Appellants Brief — Railroad Comm'n of Cal. v. Los Angeles R. Corp.

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CIEL, RE ATIORLE BOO IPME IOS HL ABEL He EAN EA, MSR ALD POP AIEEE LL FER SEB ON MS,

FILE COPY [rani

In the Supreme Court

OF THE

Ruited States

OcrTosER TERM, 1929

No. 60

THE RAILROAD COMMISSION OF THE STATE

or CALIFORNIA, and THE City or Los

ANGELES,

Appellants,

VS. {

Los ANGELES RatLwAy CoRPoRATION (a

corporation),

Appellee.

BRIEF OF APPELLANT,

RAILROAD COMMISSION OF THE STATE OF CALIFORNIA.

¥ ArrHuR T. George,

Ira H. Rowe t,

Roverick B. Cassipy,

State Building, San Francisco,

Attorneys for Appellant,

Railroad Commission of the

State of California.

Subject Index

Page

The opinion of the court below... _............02..c cee eee 1

NS. 5. nthe Suwon went ba0ec ue dbhonesus ieademed 2

Statement of the case............... rere wharves Cop nelimesie 2

Specification of assigned errors to be urged............ canes ae

Argument .......ccccceeeees ecbSsagede pie cevewe Seuueeeeey ae

I. Appellee’s franchises are contract.....-............ Il

II. The City e* Los Angeles possessed and now possesses

authority to make sueh contracts and impose rate con-

ditions and provisions therein.....................8.

III. Where a valid ¢ontract fixing rates has. been entered

into between a city and a public utility there is no

confiscation .......... OT ee iid bats ip enkn Sau eh uke oh

IV. The contracts here were binding as between the parties

until the Commission. exercised the power delegated to

it by the legislature by increasing the contract rate in

the manner provided by the Public Utilities Act of

California .... ..... ve eiiiteheradaeudd ee eenee vere

V. The court erred ji holding that the Raiiread Com-

mission by its orders of 1921 an@ 1928 abrogated the

rates fixed in the various franchise contracts in ques-

PN AEN as a Gunde ak i takh Oi ss agndduci > ni <> 6 based e oe en

Table of Authorities Cited

Salt Lake City v. Utah Light & Traction Co., 52 Utah 476,

ee ee |

Pages

Albany v. U. 8. Guaranty & Fidelity Co., 38 Cal. App. 466

Cleveland v. Cleveland City Rwy. Co., 194 U. S. 517....14,34

Columbus Railway & Power Co. v. City of Columbus, 249

DE ME Cioiwés Gobeosee esa aebisnesiSARbsanecanee 14, 34, 37

Corporation Commission v. Henderson Water Co., 190

Dy WU 6ecbddaushoabunus dawend bes clas aucasee 48

Denney v. Pacific Tel. & Tel. Co., 276 U. S. 97......... 63, 64, 67

Detroit v. Detroit Citizens Rwy. Co., 184 U. S. 368...... 34

Detroit United Railway v. Michigan, 242 U. S. 238...... 34

Georgia Rwy. & Power Co. v. Town of Decatur, 262 U. S.

DE Gaui warded caved ethbbah ends dambbséiedebeisos 34, 36

Henderson Water Co. v. Corporation Commission, 269 U.S.

DP -Usbavcenacedinedadcetvasnaretauescureee 43, 46, 64, 65, 67

Henrici v. So. Feather Land ete. Co., 177 Cal. 442........ 55

Home Tel. & Tel. Co. v. City of Los Angeles, 211 U. S. 265 32

Kaul v. American Independent Tel. Co., 95 Kans. 1, 147

nT; Pi. anodes tebecapinnsed ebaie Gthinenbabkbnaaeene 70

Los Angeles Railway Company v. Los Angeles, 152 Cal. 242 15

Manitowoe v. Manitowoc & Northern Traction Co., 145

i 2 Us Med pinks biees peshedene se echheue 49

Milwaukee Elec. Rwy. & Light Co. v. Railroad Commission,

i ih Mn vnc hbteunovekt epee oteleedséundys indes 49

Monroe v. Detroit M. & T. Short Line R. Co., 187 Mich.

as, ip a> a nadeeks beendad db enuastoutescaed ee 51

Oklahoma Natural Gas Co. v. Russell, 261 U. S. 290...... 47

Opelika v. Opelika Sewer Co., 265 U. S. 215........... 33, 34, 43

Padueah v. Paducah Rwy., 261 U. S. 267................34,40

St. Cloud Pub. Serv. Co. v. City of St. Cloud, 265 U. 8. 352 34

St. Helena v. San Francisco ete. Rwy., 24 Cal. App. 71. 16

TaBLe or AvuTHoritizs CrTEep iii

Pages

San Antonio v. San Antonio Pub. Ser. Co., 255 U. S. 547. .34, 35

San Diego v. Kerekhoff, 49 Cal. App. 473................ 18

So. Iowa Elec. Co. v. Chariton, 255 U. S. 539............ 34, 39

Southern Pacific Co. v. Spring Valley W. Co., 173 Cal. 291 54

Southern Utilities Co. v. Palatka, 268 U. S. 232: .43, 62, 64, 65, 67

State ex rel. Ellertsen v. Home Tel. & Tel. Co., 102 Wash.

ED Ws MOGs decd i overvcevhés aces cs-odcdiiecke 53

Sumpter G. & P. Co. v. City of Sumpter, 283 Fed. 931.... 53

Traverse City v. Citizens Tel. Co., 195 Mich. 374, 388, 161

ME Sevens saoeadeketridnccsanéinacbnasaan 61

Traverse City v. Michigan Railroad Commission, 202 Mich.

tr TE Oa: MRS Diss ans thveseedenes’ chadekinsdod 52

Vicksburg v. Vicksburg Water Works Co., 206 U. S. 496. 34, 35

Washington, State of v. Pacific Tel. & Tel. Co., 1 Fed.

I rdhines es hun insted debbie Sack O6 bon tokbh ae 53

Wichita Railroad & L. Co. v. Pub. Ut. Comm. of Kansas,

TE ohtvdce sv vcncds ce udedvensestminiie uD 61, 68

Woodburn v. Pub. Serv. Comm., 82 Or. 114, 161 Pace. 391.. 53

Other Authorities Cited

Pages

California, Civil Code of:

ES a ee la ahs ok den tube ee eee bes 20

a Soe i eee hs a tid Set as 20, 27, 30, 32

ee ee LE kd nt ee aah a Ok ae Rea bO-0e 20

California, Constitution of:

es ies sy pe ee hanes he obec beiresass 32

eked ne phe nde hal bAKK pS Ch te Rba ves 24

RR es oe eek Be ieee ahh ed sawed esas s 25, 30

eM een, cdi ve hese ae bee OS bas Baes © 41

ee eS an diane ak Caere nes 41

ree Te TR sk vin aio ces Oe oc wend 27, 28, 29, 30, 41, 42

California, Statutes of:

Os 5 aa he benendhi.te ibs chen eewias'en 24

EO nla aatcat soe > a5 kw ES bbe 64 00.0 21

i Si Tis sd aon s saheke Kees eclusse 22

i AOE bie ke chance kedeeebhaducern cess s 22

ee TE: wows saachadnstecus dnb canes ¢ee.ye 22

i RG cee tee ececdns cohen bnes ae pees’ s 24, 27

EC EE, oir a gh'n's bab ueas ers deka eben en’ 22

EE ac dd sent euhankvbkawssugiews akbees 29, 41

ee ES cc ncddnd vuvenkedwenbasehs wun 25

ee eck Vik wie ker 29, 41, 42, 43, 61, 63, 72

I e's aes kis Kee nu WO RSS Kh Ry wt 22, 27, 30

California, Public Utilities Act of:

as us coe aah eee 42, 71, 73

RE. Pe ak en eee ee Ae ee RE, Co ae 61

RN te i ee hae 29, 42, 68, 71, 73

I ek ee eS Oe og a vs ee ew’ bela 43, 63, 71, 73

MR CPt Cee ica te Ae esi scat ae ekapees BENS 62

RT Woke SEDO LAL eS Sse, cok ch ay abe souny babies 71, 72

i a Ce A OE, . ise vcwerencsssaseusbeeeen 69

North Carolina, Statutes:

Consolidated Stats. 1919, See. 1066.................. 48

United States ( Ode :

Title 28, See. 380 (formerly Judicial Code, Sec. 266).. 1, 2

In the Supreme Court

OF THE

United States

OctoBeR TERM, 1929

No. 60

THE RatLRoaD COMMISSION OF THE STATE

or CALIFORNIA, and THE City or Los

ANGELES,

Appellants,

vs.

Los ANGELES RatLway CorPoraTION (a

corporation),

Appellee.

BRIEF OF APPELLANT,

RAILROAD COMMISSION OF THE STATE OF CALIFORNIA.

THE OPINION OF THE COURT BELOW.

This case was brought to this Court on direct ap-

peal from an opinion and decree allowing permanent

injunction issued by the District Court of the United

States in and for the Southern District of California,

Southern Division, three judges sitting, pursuant to

proceedings had under United States Code, Title 28,

Section 380 (formerly Judicial Code, Section 266),

Direct appeal from said decree allowing a permanent

injunction is expressly authorized by said section of

the United States Code.

The opinion of the Court is officially reported in 29

Federal Reporter (2nd Series) pages 140-148 and

appears in the printed reeord herein at pages 534-549,

The decree allowing injunction and injunction appear

in the printed record at pages 559-562 and 563-566

respectively.

JURISDICTION.

Pursuant to paragraph one of Rule 12 of this Court

appellant Railroad Commission of California and

appellant City of Los Angeles duly filed herein their

statement as to the basis on which it is contended that

this Court has jurisdiction to review the opinion and

decree herein.

STATEMENT OF THE CASE.

Appellee Los Angeles Railway Corporation is a

public utility street railroad corporation operating in

the City of Los Angeles and adjacent territory. The

electric lines of said corporation occupy public streets

by virtue of one hundred and fourteen (114) fran-

chises, granted to said corporation and its predecessor

companies by the Cities of Los Angeles, Vernon and

Huntington Park, and the County of Los Angeles. Of

the said one hundred and fourteen (114) franchises,

(as of December 31, 1926) eighty-one (81) franchises

each contain a five cent fare clause with no qualifying

clause providing for a possible change in fare; sixteen

(16) franchises, provide that a rate of fare of not

more than five cents shall be charged, except upon a

showing before a competent authority having juris-

diction over rates of fare, that such greater charge is

justified; seven (7) franchises each contain a fare

clause specifying other than a flat five cent fare; and

ten (10) franchises, each contain no fare clause. (R.

358 ; 360-381.)

Of the total number of franchises under which Los

Angeles Railway Corporation operates, (as of Decem-

ber 7, 1927) one hundred and two (102) were granted

by the City of Los Angeles and of said number

seventy-three (73) franchises each contain a five cent

fare clause with no qualifying clause providing for a

possible change in fare. (R. 388; 394-396.) Examples

of said type of franchise definitely fixing the rate of

fare to be charged at five cents are set forth in full

in the record. (Exhibit ‘‘C,’’ R. 397-402; Exhibit “‘D,”’

R. 402-413.) Eighteen (18) of the total number of

franchises granted by the City of Los Angeles, all

granted subsequent to 1919, contain a provision that

the rate of fare shall not exceed five cents per ride

except upon a showing before a competent authority

having jurisdiction over rates of fare that such

greater charge is justified. (R. 388, 397.) An example

of this type of franchise is set forth in full in the

record. (Exhibit ‘‘F,’’ R. 414-424.)

On November 17, 1926, appellee filed with appellant

Railroad Commission of California an application for

an increase in its rates from the then prevailing flat

rate of five cents as fixed in the various franchises

above mentioned, to a basic fare of seven cens cash

or four single fare tokens for twenty-five cent. (R.

75-110.) The California Railroad Commission after

conducting a number of hearings thereon, issied its

Opinion and Order No. 19521 denying the said appli-

cation for rate increase. (R. 165-175.)

Thereafter, on June 22, 1928, appellee filed wth the

District Court of the United States in and br the

Southern District of California, Southern Dvision,

its bill of complaint against the Railroad Comnission

of California. Said bill of complaint was amenled on

June 28, 1928, and sets forth two alleged ecaises of

action. (R. 8-234.) Plaintiff seeks by its firs! cause

of action to have the Court declare ¢onfiscatey the

five cent rate of fare which it charges unér the

various franchises granted to it. (R. 8-53.) By ts see-

ond eause of action plaintiff seeks to have declared

arbitrary and void the above mentioned orderof the

Railroad Commission of California refusing to in-

crease the five cent rate of fare, on the grour] that

the Commission did not consider all of the evidence

before it and did not make its order with due conidera-

tion to the evidence presented to it. (R. 53-4.) It

was the prayer of the amended complaint tht the

existing rates be declared confiscatory, the omer of

the Railroad Commission be declared void, tht said

Commission and its officers be enjoined from nfore-

ing or attempting to enforce said order anc from

interfering with the plaintiff in the charging ad col-

lecting of the rates proposed in the amended )ill of

complaint. (R. 72-74.)

Upon the filing of said complaint, motion was made

by plaintiff for interlocutory injunction under United

States Code, Title 28, Section 380. (R. 234-235.)

City of Los Angeles on motion duly made was per-

mitted to intervene in said proceeding as party de-

fendant. (R. 238-240.) Both defendants moved to

dismiss said amended bill of complaint for want of

equity and for various other reasons. (R. 242-252.)

Separate answers were filed by said defendants deny-

ing all material allegations and alleging that plaintiff

company was operating under certain franchises

granted by the City of Los Angeles wherein the rate

of fare was fixed at five cents per ride; that said fran-

chises constituted contracts binding upon said plain-

tiff and that said Federal Court was without jurisdic-

tion to grant the relief sought. (Answer of Railroad

Commission R. 253-280, particularly R. 274; Answer

of City of Los Angeles R. 280-312, particularly R.

282-288. }

Thereafter the said District Court, constituted as

provided by United States Code, Title 28, Section 380,

heard said motion for interlocutory injunction and

said motions to dismiss and evidence was introduced

by all parties. At the conclusion of said hearing it

was stipulated by all parties that the Court in addi-

tion to ruling on said motions might finally determine

all issues involved in the amended bill of complaint

on the record then before it. (R. 522-524.)

