanimity of conclusion

by such board, unless otherwise indicated by the terms of

the submission. Hobson v. M’ Arthur, 16 Pet. 182, 192;

Green v. Miller, 6 Johns. 39; Gas Company v. Wheeling,

8 W. Va. 320, 351 et seg. The rule is, however, otherwise

when the submission is one which concerns the public.

In such submissions, whether it be the arbitration of a

difference or the ascertainment of a value, a majority

may act, unless otherwise indicated by the agreement for

OMAHA v, OMAHA WATER CO, 193

218 U.S. Opinion of the Court.

submission. Why this distinction should exist is not al-

together clear. In both instances the persons to whom the

submission is made are acting under a power and must

stay within it. The reason probably lies in the fact that

public affairs are controlled by majorities, and, by analogy,

a majority should control when the submission is a matter

which concerns the public. But whatever the reason, so

are the authorities. Colombia v. Cauca Co., 190 U. S.

524; The People ex rel. v. Nichols, 52 N. Y. 478; Gas Com-

pany v. Wheeling, 8 W. Va. 320; Grindley v. Barker, 1

Bos. & Pul. 229.

The construction and acquisition of a system of water

supply and distribution was a public municipal function.

The Nebraska legislature, in 1903, went so far as to re-

quire municipal ownership of a water supply system in

the city of Omaha, and that this should be accomplished

either by construction or by the purchase of the existing

system. The city, in compliance with and in the exer-

cise of the power conferred when the existing plant was

constructed, elected to purchase the existing system under

the ordinance of 1880 and the power therein reserved.

That in such circumstances the determination of the price

to be paid by a submission was a matter of public con-

cern, is too clear for argument. The cases cited above

cover the point. The appraisal was not therefore defeated

because not concurred in by all.

The distinction suggested by counsel that the authority

for the submission must come from the public, if there

be anything of substance in it, does not prevent the opera-

tion of the rule here, for the purchase upon a valuation

settled by appraisers was in the ordinance of the city, in

pursuance of legislative authority, and, in a very true

Sense, was an authority to submit to appraisers which

came from the public.

2. The next objection is that the appraisers heard evi-

dence in the absence of the city and without opportunity

VOL. ccxvui—13

194 OCTOBER TERM, 1909.

Opinion of the Court. 218 U.S

to reply, and that this was such misconduct as to vitiate

the valuation. As already hinted, this was not a board

of arbitrators. An arbitration implies a difference, a dis-

pute, and involves ordinarily a hearing and all thereby

implied. The right to notice of hearings, to produce

evidence and cross-examine that produced is implied when

the matter to be decided is one of dispute and difference.

But when, as here, the parties had agreed that one should

sell and the other buy a specific thing, and the price should

be a valuation fixed by persons agreed upon, it cannot be

said that there was any dispute or difference. Such an

arrangement precludes or prevents difference, and is not

intended to settle any which has arisen. This seems to

be the distincticn between an arbitration and an appraise-

ment, though the first term is often used when the other

is more appropriate.

Counsel have cited and pressed upon us the case of

Continental Insurance Co. v. Garreti, 125 Fed. Rep. 589,

as a case where an appraisement of a fire loss was set aside

because evidence was heard in the absence of the parties.

But that was a case where the full amount of the insurance

was claimed as the extent of the loss. This was denied.

It was therefore a plain case of the submission of a dispute

or difference which had to be adjusted. The rule appli-

cable to a judicial proceeding therefore applied. It was in

fact an arbitration, though the arbitrators were called

appraisers. The dispute concerned the thing which had

been destroyed, the value of something which was not to

be inspected and valued from observation because it was

not in existence. Evidence was therefore essential to

show what had been destroyed as well as its value. The

case is wholly unlike the one here presented.

