tract. Rogers Park Water Co. v. Fergus, 180 | of Iowa had power to fix rates by con- If the contract be doubtful, such doubt should be resolved in favor of the city and against the utility company. Peterson v. Tacoma R. & Power Co. 60 Wash. 406, 140 Am. St. Rep. 936, 111 Pac. 338; Des Moines Waterworks Co. v. Des Moines, 95 Iowa, 348, 64 N. W. 269; Illinois C. R. Co. v. Chicago, 176 U. S. 646, 44 L. ed. 622, 20 Sup. Ct. Rep. 509; People v. Detroit United R. Co. 162 Mich. 460, 139 Am. St. Rep. 582, 125 N. W. 700, 127 N. W. 748; West Bloomfield Twp. v. Detroit United R. Co. 146 Mich. 198, 117 Am. St. Rep. 628, 109 N. W. 258; Freeport Water Co. v. Freeport, 180 Ú. S. 587, 45 L. ed. 679, 21 Sup. Ct. Rep. 493; Long Island Water Supply Co. v. Brooklyn, 166 U. S. 685, 41 L. ed. 1165, 17 Sup. Ct. Rep. 718. The power to contract and the power to regulate as to rates are not inconsistent, and both may exist at the same time in the same city council, or other legislative body. Shreveport Traction Co. v. Shreveport, 122 La. 1, 129 Am. St. Rep. 345, 47 So. 40. City councilmen are not disqualified because of their interest. Home Teleph. & Teleg. Co. v. Los Angeles, 211 U. S. 265, 53 L. ed. 176, 29 Sup. Ct. Rep. 50. There is a marked distinction between the power to regulate and the power to contract. Tipton v. Tipton Light & Heating Co. 176 Iowa, 224, 157 N. W. 844; Noblesville v. Noblesville Gas & Improv. Co. 157 Ind. 162, 60 N. E. 1032; Manitowoc v. Manitowoc & N. Traction Co. 145 Wis. 13, 140 Am. St. Rep. 1056, 129 N. W. 925; Omaha Water Co. v. Omaha, 12 L.R.A. (N.S.) 736, 77 C. C. A. 267, 147 Fed. 1, 8 Ann. Cas. 614; Woodburn v. Public Service Commission, 82 Or. 114, L.R.A.1917C, 98, P.U.R.1917B, 967, 161 Pac. 391, Ann. Cas. 1917E, 996; Salt Lake City v. Utah Light & Traction Co. 52 Utah, 210, 3 A.L.R. 715, P.U.R.1918F, 377, 173 Pac. 556; Trenton & M. County Traction Corp. v. Trenton, 90 N. J. L. 378, P.U.R.1918A, 10, 101 Atl. 562; State ex rel. Tacoma R. & P. Co. v. Washington Public Service Commission, 101 Wash. 601, P.U.R.1918E, 277, 172 Pac. 890; Sausalito v. Marin Water & P. Co. (Cal.) P.U.R.1916A, 244. Prior to the passage of chapter 16 of the 22d Iowa General Assembly, all cities This statute did not have the effect of taking away from cities of over 7,000 the right they had theretofore possessed of contracting for rates, but provided, in express terms, for further and additional powers. Council Bluffs v. Waterman, 86 Iowa, 688, 53 N. W. 289; Phillips v. Council Bluffs, 63 Iowa, 576, 19 N. W. 672; Lambe v. McCormick, 116 Iowa, 169, 89 N. W. 241; United States v. Freeman, 3 How. 556, 11 L. ed. 724; State v. Gerhardt, 145 Ind. 439, 33 L.R.A. 313, 44 N. E. 469; Sherman v. Des Moines, 100 Iowa, 88, 69 N. W. 410; Dubuque v. Harrison, 34 Iowa, 163; Ament v. Humphrey, 3 G. Greene, 255; State ex rel. Shaver v. Iowa Teleph. Co. 175 Iowa, 607, 154 N. W. 678, Ann. Cas. 1917E, 539; Diver v. Keokuk Sav. Bank, 126 Iowa, 691, 102 N. W. 542, 3 Ann. Cas. 669. The supreme court of Iowa has held that the language used in the Code of 1897 was, in effect, a substantial reenactment of the provisions of chap. 16, 22d General Assembly. Ottumwa R. & Light Co. v. Ottumwa, Intention on the part of the municipality to abridge its power to regulate rates cannot be implied from the language used in the ordinance in question. Knoxville Water