Thereafter the said three judge Court issued its

opinion (R. 534-549 and on October 1, 1928, issued its

deeree allowing permanent injunction. (R. 559-566. )

The Court found the basic five cent fare fixed in the

franchises of plaintiff to be confiscatory and held the

order of the Railroad Commission denying a rate in-

crease to be void. As a condition of the injunction the

Court in its decree authorized plaintiff from and after

the entry of the injunction and until final determina-

tion of the cause by the United States Supreme Court,

to charge and collect not in excess of a basic fare of

seven cents cash or four single fare tokens for twenty-

five cents, all as prayed for in the amended bill of

complaint of plaintiff, and directed that plaintiff issue

to each passenger paying such fares a refund ticket

or coupon for the excess between the former five cent

fare and the rate of fare paid by such passenger. (R.

565.) Under said decree the plaintiff was required to

file with the clerk of the Court a surety bond in the

amount of $50,000.00 conditioned that if it should

ultimately be held by the Supreme Court of the

United States that the new rates are unlawful the

excess represented by refund tickets or coupons will

be refunded by plaintiff upon presentation of such

coupons.

Defendants and appellants filed with said Court

petition for appeal on October 2, 1928 and on said

date order issued allowing appeal. (R. 566-568.)

Bond on appeal and a joint assignment of errors were

filed by appellants on October 2, 1928. (R. 568-578.)

SPECIFICATION OF ASSIGNED ERRORS TO BE URGED.

Appellant Railroad Commission of California will

_ urge on this appeal the assignment of errors num-

bered I to XIV inclusive. (R. 569-572.) The said

assignment of errors so specified are as follows:

“ST.

The Court erred in making the decree.

II.

The Court erred in granting the injunction.

IIT.

The Court erred in making the decree and in

overruling the respective motions to dismiss in-

terposed by defendant Railroad Commission and

intervener-defendant City of Los Angeles, for

the reason that the relief asked in the amended

bill of complaint herein is beyond the power and

jurisdiction of the said Court to grant.

The Court erred in making the decree and in

holding that the allegations of the first alleged

cause of action in said amended bill of complaint

stated a cause of action or raised any federal

question over which it had or has jurisdiction,

for the reason that said alleged cause of action

attacks only the present effective rates of fare

in force upon plaintiff’s street railway system

and fixed in the franchises sold to plaintiff by the

City, and does not attack any order or act of

the Railroad Commission fixing any fare or fares

to be charged by plaintiff.

4 @

The Court erred in making the decree and in

holding that the allegations of the second alleged

cause of action in said amended bill of complaint

stated a cause of action or raised any federal

question over which it had jurisdiction, for the

reason that the said alleged cause of action does

not attack any order or act of the Railroad Com-

mission changing or modifying in any manner the

rates of fare fixed and established in and by the

franchises sold to plaintiff by the City of Los

Angeles.

The Court erred in making the decree and in

fixing and/or allowing the charge and collection

by plaintiff of rates of fare greater than and dif-

ferent from those fixed and established in and by

the franchise-contracts entered into and existing

between plaintiff and intervener-defendant City

of Los Angeles, and in failing to hold that plain-

tiff was and is bound by all of the terms and

provisions of said franchises, including the pro-

visions for rates of: fare, for the reason that said

Court did not and does not now possess jurisdic-

tion to change or vary the said rates of fare so

fixed and established.

VII.

The Court erred in making the decree and in

finding and/or holding that defendant Railroad

Commission, either in and by its Decision and

Order No. 9029, or otherwise, has ever acted to

change the basic five-cent fare in force upon

plaintiff’s street railway system, for the reason

that the record herein discloses upon its face that

said decision and order never did and never has

become an effective decision and order of said

Commission, and was and is ineffectual for any

purpose whatsoever, and further for the reason

that the record discloses upon its face that the

Railroad Commission has never made, issued or

promulgated any order, decision or rule changing

the rates of fare upon plaintiff’s street railway

system.

VITl.

The Court erred in making the decree and in

failing to hold that plaintiff entered into valid

and binding contracts with the City of Los An-

geles when it purchased its franchises and filed

approved bonds for the faithful performance of

all terms thereof.

The Court erred in granting the decree and

in failing to hold that plaintiff is bound by the

rate provisions in each of its franchises pur-

chased from the City unless or until said provi-

sion should be changed by lawful and effective

order of the Railroad Commission; and in fail-

ing to hold that plaintiff under and by its said

franchise-contracts limited itself ‘to charging a

basic five-cent fare, subject to change only by the

police power of the State, as a part of its con-

sideration for the grant to it of the right to

operate a street railroad on the streets of said

City.

The Court erred in making the decree and

in finding and holding that defendant Railroad

Commission had or has acted to change, alter or

affect the rates fixed in and by the franchise-

contracts, or any of them, entered into and exist-

ing between plaintiff and the City of Los Angeles.

XI.

The Court erred in making the decree and in

finding and holding that a failure and refusal by

defendant Railroad Commission to change the

rates fixed in and by the franchise-contracts en-

tered into and existing between plaintiff and the

City, either by its Decision and Order No. 19,521,

or otherwise, is either a complete or any exercise

of that Commission’s power over the rates specified

in said franchises, for the reason that such fail-

ure and refusal to change said rates did not and

could not operate to affect said rates, or any of

them, in any manner, or to give the said Court

jurisdiction thereover.

XIT.

The Court erred in making the decree and in

finding and holding that the denial by defendant

Railroad Commission of plaintiff’s application

(No. 13,323) for authority to increase its rates

of fare constituted such action or any action with

regard to said rates as to give to said Court any

jurisdiction or authority over said rates.

XII.

The Court erred in making the decree and in

finding and holding that the ty Heer by defendant

Railroad Commission, of the application of plain-

tiff for increased rates in the proceedings which

resulted in the prosecution of this cause ‘followed

as it was and is by the necessary effect of en-

foreing the rate, was an exercise of jurisdiction

and that a situation was created wherein the

power of the Federal Court to enjoin, if confisca-

tion is effected by the order, is ample,’ for the

reason that no action was or has been taken by

defendant Railroad Commission, which would

operate to change or alter any of the rates fixed

in and by the franchise-contracts entered into

and existing between plaintiff and the City of

Los Angeles.

XIV.

The Court erred in making the decree and in

holding that the Federal Court may exercise or

force the exercise of the police power of a state

either to change the terms of or to abrogate the

franchises sold to plaintiff by the City of Los

Angeles, or otherwise.”’

ARGUMENT.

In arguing that the Court erred in the particulars

above specified in the recited assignment of errors

appellant Railroad Commission of California will ad-

vance the following propositions:

I. Appellee’s franchises are contracts.

II. The City of Los Angeles possessed au-

thority to make such contracts and impose rate

conditions and provisions therein.

III. Where a valid contract fixing rates has

been entered into between a city and a public

utility there is no confiscation.

IV. The contraets here were binding as be-

tween the parties until the Commission exercised

the power delegated to it by the Legislature by

increasing the contract rate in the manner pro-

vided by the Public Utilities Act of California.

V. The Court erred in holding that the Rail-

road Commission by its orders of 1921 and 1928

abrogated the rates fixed in the various franchise

contracts in question.

—_—_—_—_—

I APPELLEE’S FRANCHISES ARE CONTRAOTS.

The record shows that of a total of one hundred two

(102) franchises granted to the Los Angeles Railway

Corporation and its predecessors in interest by the

City of Los Angeles, seventy-three of them provide

in substance that the grantee of the franchises shall

have the right to charge five cents and no more as

fare for any distance over said road, or any of its

branches, while eighteen (18) of them, all granted

subsequent to 1919, provide in substance that the

grantee shall charge not to exceed five cents per ride,

except upon a showing before a competent authority

having jurisdiction over rates of fare, that such

greater charge is justified. (R. 388.) Practically all

franchises granted by the City of Los Angeles to said

company and its predecessors in interest prior to the

year 1919 contain a provision of the type first men-

tioned, that is, definitely providing that the rate of

fare shall not exceed five cents per ride. (R. 387-436 ;

particularly Exhibit “C,” R. 397-402 and Exhibit

“D,” R. 402-413.) An example of such a franchise

is Ordinance 2532 (NS) granted in 1894 and now in

full foree and effect, which provides in part as fol-

lows (R. 397):

‘‘Provided, that in all eases where this fran-

chise is granted over streets now occupied by

other lines of street railway owned by persons or

corporations, whether named herein or not, that

‘said W. D. Larabee, and his assigns, shall have

the right to operate over any and all such tracks

in accordance with and limited only by the stat-

utes of the state of California applicable there to;

and in ease the gauge of the tracks of said other

persons or corporations shall not conform to the

gauge of the tracks of said W. D. Larabee, or

his. assigns, then the said W. D. Larabee, or

his assigns, shall be permitted to lay a third

rail over the distance traversed by said two

roads jointly.’’ (Italics ours)

‘Section 3. That the rate of fare for any dis-

tance along said road or its branches, one way,

shall not exceed 5 cents for one passenger, and

shall transfer at connecting points on the lines of

said grantee or his assigns or lines which said

grantee or his assigns may operate so as not to

return passengers in the general direction from

which they came, and that persons under eighteen

vears of age who attend the public schools of

said city, shall be required to pay but half fare,

provided said pupils shall purchase their tickets

in quantities of at least one dollar’s worth at a

time; such tickets to be available only between

the hours of 8 a. m. and 6 p. m., in actual pas-

sage to and from school; and said grantee, or

assigns, shall sell such tickets whenever requested

to do so by a pupil who shall present a certificate

from a teacher approved by the Superintendent

of Schools of the City, that he or she is such

pupil of said schools.

*‘And further, that said grantee, or assigns,

shall earry policemen and firemen and letter car-

riers, Mayor and Councilmen, free on said cars

when on duty, subject at all times to the rules

of the road.

‘Provided further, that said grantee, or as-—

signs, shall, on or before December 15th, of each

year, pay to the City Tax and License Collector,

the annual license upon each car fixed by the

existing ordinance of said city.

‘Section 4. The above rights and privileges

are granted upon the express condition that work

upon that portion known and described as the

Kuhrts-Street Line of said road and the line

from Estrella Avenue to the west city limits on

Washington Street shall be commenced within

sixtv days, and completed, equipped and in opera-

tion as an electric road for its full length within

eight months from the date hereof. The remain-

ing portion of said railroad line shall be fully

equipped and completed as provided herein with-

in two years from the date of the approval of

this ordinance. Provided further, that this fran-

chise is granted upon each and every condition

herein set forth, and a failure to comply with

each or any of said conditions shall work an im-

mediate forfeiture of all the rights herein granted.

“Section 5. The said grantee or assigns is

hereby required to file a written acceptance of

the terms and conditions hereof with the City

Clerk of said City within thirty days after the

passage of this ordinance, together with a bond

of not less than ten thousand dollars, for the

faithful carrying out of the terms of this fran-

chise.’’ (Italies ours.)

All such franchises granted to the Los Angeles Rail-

way Corporation by the City of Los Angeles were

granted in accordance with the provisions of various

general franchise acts requiring the city to advertise

and sell the privilege to operate railways upon the

public streets to the highest bidder. Further refer-

ence will later be made to such statutes. It is suffi-

cient at this time to note that from such offers by the

City of Los Angeles and the acceptance thereof by

the grantee, and from the terms of the above quoted

franchise ordinance and those of similar ordinances

set forth in the record (R. 357-413) it is apparent

that the respective parties intended that such fran-

chises should constitute contracts binding upon them

in all respects during the terms of the grants.

It has been the unanimous holding of the Courts

that franchises from municipal corporations for the

operation of street railway lines over their streets

are contracts, and as such are subject to the general

principles of contract law. In Columbus Railway and

Power Company v. City of Columbus(1919), 249 U.

S. 399, 408, the Supreme Court of the United States

definitely held that such franchises constitute hinding

contracts and in that regard stated:

‘‘upon acceptance of the ordinance it became a

binding contract, governed by the rates of fare

authorized to be charged. during the period of

twenty-five years for which the ordinance ran;

that the rates contracted for became binding upon

the city, and could not be altered by subsequent

municipal action consistently with the constitu-

tional rights of the railway company.”’

We shall later quote at length from this case in

connection with our discussion of the effect of such

a contract. At this point suffice it to say that this

determination does not stand alone but is repre-

sentative of the unanimous holdings of the Courts in

relation to such franchises. Thus, in the earlier case

of City of Cleveland v. Cleveland City Railroad Com-

pany, (1904) 194 U. S. 517, 536, the Supreme Court

declared of a similar franchise ordinance:

“* * * we can see no escape from the con-

clusion that the ordinances were intended to be

agreements binding upon both parties, definitely

fixing the rates of fare which might be thereafter -

charged.”’

The question as to the nature of a franchise sold

by a municipality and accepted by a public utility

has been before the Supreme Court and appellate

courts of the State of California several times, and

on each occasion, these Courts have held such fran-

chises to be contracts.

The case of Los Angeles Railway Company v. Los

Angeles, (1907) 152 Cal. 242 involved the question of

a forfeiture of a franchise granted to the plaintiff

by the City of Los Angeles. The railroad sought to

enjoin defendant city from interfering with the rail-

road in exercising its alleged franchise rights after

it had failed to construct a part of its road in accord-

ance with the terms of said franchise contract. The

lower court refused to grant the railroad an injune-

tion, which holding was affirmed by the Supreme

Court. In its decision at page 244 the Supreme Court

states:

“It is argued in support of this view that

nothing is involved in this controversy beyond

the respective rights of the plaintiff and defend-

ant growing out of and dependent upon the ordi-

nance granting the franchise, which, it is con-

tended, embraces all the terms of the contract,

and which upon the received construction of

grants providing for forfejtures upon breach of

conditions subsequent, means no more than that

their breach entitles the grantor to maintain an

action to enforce the forfeiture. The respondent,

on the other hand, contends that section 502 of

the Civil Code in force at the date of the grant

is a part of the contract, and that it is self-exe-

cuting in working a forfeiture for failure to com-

plete the construction of the road within the time

specified in the ordinance.

“We agree with the appellant that the rights

of the parties are measured by the terms of their

contract, but we think the statute (Civ. Code, see.

502) enters into the contract, and that its provi-

sions must be taken into account in construing

the contract. The city in granting a street-rail-

way franchise is but an agency of the state, and

if there were any conflict between the ordinance

containing the grant and the general laws of the

state, the latter would govern. In this case, how-

ever, there is no conflict.’’ (Italics ours.)

In the case of St. Helena v. San “Francisco ete.

Railway, (1914) 24 Cal. App. 71, the city had granted

the railroad a franchise to operate its street cars upon

the streets of the city but dia not provide for the

paving of the street between its tracks. Thereafter

the city, desiring to improve an entire street passed

an ordinance requiring the street to be paved between

the tracks by the railway company. This action was

brought by the city to require the railway company

to comply with the provisions of that ordinance. The

railway company contended that said ordinance vio-

lated the terms of the franchise granted to it, which

constituted a contract as to all of its terms binding

upon both parties. The Court stated in part (page

74):

“It is not disputed that said franchise consti-

tutes a contract that is binding upon both parties,

but it is claimed by appellant—and justly so un-

der the authorities—that in case of doubt as to

the interpretation of said franchise it must be

construed in favor of the municipality and

against the railroad.

