National Waterworks Co. v. Kansas City

62 F. 853 | 8th Cir. | 1894

BREWER, Circuit Justice,

stated the conclusions of the court as follows:

The urgency of the situation seems' to forbid that this case should be retained by us for the length of time which would be required for the preparation of an opinion thoroughly and satisfactorily discussing all the difficult questions presented by counsel. All the time at our command we have given to an examination and consideration of the voluminous testimony, the elaborate briefs, and exhaustive arguments of counsel. We feel, therefore, that it is a duty to simply formulate briefly the conclusions to which we have arrived, and announce the' decree which must be entered.

1. The act of 1873 provided “that at the expiration of the twenty years, if the grant be not renewed, the city shall purchase.” The ordinance passed in pursuance of that act, and in effect the contract under which the works were created, provided that on a failure to renew the grant at the expiration of 20 years “the city shall then be required to purchase.” There has been no renewal of the grant. The twenty years have elapsed. The imperative voice of the act and the ordinance is that the city “shall purchase.” This is not an incidental, directory, or subordinate provision, but one mandatory, vital, and controlling. The thought of the legislature was that the city should own its waterworks; that, if any arrangement was made with a corporation for their construction and operation, the control and right of such company should be temporary, and the city should become, willingly or unwillingly, at a certain time the owner. The time fixed was at the expiration of 20 years, with a privilege of extension for another 20 years. This vital, mandatory, and controlling provision compels a decree that the company sell and the city buy. Such was the will of the legislature; such the terms of the act and the ordinance.

2. With reference to the matter of pleading, nearly two years before the expiration of the 20 years the company filed a bill alleging-performance on its part of the terms of the contract, and also threatened action on the part of the city in violation of its obligations, and praying a decree that the contract “is a valid and subsisting contract, binding and obligatory upon youi- orator and the defendant, and that the defendant keep and abide by the same, and that, upon your orator’s duly and faithfully doing and performing all things yet remaining to be done upon its part, the defendant, its officers and agents, keep and perform the covenants, promises, and agreements on its part, so far as they are executory and unperformed, and that your orator may liare such other and further relief as the case may require, and as may be conformable to equity, and to your honors may seem meet.” At that time the obligation of the city to purchase had not yet arrived, but under such a bill a decree, after the lapse of 20 years, and when, there being no renewal of the term, the obligation of the city to purchase has arisen, may properly require the last act of compliance with the terms of that coni,met, to wit, purchase and payment by the city; so, notwithstanding the fact that the cross bill of the city, and the amendments thereto, may not be altogeiher harmonious, and might, if they stood as the only affirmative pleadings, be obnoxious to the criticisms of tin; cohnsel for the company, yet there is in the original bill, with its prayer, coupled with the changes of right brought by lapse of time, sufficient allegation and prayer upon which to rest a decree for the completion of the sale and purchase*. It is true, and indeed confessed in the argument of counsel for (he company, that it would now prefer ne>l. to sell, but to continue the franchise; but, nevertheless, it has for nearly three years plae-eel itself be'fore the* court in the» attiiude of asking a decree for performance of this contrae and, never having elismisse'd its bill or withdrawn its prayer, it is now too late to say that tlm decree for salee and purchase; is not respemsive to the; pleadings. If there were; any formal defect, — any omission or addition of statement necessary to elistinctly present the issues and uphold the decree. — an amenelment would be; permissible; at the* present rime*, and in the appellate court. Pbadiugs in equity e*ase;s may be (informed to the proofs; and we have; the parties before us, the emtire fae-ts e>f the controve*rsy, and the arrival of the time when a final de*terminaiion of the rights between them is nee:e;ssary. Ho technical defect in the pleadings should stay the hands of a court of equity.