Co. v. Knoxville, 189 U. S. 434, 47 L. ed. 887, 23 Sup. Ct. Rep. 531; Georgia R. & Bkg. Co. v. Smith, 128 U. S. 174, 32 L. ed. 377, 9 Sup. Ct. Rep. 47; Ragan v. Aiken, 9 Lea, 609, 42 Am. Rep. 684; Ft. Smith Light & Traction Co. v. Ft. Smith, 202 Fed. 581; Arkadelphia Electric Light Co. v. Arkadelphia, 99 Ark. 178, 137 S. W. 1093; Cedar Rapids Gaslight Co. v. Cedar Rapids, 233 U. S. 655, 56 L. ed. 594, 32 Sup. Ct. Rep. 389; Creston Waterworks Co. v. Creston, 101 Iowa, 687, 70 N. W. 739; Freeport Water Co. v. Freeport, 180 U. S. 587, 45 L. ed. 679, 21 Sup. Ct. Rep. 493; Rogers Park Water Co. v. Fergus, 180 U. S. 624, 45 L. ed. 702, 21 Sup. Ct. Rep. 490; State ex rel. Tacoma R. & Power Co. v. Public Service Commission, 101 Wash. 601, P.U.R.1918E, 277, 172 Pac. 890. Where the state courts hold that a contract right exists, instead of denying it, there is reason for following the state courts' ruling. Birmingham Waterworks Co. v. Birmingham, 211 Fed. 497. This rule, however, is limited to such construction given to similar charters at the time the contract was made. Birmingham Waterworks Co. v. Birmingham, 211 Fed. 497; Vicksburg v. Vicksburg Waterworks Co. 206 U. S. 496-509, 51 L. ed. 1155-1160, 27 Sup. Ct. Rep. 762-766; Raymond v. Terrebonne, 28 Fed. 773. The decisions of the supreme court of Iowa, of the Federal courts generally, and of the United States Supreme Court, prior to the making of the contract in question, sustain such contract right. Des Moines v. Des Moines Waterworks Co. 95 Iowa, 348, 64 N. W. 269; Creston Waterworks Co. v. Creston, 101 Iowa, 687, 70 N. W. 739; Iowa R. & Light Co. v. Jones Auto Co. 182 Iowa, 982, 164 N. W. 780; Tipton v. Tipton Light & Heating Co. 176 Iowa, 224, 157 N. W. 844; Cedar Rapids Gaslight Co. v. Cedar Rapids, 223 U. S. 655, 56 L. ed. 594, 32 Sup. Ct. Rep. 389; Muscatine Lighting Co. v. Muscatine, 256 Fed. 929; Smittle v. Haag, 140 Iowa, 492, 118 N. W. 869; Thompson v. Mitchell, 133 Iowa, 527, 110 N. W. 901. Mr. William Chamberlain argued the cause, and, with Messrs. J. R. Lane, E. M. Warner, C. M. Waterman, and Don Barnes, filed a brief for appellant in No. 190: Regulation of rates as a governmental function, and establishment of rates by contract between the utility and the city, are quite different things. Omaha Water Co. v. Omaha, 147 Fed. 1, 12 L.R.A. (N.S.) 736, 77 C. C. A. 267, 8 Ann. Cas. 614; Noblesville v. Noblesville Gas & Improv. Co. 157 Ind. 162, 60 N. E. 1032; 4 McQuillin, Mun. Corp. § 1733, p. 178. Rates fixed by law are always subject to attack if they are so low as to make it impossible for the utility to earn a fair return thereunder upon the fair value of the property it has devoted to the public service. Smyth v. Ames, 169 U. S. 466, 42 L. ed. 819, 18 Sup. Ct. Rep. 418; Denver v. Denver Union Water Co. 246 U. S. 178, 62 L. ed. 649, P.U.R.1918C, 640, 38 Sup. Ct. Rep. 278; Wilcox v. Consolidated Gas Co. 212 Ú. S. 19, 53 L. ed. 382, 48 L.R.A.