- “The first consideration that attracts attention

is the provision in the contract that the fra:chise

is granted ‘subject to all laws or municipal regu-

latiuns now in force, or tuat may be hereafter

enacted relating to the control, or use, digging in

or occupying of the public streets.’ Of course,

regardless of such agreement, it is well settled

that the municipality cannot abdicate its fune-

tions or by contract divest itself of power to con-

trol the streets for the benefit of the public. ‘The

improvement, regulation and control of the high-

ways within a municipality call for the exercise

of a delegated governmental power, a function

which the municipality itself, neither by an

ordinance nor by contract, can surrender or im-

pair.’ (McNeil v. City of South Pasadena, 166

Cal. 153, (135 Pac. 32).)

‘‘But the parties to the said franchise saw fit

to stipulate expressly that the valuable privilege

granted should be subject to all laws and

municipal regulations that might be adopted in

pursuance of this power of control and regu-

lation that is committed to the municipal authori-

ties. It is difficult to understand how the parties

could have expressed more clearly such intention.

x % x x * * *

“The fact that these matters of detail are not

specified in the contract cannot, of course, impair

or affect the power of the municipality in the ex-

ercise of its control of the streets to impose such

regulations. As suggested by appellant, it is

plain that the franchise is not a limitation of the

power of the municipality in these matters, but

it is rather a limitation upon the power of the

railroad and any doubt about authority in the

premises must be resolved in favor of the munici-

pality.”’ (Italics ours.)

A petition was filed in the Supreme Court to have

the case heard there. The Supreme Court denied the

petition and made the following comment (page 80):

“The respondent, in support of its petition,

contends that the franchise under which the re-

spondent is operating does not require it to pave

the streets, but only to grade them and keep them

in proper repair between the tracks and for two

feet on each side thereof, and that the police

power does not embrace the authority to compel

a street railway occupying the streets of a city

to pave the streets, between its tracks, or else-

where, or at all; that such power must be founded

upon the contract between the city and the com-

pany whereby the franchise is granted, or upon

some valid contract obligation of the company.

It is unnecessary to consider whether or not the

terms of the franchise of the defendant requires

it to pave the streets. The franchise was granted

under the provisions of section 498 of the Civil

Code and that section requires street railroads to

‘plank, pave, or macadamize the entire length of

the street, used by their track, between the rails,

and for two feet on each side thereof.” This can

only mean that such company must either plank,

pave, or macadamize that part of the street, as

the proper city authority may lawfully direct. It

is a constituent part of the contract granting the

franchise, though not expressed therein in terms.

The company is therefore bound by contract to

pave the street in accordance with the city

ordinance, and it is not necessary to say whether

or not the city, by virtue of its police powers

alone, could compel it to do so.’’ (Italies ours.)

In the case of City of San Diego v. Kerckhoff,

(1920) 49 Cal. App. 473 the City had brought an

action to recover on a bond given to insure the per-

formance of the terms of a franchise granted by the

city for the construction of a railroad. The Court

stated at page 481:

“The franchise of a street railroad finds its

origin in the action of the municipality—it is

a contract between the city and the grantee.’

(Italics ours. )

A decision similar to the one last mentioned is that

of Albany v. United States Guaranty & Fidelity Cem-

pany, (1918) 38 Cal. App. 466 wherein an action was

brought to recover upon a bond for failure to con-

struct a railroad in accordance with the terms of a

franchise. The Court at page 468 stated:

‘At the instant of the grant of the franchise,

(a street railway franchise) the franchise became

an irrevocable contract and the property of E. A.

Gowe, of which he could not be divested by the

city of Albany for a period ef four months, dur-

ing which time he was to commence work.’’ (Ital-

ies ours. )

Thus, in numerous decisions we find that the Cali-

fornia Courts have held franchises to be contracts. It

is true that none of the cases above cited specifically

rule upon the power or authority of cities in Califor-

nia or the City of Los Angeles, in particular, to con-

tract in street railway franchises as to rates of fare

to be charged. There are no California decisions

ruling upon this specific point. Tlowever, the fact

that the City of Los Angeles possessed and now pos-

sesses such authority to contract as to rates becomes

apparent upon a consideration of certain California

statutes. We shall now turn to an analysis of these

legislative enactments.

Il. THE CITY OF LOS ANGELES POSSESSED AND NOW POs.

SESSES AUTHORITY TO MAKE SUCH CONTRACTS AND

IMPOSE RATE CONDITIONS AND PROVISIONS THEREIN.

Under the law of California the City of Los Angeles

possessed and now possesses authority to enter into

franchise contracts with public utility street railroad

companies and impose in such contracts provisions

and conditions with reference to the rates of fare to

be charged.

By Section 470 of the Civil Code of California it is

provided :

‘*No railroad corporation must use any street,

alley or highway, or any of the lard or water,

within any incorporated city or town, unless the

right to so use the same is granted by a two-third

vote of the town or citv authoritv from which the

right must emanate.’’ (Enacted Mar. 21, 1872.)

Section 497 of the Civil Code of California provides

in part:

“Authority to lay railroad tracks through the

streets and public highways of any incorporated

city, city and county, or town, may be obtained

for a term of years not exceeding fifty, from the

trustees, council, or other body to whom is in-

trusted the government of the city, city and coun-

ty, or town, under such restrictions and limita-

tions, and upon such terms and payment of

license tax, as the city, city and county, or town

authority may provide.’’ (Italics ours.) (Calif.

Stats., 1891, p. 12.)

Section 501 of the Civil Code of California pro-

vides :

“The rates of fare on the cars must not exceed

ten cents for one fare for any distance under

three miles, and in municipal corporations of the

first class must not exceed five cents for each pas-

‘senger per trip of any distance in one direction

either going or coming, along any part of the

whole length of the road or its connections. The

cars must be of the most approved construction

for the comfort and convenience of passengers,

and provided with brakes to stop the same, when

required. A violation of the provisions of this

section subjects the corporation to a fine of one

hundred dollars for each offense.’? (Cal. Stats.

1903, p. 172.)

In the sale of street railroad franchises pursuant to

the above cited Civil Code provisions the City of Los

Angeles has been governed in its procedure by vari-

ous franchise acts. Prior to 1893 no definite proce-

dure for the sale of franchises to the highest bidder had

been provided by the legislature. The Franchise Act

of 1893 (California Statutes 1893, p. 288), however,

provided a definite procedure to be followed in the

sale of such franchises and read in part as follews:

“Section 1. Every franchise or privilege to

erect or lay telegraph or telephone wires, to con-

struct or operate railroads along or upon any

public street or highway, or to exercise any other

privilege whatever hereafter proposed to be

granted by the Board of Supervisors, Common

Council, or other governing or legislative body of

any county, city and county, city, town, or district

within this State, shall be granted upon the con-

ditions in this Act provided, and not otherwise.

The fact that an application for such franchise

or privilege has been made to such Board of

Supervisors, Common Council, or other governing

or legislative body, tozether with a statement that

it is proposed to grant the same, must first be ad-

vertised in one or more daily newspapers of the

county, city and county, city, town, or district

wherein the said franchise or privilege is to be

exercised. Such advertisement must continue

every day for at least ten days, and must com-

mence at least thirty days before any further

action of the Board of Supervisors, Common

Council, or other governing or legislative body.

The advertisement must state the character of the

franchise or privilege proposed to be granted,

the term of its continuance, and, if a street rail-

road, the route to be traversed, and the day on

which tenders will be received for the same. On

the day so stated, the Board, or other governing

or other legislative body herein mentioned, must

meet in open session and read the tenders. The

franchise or privileges must then be awarded to

the highest bidder; provided, however, that

nothing in this section shall affect a special

privilege granted for a shorter term than two

years.””

The Franchise Act of 1893 was twice amended in

1897 (California Statutes 1897, pages 135 and 176.)

In 1901 the Legislature enacted a new franchise act

(Stats. 1901, p. 265) which dealt with this same sub-

ject. Thereafter in 1905 (Stats. 1905, p. 777) an en-

tirely new act was adopted which repealed the former

acts. This later enactment, known as the Broughton

Franchise Act, was amended in 1909 (California

Stats. 1909, p. 125,) and in 1915 (California Stats.

1915, p. 1300.)

By the 1915 amendment to the Broughton Fran-

chise Act it was expressly provided as follows:

‘Every franchise or privilege to erect or lay

telegraph or telephone wires, to construct or op-

erate street or interurban railroads upon any pub-

lic street or highway, to lay gas pipes for the

purpose of carrying gas for light, heat or power,

to erect poles or wires for transmitting electricity

for light, heat or power, along or upon any public

street or highway, or to exercise any other priv-

ilege whatever hereafter proposed to be granted

by boards of supervisors, boards of trustees or

common. councils, or other governing or legislative |

bodies of any county, city and county, city or

town within this state, except steam railroads and

except telegraph or telephone lines doing an inter-

state business, and renewals of franchises for

piers, chutes or wharves, shall be granted upon

the conditions in this act provided, and not other-

wise. The grantor may, however, in such fran-

chise impose such other and additional terms and

conditions not in conflict herewith, whether gov-

ernmental or contractual in character, as in the

judgment of the legislative body thereof are to the

public interest.’’ (Amendment approved June 8,

1915, Stats. 1915, p. 1300.) (Italies ours.)

There is no necessity of developing at length or

in detail the effect of the other above mentioned

amendments. Suffice to say that since 1893 the City of

Los Angeles, in granting franchises, has been required

by law to sell franchises granted by it for the use of

its streets. Under the procedure prescribed, when ap-

plication is made for a franchise the city advertises

that it will make a sale of such franchise granting the

rights desired in said application. The notice of sale

sets forth all the terms and conditions upon which the

franchise will be sold. The franchise is awarded to

the highest bidder and an ordinance is passed definite-

ly defining the rights granted to the purchaser and

the terms and conditions of such grant. Upon aecep-

tance by the grantee this franchise becomes a binding

contract. The purchaser and grantee upon acceptance

are bound by all the terms an” conditions contained

in the franchise.

The City of Los Angeles is a chartered city and has

been governed since 1850 by a charter approved by

the state of California. The earliest charter with

which we need be concerned in this proceeding is the

charter of 1889 (California Stats. 1889, p. 455),

adoptec. by the city and approved by the legislature

in that year pursuant to the provisions of Section 8,

Article II of the California Constitution. By an

amendment to said charter of 1889, approved by the

legislature in 1905 (Califcrnia Stats. 1905, p. 994), the

City of Los Angeles was expressly authorized by the

State to insert in franchise contracts provisions and

conditions fixing for the term of the grant the rate of

fare to be charged. The said charter amendment of

1905 provided in part:

*““No_ franchise, right or privilege im, On,

through, across, under or over any street, avenue,

alley, bridge, viaduct or other public place, and

no other franchise whatever, granted by the city

to any corporation, association or individual, shall

be granted except by an ordinance passed by vote

of two-thirds (2/3) of the whole council, nor for

a longer period than twenty-one years. Such

grant and any contract in pursuance thereof shall

provide that at the option of the city, declared

not more than three (3) vears nor less than six

months before the termination of such grant, the

plant and property, if any, belonging to or used

by the grantee, or his or its successors m interest,

in the streets, avenues and other public places

shall, at the termination of said grant, upon the

payment of a fair valuation thereof, be and _ be-

come the property of the city; but the grantee

shall be entitled to no payment because of any

valuation derived from the franchise. Provided,

however, that such option shall not be exercised

unless at the time of exercising the same the city

shall be authori, nd empowered to acquire

and operate suct ant and property. Every

grant shall specify the mode of determining any

valuation therein provided for and the time and

mode of payment, and shall make adequate pro-

vision by way of forfeiture of the grant or other-

wise to secure efficiency of public service at

reasonable rates and the maintenance of the pro

erty in good order throughout the term of the

grant.””

The above quoted provision of the city charter con-

tinued in force until 1911 when it was superseded by

further amendment to Section 2 of said charter of

1889 (California Stats. 1911, pages 2051, 2061, 2063.)

Subdivisions 12 and 30 of Section 2 of said charter

as amended in 1911 provided as follows:

**Sec. 2—The city of Los Angeles, in addition

to any other powers now held by, or that may

hereafter be granted to it under the constitution

or laws of the state, shall have the right and

power:

12—‘‘To fix and collect rates or charges for the

use of and for all products of, or service by, any

public utility conducted or operated by the city.

30—‘To fix and determine the rates or compen-

sation to be collected by any person, firm or

corporation, for water, gas, electric current, re-

frigeration, heat, light, power, telephones, tele-

phone service or connections, or the conveyance

of passengers or freight, by means of street rail-

way cars, hacks, cabs, or other cars or vehicles

for hire, or for the products of, or service by, any

other public utility operated or conducted within

the city limits; and to prescribe the character and

quality of any public utility service.”’

The delegation of power to regulate rates of public

utility street railroad companies first given to the City

of Los Angeles by the above quoted charter amend-

ments was further augmented in 1911 by the amend-

ment of the California Constitution, Section 19,

Article XI, adopted October 10, 1911, which amend-

ment provided in part as follows:

‘*Any municipal corporation may establish and

operate public works for supplying its in-

habitants with light, water, power, heat, transpor-

tation, telephone service or other means of com-

munication. Such works may be acquired by

original construction or by the purchase of exist-

ing works, including their franchises or both.

Persons or corporations may establish and op-

erate works for supplying the inhabitants with

such services upon such conditions and under

such regulations as the municipality may pre-

scribe under its organic law, on condition that the

municipal government shall have the right to req-

ulate the charges thereof. * * *’’ (Italies ours.)

It is interesting to note that prior to the adoption

of the above quoted charter amendments of 1911, the

charter of 1889 did not give to the City of Los Angeles

power to regulate the rates of fare charged by public

utility street railway companies operating within the

city. Nor did any other provision of law grant to

the City of Los Angeles, prior to 1911, such power

to regulate rates. It was only logical, therefore, that

the charter amendment of 1905 above quoted should

expressly authorize the City of Los Angeles, in the

granting of franchises for the use of streets, to ‘‘make

adequate provision by way of forfeiture of the grant

or otherwise to secure an efficiency of public service at

reasonable rates and the maintenance of the property

in good order throughout the term of the grant.”

Not then being possessed of the power to regulate

rates, the only manner in which the City of Los Ange-

—

les could possibly secure reasonable rates throughout

the term of the grant was by expressly contracting

with the grantee of the franchise as to the rate of fare

to be charged during the term of the grant.