3. We elissent in toto from the claim of the* city that at the; lanse e>f the 20 years the title to this property, with the; right of possession, passed abse>luie*ly to it, withemt any payrmmt or te*nde*r e»f payment, leaving only to the company the right to secure compensation by agreement or litigation, as best it could. -M ucli was said in argu-me;nt of the* relative rights of le*ssor anel k;sse;e to buildings erected during the* term of the lease*. The edty and the; eemrpany were called licensor and licensee, and it was insisted that, as the right to operate was to cease* at the; expiration of 20 years, the; relation was equivalent to that of lessor and lessen;; that full title anel right of posse*ssion passed instantly to the city, Raving all questions of amount and time and manner of payment to he; subsequently de;te;rmined. Much was said, too, about the; rule; of construction of public grants; that rule be*ing that the* grants are to be construed favorably to the public, anel unfavorably to the granie*e>. It is unnecessary to attempt to de;-fine* the peculiar epiality of the; title held by the company, nor do we question the rule* of construction of public grants; hut all contracts invertving property rights and obligations between municipalities and individuals must be presumed to he based upon and to recognize the ordinary laws of business transactions, and, if any departure therefrom is contemplated, such departure must be clearly manifested. Now, the familiar and ordinary law of business transactions is that he who parts with title receives, at the time, payment. In other words, payment of price and transfer of property are contemporaneous and concurrent acts. ' When it is affirmed that a contract made by a municipality contemplates that he . whose money builds and constructs, and therefore establishes title to, property, shall surrender his title and possession without payment, or even the amount thereof determined, the language compelling such a construction must be clear and imperative. There is no such language in either the act or the ordinance. While it is true that the act provides that no grant so made shall confer the right to operate the waterworks for any period beyond 20 years, yet such provision is no more imperative than the one that at the expiration of the 20 years the city shall purchase and pay therefor. If the city fails to purchase and pay, it acquires no title, no right of possession, to the property of' the water works. There is no language which would justify the court in saying that it is clearly expressed that the purpose of this contract and the thought of the legislature were to vest the title and right of possession in the city at the end of 20 years, leaving to future litigation the fixing of the amount and the enforcing of the fact of payment. If at the expiration of the 20 years the city had tendered to the company, in payment for the property, an amount admitted or found to be “the fair and equitable value,” doubtless the right of the city to the possession and future earnings would have immediately accrued, and the present decree would have been based upon such transfer of right, but no such tender was made. In so far, therefore, as the decree of the circuit court attempted to transfer the title and the possession to the city before payment, we are constrained to hold that it was erroneous.

4. It is objected that the city, by virtue of the certain amendments to its' charter and certain acts of the legislature, has become disabled from taking the title to all the property which makes up the waterworks system. This is a matter in respect to which the company need not concern itself. If it is paid the fair and equitable value of the property, as provided by the contract, then its rights have ceased, and the city can settle with other parties the matters of title and possession.

5. The difficult question, however, still remains; and that is, what is “the fair and equitable value” which, by the statute and the ordinance, the city is to pay for the waterworks? This amount was found by the circuit court to be $2,714,000. The company insists that the test is to take the income or earnings, and capitalize them. The earnings pay 6 per cent, on four millions and a half. In other words, the company has produced a property which earns 6 per cent, on four millions and a half; and that, it is claimed, is the fair valuation of the property, 6 per cent, being ordinary interest. On the other hand, the city insists that the franchise has ceased, and that basing the value upon earnings is in effect valuing a franchise which no longer exists, and which the city is not to pay for; that the true way is to take the value of the pipe, the machinery, and real estate, put together into a waterworks system, as a complete structure, irrespective of any franchise, — irrespective of anything which the property earns, or may earn in the future. We are not satisfied that either method, by itself, will show that which, under all the circumstances, can be adjudged “the fair and equitable value.” Capitalization of the earnings will not, because that implies a continuance of earnings, and a. continuance of earnings rests upon a franchise to operate the waterworks. The original cost of the construction cannot control, for “original cost” and “present value” are not equivalent terms. Xor would the mere cost of reproducing the waterworks plant be a fair test, because that does not take into account the value which iiows from the established connections between the pipes and the buildings of the city. If is obvious that the mere cost of purchasing the land, constructing the buildings, putting in the machinery, and laying the pipes in the streets — in other words, the cost of reproduction — does not give the value of the property as it is to-day. A completed system of water works, such as the company has, without a single connection between the pipes in tin* streets and the buildings of the city, would be a property of much less value than that system connected, as it is, with so many buildings, and earning, in consequence thereof, the money which it does earn. Tin* fact that it is a system in operation, not only with a capacity to supply the city, but actually supplying many buildings in the city, — not only with a capacity to earn, but actually earning,- — makes it true that “the fair and equitable value” is something in excess of the cost of reproduction. The fact that the company does not own the connections between the pipes in the streets and the buildings — such connections being the property of the individual property owners — does not: militate against the proposition last stated, for. who would care to buy, or at least give a large price for, a waterworks system without a single connection between the pipes in the streets and the buildings adjacent. Such a system would be a dead structure, rather than a living and going business. The additional value created by the fact of many connections with buildings, with actual supidy and actual earnings, is not represented by the mere cost of making such connections. Such connections are not compulsory, but depend upon the will of the property owners, and are secured only by efforts on the part of the owners of the waterworks, and inducements held out therefor. The city, by (his purchase, steps into possession of a waterworks plant. — not merely a completed system for bringing wafer to the city, and distributing it through pipes placed in the streets, but a system already earning a large' income by virtue of having-secured connections between the pipes in the streets and a multitude of private buildings. It steps into possession of a property which not only has the ability to earn, but is in fact earning. ⅛ should pay therefor not merely the value of a system which might be made to earn, but that of a system which does earn. Our effort has been to deduce from the volume of testimony that which, in this view of the situation, can be safely adjudged “the fair and equitable value.” The original cost of the works is not accurately and satisfactorily shown. If it would have assisted us in reaching a conclusion, — if, in consequence of our ignorance thereof, we have not placed the value upon this property which it deserves, — the company is alone to blame, for by the production of its books it could have clearly shown the actual cost of every part and of the whole of this property. There is a large amount of testimony as to the probable cost of reproducing the system, to which strenuous objection is made on the ground of an alleged temporary and extreme depression in the cost of labor and material. We have before us the estimate placed by two gentlemen of experience and capacity, appointed as commissioners, with direction to report “the fair and equitable value;” but neither by the order of the court appointing them, nor by their report, are we advised as to what they considered a criterion of the present “fair and equitable value.” If they added anything beyond what in their judgment was the reasonable cost of reproduction, we are not advised as to how .much they added, or what they took into consideration in making such addition. We have the fact of liens placed upon the property, to the extent of $3,000,000,' with the qualified approval of the city officials. We have also the statement of the earnings, and the estimate of the value upon the basis of a capitalization of those earnings, amounting, as stated, at six per cent., to four and one-half millions. Rejecting the latter as too high, and the cost of reproduction as too low, and taking into consideration the entire history of the transactions between the company and the city, from its commencement to the present time, we have sought to place a value upon the property as it stands, with all the connections already made between the pipes and the private and public buildings, and with the work which it is in fact doing of supplying all these buildings with water, and receiving pay therefor. That valuation, after much discussion, comparison of figures, and readjustments, we have all agreed, is three millions of dollars; and in reaching this result we have excluded from our estimate the value of the Jarboe street reservoir property, which, as we understand the testimony, has heretofore been paid for by the city.