In Collins v. Collins, 26 Beav. 306, where there was a

contract for the sale of a brewery at a price to be fixed

by persons called arbitrators, one chosen by each party

and a third by these two, before entering upon valua-

OMAHA v. OMAHA WATER CO. 195

218 U.S. Opinion of the Court.

tion; it was ruled that they were not arbitrators but ap-

praisers, and the Master of the Rolls, Sir John Romilly,

said:

“But I do not think that in this particular case the

fixing of the price of the property is an arbitration, in the

proper sense of the term. An arbitration is a reference

to the decision of one or more persons, either with or with-

out an umpire, of some matter or matters in difference

between the parties. It is very true that in one sense it

must be implied that although there is no existing differ-

ence, still that a difference may arise between the parties;

yet I think the distinction between an existing difference

and one which may arise is a material one, and one which

has been properly relied upon in the case. If nothing

has been said respecting the price by the vendor and pur-

chaser between themselves, it can hardly be said that

there is any difference between them. It might be, that

if the purchaser knew the price required by the seller,

there would be no difference, and that he would be will-

ing to give it. It may well be, that if the vendor knew

the price which the purchaser would give, there would be

no difference, and that he would accept it. It may well

be, that the decision of a particular valuer appointed

might fix the price and might be equally Satisfactory to

both; so that it can hardly be said that there is a difference

between them. Undoubtedly, as a general rule, the seller

wants to get the highest price for his property, and the

purchaser wishes to give the lowest, and in that sense it

may be said that an expected difference between the par-

ties is to be implied in every case, but unless a difference

has actually arisen, it does not appear to me to be an

‘arbitration.’ Undoubtedly, if two persons enter into an

arrangement for the sale of any particular property, and

try to settle the terms, but cannot agree, and after dis-

pute and discussion respecting the price, they say, ‘we

will refer this question of price to A. B., he shall settle it,’

196 OCTOBER TERM, 1909.

Opinion of the Court. 218 U.S,

and thereupon they agree that the matter shall be referred

to his arbitration, that would appear to be an ‘arbitration,’

in the proper sense of the term, and within the meaning

of the act; but if they agree to a price to be fixed by an-

other, that does not appear to me to be an arbitration.”

In the present case there was not only no antecedent

disagreement as to price, but the ordinance under which

the purchase was to be made provided that the property

was to pass ‘“‘at an appraised valuation, which shall be

ascertained by the estimate of three engineers,” etc. The

board was accordingly made up of such engineers selected

because they were experts of experience in the service

they were expected to perform. That it was the under-

standing that these engineers were to examine and estimate

the value and acquaint themselves with the condition

and extent of the property in question in their own way

and not according to the procedure required in a judicial

proceeding, is made clear by the avowals made by the

counsel representing the parties at the beginning of the

valuation. Thus the attorney for the city, addressing

the valuers, said:

““As to the matter of the procedure to be adopted by

your board, as to the method of arriving at the amount

of property owned by the water company, and the deter-

mination of its value, the city of Omaha suggests that this

board, having been appointed as experts in regard to the

value of such property, ought to make a personal investi-

gation as to the amount and extent of the property of the

water company, together with its condition, and determine

therefrom its value. As to the method of arriving at the

amount and condition of the property of the water com-

pany, the city of Omaha suggests that this.board may

arrive at such facts by any method or means deemed ad-

visable by it, but that, if the board shall determine to

take proof and testimony before it, that it should go no

further than to the question of the amount and condition

OMAHA v. OMAHA WATER Go. 197

218 U.S. Opinion of the Court.

of the property, and that said testimony should not be

conclusive upon this board, but simply for its advice and

information in the matter. It is not the opinion of the

city of Omaha that it would be proper or necessary to

call expert witnesses as to the value, since the members

of the board have been selected as experts, (to) whose

judgment the question of value must be submitted upon

the examination of the property.”

Counsel for the water company appear to have fully

concurred in this view of the function of the board.

That the great bulk of the evidence was heard or sub-

mitted in the presence of counsel representing both sides

istrue. This course did not, however, preclude them from

enlightening their judgment as experts by either personal

inspection or by informing themselves in any other way

of the value of the plant in question without calling in

counsel if they desired further information. The thing

complained of is that the valuers called upon the company

for their books and that they had these books gone over

by an expert auditor of their own selection. This, counsel

Say, was done without notice to the city and after the

close of the hearings. But it was not done secretly, for

the city learned of it and asked an opportunity to be

present when the books were submitted. What informa-

tion was derived from the books is not shown. We have

only the lone fact that the appraisers of their own motion

asked an opportunity to look over and have audited the

company’s books, and that the company granted the

privilege as “confidential information” for the use of the

appraisers only. Neither are counsel justified in saying

that the books were called for after the matter was in the

hands of the appraisers for conclusion. When the par-

ties had submitted their maps, plats, blue prints and such

other evidence throwing light upon the value of the plant,

as they desired, and had been heard in argument and upon

brief, the chairman of the board said in substance to

DAS its £ ab, Dai B AN Deere Aa TIES oe

198 OCTOBER TERM, 1909.

Opinion of the Court. 218 U.S.