We respectfully submit that under the California

law the City of Los Angeles, in granting franchises

to public utility street railroad companies, was author-

ized by the state to include in such franchises pro-

visions and restrictions as to rates of fare, Civil Code,

Section 497 above quoted having expressly delegated

to cities authority to grant such franchises ‘‘under

such restrictions and limitations, and upon such terms

* * * asthecity * * * may provide.’’ The

City of Los Angeles most certainly enjoyed the power

to so contract from 1905 to 1911, by virtue of the

above quoted provisions of the charter amendment of

1905 (California Stats. 1905, p. 994), and during this

period no less than twenty franchises were granted to

appellee Los Angeles Railway Corporation definitely

fixing the rate of fare to be charged at not to exceed

five cents per ride (R. 385-397, particularly 396.) And,

as above pointed out, the power of the city to contract

as to rates of fare delegated under the provision of

the California Civili Code, Section 497, was further

augmented in 1915 by the amendment of the Brough-

ton Franchise Act (Cal. Stats. 1915, p. 1300.)

In 1914 by the amendment of Section 23 of Article

XIT of the California Constitution the entire control

over rates of public utilities was expressly reserved

to the Railroad Commission of California and munic-

ipalities were divested of all power over the regula-

tion of rates.' In order that street railroad rates of

fare theretofore fixed in various franchises might be

preserved to the cities and the holders of such fran-

(1) Seetion 23 Article XII California Constitution as amended

in 1914 provides in part as follows:

‘‘* * * The railroad commission shall have and exercise

such power and. jurisdiction to supervise and regulate public

utilities, in the State of California, and to fix the rates to be

charged for commodities furnished, or services rendered by

public utilities as shall be conferred upon it by the legislature,

and the right of the legislature to confer powers upon the

railroad commission respecting public utilities is hereby de-

clared to be plenary and to be unlimited by any provision of

this Constitution. From and after the passage by the legisla-

ture of laws conferring powers upon the railroad commission

respecting public utilities, all powers respecting such public

utilities vested in boards of supervisors, or municipal coun-

cils, or other governing bodies of the several counties, cities

and counties, cities and towns, in this state, or in any com-

mission created by law and existing at the time of the passage

of such laws, shall cease so far as such powers shall conflict

with the powers so conferred upon the railroad commission;

provided, however, that this section shall not affect such pow-

ers of control over public utilities as relate to the making and

enforcement of local, police, sanitary and other regulations,

other than the fixing of rates, vested in any city and county

or incorporated city or town as, at an election to be held pur-

suant to law, a majority of the qualified electors of such city

and county, or incorporated city or town, voting thereon, shall

vote to retain, and until such election such powers shall con-

tinue unimpaired; but if the vote so taken shall not favor the

continuation of such powers they shall thereafter vest in the

railroad commission as provided by law; and _ provided

further, that where any such city and county or incorporated

city or town, shall have elected to continue any of its powers

to make and enforce such local, police, sanitary and other

regulations, other than the fixing of rates, it may, by vote of

a majority of its qualified electors voting therein, thereafter

surrender such powers to the railroad commission in the man-

ner prescribed by the legislature; and provided, further, that

this section shall not affect the right of any city and county

or incorporated city or town, to grant franchises for public

utilities upon the terms and conditions and in the manner

prescribed by law. Nothing in this section shall be construed

as a limitation upon any power conferred upon the railroad

commission by any provision of this Constitution now existing

or adopted concurrently herewith.’’ (Amendment adopted

November 3, 1914.) (Italics ours.)

chises Section 27 of the Publie Utilities Act (Stats.

1911, Extra Session, p. 18) was amended in 1915 to

provide as follows:

‘‘No street or interurban railroad corporation

shall charge, demand, collect or receive more than

five cents for one continuous ride in the same

general direction within the corporate limits of

any city and county, or city or town, except upon

a showing before the commission that such greater

charge is justified; provided, that until the de-

cision of the commission upon such showing, a

street or interurban railroad corporation may

continue to demand, collect and receive the fare

lawfully in effect on November 3, 1914. Every

street or interurban railroad corporation shall

upon such terms as the commission shall find to

be just and reasonable furnish to its passengers

transfers entitling them to one continuous trip in

the same general direction over and upon the

portions of its lines within the same city and

county, or city or town, not reached by the orig-

inating car.”’ (Stats. 1915, p. 115.) (Italies ours.)

Subsequent to the amendment of 1914 to Section 23

of Article XII of the California Constitution, the city

in the granting of franchises to appellee, Los An-

geles Railway Corporation, with but few exceptions

provided for a rate of fare not to exceed five cents

with the qualifying provision that the fare might be

changed by a proper showing before a competent

authority having jurisdiction over rates of fare (R.

397). An example of this type of provision is found

in Exhibit ‘‘E’’ (R. 386, 414, 420, 24th paragraph).

It should be noted that although the amendment of

Section 23 of Article XII of the California Constitu-

tion in 1914, above quoted, divested the City of Los

Angeles of its power of regulation of rates of street

: -—————ag

railway companies (which power it had enjoyed since

1911 under the charter amendment and amendment of

Section 19 of Article XI of the California Constitu-

tion, both above quoted), it did not divest the City of

Los Angeles of its power to contract as to such rates

in the execution of contractual franchises. In fact

it will be noted that said Section 23 of Article XII,

after providing that the amendment should not affect

the powers of control over public utilities enjoyed by

cities, other than the regulation of rates, contained the

provision ‘‘ * * * and provided, further, that this

section shall not affect the right of any city and county

or incorporated city or town, to grant franchises for

public utilities upon the terms and conditions and in

the manner prescribed by law.”’

Within six months of the date of the adoption of

the amendment of Section 23 of Article XII of the

Constitution (adopted November 3, 1914) the Cali-

fornia legislature by the 1915 amendment to the

Broughton Franchise Act (California Stats. 1915, p.

1300), above quoted, augmented the provisions of Cal-

ifornia Civil Code Section 497, and again provided in

substance that cities should have the power and au-

thority to insert rate of fare provisions in contractual

franchises. The statutory amendment of 1915, it will

be recalled, expressly provided that cities might insert

in franchises for the operation of street railway lines

“‘such other and additional terms and conditions not

in conflict herewith, whether governmental or con-

tractual in character, as in the judgment of the legis-

lative body thereof are to the public interest.”’

The District Court in its opinion expressed some

doubt as to whether or not the City of Los Angeles

ever possessed the power to contract as to the rates

of fare to be charged by street car companies operat-

ing within the city. The Court in its opinion states

in part:

“< * * * we think it may well be doubted whether

the State of California ever delegated power to

the city to contract with a public utility on the

subject of rates so as to restrict future regula-

tion.

* * * * * * *

“Section 497 of the Civil Code of California of

1891, page 121, provides that authority to lay

railroad tracks through streets of a city could be

obtained for a term of years not exceeding fifty,

from the council under such restrictions and lim-

itations and upon such terms as the City may

provide. By the Franchise Act of 1893 (Cal.

Stat. 1893, p. 288), a franchise to construct or

operate railroads upon any public street of a city

or to exercise any other privilege proposed to be

granted by the common council, shall be granted

upon the conditions of that act and not other-

wise. We perceive no provision in that act by

which power is given to the city over rates to be

included in any franchise granted. The statute

of 1901, page 265, and its amendments provided

that municipalities could grant franchises upon

the conditions in the act provided and not other-

wise, but there were no words expressly delegat-

ing power to a city to fix rates by contract, and

as said by the Supreme Court in Home Tel. &

Tel. Co. v. City of Los Angeles, 211 U. 8. 265,

the first section of the act contained ‘an emphatic

caution against reading into the act any condi-

tions’ not clearly expressed in the act itself. No

decisions of the Supreme Court of the state di-

rectly decide the question, and we pass it, merely

saying that we are inclined to the view that in

—,

the absence of an express grant to the city of

power to fix binding rates in franchises, no such

wer exists; nor can it be implied under the

anguage of the act of 1901, or other statutes

called to our attention (Stanislaus County v. San

Joaquin and K. R. Canal Co., 192 U. 8. 200; City

of San Antonio v. San Antonio Public Service

Co., 255 U. 8S. 547; San Francisco Oakland Ter-

minal Co. v. City of Alameda, 226 Fed. 889;

Knoxville Gas Co. v. City of Knoxville, 261 Fed.

283). It is perfectly clear, we think, that at

least since the adoption of the constitutional pro-

vision heretofore cited (Sec. 23 of Art. XII,

adopted Nov. 3, 1914), any provision with re-

spect to rates in franchises granted since 1914

could not be considered as binding contracts of

inviolable nature.’’ (R. 540-541.)

We respectfully submit that the Court in thus ex-

pressing doubt as to the power of the city to con-

tract as to rates was in error and failed to properly

construe Section 497 of the Civil Code and failed to

consider the charter amendment of 1905 and the 1915

amendment to the Broughton Franchise Act, both

above quoted. We contend that under these enact-

ments the City of Los Angeles possessed and now

possesses the power to contract as to rates of fare in

the execution of such street railroad franchises. Thus

the decision of the United States Supreme Court in

Home Telephone and Telegraph Co. v. City of Los

Angeles (1908), 211 U. S. 265, cited by the Court, is

not applicable in the instant case because of the exis-

tence of express statutory authority to the City of

Los Angeles to contract as to rates.

It should be pointed out that Section 21 of Article

I of the California Constitution of 1879 provides in

part that “‘no special privileges or immunities shall

ever be granted which may not be altered, revoked or

repealed by the legislature * * *.’’ This constitu-

tional limitation, of course, imposes no limitation on

the power of the legislature of the state to authorize

a city to contract as to rates and to fix by contractual

franchises rates of fare from which the parties may

not recede. This point was expressly ruled upon by

-his Court in Opelika v. Opelika Sewer Co., 265 U. S.

215, where the Constitution of Alabama provided no

law “‘making any irrevocable or exclusive grants of

special privileges or immunities shall be passed by

the legislature; and every grant of a franchise, priv-

ilege or immunity shall forever remain sub ject to rev-

ocation, alteration or amendment.’’ In that case the

contract was sustained as binding between the parties

even though subject to revocation or alteration by the

State. The distinction was clearly pointed out by the

Court in the following language:

‘“‘No doubt it is true also that the Legislature

could not make such a grant indirectly by giving

power to a city to make it. But we see no reason

to doubt that the legislature, without impairing

its power to revoke, may give a city power to

make a contract from which the city, of its own

motion may not recede. The city has not at-

tempted to recede from it.’’ (p. 218.)

Sac caren RD OE MRR ENRN CERNE

Il. WHERE A VALID CONTRACT FIXING RATES HAS BEEN

ENTERED INTO BETWEEN A CITY AND A PUBLIC

UTILITY THERE IS NO CONFISCATION.

It has been conclusively settled by an unbroken line

of decisions of this Court that where there is a con-

tract there is no confiscation.

Detroit v. Detroit Citizens Ry. Co. (1902), 184

U. S. 368, 383, 384, 385, 388;

City of Cleveland v. Cleveland City Ry. Co.

(1904), 194 U. 8. 517, 533;

Vicksburg v. Vicksburg Waterworks Co.

(1907), 206 U. S. 496, 508, 515;

Detroit United Ry. v. Michigan (1916), 242 U.

S. 238, 249, 253; .

Columbus Ry. & Power & Light Co. v. City of

Columbus (1919), 249 U. S. 399, 412, 414;

Southern Iowa Electric Co. v. Chariton (1921),

255 U. S. 539, 542;

San Antonio v. San Antonio Public Service

Co. (1921), 255 U. S. 547, 556;

Paducah v. Paducah Railway (1923), 261 U.

S. 267, 273;

Georgia Railway & Power Co. v. Town of De-

catur (1923), 262 U. 8S. 432, 437, 438;

City of Opelika v. Opelika Sewer Co. (1924),

265 U. S. 215, 217;

St. Cloud Public Service Co. v. City of St.

Cloud (1924), 265 U. S. 352, 354.

“Tt has been long settled that a state may

authorize a municipal corporation to establish by

an inviolable contract the rates to be charged by

a public service corporation for a definite term,

not grossly unreasonable in time, and that the

effect of such a contract is to suspend, during

its life, the governmental power of fixing and

regulating the rates. Home Teleph. Co. v. Los

Angeles, 211 U. S. 265, 273, 53 L. ed. 176, 182,

29 Sup. Ct. Rep. 50, and eases there cited. And

where a public service corporation and the mu-

nicipality have power to contract as to rates, and

exert that power by fixing the rates to govern

during a particular time, the enforcement of such

rates is controlled by the obligation resulting

from the contract, and the question whether they

are confiscatory is immaterial.’’ St. Cloud Pub-

lic Service Co. v. St. Cloud, supra, and eases

cited.

In San -Antonio v. San Antonio Public Service

Company, supra, Mr. Chief Justice White, in the

opinion of the Court, from which there was no dis-

sent, at page 556 said:

“The duty of an owner of private property

used for the public service to charge only a rea-

sonable rate, and thus respect the authority of

government to regulate in the public interest,

and of government to regulate by fixing such

a reasonable rate as will safeguard the rights

. of private ownership, are interdependent and

reciprocal. Where, however, the right to contract

exists and the parties, the public, on the one

hand, and the private owner, on the other, do so

contract, the law of the contract governs both

the duty of the private owner and the govern-

mental power to regulate.’’

In Vicksburg v. Vicksburg Waterworks Co., supra,

at page 508, the Court says:

“Holding, then, that the plea of res judicata

must be denied, had the city authority, under the

charter of Vicksburg, passed in 1886, to make a

binding contract, fixing maximum rates for water

supply to private consumers for a definite period,

thirty years in the present case? The grant of

legislative power upon its face is unrestricted,

and authorizes the city ‘to provide for the erec-

tion and maintenance of a system of waterworks

to supply said city with water, and to that end

to contract with a party or parties who shall build

and operate waterworks.’

“‘That a state may, in matters of proprietary

rights, exclude itself from the right to make

regulations of this kind, or authorize municipal

corporations to do so, when the power is clearly

conferred, has been too frequently declared to

admit of doubt. Los Angeles v. Los Angeles City

Water Co., 177 U.S. 558, 44 L. ed. 886, 20 Sup. Ct.

Rep. 736; Walla Walla v. Walla Walla Water

Co., 172 U.S. 1-7, 43 L. ed. 341-344, 19 Sup. Ct.

Rep. 77; New Orleans Waterworks Co. v. Rivers,

115 U. S. 674, 29 L. ed. 525, 6 Sup. Ct. Rep. 273;

Freeport Water Co. v. Freeport, 180 U. S. 587-

593, 45 L. ed. 679-686, 21 Sup. Ct. Rep. 493.