6. In its cross bill the city has made claim for damages, and insisted that the waterworks system does not come up, in efficiency and completeness, to the requirements of the contract. We agree with the circuit court, after reviewing carefully the testimony, that the city is not entitled to maintain this claim. It has for many years recognized and accepted this waterworks system as having been constructed in full compliance with the demands of the contract, and it is now too late to repudiate such recognition.

This is perhaps all that it is necessary for us to say. We have stated our conclusions, and outlined our reasons therefor. Further than that we are unable to go, without, as stated in the opening, taking more time than the circumstances will permit. In order to close as far as possible all disputed matters, we have prepared the form of a decree which is to be entered by the circuit court.

This case is accordingly remanded to the circuit court, with directions to vacate its former decree, and in lieu thereof to enter the following decree, to wit:

First. It is ordered, adjudged, decreed, and determined that under the act of the legisla hire of the state of 'Missouri of March 24, 1S73, and the contract evidenced by Ordinance No. 10,524, between the National Waterworks Company, of New York, and the city of Kansas City, Missouri, which act and ordinance are referred to in the pleadings in this case, the said city is now legally bound to purchase from said company, and said company is legally bound to sell to the said city, the full, complete, and entire waterworks plant and appurtenances by which Ihe said city and its inhabitants are now supplied with water, including therein that portion of said plant situated in Ihe state of Kansas, and commonly known as the “Quindaro Supi>l.v Works,” and the flow pipes leading therefrom, as well as that portion of said works which is situated in the state of Missouri, together with all lots of land, buildings, and reservoirs belonging to, or in any wise used as a part of, said plant, with the exception mentioned in the eleventh paragraph of this decree, and everything- of every nature pertaining to said waterworks plant.

Second. That said city, under the said contract, is bound to pay for said complete waterworks plant aforesaid, and the said company is bound to receive in full payment therefor, “the fair and equitable value of the whole works,” as provided in said contract evidenced by Ordinance No. 30,521.

Third. The court finds, adjudges, and decrees, that the fair and equitable value of said complete and whole waterworks plain, excluding the Jarboe street tract, which belongs to the city, is three million dollars, and that said city is legally obligated to pay that sum therefor.

Fourth. That said company is entitled to retain the possession, use, and control of the whole and complete waterworks system and plant aforesaid until final payment therefor shall be made by said city as hereinafter provided; and said city is hereby enjoined from interfering with such possession, use. or control until such payment, is made; and said company, oil Us part, is hereby enjoined from refusing or neglecting to supply water to the city, and from refusing or neglecting fo provide private consumers with water, as heretofore during such period.