counsel that much time would be necessary to reach a

‘conclusion; that the real work of valuation had been but

begun, and that ‘‘much more information must be sought

by this board.”

There is not the slightest evidence in the record of

partiality, bad motive or misconduct affecting the action

of the board. Its members appear to have been gentle-

men of high character professionally and otherwise, and

if their conclusion is te be set aside it must be because

they deemed it within their power to have a confidential

examination made of the books of the company to assist

them in arriving at a valuation.

If this was a technical arbitration of a matter of dis-

pute or difference between the parties, to be heard and

decided upon evidence submitted, the examination of the

company’s books without the consent of the city or the

presence of its representatives would be such misconduct

as would vitiate the award. In such a matter the rules

relating to judicial inquiry would apply. Continental In-

surance Co. v. Garrett, 125 Fed. Rep. 589, and cases cited.

But in an appraisement, such as that here invelved, the

strict rules relating to arbitration and awards do not ap-

ply, and the appraisers were not rigidly required to con-

fine themselves either to matters within their own knowl- ;

edge or those submitted to them formally in the presence

of the parties; but might reject, if they saw fit, evidence |

so submitted, and inform themselves from any other

source, as experts who were at last to act upon their own

judgment. Kelley v. Crawford, 5 Wall. 785, 790; Railway

Co. v. Moore, 64 Pa. St. 79, 91; Palmer v. Clark, 106 Massa-

chusetts, 373, 389; M. E. Church v. Seitz, 74 California,

287; Curry v. Lackey, 35 Missouri, 394.

In the absence of any evidence of actual bad faith we

do not hesitate about agreeing with the Circuit Court of

Appeals in the conclusion that there was no such miscon-

duct as to vitiate the valuation.

fe MLEGAS SGI EON RNAS TOSS PRR RE Oe REI MR

OMAHA »v. OMAHA WATER CO. 199

218 U.S. Opinion of the Court.

3. The next contention is that the valuation includes

property not within the submission, and which the city

did not have power to buy. The point from which the

water was taken by the existing water plant was beyond

the corporate limits of Omaha. In the immediate suburbs

of the city there are several villages outside the corporate

limits. The distributing system of the Omaha Water

Company has, from time to time, been extended to these

outlying suburban towns. It is now said that the ap-

praisers have valued these outlying distributing systems

as a part of the plant to be acquired by the city under the

ordinance electing to purchase.

As to the power of the city: The charter, § 27, Laws of

Nebraska 1897, page 99, provided for the construction

and maintenance of waterworks ‘either within or with-

out the corporate limits of the city.”” This is said to only

allow the location of pumping works or source of supply

outside the city. The city does not therefore object to

valuing the supply station and mains extending to the

city as within the contemplated purchase. But it is said

that the authority is limited to a distributing system

wholly within the corporate limits. That the primary

purpose was to supply the people of Omaha with water

for public and private purposes is clear. But does that

forbid that those who live outside may not be also sup-

plied from the main plant, and, if necessary, by such ex-

tensions, not inconsistent with the primary object, as may

prove desirable as suburbs grow up around the city?

These powers were supplemented by the charter of

1897. Under § 27 of that charter it was given, among

other things, ‘power to appropriate any waterworks sys-

tem, plant or property already constructed, to supply

the city and the inhabitants thereof with water, or any

part thereof, whether lying within said city or in part

without the city and within ten miles from the corporate

limits of such city, including all real estate, buildings,

200 OCTOBER TERM, 1909.

Opinion of the Court. 218 U.S.

machinery, pipes, mains, hydrants, basins, reservoirs and

all appurtenances reasonably necessary thereto, and a

part of or connected with said system, plant or property,

and franchises to own und operate the same, if any.”