- * aa * = * *

“In the cases generally in this court it will be

found that, in determining the matter of contract,

the local decisions have been given much weight

and, ordinarily, followed. As this is a Mississippi

contract, and the power was exercised under the

authority of an act of the legislature of that

state, we naturally look to the decisions of the

courts of that state, particularly to such as had

given construction to similar charters at the time

the contract was made, with a view to determin-

ing the extent of the power conferred.”’

In Georgia Railway & Power Co. v. Town of De-

catur, supra, at page 438, the Court says:

“‘This conclusion, involving, as it does, a con-

struction of the state Constitution and laws and

powers of state municipalities, is controlling upon

this court, as it has decided many times. See, for

example: Old Colony Trust Co. v. Omaha, 230

U. S. 100, 116, 57 L. ed. 1410, 1416, 33 Sup. Ct.

Rep. 967; Claiborne County v. Brooks, 111 U. S.

400, 410, 28 L. ed. 470, 474, 4 Sup. Ct. Rep. 489;

Richmond v. Smith, 15 Wall. 429, 438, 21 L. ed.

200, 202.

“On the other hand, in deciding the constitu-

tional questions presented, this court will deter-

mine for itself whether there is, in facet, a con-

tract, and, if so, the extent of its binding obliga-

tions; but will lean to an agreement with the

state court. Tampa Waterworks Co. v. Tampa,

199 U. S. 241-243, 50 L. ed. 170-173, 26 Sup. Ct.

Rep. 23, and cases cited; Freeport Water Co. y.

Freeport, 180 U. 8. 587, 595, 45 L. ed. 679, 687.

21 Sup. Ct. Rep. 493; Detroit v. Detroit Citizens’

Street R. Co., 184 U. S. 368, 386, 46 L. ed. 592,

607, 22 Sup. Ct. Rep. 410; Milwaukee Electric R.

& Light Co. v. Railroad Commission, supra. And

considering the question in this light, we see no

reason to differ with that court in its view of

the validity and binding quality of the contract.

The contract being valid, we are not coneerned

with the question whether the stipulated rates are

confiscatory. Southern Iowa Electrie Co. v.

Chariton, 255 U. S. 539, 542, 65 L. ed. 764, 775,

41 Sup. Ct. Rep. 400; Padueah v. Paducah R.

Co. decided February 19, 1923 (261 U. 8. 267,

ante, 647, 43 Sup. Ct. Rep. 335).”’

In Columbus Railway P. & L. Co. v. City of Co-

lumbus, supra, at page 409, the Court said:

“The contracts were made between the city

and the company, and became mutually binding

for the period named in the ordinances. This

case does not involve the remedies which may be

invoked against a street railway company which

is or may become insolvent because of conditions

arising since it entered into a given contract.

The company seeks now by its own action to

terminate the contracts, still binding upon it by

their terms as to rates of fare to be charged, and

seeks to have the aid of a court of equity by en-

joining the city from any further requirement of

service under them.

**There is no showing that the contracts have

become impossible of performance. Nor is there

any allegation establishing the fact that, taking

the whole term together, the contracts will be

necessarily unprofitable. This case is not like the

Denver Waterworks Case, 246 U. S. 178, 62 L.

ed. 649, P. U. R. 1918C, 640, 38 Sup. Ct. Rep.

278, and the Detroit Street R. Co. Case, 248 U.

S. 429, ante, 341, P. U. R. 1919A, 929, 39 Sup.

Ct. Rep. 151, in both of which the franchise to

use the streets of the city had expired by limi-

tion, and it was sought to require continued

operation of a waterworks system in the one case

and in the other of a street railway system, un-

der rates which would afford no adequate return

to the companies. In this case the company seeks

the aid of a court of equity to avoid contracts

duly made and entered into while the same are

yct in force. (Italics ours.)

‘“‘We are unable to find in the allegations in

this bill any statement of facts which absolves the

company from the continued obligation of its

contracts unless the facts to which we have re-

ferred bring the case, as is contended, within the

doctrine of vis major, justifying the company in

its attempt to surrender its franchise, and be ab-

solved from further obligation.

* * * * * * *

‘*Particular reliance is had upon the last sen-

tence of the paragraph just quoted. This lan-

guage was used in interpreting a contract of

doubtful import, as the context shows. Such in-

terpretation was made in view of the situation of

the parties at the time when the contract was

made, and in view of the nature of the under-

taking under consideration. It certainly was not

intended to question the principle, frequently de-

elared in decisions of this court, that if a party

—

charge himself with an obligation possible to be

performed, he must abide by it unless perform-

ance is rendered impossible by the act of God, the

law, or the other party. Unforeseen difficulties

will not excuse performance. Where the parties

have made no provision for a dispensation, the

terms of the contract must prevail. United States

v. Gleason, 175 U. S. 588, 602, 44 L. Kd. 284, 289,

20 Sup. Ct. Rep. 228, and authorities cited ;

Carnegie Steel Co. v. United States, 240 U. S.

156, 164, 165, 60 L. ed. 576, 578, 579, 36 Sup. Ct.

Rep. 342. The latest utterance of this court upon

the subject is found in Day v. United States, 245

U.S. 159, 62 L. ed. 219, 38 Sup. Ct. Rep. 57, in

which it was said: ‘One who makes a contract

can never be absolutely certain that he will be

able to perform it when the time comes, and the

very essence of it is that he takes the risk within

the limits of his undertaking. The modern cases

may have abated somewhat the absoluteness of

the older ones in determining the scope of the

undertaking by the literal meaning of the words

alone. The Kronprinzessin Cecilie (North Ger-

man Lloyd v. Guaranty Trust Co.) 244 U. 8. 12,

22, 61 L. ed. 960, 965, 37 Sup. Ct. Rep. 490. But

when the scope of the undertaking is fixed, that

is merely another way of saying that the con-

tractor takes the risk of the obstacles to that

extent.’

“In the present case the terms of the contract

are not doubtful. The term for which the com-

pany was given the right to use the streets of the

city was definitely stated, and the terms, including

the rates of fare which the company might

charge, were explicitly laid down. There is no

occasion to interpret general terms in the light

of the intention of the parties or the cireum-

stances of the case.’’ (Italics ours.)

In Southern Iowa Electric Co. v. Chariton, supra,

at page 542, the Court said:

—

““* * * where, however, the public service cor-

porations and the governmental agencies dealing

with them have power to contract as to rates, and

exert that power by fixing by contract rates to

govern during a particular time, the enforcement

of such rates is controlled by the obligation re-

sulting from the contract, and therefore the ques-

tion of whether such rates are confiscatory be-

comes immaterial. (Freeport Water Co. v. Free-

port, 180 U. S. 587, 593, 45 L. ed. 679, 686, 21

Sup. Ct. Rep. 493; Detroit v. Detroit City R. Co.

184 U. 8. 368, 46 L. ed. 592, 22 Sup. Ct. Rep. 410;

Knoxville Water Co. v. Knoxville, 189 U. S. 434,

437, 47 L. ed. 887, 891, 23 Sup. Ct. Rep. 531;

Cleveland v. Cleveland City R. Co. 194 U. S. 519,

48 L. ed. 1103, 24 Sup. Ct. Rep. 756; Home

Teleph. & Teleg. Co. v. Los Angeles, 211 U. S.

265, 273, 53 L. ed. 176, 182, 29 Sup. Ct. Rep. 50;

Minneapolis v. Minneapolis Street R. Co. 215 U.

S. 417, 54 L. ed. 259, 30 Sup. Ct. Rep. 118; Co-

lumbus R. Power & Light Co. v. Columbus, 249

U. 8. 399, 63 L. ed. 669, 6 A. L. R. 1648, P. U. R.

1919D, 239, 39 Sup. Ct. Rep. 349).”’ (Italics

ours. )

In Paducah v. Paducah Ry. Co., supra, at page

273, the Court said:

“Tf the franchise here amounts to a contract

binding the company to the fare stated therein

as a maximum, as claimed by the city, for the

whole franchise term of twenty years, it cannot

complain and there is no ground for relief; and

the question whether such rates are too low to

give a reasonable return or sufficient is imma-

terial.’’ (Italics ours.)

—

IV. THE CONTRACTS HERE WERE BINDING AS BETWEEN

THE PARTIES UNTIL THE COMMISSION EXERCISED THE

POWER DELEGATED TO IT BY THE LEGISLATURE BY

INCREASING THE CONTRACT RATE IN THE MANNER

PROVIDED BY THE PUBLIC UTILITIES ACT OF CALI-

FORNIA.

It is conceded by this appellant that the Railroad

Commission of California is vested with power to

change the rates fixed in various franchises involved

herein, and this fact will, no doubt, be conceded by

the appellant City of Los Angeles and appellee Los

Angeles Railway Corporation. This power of the

Railroad Commission is delegated by the State under

the California Constitution of 1879, as amended

(Sees. 20 and 22 of Article XII, as amended October

10, 1911; See. 23 Article XII, as amended November

3, 1914, and the Public Utilities Act of California en-

acted 1911 (Stats. 1911, extra session, p. 18), reen-

acted in 1915 (Stats. 1915, p. 115).?

(2) The relevant constitutional and statutory provisions pro-

vide as follows:

Section 20 of Article XII of the California Constitution pro-

vides :

“*No railroad, or other transportation company shall raise

any rate of charge for the transportation of freight or pas-

sengers or any charge connected therewith or incidental there-

to, under any circumstances whatsoever, except upon a show-

ing before the railroad commission provided for in this econ-

stitution, that such increase is justified, and the decision of

the said commission upon the showing so made shall not be

subject to review by any court except upon the question

whether such decision of the commission will result in con-

fiseation of property.’’ (Amendment adopted October 10,

1911.)

Section 22 of Article XII of the California Constitution pro-

vides in part:

‘““* * * Said commission shall have the power to establish

rates of charges for the transportation of passengers and,

freight by railroads and other transportation companies, and

——

It has been directly held by this Court that the

binding effect of such contracts as between the par-

no railroad or other transportation company shall charge or

demand or collect or receive a greater or less or different com-

pensation for such transportation of passengers or freight, or

for any service in connection therewith, between the points

named in any tariff of rates, established by said commission,

than the rates, fares and charges which are specified in such

tariff. * * *’? (Amendment adopted October 10, 1911.)

Section 23 of Article XII of the California Constitution pro-

vides in part:

““* * * The railroad commission shall have and, exercise

such power and jurisdiction to supervise and regulate public

utilities, in the State of California, and to fix the rates to be

charged for such commodities furnished, or services rendered

by public utilities as shall be conferred upon it by the legis-

lature, and the right of the legislature to confer powers upon

the railroad commission respecting public utilities is hereby

declared to be plenary and to be unlimited by any provision

of this constitution. * * *.’’ (Amendment adopted November

3, 1914.)

Section 13 of the Public Utilities Act is as follows:

““(a) All charges made, demanded or received by any

public utility, or by any two or more public utilities, for any

product or commodity furnished or to be furnished or any

service rendered or to be rendered shall be just and reason-

able. Every unjust or unreasonable charge made, demanded.

or received for such product or commodity or service is here-

by prohibited and declared unlawful.

“‘(b) Every publie utility shall furnish, provide and main-

tain such service, instrumentalities, equipment and facilities

as shall promote the safety, health, comfort and convenience

of its patrons, employees and the public, and as shall be in

all respects adequate, efficient, just and, reasonable.

“*(e) All rules and regulations made by a public utility

affecting or pertaining to its charges or service to the publie

shall be just and reasonable.’’ (Stats. 1915, p. 115.)

Section 27 of the Public Utilities Act provides as follows:

‘‘No street or interurban railroad corporation shall charge,

demand, collect or receive more than five cents for one con-

tinuous ride in the same general direction within the corpor-

ate limits of any city and county, or city or town, except

upon a showing before the commission that such greater

charge is justified; provided, that until the decision of the

commission upon such showing a street or interurban railroad

corporation may continue to demand, collect and receive the

ties was not impaired because, under State law or

Constitution, the Legislature retained ‘unfettered

power”’ at any moment to revise the contract rate.

Southern Utilities Co. v. Palatka, (1925) 268

U. S. 232;

Opelika v. Opelika Sewer Co., ( 1924) 265 U.S.

215;

Henderson Water Co. v. Corporation Commis-

ston of North Carolina, (1925) 269 U. S. 278.

In the Palatka case the contract was sought to be

avoided on the ground that the rate had become non-

compensatory and that since the Legislature might

at any time intervene and change the contract rate

the parties to the contract were no longer bound. This

Court held that the power of the Legislature to

change the rate did not prevent the parties from mak-

ing a binding contract with respect thereto which

would remain binding as between them until the rate

had been changed by State authority. This Court said

(page 233):

fare lawfully in effect on November 3, 1914. Every street or

interurban railroad corporation shall upon such terms as the

commission shall find to be just and reasonable furnish to its

passengers transfers entitling them to one continuous trip in

the same general direction over and upon the portions of its

lines within the same city and county, or city or town, not

reached by the originating car.’’ (Stats. 1915, p. 115.)

Section 63 of the Public Utilities Act provides in part as fol-

ows:

““(a) No public utility shall raise any rate, fare, toll, ren-

tal or charge or so alter any classification, contract, practice,

rule or regulation as to result in an increase in any rate, fare,

toll, rental or charge, under any circumstances whatsoever,

except upon a showing before the commission and a finding

by the commission that such increase is justified.’’ (Stats.

1915, p. 115.)

————y

“The Supreme Court held that the city had

power to grant the franchise and to make the

contract, and that it had no power, of its own

motion, to withdraw, but it concedes the unfet-

tered power of the legislature to regulate the

rates. On that ground the defendant contends

that there is a lack of mutuality, and therefore

that it is free, and cannot be held to rates that,

in the absence of contract, it would be uncon-

stitutional to impose. The argument cannot pre-

vail. Without considering whether an agreement

by the company in consideration of the grant of

the franchise might not bind the company in some

eases, even if it left the city free, it is perfectly

plain that the fact that the contract might be

overruled by a higher power ‘does not destroy its

binding effect between the parties when it is left

undisturbed. Georgia R. & Power Co. v. Decatur,

262 U.S. 432, 438, 67 L. ed. 1065; 1073, 43 Sup.

Ct. Rep. 613; Opelika v. Opelika Sewer Co. 265

U. S. 215, 218, 68 L. ed. 985, 987, 44 Sup. Ct.

Rep. 517. Such a notion, logically carried out,

would impart new and hitherto unsuspected re-

sults to the power to amend the Constitution or

to exercise eminent domain. There is nothing in

this decision inconsistent. with Southern Iowa

Electric Co. v. Chariton, 255 U. S. 539, 65 L. ed.