Fifth. It is further ordered and decreed that on or before the 1st -say of December, A. D. 3.894, ihe said company shall cause to be executed, and snail deliver to the clerk of this court,, who shall hold the same in escrow, good and sufficient deeds, assignments, releases, bills of salí', and oilier conveyances whereby ihe whole and complete waterworks system and plant aforesaid, including that portion thereof which is situated in the state of Kansas, may be transferred to said city free and clear of all burdens, obligations, liens, and incumbrances of every kind, save the lien created by the two mortgages executed by the waterworks company, respectively, on August 1, !8.⅜5, and June 1, 3885, each of which mortgages secures bonds of said company, said to be now outstanding in the sum of one million live hundred thousand dollars; that said, deeds, releases, assignments, bills of sale, or other conveyances shall be retained by said clerk, but said cleric shall furnish full and complete copies of all such instruments to the city or its attorneys of record, for their inspection.

gisih. It is further ordered and adjudged that after the execution and delivery to the clerk of the deeds, assignments, releases, and bills of sale aforesaid, the said city shall be entitled fo thirty days in which to except to the sufficiency of such conveyances; and power is hereby reserved to hear and determine such exceptions, and to make all needful orders In relation thereto. When such deeds, assignments, releases, and bills of sale shall hrivo been executed and filed as aforesaid, and after the approval thereof by the court, if the same shall be excepted to by the city, said city shall thereupon pay to the clerk of this court the said sum of three million dollars, being the fair and equitable value of said waterworks plant a,s heretofore assessed, or il shall cause the same to be so paid. Said payment shall be made to said clerk for the benefit of whom it may concern, and power is hereby reserved to the court to détermine who are entitled to said fund after the same shall have been so paid into the court; and power is also reserved to permit any person or persons or corporation who may hereafter claim to have a legal or equitable lien upon said fund to intervene for the protection of his or their interest.

Seventh. It is further ordered and adjudged that upon payment being made by said city as aforesaid Of said sum of three million dollars, and of the hydrant rentals mentioned- in paragraph nine, said clerk shall deliver to said city or' its authorized representatives all deeds, assignments, releases, bills of sale, and other muniments of title then held by him in escrow; and thereupon said city shall become vested with the title to said waterworks, and it shall forthwith be entitled to the exclusive possession, control, use, and enjoyment of said entire waterworks system and plant, and to all revenues, of whatsoever nature, thereafter resulting therefrom; and said waterworks company shall forthwith surrender the possession and control thereof to said city, and the interest of said company therein shall thenceforth cease and determine.

Eighth. It is further ordered, adjudged, and decreed that said city shall have the right to enter into any agreement which it may deem proper for the assumption, continuation of the lien, payment, or cancellation of any of the outstanding mortgage bonds, aggregating three million dollars, which are referred to in paragraph five of this decree, and that any arrangement which said city may so enter into with the owners and holders of said bonds; which shall result in the cancellation or payment of any thereof, or in the continuation of the lien, or in the assumption of any thereof by the city, and in the release of the waterworks company from its obligations thereon, shall operate pro tanto to discharge said city from its obligation to pay the three million dollars as provided in the sixth paragraph of this decree; and, for the purpose of enabling said city to avail itself of the provisions of this paragraph of the decree, power is hereby reserved to the court to ascertain hereafter to what extent, if any, said bonds have been canceled, paid, continued, assumed, or otherwise discharged by agreement between said bondholders and the city, and to make all needful orders in that behalf.

Ninth. It is further ordered, adjudged, and decreed that in addition to the value of said waterworks plant, fixed and to be paid as aforesaid, the said city shall also pay all unpaid hydrant rentals which accrued prior to November 15, 1S93, and all subsequently accruing hydrant rentals, according to the rate heretofore fixed by agreement between said city and company until such time as the said city shall become entitled to the possession and use of said waterworks by virtue of compliance on its part with the previous provisions of this decree. Until the last-mentioned date, said waterworks company shall be entitled to all the earnings and revenues of said plant, whether derived from individual or public consumers; but said company, on its part, shall be compelled, during said period, to keep said waterworks plant in good repair, and shall also pay, as and when the same shall mature, the several interest installments that may accrue on the mortgage bonds mentioned in paragraph five of this decree. Said payment of hydrant rentals, as well as the assessed value of the works, shall be made before said city shall assume possession and control of said waterworks; and power is hereby reserved to the court to hereafter state an account, if necessary, for the sum due for hydrant rentals, and to make all needful orders necessary and proper to enforce this paragraph of the decree.

Tenth. It is further ordered, adjudged, and decreed that the city is not entitled to recover from said company any sum for or on account of any of the several claims for damages set up in its cross bill, and as to said claims for damages said cross bill is hereby dismissed.

Eleventh. That, conformably to the consent expressed by counsel for both parties at the hearing, the property described in the pleadings at “Kaw Point Pumping Station,” and the six or ten acres of land, more or less, connected therewith, now owned by said company, shall remain its property, and shall not be conveyed to said city as part of said waterworks' plant The value of said Kaw Point pumping station has been deducted from the price to be paid for the complete works.

Twelfth. It is further adjudged that each party shall pay one-half of the costs that have accrued in these suits up to the entry of this decree.

Thirteenth. That the court doth now reserve to itself the power to make any further order or orders that may hereafter be found necessary to carry this decree into full effect, and as may be deemed equitable and just.