This was again supplemented by the act of 1903, chap-

ter 12, providing a method of procedure for acquiring mu-

nicipal water plants and the creation of a water board for

their control and management, being the act under which

the city was required to take steps to acquire its own water

plant system. Again, by the act of 1907, chapter 12a, it

is, among other things, provided by § 242, that the water

board may contract with any municipality adjacent to

said city to supply such municipality with water for

domestic, mechanical, public or fire purposes, a provision

plainly contemplating just vuch a condition as would en-

sue if the city should acquie the existing system of works

with a distributing system extending to villages adjacent.

The review of the legielntion touching the power of the

city, and the conclusion of the Circuit Court of Appeals

from that legislation. that the ~ity had the power to ac-

quire the system #« it existed, and has the power to operate

so much of it ax is intended to supply the suburban towns

adjacent which may bx acquired, is full and satisfactory,

and meets cu. approval.

We are *iso satisfied with the conclusion of the Circuit

Court of Appeals that the acquisition of the system as it

existed at the time the city made its election to purchase

was within the contemplation of both the city and the

water company, and that the valuation of the system as

an entirety was the matter which the appraisers were re-

quired to do. What we shall say upon this point will

support our conclusion as to the power of the city, for the

legislation upon that matter must be read in the light of

the subject-matter and of all the known local conditions.

The most weighty fact in this connection is, that the

system was one single system, having a common source

OMAHA v. OMAHA WATER CO. 201

218 U.S. Opinion of the Court.

of supply and common main connections therewith. Its

dismemberment is not to be thought of unless it is clear

that the ordinance exercising the option is so plainly

limited to the purchase of only so much of the distribut-

ing system as lay wholly within the corporate limits as to

admit of no other meaning. A presumption against dis-

memberment is not overthrown even if the city had no

power to sell water to people or municipalities beyond its

limits. If these outside distributing pipes could not be

lawfully used by the city for the purpose for which the

water company had used them, it does not follow that a

contract to buy would be thereby any the less a contract

to buy the plant as a unitary system. Aside from con-

tract obligation which may pass with the plant, the city

might cut off the supply of water to such outlying en-

virons, if it saw fit, whether it could or could not legally

supply water through the distributing pipes which had

theretofore reached them. Certain it is that as the several

towns adjacent had no source of supply, no pumping

station of their own, disintegration would leave the water

company with no means of supplying them with water.

The distributing pipes under ground would, separated

from the ownership of the pumping station, reservoir,

filling, or settling basins, necessarily lose much of the

value which attached to them as a part of a going

plant.

The reservation in the ordinance under which the works

were constructed should be read and interpreted in the

light of the almost certain extension of the plant as the

expansion and growth of the city might demand. The

city, at the time the ordinance was passed, had some

thirty thousand people. When the election to buy the

plant was made it had, approximately, four times as

many. 4s is usual in respect of growing cities, there had

grown up around it groups of population, which, in some

cases, expanded into semi-dependent municipalities. Con-

OCTOBER TERM, 1909.

Opinion of the Court. 218 U.S.

nected by continuous streets and car lines, they made

one large community, .and constituted greater Omaha.

The water company, as was obviously expected from the

beginning, expanded with Omaha and met the public

necessities by including these outside populations within

its distributing system.

The appraisers in making their estimate of valuation

included $562,712.45 for the ‘‘going value.’”’ This sepa-

ration of an element contributing to the value of each

tangible part was done because required to be done under

an order made in the Circuit Court in a suit in which the

water board of the city of Omaha was complainant and

the members of the board of appraisers and the water

company were defendants. The object of that suit was

to instruct the appraisers in respect to the mode and man-

ner in which they should proceed. An order resulted

which required the board to report the separate elements

making up the aggregate value of the plant.