764, 41 Sup. Ct. Rep. 400; San Antonio v. San

Antonio Pub. Serv. Co. 255 U. S. 547, 65 L. ed.

777, 41 Sup. Ct. Rep. 428; and Ortega Oo. v.

Triay, 260 U. S. 103, 67 L. ed. 153, 43 Sup. Ct.

Rep. 44.’’ (Italics ours.)

In the Opelika case the Sewer Company had en-

tered into a contract with the City of Opelika for a

period of thirty years, authorizing the Company to

charge not in excess of certain specified rates. The

Constitution of the State of Alabama provided that

no law |

“‘making any irrevocable or exclusive grants of

special privileges or immunities shall be passed

aman

by the Legislature; and every grant of a fran-

chise, privilege or immunity, shall forever remain

subject to revocation, alteration or amendment.’’

Notwithstanding this provision an irrevocable con-

tract for a term of thirty years had been made with

the Sewer Company.

The District Court held that no valid contract ex-

isted and, accordingly, granted an injunction against

the rate. The decree of the District Court was re-

versed by this Court where the question presented

was thus stated:

“Tt is to be taken that the present rates, which

the plaintiff seeks to increase, are confiscatory

unless the city has a right to insist upon them;

and the question before us is whether the cily

has that right by contract, or whether its enforce-

ment of them deprives the plaintiff of its prop-

erty without due process of law, contrary to 14th

Amendment of the Constitution of the United

States, as allezed in the bill. Cincinnati v. Cin-

cinnati & H. Traction Co., 245 U.S. 446, 62 L. ed: .

389, 38 Sup. Ct. Rep. 153. The District court

held that there was no valid contract, and issued

an injunction as prayed. The city appealed te

this court.”’

It was held that notwithstanding the provisions of

the State Constitution referred to, the contract be-

tween the City and the Sewer Company, although

subject to revocation by the State, was valid. The

Court, with special reference to this provision of the

State Constitution, said:

“‘No doubt it is true also that the legislature

could not make such a grant indirectly by giving

power to a city to make. But we see no reason

to doubt that the legislature, without impairing

ie,

its power to revoke, may give a city power to

make a contract from which the city, of its own

motion, may not recede. The city has not at-

tempted to recede from it.”’ (Italics ours.)

Again it was said, therefore, that although the Leg-

islature expressly reserved ‘‘its power to revoke,”

that fact did not affect the validity of the contract

as between the parties and that, accordingly, the par-

ties “‘of their own motion may not recede.”’ The para-

mount right of the Legislature, even in a case where

it was conceded to exist, to ‘‘revoke’’ the contract did

not affect the inviolability of the contract as between.

the parties until the State had exercised that right. It

was a right pertaining to the State ancnot pertaining

to the parties.

In Henderson Water Company v. Railroad Com-

mission of North Carolina, supra, the appellant water

company, assignee of a franchise from the city obli-

gating it to furnish water at certain fixed rates,

sought to increase said charges. Application had been

made to the State Corporation Commission for au-

thority to affect the desired increase and partial re-

lief granted with the direction to the company to try

the new rates for six months, after which time it

might again apply for further relief if the same

should be justified.

The company contended that the increase thus

granted was not sufficient and brought suit in the

District Court of the United States alleging the rate,

even as thus increased, to be confiscatory. If the rate

were statutory, and confiscatory under the Federal

Constitution, the postponement of full relief for six

months would constitute the denial of a constitutional

right, as was apparently conceded by the Court (cit-

‘ing Oklahoma Natural Gas Co. v. Russell, 1923, 261

U. 8. 290). The plaintiff there contended precisely

as the appellee will no doubt contend here, that since

~ the State had established ‘‘a regulatory plan’’ over

rates by establishing a Commission having full power

over the subject of rates, the failure of the Commis-

sion to award relief presented a question arising un-

der the Constitution of the United States. It con-

tended, furthermore, that the delay of six months

imposed by the action of the Commission justified a

direct appeal to the Federal: Courts.

The Court held that since the water company was

bound by contract with the city, it was not in a posi-

tion to assert that the failure of the Commission to

grant adequate relief under the statute creating it

constituted any infringement of a constitutional right.

In other words, it was held that the right of the water

company ‘‘bound by the terms of a contract with the

city’ to relief by the Corporation Commission

“speaking for the state’? was not a constitutional

right and that, accordingly, the water company did

not “‘have any standing to ask for a fixing of rates

in excess of the franchise rights.”’ The Court said

(pp. 281-282) :

“The present case differs from the cases cited

(Oklahoma Natural Gas Co. v. Russell, supra)

in that when the Water Company applied to the

Corporation Commission for an order increasing

rates, it was bound by the terms of a contract

with the city contained in its franchise, to fur-

nish water at a low schedule of rates fixed therein.

It was not entitled to any judicial relief from

—ay

this situation, however inadequate the rates. Col-

umbus Railway Company v. Columbus, 249 U. §,

399; Public Service Company v. St. Cloud, 265

U. S. 352. Only by securing the waiver of the

franchise rates by order of the Corporation Com-

mission speaking for the State, did the Water

Company have any standing to ask for a fixing of

rates in excess of the franchise rates. Trenton y,

New Jersey, 262 U. S. 182. Jt was, therefore,

plainly within the power and discretion of the

Commission after granting partial relief to delay

further action in the same proceeding until i

could satisfy itself by actual trial to what extent

its waiver should go.’’ (Italics ours.)

It should be noted that the statute under consider-

ation in the Henderson case (Sec. 1066 of the Con-

solidated Statutes of North Carolina of 1919) pro-

vided :

‘*CoMMISSION TO Fx Rates roR Pusiic Utiti-

TES. Subject to the provisions as to passenger

rates in the chapter of railroads and as to rail-

road freight rates in this chapter the Commis-

sion shall make reasonable and just rates and

charges in intrastate traffic and regulate the

same.”’

The Supreme Court of North Carolina had accord-

ingly decided that the Corporation Commission had

jurisdiction to increase, as it had in fact in that case

increased (but not to the extent demanded) the rates

established by the contract made before the enactment

of the regulatory statute. (Corporation Commission v.

Henderson Water Co., 190 N. Carolina, 70.) By that

decision, which was referred to by this Court in its

opinion, the Supreme Court of North Carolina held

that the Corporation Commission was

‘“‘vested by law with power and authority to fix

and establish any and all rates which it (the

Water Company) may charge for services ren-

dered by it. When the corporation commission

is called upon by either the corporation or those

to whom the services are rendered under its fran-

chise to exercise this power and authority it is its

duty to fix and establish just and reasonable rates

to be charged for such services.”’

This Court held that since the water company was

bound by the contract with the city, even though that

contract was subject to jurisdiction of the Commis-

sion, it was not entitled to relief under the Constitu-

tion of the United States, but must secure relief from

the Commission, if at all; the fact that partial waiver

of the contract rate had been made was not enough to

convert the contract rate into a statutory rate.

This precise question was considered in (Cit y of

Manitowoc v. Manitowoc & Northern Traction Co.,

(1911) 145 Wis. 13 (129 N. W. 925), cited and quoted

with approval by this Court in Milwaukee Electric Rail-

way & Light Co. v. Railroad Commission, (1915) 238

U.S. 174. There a contract had been executed between

the municipality and the utility corporation limiting

the rate of fare to ten cents. The Statute of Wisconsin,

however, which was substantially the same as the Pub-

lie Utilities Act of California created a Railroad Com-

mission with powers which were also substantially

identical with the regulatory powers of the California

Commission. It was, therefore, contended by the util-

ity corporation that its contract with the city for an

unremunerative rate of fare had become invalid and

that it was therefore entitled to charge a ‘‘reasonable”’

fare. The Court held that the contract remained

ae Ge

valid as between the parties until modified by the

Commission and that the enactment of the statute

providing for reasonable rates and the creation of the

Commission to apply that standard did not invalidate

the contract. The Court said:

“No specific authority having been conferred

on the city to enter into the contract in question,

the right of the state to interfere whenever the

public weal demanded was not abrogated. The

contract remained valid between the parties to it

until such time as the state saw fit to exercise its

paramount authority, and no longer. To this

extent and to this extent only is the contract before

us a valid subsisting obligation.”’

Holding, however, that the statute did not invalidate

or modify the contract until action had been taken by

the Commission, the Court said:

“Whether the state has exercised its right to

modify this rate remains to be considered. Chap-

ter 362, Laws 1905, applies to interurban railway

companies. In re Apesention of Chapter 3632,

Laws 1905, to Certain Street Railways, 1 Wis. R.

R. Com. Rep. 178. By that statute (section 3) it

is provided that all charges made by any carrier

coming under its provisions ‘shall be reasonable

and just, and every unjust and unreasonable

charge for such service is prohibited and declared

to be unlawful.’ Railway Companies are required

(section 4) to file their tariffs with the Railroad

Commission, and are prohibited from making

changes therein except on ten days’ notice, and

the rates fixed in such tariffs are declared to be

the lawful rates until changed as provided by the

Act. * * *

“It is contended that this law has superseded

the contract involved in this suit and that there-

fore the contract no longer has any binding force

or effect. We do not think so. The statute

worked no change in existing rates. It simply

ovided that all rates should be reasonable, and

eft to the Railroad Commission the power to de-

termine the fact as to whether or not a given rate

was reasonable. When the determination was

reached the law became operative upon the par-

ticular rate called in question, and the rate ar-

rived at then became the lawful rate and con-

tinued so wntil set aside in the manner provided

by the law. The Railroad Commission has made

no determination in the case before us; at least,

. it has it is no part of the record. Until that

etermination is made, the contract is in force.

When tt is made, the contract is superseded, if the

rate is changed. * * *

“This is a question which calls for the exercise

of legislative policy and discretion. The Court

cannot relieve the defendant from an im provident

contract, but the contract is of such a character

in the present instance that the legislative branch

of the government may, in the interest of the

public, abrogate it. * * *

“‘The judgment of the circuit court is reversed,

and the cause is remanded, with directions to en-

ter judgment enjoining the defendant from

changing the rates of fare between the cities of

Manitowoc and Two Rivers provided for in the

ordinance of November 24, 1902, until such time

as such rates are changed by the Legislature, or

through a legislative agency in the manner pro-

vided by law.’’

To the same effect was the decision in Monroe v.

Detroit M. & T. Short Line R. Co., (1915), 187 Mich.

364, 153 N. W. 669, where there was a contract be-

tween the City and the utility corporation. It was

contended for the Company that the State Utility

Act operated as a revocation of any power the city

might have had to contract concerning the service to

be furnished by the Company. Referring to this con-

tention the Court said:

“The rule that contracts such as the one here

involved are made subject to the necessities of

police regulations is recognized by this Court.”

Continuing, however, the Court said:

“It does not follow that because the contract

may yield to the exigency of public necessity,

when such exigency has been determined in q

proper case and manner, by competent authority,

that the respondent, a party to the contract, may

ignore the contract obligation, plead the public or

its own convenience as an excuse and remit the

relator to a commission for relief. On the con-

trary, it seems wholly reasonable that it should

perform its contract obligations until relieved

therefrom by competent authority.”

In Salt Lake City et al v. Utah Light & Traction

Co., (1918) 52 Utah 47€ (173 Pac. 566), the traction

company had obtained an increase in rates from the

State Commission. The city objected to the increase

on the ground that the rate was fixed by contract and

could not be changed even by State authority. The

Court held that the State Commission had power to

change the rate but it was expressly conceded that

unless changed by the Commission the rate was bind-

ing as between the parties. On this subject the Court

said:

“*Tt is now settled law that so long as the state

does not interfere the rates agreed upon between

the cities and the street railway com panies in the

franchise ordinance are binding and enforceable.

Neither party, without the consent of the other,

may disregard any rate that is agreed upon be-

tween them.’’

Similarly in Traverse City v. Michigan Railroad

Comm. (1918), 202 Mich. 575, 168 N. W. 481, the

Court said:

—

“This subject will be found to have been so

exhaustively discussed in its various aspects and

the applicable rule so plainly declared in the

above cases and those cited in them that it is

sufficient here to state we need not ‘go to the ex-

tent of many of those decisions to determine in

the instant case that Traverse City was not given

by its charter the power to regulate the rates to

be charged by telephone companies, that the fran-

chise contract upon which it relies was not per-

missive, and, though binding between the parties

to it in the absence of governmental interposition,

is to be construed as having been entered into

with reference to the right and power of the gov-

ernment to assert and exercise its inherent par-

amount authority.”’

The following authorities are to the same effect,

holding contractual franchise rates to be binding

between the parties until and when abrogated and

changed by the state through the exercise of its police

power:

State of Washington v. Pacific T. & T. Co.

(1924), 1 Fed. (2nd) 327;

State ex rel Ellertsen v. Home Tel. & Tel. Co.

(1918), 102 Wash. 196, 172 Pac. 899;

Sumpter G. & P. Co. v. City of Sumpter

(1922), 283 Fed. 931;

Woodburn v. Public Service Comm. (1916),

161 Pace. 391, 82 Or. 114.

It is well settled in California that contracts fixing

tates to be charged by public utilities shall be bind-

ing as between the parties until superseded by order

of the Railroad Commission changing such contract

rates. There are no cases involving franchise con-

tract rates on street railroads.

In the case of Southern Pacific Co. v. Spring Val-

ley W. Co. (1916), reported in 173 Cal. 291, the plain-

tiff sought to compel the defendant water company to

continue to furnish it water under its contract and to

enjoin the water company from disturbing any con-

nections through which the water was conducted. In

the course of the opinion, the Court said:

‘*‘We perceive no valid reason for holding the

contract void because opposed to public policy.

It is not claimed that it was not freely made, or

that it was procured by fraud or undue influ-

ence. There is nothing inherently wrong in such

a contract to give water service upon payment in

advance. No regulation or rule of any public

authority empowered to control or regulate pub-

lic water service in Alameda coynty had or hag

forbidden it. There is no claim that the taking

of this water by the plaintiff has reduced the

supply remaining in control of the defendants be-

low the quantity necessary or convenient for the

other consumers entitled to it or applying for it,

or that the supply to plaintiffs has not been from

a surplus that would have been unused but for

their taking. Where the rates for water devoted

to public use have not been fixed by public au-

thority, the person in charge of the use and the

consumer may freely contract regarding the price

of service and the manner of payment, and such

contracts will be deemed valid by the courts and

may be enforced by any appropriate mode.

(Fresno Canal ete. Co. v. Park, 129 Cal. 437 (62

Pace. 87); Stanislaus W. Co. v. Backman, 152 Cal.