(N.S.) 1134, 29 Sup. Ct. Rep. 192, 15 Ann. Cas. 1034; Des Moines Gas Co. v. Des Moines, 238 U. S. 153, 59 L. ed. 1244, P.U.R.1915D, 577, 35 Sup. Ct. Rep. 811; Cedar Rapids Gaslight Co. v. Cedar Rapids, 223 U. S. 655, 56 L. ed. 594, 32 Sup. Ct. Rep. 389. Rates established by valid contracts between utilities and cities are not subject to attack even though the rate may fail to yield the utility a return upon its property. This is because the courts are powerless to relieve persons from the obligations of contracts voluntarily entered into. Columbus R. Power & Light Co. v. Columbus, 249 U. S. 399, 63 L. ed. 669, 6 A.L.R. 1643, P.U.R.1919D, 239, 39 Sup. Ct. Rep. 349. Neither is a city permitted to repeal or avoid a rate established by valid contract, even though the rate is yielding more than a fair rate of return upon the property of the utility. Detroit v. Detroit Citizens' Street R. Co. 184 U. S. 368, 46 L. ed. 592, 22 Sup. Ct. Rep. 410; Cleveland v. Cleveland City R. Co. 194 U. S. 519, 48 L. ed. 1103, 24 Sup. Ct. Rep. 756; Minneapolis v. Minneapolis Street R. Co. 215 U. S. 417, 54 L. ed. 259, 30 Sup. Ct. Rep. 118. Iowa cities and towns are empowered to regulate by law, and denied authority to establish by contract. Woodward v. Iowa R. & Light Co. Iowa,, 178 N. W. 549; Williams v. Iowa Falls Electric Co. 185 Iowa, 493, P.U.R. Sioux City Gas & E. Co. 1919C, 501, 170 N. W. 815; Selkirk v. 176 N. W. 301; Iowa R. & Light Co. v. Iowa, -, Jones Auto Co. 182 Iowa, 982, 164 N. W. Co. 176 Iowa, 224, 157 N. W. 844; Cedar 780; Tipton v. Tipton Light & Heating Rapids Gaslight Co. v. Cedar Rapids, 144 Iowa, 426, 48 L.R.A.(N.S.) 1025, 138 Am. St. Rep. 299, 120 N. W. 966. The decision of the supreme court of Iowa, construing the state statutes defining the powers and duties of its municipal corporations, is considered as final by this court. Elmendorf v. Taylor, 10 Wheat. 152, 6 L. ed. 289; Claiborne County v. Brooks, 111 U. S. 400, 410, 28 L. ed. 470, 474, 4 Sup. Ct. Rep. 489; Williams v. Eggleston, 170 U. S. 304, 311, 42 L. ed. 1047, 1049, 18 Sup. Ct. Rep. 617; Ennis Waterworks v. Ennis, 233 U. S. 652, 58 L. ed. 1139, 34 Sup. Ct. Rep. 767; Crowley v. Christensen, 137 U. S. 86, 92, 34 L. ed. 620, 623, 11 Sup. Ct. Rep. 13; Detroit v. Osborne, 135 U. S. 492, 499, 34 L. ed. 260, 262, 10 Sup. Ct. Rep. 1012; Balkam v. Woodstock Iron Co. 154 U. S. 177, 188, 38 L. ed. 953, 957, 14 Sup. Ct. Rep. 1010; Equitable Life Assur. Soc. v. Brown, 213 U. S. 25, 43, 53 L. ed. 682, 689, 29 Sup. Ct. Rep. 404; Fifth Ave. Coach Co. v. New York, 221 U. S. 467, 55 L. ed. 815, 31 Sup. Ct. Rep. 709; Old Colony Trust Co. v. Omaha, 230 U. S. 100, 112, 57 L. ed. 1410, 1415, 33 Sup. Ct. Rep. 967; Williams v. Gaylord, 186 U. S. 157, 167, 46 L. ed. 1102, 1107, 22 Sup. Ct. Rep. 798; Hartford F, Ins. Co. v. Chicago, M. & St. P. R. Co. 175 U. S. 91, 100, 44 L. ed. 84, 89, 20 Sup. Ct. Rep. 33; Baltimore & O. R. Co. v. Baugh, 149 U. S. 368, 374, 37 L. ed. 772, 776, 13 Sup. Ct. Rep. 914; Memphis Street R. Co. v. Moore, 243 U. S. 299, | 300, 61 L. ed. 733, 734, 37 Sup. Ct. Rep. 273; Norton v. Shelby County, 118 U. S. 425, 441, 30 L. ed. 178, 185, 6 Sup. Ct. Rep. 1121. The Iowa rule is in harmony with decisions of this court. Home Teleph. & Teleg. Co. v. Los Angeles, 211 U. S. 265, 53 L. ed. 176, 29 Sup. Ct. Rep. 50; Rogers Park Water Co. v. Fergus, 180 U. S. 624, 45 L. ed. 702, 21 Sup. Ct. Rep. 490; Knoxville Gas Co. v. Knoxville, P.U.R.1920B, 901, C. C. A., 261 Fed. 283; Freeport Water Co. v. Freeport, 180 U. S. 587611, 45 L. ed. 679-693, 21 Sup. Ct. Rep. 493; Danville Water Co. v. Danville City, 180 U. S. 619, 45 L. ed. 696, 21 Sup. Ct. Rep. 505; Owensboro v. Owensboro Waterworks Co. 191 U. S. 358, 48 L. ed. 217, 24 Sup. Ct. Rep. 82; Stanislaus County v. San Joaquin & K. River Canal & Irrig. Co. 192 U. S. 201, 48 L. ed. 406, 24 Sup. Ct. Rep. 241. A contract beyond the corporate power of either party is invalid. Louisville & N. R. Co. v. Kentucky, 161 U. S. 677, 691, 692, 40 L. ed. 849, 856, 16 Sup. Ct. Rep. 714; Central Transp. Co. v. Pullman's Palace Car Co. 139 U. S. 48-60, 35 L. ed. 64-68, 11 Sup. Ct. Rep. 478; McCormick v. Market Nat. Bank, 165 U. S. 538, 549-551, 41 L. ed. 817, 821, 822, 17 Sup. Ct. Rep. 433; California Nat. Bank v. Kennedy, 167 U. S. 362, 367, 42 L. ed. 198, 200, 17 Sup. Ct. Rep. 831; First Nat. Bank v. Hawkins, 174 U. S. 364, 369, 370, 43 L. ed. 1007, 1010, 19 Sup. Ct. Rep. 739; O'Brien v. Wheelock, 184 U. S. 450, 490, 46 L. ed. 636, 654, 22 Sup. Ct. Rep. 354, 3 Thomp. Corp. title 20, § 2765, p. 2868. The company should not be bound beyond the terms of its written proposal. Minneapolis & St. L. R. Co. v. Columbus Rolling Mill, 119 U. S. 149, 151, 30 L. ed. 376, 377, 7 Sup. Ct. Rep. 168; Tilley v. Cook County (Tilley v. Chicago) 103 U. S. 155, 26 L. ed. 374; Kelley, M. & Co. v. Sibley, 69 C. C. A 674, 137 Fed. 588; Hankins v. Young, 174 Iowa, 389, 156 N. W. 380. Courts have no power to change a contract, or to make agreements for parties. Robbins v. Rollins (Robbins v. Clark) 127 U. S. 622, 32 L. ed. 292, 8 Sup. Ct. Rep. 1339; Baltzer v. Raleigh & Air | Line R. Co. 115 U. S. 634, 29 L. ed. 505, 6 Sup. Ct. Rep. 216; Morgan County v. Allen, 103 U. S. 498, 26 L. ed. 498. Parties making contracts are presumed to have acted with reference to existing law. Wilson v. Rousseau, 4 How. 646, 11 L. ed. 1141; Bronson v. Kinzie, 1 How. 311, 11 L. ed. 143; Connecticut Mut. L. Ins. Co. v. Cushman, 108 U. S. 51, 27 L. ed. 648, 2 Sup. Ct. Rep. 236; Bulkley v. United States, 19 Wall. 37, 22 L. ed. 62. Even in adjudicated cases involving rate ordinances, decrees, either sustaining or denouncing the rate, are always regarded as without prejudice to the continuing rights of the parties to renew the action under changed conditions. Lincoln Gas & E. L. Co. v. Lincoln, 250 U. S. 256, 268, 63 L. ed. 968, 977, 39 Sup. Ct. Rep. 454; Wilcox v. Consolidated Gas Co. 212 U. S. 19, 53 L. ed. 382, 48 L.R.A. (N.S.) 1134, 29 Sup. Ct. Rep. 192, 15 Ann. Cas. 1034; Cedar Rapids Gaslight Co. v. Cedar Rapids, 223 U. S. 655, 56 L. ed. 594, 32 Sup. Ct. Rep. 389; Des Moines Gas Co. v. Des Moines, 238 U. S. 153, 59 L. ed. 1244, P.U.R.1915D, 577, 35 Sup. Ct. Rep. 811; Missouri v. Chicago, B. & Q. R. Co. 241 U. S. 533, 539, 60 L. ed. 1148, 1154, 36 Sup. Ct. Rep. 715. No brief was filed for appellees in No. 190. Mr. Chief Justice White delivered the opinion of the court: At the time these suits were begun the appellants were engaged in supplying electricity or gas to the municipal corporations who are the appellees. This service was being rendered by virtue of ordinances conferring franchises to use the city streets during twenty-five years in two of the cases, and twenty years in the other. The ordinances contained a schedule of maximum rates. After they were in effect a few years the three suits which are before us were begun against the cities, with the object of preventing the enforcement [541] of the maximum rates specified in the ordinances, on the ground that such rates were so unreasonably low that their continued enforcement would deprive the corporations of remuneration for the services by them being