The option to purchase excluded any value on account

of unexpired franchise; but it did not limit the value to

the bare bones of the plant, its physical properties, such

as its lands, its machinery, its water pipes or settling

reservoirs, nor to what it would take to reproduce each

of its physical features. The value in equity and justice

must include whatever is contributed by the fact of the

connection of the items making a complete and operating

plant. The difference between a dead plant and a live

one is a real value, and is independent of any franchise

to go on, or any mere good will as between such a plant

and its customers. That kind of good will, as suggested

in Willcox v. Consolidated Gas Co., 212 U.S. 19, is of little

or no commercial value when the business is, as here, a

natural monopoly, with which the customer must deal,

whether he will or no. That there is a difference between

even the cost of duplication, less depreciation, of the

elements making up the water company plant, and the

OMAHA v. OMAHA WATER CO. 203

218 U.S. Opinion of the Court.

commercial value of the business as a going concern, is

evident. Such an allowance was upheld in National Wa-

terworks v. Kansas City, 62 Fed. Rep. 853, where the

opinion was by Mr. Justice Brewer. We can add nothing

to the reasoning of the learned Justice, and shall not try

to. That case has been approved and followed in Glouces-

ter Water Co. v. Gloucester, 179 Massachusetts, 365, and

Norwich Gas Co. v. City of Norwich, 76 Connecticut,

565. No such question was considered in either K noxville

v. Knoxville Water Co., 212 U.S. 1, or in Willcox v. Con-

solidated Gas Co., 212 U. 8. 19. Both cases were rate

cases, and did not concern the ascertainment of value

under contracts of sale.

Aside from the errors pointed out in the petition for

the writ of certiorari counsel have suggested certain diffi-

culties before a final decree, which are not disposed of in

the opinion or decree of the Circuit Court. of Appeals.

The Circuit Court had dismissed the bill. The Circuit

Court of Appeals considered and decided all of the large

questions which were involved under the bill, but did not

direct the precise form of the decree which the Circuit

Court should enter, and remanded the case with direc-

tion to reverse the decree dismissing the bill, and to pro-

ceed in accordance with the opinion. Referring to cer-

tain matters left open, the court, in its opinion, said:

“In a transaction of this magnitude there will always

be encountered minor obstacles that will readily yield to

business methods. What the parties cannot agree upon

the trial court has full power to determine according to

principles of right and justice. We refer here to such

contentions as that there are two or three properties in the

city of Omaha belonging to the company but not needed

in the business, and also that there are supposed defects

in its title to other properties. The latter are not of

great importance in comparison with the magnitude of

the entire system. The property not needed was ap-

204 OCTOBER TERM, 1909.

Opinion of the Court. 218 U.S.

praised separately and it can be excluded from the sale,

and the trial court can determine whether the title to

other properties is defective. It is not necessary that the

title of the company to all the lands upon which its works

are built or through which its pipes are laid should be a

fee simple, perfect in every particular and subject to no

criticism. An irrevocable license, for instance, would be

sufficient, or a title based upon prescription. If, however,

there should be found substantial defects opportunity

should be given the company to remedy them, and if it is

unable to do so the parts of the property so circumstanced

can be valued and the purchase price abated accordingly.

It would be expressing too narrow a view to say that an

appraisal of a great system of waterworks under a con-

tract of purchase must fail because the title to a small part

not vital to the integrity of the system was afterwards

found to be defective. That the deed tendered by the

company was not such as the city was required to take is

immaterial. It is sufficient that the company was able,

ready and willing to do what might lawfully be required

of it. At some time during the progress of the cause in

the trial court the trustees of the mortgages should be

made parties to the end that the precise amount of out-

standing bonds may be ascertained and paid and the

liens discharged concurrently with payment by the city

of the purchase price. Doubtless the company will have

to use the proceeds of sale in paying its mortgage in-

debtedness. Or if an arrangement is desired such as was

made in the Kansas City case, whereby the mortgages are

assumed by the city, and the company released from

liability, the presen¢e in the case of the trustees would

facilitate it.

“The decree is reversed and the cause is remanded with

direction to proceed to decree in accordance with the

views expressed in this opinion.”

We do not feel ourselves under any obligation to do

4. teh Se ey ee eee te ,

HERTZ v. WOODMAN.

218 U.S. Syllabus.

more than to hold that we find no error in the decree of

the Circuit Court of Appeals and to remand the case to

the Circuit Court to be proceeded with accordingly.

Affirmed.

aN

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