725, 730 (15 L. R. A. (N. 8.) 359, 93 Pac. 858) ;

Leavitt v. Lassen Irr. Co., 157 Cal. 82, 90 (29

L. R. A. (N. 8.) 213, 106 Pac. 404).)

* * * *

* *

‘*Any contract purporting to give such prefer-

ence in the publi¢ use, or to transfer a part of

the dedicated public supply to private use, is

subject to revision by competent public authority,

to the end that the public service shall not be un-

—

justly discriminatory, or unreasonable, and that

the private use shall not interfere with the pub-

lie use, and such contracts may, by such authority,

be reformed accordingly, to make them conform

to the public interest. (Turtle Creek Borough v.

Pennsylvania W. Co., 243 Pa. 408 (90 Atl. 194);

Bellevue Borough v. Ohio V. W. Co., 245 Pa.

117 (91 Atl. 236); see, also, Fresno ete. Co. v.

Park, 129 Cal. 437 (62 Pac. 87); Stanislaus W.

Co. v. Backman, 152 Cal. 725 (15 L. R. A. (N.

S.) 359, 93 Pac. 858).) In the case first cited it

is said that the power to fix rates and regulate

public service of water devoted to public use

carries with it jurisdiction to determine the rea-

sonableness of charges, irrespective of prior con-

tracts, to that extent such contracts may be re-

formed.’ But until such public authority has

intervened and modified such prior contract, it

will be recognized as valid, and enforced in the

courts, as declared in our decisions above cited.

The power to revise and reform contracts of pub-

lie service water companies, in the interest of

the public, applies as well to a contract creating

or attempting to create an easement in the water

held for public use as to any other disposition

thereof.’’ (Italics ours.)

In the case of Henrici v. South Feather Land ete.

Co. (1918), reported in 177 Cal. 442, the Court had

before it a suit for damages for violation of a con-

tract to supply water for irrigating lands. The de-

fendant company had purchased the water company

and claimed it was not bound by the terms of a con-

tract with the plaintiff. After purchasing the prop-

erty defendant had put in a rate in excess of that

specified in the contract which plaintiff had made

with the defendant’s predecessor. Plaintiff refused

to pay the increased rate and the company refused to

deliver water. The pertinent part of the decision is

as follows:

‘‘The obligation to furnish water at the agreed

rate was unlimited in time, and continued until

the rate was superseded by order of a public body

vested with the power of regulating the service.”

(Italics ours.)

In conclusion we find that it is the unanimous hold-

ing of this Honorable Court and nurmerous other

Courts, including the California Supreme Court that

rates for public utility service agreed upon and fixed

by contract are binding between the parties to the

contract until the said rates are abrogated and

changed by the state in the exercise of its police

power. Until the contract rate is increased or de-

creased by the state it remains in full force and effect.

V. THE COURT ERRED IN HOLDING THAT THE RAILROAD

COMMISSION BY ITS ORDERS OF 1921 AND 1928 ABRO-

GATED THE RATES FIXED IN THE VARIOUS FRANCHISE

CONTRACTS IN QUESTION.

A. The Commission order of 1921.

The District Court in its decision did not hold that

the City of Los Angeles was without power to con-

tract as to the rates of fare to be charged by respond-

ent company, but to the contrary for the purpose of

its decision assumed that the city possessed such

power and that the franchises granted to respondent

did constitute valid contracts. The Court held, how-

ever, that the permissive order of the Railroad Com-

mission of 1921 authorizing respondent to increase

its rates upon certain conditions constituted a change

of existing contract rates and abrogated said rates

agreed upon by the parties. The opinion of the Court

states in part:

‘““We prefer to rest our decision upon the

ground that even upon the assumption that the

city had power to fix the utility rate by contract

and that the rate provisions contained in the

franchises granted to plaintiff did constitute con-

tracts, nevertheless, the rates specified in the pro-

visions of the franchises have been changed by

the exercise of the police power of the state. It

appears that in 1921 the Commission granted

plaintiff company authority to increase its rates

over the basie five cent fare which was then in

force. There were in force and effect at that

time 102 out of 116 franchises granted to plain-

tiff or its predecessors. Since May, 1921, four-

teen other franchises have been granted. When

the Commission in 1921 made its order changing

the basic five cent fare, it authorized plaintiff to

file with the Commission and put into effect thirty

days from the date of the order, a schedule of

rates increasing the then-present basic fare of

five cents to six cents, and directed that tickets

or tokens be put on sale. That plaintiff company

did not avail itself of the right to the increase

does not affect the fact that the Commission ex-

ercised its exclusive jurisdiction to regulate rates

by making and finding that the rates provided

for in the franchise granted to plaintiff were in-

adequate, and that the six cents fare authorized

was a just rate. The Commission in its decision

said:

“**Tf adequate street railway service is to be

given in Los Angeles, there appears to be no pos-

sibility for the company to secure the necessary

revenue under a continuation of the flat 5-cent

fare. An increase in the fare in some form, we

are satisfied, should be authorized if street rail-

way service is not to suffer and great injury is

not to result to the development of the city.’

‘*The order authorized the company to put into

effect within thirty (30) days from the date of

the order a schedule of rates increasing the basic

5-cent fare to 6 cents, provided that tickets or

en a

tokens be put on sale at the company’s offices,

on the company’s cars, and at such points as the

company may select, in blocks of ten (10) tickets

or tokens at a total cost of 50 cents for each

block; and provided further that the single 6-

cent fare, as also the reduced rate ticket or token

fare, shall retain transfer privileges as then in

existence.”’

The error in the conclusion of the Court is patent.

The record herein shows conclusively that the Com-

mission never ‘‘made its order changing the basic

five cent fare’’ in 1921 or at any other time. It merely

issued a permissive order which was never accepted by

respondent, and which never became effective. (19 Cal.

Railroad Commission Opinions and Ofders 980.) The

complete story of said Commission order of 1921 is

found in the Affidavit of H. G. Mathewson, Secretary

of the Railroad Commission (R. 347-350) and reveals

that the authority granted respondent was not only

not accepted, but on June 20, 1921, within the period

allowed by law, a petition for rehearing on said de-

cision was filed by respondent in which the lawfulness

of the order was challenged. The petition for re-

hearing was set down for argument before the Com-

mission, and removed from the calendar at the specific

request of respondent company. On October 13, 1926,

respondent company addressed the following letter

to the Commission (R. 349):

‘*In re Application No. 4238

Gentlemen: The above application was dropped

from the Commission’s calendar, upon our re-

quest on March 14, 1922, and no further action

has been taken in the matter since that date.

—

In view of the entire change of conditions since

1918, when Application No. 4238 was filed by

this company, we at this time request that your

Honorable Commission dismiss Application No.

4238 and the matters supplemental thereto.

Very respectfully, Los Angeles Railway Cor-

poration by (Signed) G. J. Kuhrts, Vice

President and Gen. Manager. Gibson,

Dunn & Crutcher, by (Signed) S. M.

Haskins, Its Attorneys.”’

(Italics ours)

Thereafter, on October 25, 1926, the Railroad Com-

mission issued its Decision 17,526, providing as fol-

lows (R. 349):

“ORDER SETTING ASIDE DEcISION AND DISMISSING

APPLICATION

By the Commission:

Request having been made by applicant in the

above entitled matter for dismissal of this appli-

cation, and

Good cause appearing for the granting of said

request,

It is hereby ordered that the above entitled ap-

plication being Application No. 4238, be and the

same is hereby dismissed, and

It is hereby further ordered that Commission

Decision No. 9029 heretofore rendered in the

above entitled matter, which decision has been

suspended by virtue of the pendency of a petition

for rehearing, be and the same is hereby set aside

and revoked.

Dated at San Francisco, California, this 25th

day of October, 1926.

H. W. Brundige, C. L. Seavey, Ezra W. De-

coto, Leon O. Whitsell, Commissioners.

(Italics ours)

Hence we find that the Railroad Commission de-

cision of 1921, which was emphasized by the Court

in its opinion, was revoked and irradicated at the

instance and request of applicant company. The

language of the order of revocation is significant, it

showing that the decision had been suspended by vir-

tue of the pendency of petition for rehearing. We

must conclude therefore that the order at all times

was fully as ineffective as if it had never been issued,

and in no manner abrogated or affected the existing

franchise rates. :

In considering the effect of the proceedings had

before the California Railroad Commission in the ap-

plication of appellee for rate increa8e, Application

4238, it is proper to ask this question: What was the

order of the Commission in that proceeding? The

order (Decision 17,526, supra), was one of dismissal,

dismissing the entire proceeding, issued at the in-

stance and request of applicant. True, a prior order

(Decision 9029) had been issued in the proceeding

which was intermediate and permissive in character,

but which had never become effective. The final order

and the one which necessarily must be controlling,

was one of dismissal, effectively revoking the inter-

- mediate, ineffective and permissive order, and dis-

missing the entire proceeding.

It was found by the Court, and will be conceded by

appellee, that the permissive order of 1921 (Decision

9029) was not accepted by the appellee. No tariffs

were ever filed with the Railroad Commission by ap-

pellee pursuant to said intermediate order. The Pub-

lie Utilities Act expressly requires that new tariffs be

filed with the Commission before existing rates may

be changed.* It is well established under the au-

thorities that rates may be changed only by strict

compliance with the applicable statutory procedure.

Wichita Railroad & L. Co. v. Public Utilities Com.

of Kansas, et al., (1922), 260 U. S. 48; Traverse City

v. Citizens Tel. Co. (1917), 195 Mich. 374, 388; 161

N. W. 983, 988.

It should also be pointed out that the order of 1921

has never been treated by appellee as anything but a

nullity. This is forcefully acknowledged in the bill

of complaint herein, the plaintiff’s first cause of action

being predicated entirely upon the existence of fran-

chise rates, and its second cause of action being predi-

cated entirely upon the refusal of the Railroad Com-

mission to change the franchise rates.

(3) Section 15. Unless the commission otherwise orders, no

change shall be made by any public utility in any rate, fare, toll,

rental, charge or classification, or in auy rule, regulation or con-

tract relating to or affecting any rate, fare, toll, rental, charge,

classification or service, or in any privilege or facility, except after

thirty days’ notice to the commission and to the public as herein

provided. Such notice shall be given by filing with the commis-

sion and keeping open for public inspection new schedules stating

plainly the change or changes to be made in the schedule or

schedules then in force, and the time when the change or changes

will go into effect. The commission for good cause shown, may

allow changes without requiring the thirty days’ notice herein

provided for, by an order specifying the changes so to be made

and the time when they shall take effect, and the manner in which

they shall be filed and published. When any change is proposed,

in any rate, fare, toll, rental, charge or classification, or in any

form of contract or agreeemnt or in any rule, regulation or con-

tract relating to or affecting any rate, fare, toll, rental, charge,

classification or service, or in any privilege or facility, attention

shall be directed to such change on the schedule filed with the

commission, by some character to be designated by the commis-

sion, immediately preceding or following the item. (California

Stats. 1915, p. 115.)

. egg

The final and conclusive reason why the order of

1921 was ineffective for all purposes, lies in the fact

that it was expressly made so under the provisions of

Section 66 of the Public Utilities Act.* The record

(4) See. 66. ‘‘After any order or decision has been made by

the commission, any party to the action or proceeding, or any

stockholder or bondholder, or other party pecuniarily interested

in the public utility affected, may apply for a rehearing in re-

spect to any matters determined in said action or proceeding and

specified in the application for rehearing, and the commission

may grant and hold such rehearing on said matters, if in its

judgment sufficient reason therefor be made to appear. No cause

of action arising out of any order or decision of the commission

shall accrue in any court to any corporation or person unless

such corporation or person shall have made, before the effective

date of said order or decision, application to the commission for

a rehearing. Such application shall set forth specifically the

ground or grounds on which the applicant coysiders said decision

or order to be unlawful. No corporation or person shall in any

court urge or rely on any ground, not'so set forth in said 2nvlica-

tion. Any application for a rehearing made ten days or more

before the effective date of the order as to which a rehearing is

sought, shall be either granted or denied before such effective

date, or the order shall stand suspended until such application

is granted or denied. Any application for a rehearing made

within less that ten days before the effective date of the order

as to which a rehearing is sought, and not granted, within twenty

days, may be taken by the party making the application to be

denied, unless the effective date of the order is extended for the

period of dependency of the application. If any application for

a rehearing be granted without a suspension of the order in-

volved, the commission shall forthwith proceed to hear the matter

with all despatch and, shall determine the same within twenty

days after final submission, and if such determination is not

made within said time, it may be taken by any party to the

rehearing that the order involved is affirmed. An application

for rehearing shall not excuse any corporation or person from

complying with and obeying any order or decision, or any re-

quirement of any order or decision of the commission thereto-

fore made, or operate in any manner to stay or postpone the

enforcement thereof, except in‘ such cases and, upon such terms

as the commission may by order direct. If, after such rehearing

and a consideration of all the facts, including those arising since

the making of the order or decision, the commission shall be of

the opinion that the original order or decision or any part

thereof is in any respect unjust or unwarranted, or should be

changed, the commission may abrogate, change or modify the

shows that the 1921 order was dated May 31, 1921,

and authorized the filing of proposed rules, regula-

tions and rates, thirty days from the date of said

order, and further the record shows that the appellee

company filed its petition for rehearing with the Rail-

road Commission ten days before the said effective

date, to-wit: on June 20, 1921 (R. 348). Under the

terms of Section 66 of the Public Utilities Act, supra,

it is provided in part at “‘any application for a

rehearing made ten days or more before the effective

date of the order as to which a rehearing is sought,

shall be either granted or denied before such effective

date, or the order shall stand suspended until such

application is granted or denied.” The petition for

rehearing not having been granted or denied before

the effective date provided in said order, it follows

that the order was suspended and never became

effective.

In ruling that the Railroad Commission order of

1921 abrogated the rates fixed by the various fran-

chises in question the Court relied on the decision of

this Honorable Court in Denney v. Pacific T. & T. Co.

(1928) 276 U. S. 97, 100. In that case the Court had

before it appeals by defendants from decrees of the

United States District Court for the Western Dis-

trict of Washington enjoining the enforcement of

rates for telephone service alleged to be confiscatory.

same, An order or decision made after such rehearing abro-

gating, changing or modifying the original order or decision

shall have the same force and effect as an original order or de-

cision, but shall not affect any right or the enforcement of any

right arising from or by virtue of the original order or decision

marry: ” ordered by the commission.’’ (California Stats. 1915,

p. 115.