performed, and in fact, if enforced, would result in the confiscation of their property, in violation of the due process clause of the 14th Amendment to the Constitution of the United States. In the three cases the court granted a temporary injune-, (N.S.) 1151, 33 Sup. Ct. Rep. 729, Ann. tion restraining the enforcement of the Cas. 1916A, 18; Cedar Rapids Gaslight maximum rates, and allowed an order Co. v. Cedar Rapids, 223 U. S. 655, 56 permitting, pending the suits, a higher charge. The cases were submitted upon the pleadings, and without the taking of testimony upon issues which presented the contention that the ordinances were contracts, and therefore the maximum rates which they fixed were susceptible of continued enforcement against the corporations, although their operation would be confiscatory. In one opinion, applicable to the three cases, the court stated its reasons for maintaining this view, but directed attention to the fact that no proof had been offered concerning the confiscatory character of the rates, and pointing out that, as such subject might become important on appeal, it would be necessary to restore the cases to the docket for proof in that regard unless the situation was remedied by agreement between the parties. Thereupon the pleadings were amended so as to directly present, separately from the other issues in the case, the right of the cities to enforce the ordinance rates in consequence of the contracts, without reference to whether such rates were, in and of themselves, confiscatory. Upon its opinion as to the existence of contracts and the power | to make them, as previously stated, the court entered decrees enforcing the ordinance rates which are now before us for review because of the constitutional question involved. L. ed. 594, 32 Sup. Ct. Rep. 389; Des Moines Gas Co. v. Des Moines, 238 U. S. 153, 59 L. ed. 1244, P.U.R.1915D, 577, 35 Sup. Ct. Rep. 811; Denver v. Denver Union Water Co. 246 U. S. 178, 194, 62 L. ed. 649, 662, P.U.R.1918C, 640, 38 Sup. Ct. Rep. 2178); and (b) that where, however, the public service corporations 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 resulting from the contract, and therefore the question of whether such rates are confiscatory becomes immaterial (Freeport Water Co. v. Freeport, 180 U. S. 587, 593, 45 L. ed. €79, 686, 21 Sup. Ct. Rep. 493; Detroit v. Detroit City R. Co. 184 U. S. 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; Columbus 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). It follows that, as the rates here involved are conceded to be confiscatory, they cannot be enforced unless they are secured by a contract obligation. The existence of a binding contract as to the rates upon which the lower court based its conclusion is, therefore, the single issue upon which the controversy depends. Its solution turns, first, upon the question of the power of the parties to contract on the subject, and second, if they had such power, whether they exercised it. Two propositions are indisputable: (a) That although the governmental agencies having authority to deal with [542] the subject may fix and enforce reasonable rates to be paid public utility corporations for the services by them rendered, that power does not include the right to fix rates which are so low as to be confiscatory of the property of such corporations (Reagan