On appeal defendants contended that the United

States District Court was without jurisdiction to give

the injunctive relief granted inasmuch as the plaintiff

telephone companies were operating under certain

contractual franchises in which maximum permissive

rates were fixed. The Court properly rejected this

contention and held that the decree of the lower Court

was sound, it appearing that the Department of Pub-

lic Works of the State of Washington, pursuant to

statutory authority had issued its order in 1923

abrogating the franchise rates and approving as just

and reasonable rates theretofore fixed by the Post-

master General in Federal control in 1919, which

rates were of a higher level than these provided in

the contracts. The opinion states in part (p. 300):

“The order of March 31, 1923, in effect de-

clared the rates then being observed just and

sufficient to yield reasonable compensation. It

expressly commanded their future observance and

was sufficient to terminate the provisions of the

franchises as to maximum rates within the pur-

view of Section 55, supra.”’

It is evident that the ruling of this Honorable

Court in the Denney case, supra, is of no significance

in the instant case inasmuch as the facts now before

the Court show that the California Railroad Com-

mission order of 1921 did not abrogate or terminate or

affect in any manner whatsoever the rates established

in the contractual franchises.

We again refer to the holdings of this Honorable

Court in Southern Utilities v. City of Palatka, supra,

and in Henderson Water Co. v. Corporation Com-

mission of the State of North Carolina, supra. In

each of these decisions it was clearly pointed out that

rates of fare fixed in contractual franchises should

continue in effect and be inviolable as between the

parties until and when said rates are changed and

abrogated by the State in the exercise of its superior

power. In Southern Utilities v. City of Palatka, this

Court said (p. 233):

“The supreme court held that the city had

power to grant the franchise and to make the

contract, and that it had no power, of its own

motion, to withdraw, but it concedes the unfet-

tered power of the legislature to regulate the

rates. On that ground the defendant contends

that there is a lack of mutuality, and therefore

that it is free, and cannot be held to rates that,

in the absence of contract, it would be unconsti-

tutional to impose. The argument cannot pre-

vail. Without considering whether an agreement

by the company in consideration of the grant of

the franchise might not bind the company in some

cases, even if it left the city free, it is perfectly

plain that the fact that the contract might be

overruled by a higher power does not destroy its

binding effect between the parties when it is left

undisturbed.”’ (Italics ours.)

In Henderson Water Co. v. Corporation Commission

of the State of North Carolina, supra, this Court in

considering the nature and extent of said action

required to abrogate contract made rates said:

“* * * when the Water Company applied to

the Corporation Commission for an order increas-

ing rates, it was bound by the terms of a contract

with the city contained in its franchise, to furnish

water at a low schedule of rates fixed therein. It

was not entitled to any judicial relief from this

situation, however inadequate the rates. Colum-

bus R. Power & Light Co. v. Columbus, 249 U. S.

399; 63 L. ed. 669, 6 A. L. R. 1648, P. U. R.

1919D, 239, 39 Sup. Ct. Rep. 349; St. Cloud Pub. .

Serv. Co. v. St. Cloud, 265 U. S. 352, 68 L. ed.

1050, 44 Sup. Ct. Rep. 492. Only by securing the

waiver of the franchise rates by order of the

corporation commission speaking for the state,

did the Water Company have any standing to

ask for a fixing of rates in excess of the franchise

rates.”’ (Italics ours.)

The Henderson case was a strong case indeed, com-

pared with the instant case. In that case a partial

waiver of the contract rate had been granted by the

Corporation Commission; yet this Court, in sustain-

ing the ruling of the Federal District Court, heid that

such partial change was insufficient to abrogate the

franchise contract rate, and that nothing short of a

final waiver of said contract rate would suffice to give

the Federal Court jurisdiction to relieve against con-

fiseation.

The Railroad Commission order of 1921 having

“left undisturbed’’ the contractual franchise rates,

we respectfully submit that the District Court was in

error in holding that the said rates were changed by

the state in the exercise of its police power so as to

give the District Court jurisdiction to grant the in-

junctive relief allowed.

B. The Commission order of 1928.

The District Court further held that the Railroad

Commission order of 1928 (R. 165) denying applica-

tion of appellee for a rate increase resulted in the

abrogation of the franchise contract rates. The Court

stated in part (R. 543):

‘“‘Furthermore, we are of opinion that the

proceeding before the Railroad Commission (No.

13323) out of which the present suit grew, must

be held to have been a complete exercise by the

Commission of its power over the rate specified

in the franchises granted to plaintiff. How could

it be otherwise? The Commission received and

considered original and supplemental applica-

tions for an increase made by plaintiff. It car-

ried on an extensive investigation lasting from

November, 1926, until March, 1928, when it made

its finding that the five cent fare allowed to

plaintiff was not an unreasonable return, and that

under that rate and the method of operation for

the year ending December 31, 1927, the return

was approximately 4.9 per cent. The finding of

the Commission rested upon detailed figures con-

cerning the valuation of plaintiff’s property. The

practical result of the conclusion and order of

the Commission was to prevent the company from

obtaining a fair return upon its property in-

vested in the public service. Its order was none

the less effective in denying permission to raise

an existing rate inasmuch as the necessary effect

was to enforce the existing rate, which would

effect confiscation of plaintiff’s property (Miss.

R. R. v. M. & O. R. R., 244 U.S. 388).”’

We respectfully submit that the fact that the Rail-

road Commission of California exercised its statutory

and constitutional authority in considering whether

the franchise rates should be abrogated and increased

and thereafter issued its order denying an increase

is not material to a determination of the jurisdic-

tional question now presented. Under the holdings

of this Court in Southern Utilities v. City of Palatka,

supra, Henderson Water Co. v. Corporation Commis-

sion of the State of North Carolina, supra, and Den-

ney v. Pacific T. & T. Co., supra, the contractual ,

franchise rates are binding upon the parties, and the

Federal Court is without jurisdiction in the premises

unless and until the contract rates are abrogated or

terminated through the direction of increased or re-

duced rates.

The franchise contract rates in question could be

abrogated only by a “‘showing before the Railroad

Commission and a finding by the Commission that the

increase is justified.’”’ (Secs. 27 and 63 of the Public

Utilities Act, supra.) The Railroad Commission

under its opinion and order on application of ap-

pellee for a rate increase (R. 165) found that there

was no showing justifying the proposed increase and

refused to make its finding authorizing said proposed

increased rate. This Honorable Court in Wichita

Railroad & L. Co. v. Public Utilities*Com. of Kan-

sas, et al. (1922), 260 U. S. 48, expressly held that the

order of a state regulatory body purporting to in-

crease contract rates will not abrogate an existing

contract for public utility service unless the Com-

mission order complies in every particular with the

requirement of the state statute governing such

orders. In that case two utilities operating in Kan-

sas had contracted for the sale and purchase of power

at certain rates. The Public Utility Commission of

Kansas, on complaint of one of the utilities, issued

its order granting an increase in the contract rate.

The utility resisting the increase instituted proceed-

ings in the United States District Court and en-

joined the Commission from putting in force the in-

creased rate authorized. On appeal the Circuit Court

reversed the decree. On appeal to this Honorable

Court the ruling of the District Court was upheld.

The order of the Commission was held to be void,

there being no express finding therein that the exist-

ing rates were unreasonable or unjust, as required by

the state statute. Section 13 of the Public Utility

law of Kansas provided:

‘Tt shall be the duty of the Commission, either

upon complaint or upon its own initiative to in-

vestigate all rates, fares, * * * and if after full

hearing and investigation the Commission shall

find that such rates * * * are unjust, unreason-

able, unjustly discriminatory or unduly’ prefer-

ential, the Commission shall have power to fix

and order substituted therefor such rate or rates

* * * as shall be just and reasonable.’’

This Court stated in its decision:

“The proceeding we are considering is gov-

erned by Sec. 13. That is the general section of

the act comprehensively describing the duty of

the Commission, vesting it with power to fix and

order substituted new rates for existing rates.

The power is expressly made to depend on the

condition that, after full hearing and investiga-

tion, the Commission shall find existing rates to

be unjust, unreasonable, unjustly discriminatory,

or unduly preferential. We conclude that a valid

order of the Commission under the act must con-

tain a finding of fact after hearing and investi-

gation, upon which the order is founded, and

that, for lack of such a finding, the order in this

case was void.”’

* » * * * * *

“In creating such an administrative agency,

the legislature, to prevent its being a pure dele-

gation of legislative power, must enjoin upon it a

certain course of procedure and certain rules of

decision in the performance of its function. * * *

When, therefore such an administrative agency

is required, as a condition precedent to an order,

to make a finding of facts, the validity of the

order must rest upon the needed finding. If it

is lacking, the order is ineffective.”’

In ruling that the contract rate had not been law-

fully changed the Court approved the ruling of the

Supreme Court of Kansas in Kaul v. American In-

dependent Teleph. Co. (1915), 95 Kan. 1, 147 Pace.

1130; and quoted the following portion of the de-

cision in that case:

‘*While that Commission is vested with broad

regulatory powers, it is not shown nor claimed

that it has found the contract rates to be unrea-

sonable. Granting, without deciding, that the

Commission has the power, under the law, to de-

termine whether or not the rates prescribed by

the contract are reasonable and valid, and to

revise them if found to be unreasonable, it does

not appear that it has exercised the power, nor

that they have been presented to it for its con-

sideration. The passage of the aét did not auto-

matically overthrow contracts nor set aside sched-

ules of rates which had been agreed upon. Nei-

ther did the fact that the defendant published and

filed a schedule of rates with the Public Utilities

Commission abrogate the contract. In any event,

rates previously agreed upon between utilities

and patrons will continue in force until the Com-

mission has found them to be unreasonable, and

has prescribed other rates.”’ (Italies ours.)

In conclusion we find that in the instant case the

franchise contract rates were never effectively abro-

gated by the California Railroad Commission, there

being no showing before the Commission or ‘‘finding

by the Commission that such increase is justified.”’

Under the many authorities above cited there can be

no question of confiscation so long as the contract

rates are not abrogated. It is only when contract

rates have been changed by the State and they thus

become statutory rates that the question of confisca-

tion can arise. The contract rates having never been

abrogated, the District Court of Appeal was without ~

power or authority to relieve against alleged confisca-

tion.

If appellee was entitled to a change of its fran-

chise contract rates it was solely because of the statu-

tory right given to it by the State under Sections

13, 27 and 63 of the Public Utilities Act above

quoted, and not because of the 14th amendment to

the Federal Constitution. Appellee believing the

order of the Railroad Commission denying a rate

increase to have deprived it of its statutory rights

granted under the above cited provisions of the Pub-

lie Utilities Act of California could, and should have

proceeded in the highest Court of the State, the Cali-

fornia Supreme Court, and there sought to compel

the Railroad Commission to exercise its police power

to abrogate the contract rates. Under Section 67 of

the Public Utilities Act appellee could have pro-

ceeded before the California Supreme Court on a

petition for writ of review (certiorari) and there

obtained a ruling as to the lawfulness of the order

in question.” That Court could have determined

(5) Section 67 of the Publie Utilities Act of California

provides :

‘‘Within thirty days after the application for a rehearing

is denied, or, if the application is granted, then within thirty

days after the rendition of the decision on rehearing, the

applicant may apply to the supreme court of this state for

a writ of certiorari or review (hereinafter referred to as a

writ of review) for the purpose of having the lawfulness

of the original order or decision or the order or decision on

rehearing inquired into and determined. Such writ shall be

made returnable not later than thirty days after the date of

the issuance thereof, and shall direct the commission to

certify its record in the case to the court. On the return

whether the Commission had regularly pursued its

authority, and could have effectively protected the

statutory rights enjoyed by appellee. It should also

be noted that under the provisions of Section 67 of

the Public Utilities Act a writ of mandamus will lie

from the Supreme Court to the California Railroad

Commission in all proper cases.

CONCLUSION.

In conclusion we respectfully submit that we have

shown that the numerous franchise agreements

day, the cause shall be heard by the supreme court, unless

for a good reason shown the same be continued. No new

or additional evidence may be introduted in the supreme

court, but the cause shall be heard on the record of the

commission as certified to by it. The review shall not be

extended further than to determine whether the commission

has regularly pursued its authority, including a determina-

tion of whether the order or decision under review violates

any right of the petitioner under the Constitution of the

United States or of the State of California. The findings

and conclusions of the commission on questions of fact shall

be final and shall not be subject to review; such questions

of fact shall include ultimate facts and the findings and

conclusions of the commission on reasonableness and dis-

crimination. The commission and each party to the action

or proceeding before the commission shall have the right to

appear in the review proceeding. Upon the hearing the

supreme court shall enter judgment either affirming or setting

aside the order or decision of the commission. The provi-

sions of the Code of Civil Procedure of this state relating

to writs of review shall, so far as applicable and not in

conflict with the provisions of this act, apply to proceedings

instituted in the supreme court under the provisions of this

section. No court of this state (except the supreme court

to the extent herein specified) shall have jurisdiction to

review, reverse, correct or annul any order or decision of

the commission or to suspend or delay the execution or

operation thereof, or to enjoin, restrain or interfere with

the commission in the performance of its official duties;

provided, that the writ of mandamus shall lie from the

supreme court to the commission in all proper cases.’’

(Stats. 1915, p. 115.)

granted by the City of Los Angeles to appellee under

which appellee’s street car operations are being con-

ducted, constitute binding contracts between the par-

ties; that the rate of fare provisions included in said

franchises were inserted pursuant to specific statu-

tory authority granted by the State of California to

the City of Los Angeles; and that neither the con-

tractual franchises nor the maximum rate of fare

provisions which they contain have ever been changed

or modified by the California Railroad Commission

or by any other instrumentality of the State.

We further submit that under the unanimous hold-

ings of this Honorable Court and numerous other

Courts, above cited, the contract franchise rates of

fare agreed upon are binding between the parties un-

til changed and abrogated by the State in the exercise

of the police power of the State. If the appellee Los

Angeles Railway Corporation is entitled to a change

in the existing contract rates of fare it is by virtue

of the statutory rights granted under Sections 13, 27

and 63 of the Public Utilities Act and not because of

any federal constitutional rights. Until and when the

State of California, through the California Railroad

Commission, does abrogate said contract rate of fare

provisions, the Federal. Courts are without power or

authority to relieve appellee against any alleged con-

fisecation—there being no confiscation where there is

a binding contract.

We further submit that it has been shown that the

District Court erred in holding that the Railroad

Commission by its orders of 1921 and 1928 abrogated

the franchise contract rates of fare provisions, and

that the Court therefore erred in issuing its injunc-

tive decree against appellant. It is respectfully sub-

mitted that the decree should be reversed.

Dated, San Francisco,

September 7, 1929.

ArTHuR T. GEORGE,

Tra H. Rowe 1,

Roperick B. Cassipy,

Attorneys for Appellant,

Railroad Commission of the

State of California.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.