v. Farmers' Loan & T. Co. 154 U. S. 362, 38 L. ed. 1014, 4 Inters. Com. Rep. 560, 14 Sup. Ct. Rep. 1047; Smyth v. Ames, 169 U. S. 466, 42 L. ed. 819, 18 Sup. Ct. Rep. 418; San Diego Land & Town Co. v. Jasper, 189 U. S. 439, 442, 47 L. ed. 892, 894, 23 Sup. Ct. Rep. 571; Knoxville v. Knoxville Water Co. 212 U. S. 1, 17, 53 L. ed. 371, 381, 29 Sup. Ct. Rep. 148; Willcox v. Consolidated Gas Co. 212 U. S. 19, 41, 53 L. ed. 382, 395, 48 L.R.A. (N.S.) 1134, 29 Sup. Ct. Rep. 192, 15 Ann. Cas. 1034; Minnesota Rate Cases (Simpson v. Shepard) 230 U. S. 352, 434, 57 L. ed. 1511, 1555, 48 L.R.A.| Iowa, -, 178 N. W. 549. That was a [543] As to the first, assuming, for the sake of the argument only, that the public service corporations had the contractual power, the issue is, Had the municipal corporations, under the law of Iowa, such authority? Its possession must have been conferred, if at all, by § 725 of the Iowa Code of 1897, which deals with that subject. That statute came before the supreme court of Iowa for consideration in the very recent case of Woodward v. Iowa R. & Light Co. "It will be noted from the foregoing that the legislative power to fix rates is conferred by this section upon the city council. The legislative power thus conferred is a continuing one, and may not be abridged or bartered away by contract or otherwise. There was suit by the town of Woodward to com-, poses,1 [and to regulate and fix the rent conferred upon the city council in all "The defendant's franchise in the town of Woodward was granted in June, 1912, by ordinance duly enacted by the city council and duly approved by vote of the electors, as required by 8 720 of the Code. Section 6 of the ordinance which granted the franchise specified the rates to be charged by the defendant to consumers. The term of the franchise was twenty-five years. The essence of the plaintiff's contention is that the enactment of this ordinance (including the franchise, and the rates and the approval [544] of the same by the electors), and the practical accept- Indeed, the doctrine thus expounded ance of the same by the utility corpora- was but a reiteration of the rule of the tion, constituted a contract binding as Iowa law laid down in previous cases. such both upon the town and upon the Tipton v. Tipton Light & Heating Co. utility corporation. The defendant re- 176 Iowa, 224, 157 N. W. 844; Iowa sists this contention and likewise denies Railway & Light Co. v. Jones Auto Co. that there is any power conferred by stat-182 Iowa, 982, 164 N. W. 780; Williams ute upon the city council to enter into contract on the subject of rates. The issue at this point is the controlling one in the case. The question thus at issue is answered by § 725 of the Code of 1897, which provides as follows: "Sec. 725. Regulation of rates and service. They shall have power to require every individual or private corporation operating such works or plant, subject to reasonable rules and regula. tions, to furnish any person applying therefor, along the line of its pipes, mains, wires, or other conduits, with gas, water, light, or power and to supply said city or town with water for fire protection, and with gas, water, light, or power for other necessary public pur 178 v. Iowa Falls Electric Co. 185 Iowa, 493, "That statute in positive terms for- section, but are not embraced in the pro- |
