susceptible of two constructions, must receive the one most favorable to the public." Hamilton Gaslight Co. v. Hamilton City, 146 U. S. 258, 268; Skaneateles Water Co. v. Skaneateles, 184 U. S. 354, 363.

So in Joplin v. Light Co., 191 U. S. 150, 156, which involved the question whether a city could establish its own electric plant in competition with that of a private corporation, the court said: "The limitation contended for is upon a governmental agency, and restraints upon that must not be readily implied. The appellee concedes, as we have seen, that it has no exclusive right, and yet contends for a limitation upon the city which might give it (the appellee) a practical monopoly. Others may not seek to compete with it, and if the city cannot, the city is left with a useless potentiality while the appellee exercises and enjoys a practically exclusive right. There are presumptions, we repeat, against the granting of exclusive rights and against limitations upon the powers of government."

Again, in the recent case of Helena Water Works Company v. Helena, 195 U. S. 383, 392, where a city established its own system of waterworks in competition with that of a private company, the court, observing that the city had not specifically bound itself not to construct its own plant, said: “Had it been intended to exclude the city from exercising the privilege of establishing its own plant, such purpose could have been expressed by apt words, as was the case in Walla Walla City v. Walla Walla Water Company, 172 U. S. 1. It is doubtless true that the erection of such a plant by the city will render the property of the water company less valuable and, perhaps, unprofitable, but if it was intended to prevent such competition, a right to do so should not have been left to argument or implication, but made certain by the terms of the contract." To the same effect, as to the principle involved, are Turnpike Co. v. State, 3 Wall. 210, 213; Stein v. Bienville Water Supply Co., 141 U. S. 67, 81; Long Island Water Supply Co. v. Brooklyn, 166 U. S. 685.

It is, we think, important that the courts should adhere firmly

to the salutary doctrine underlying the whole law of municipal corporations and the doctrines of the adjudged cases, that grants of special privileges affecting the general interests are to be liberally construed in favor of the public, and that no public body, charged with public duties, be held upon mere implication or presumption to have divested itself of its powers.

As, then, the city of Knoxville cannot be held to have precluded itself by contract from establishing its own independent system of waterworks, it becomes unnecessary to consider any other question in the case. The judgment of the court dismissing the bill must be affirmed.

It is so ordered.

MR. JUSTICE BROWN, MR. JUSTICE WHITE, MR. JUSTICE PECKHAM and MR. JUSTICE HOLMES dissented.

OWENSBORO WATERWORKS COMPANY v. OWENS

BORO.

APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE WESTERN DISTRICT OF KENTUCKY.

No. 145. Submitted December 13, 1905.- Decided January 2, 1906.

Maladministration of its local affairs by a city's constituted authorities cannot rightfully concern the National Government, unless it involves the infringement of some Federal right. When a Federal court acquires jurisdiction of a controversy by reason of the diverse citizenship, it may dispose of all the issues in the case, determining the rights of parties under the same rules or principles that control when the case is in the state court. But, as between citizens of the same State, the Federal court may not interfere to compel municipal corporations or other like state instrumentalities to keep within the limits of the power conferred upon them by the State, unless such interference is necessary for the protection of a Federal right.

The acts of a municipal corporation are not wanting in the due process of law

ordained by the Fourteenth Amendment, if such acts when done or ratified by the State would not be incon i-tent with that Amendment. Many acts done by an agency of a State may be illegal in their character, when tested by the laws of the State, and may, on that ground, be assailed, and yet they cannot, for that reason alone, be impeached as being inconsistent with the due process of law enjomed upon the States.

The Fourteenth Amendment was not intended to bring within Federal control everything done by the States or by its instrumentalities that is simply illegal under the state laws, but only such acts by the States or their instrumentalities as are violative of rights secured by the Constitution of the United States.

The Circuit Court cannot take cognizance of a suit to prevent a municipality from improperly issuing bonds under the circumstances of this case as it does not involve a controversy under the Constitution and laws of the United States and diverse citizenship does not exist.

THE plaintiff in this suit, the Owensboro Waterworks Company, is a private corporation of Kentucky, while the defendant, the city of Owensboro, is a municipal corporation of the same Commonwealth.

The bill was dismissed for want of jurisdiction in the court below to hear and determine the cause, the Circuit Court being of opinion that the suit was not one arising under the Constitution or laws of the United States, and the matter in dispute not of sufficient value to give that court jurisdiction.

The case made by the bill was this:

On the tenth day of October, 1900, the Common Council of Owensboro adopted an ordinance authorizing the borrowing of money, upon the city's bonds, for the purpose of erecting a system of waterworks for supplying the city of Owensboro and its inhabitants with water. The ordinance provided for a submission to the voters of the question of issuing city bonds to the amount of $200,000 with which to raise money for the purpose just stated.

The election was held and the proposition was carried, more than two-thirds of those voting approving the proposed issue. of bonds.

By an ordinance of December 3, 1900, bonds to the amount of $200,000 were directed to be issued, and $14,666.66 was appro

priated out of the revenues and public moneys of the city for the payment of the semi-annual interest on the bonds and the creation of a fund for the ultimate payment of the principal thereof, such fund to be designated as the Owensboro Water Bond Account.

By an ordinance approved March 11, 1901, $14,666.66 was appropriated and set apart out of the revenues and funds of the city, to be raised by taxation or otherwise, each year until the bonds were paid, for the purpose of paying the interest on the bonds semi-annually and for creating a sinking fund for the payment of the principal of the bonds. And for the purpose of providing a fund for that purpose it was ordained, the bill alleged, that there should be, and that there was thereby, levied upon all the taxable property of said city subject by law to taxation for municipal purposes, a direct annual tax for the year 1901, and for each succeeding year up to and including the year 1931, sufficient to raise the said sum of $14,666.66, to be collected annually with other municipal taxes, licenses, revenues and public dues, and continuing from year to year until the ultimate payment of the bonds; and it was also, by the ordinance, ordained that no part of said funds should ever be used for, or appropriated to, any other purpose or use, except the payment of the principal and interest of the bonds; further, that provision to meet the requirements of said section be made in the annual budget and appropriation ordinance.

Pursuant to the ordinance of December 3, 1900, the city executed 200 bonds of $1,000 each, bearing 4 per cent interest per annum from their date, January 1, 1901, payable semiannually, and transferable by delivery, and at the date of the bringing of this suit all of those bonds were, the bill alleged, in the possession or under the control of the city, "ready and about to be immediately sold and delivered to purchasers, with the exception of seven bonds which the said Mayor and Council have already sold and have received therefor the sum of $7,000."

In each of the years 1901, 1902 and 1903 the city, proceeding under ordinances adopted by the Common Council, levied an

ad valorem tax of $2 on each $100 worth of property in the city subject to taxation, part of such tax, $14,666.66, to be appropriated annually for the payment of interest on the water bonds and for the creation of a sinking fund for the ultimate payment of the principal. A similar tax was also levied for 1904, of which $14,666.66 was appropriated to pay interest and create a sinking fund-$8,000 to be paid on interest and $6,666.66 to go into the sinking fund. So that under the levies made in 1901, 1902 and 1903, $44,000 had been collected for interest and the sinking fund, and $14,666.66 was to be collected for 1904.

Of the 200 bonds actually signed, 193 remain in the hands of the city, its officers and agents, and after applying the sum of $44,000, collected under the levies of 1901, 1902 and 1903, and the $14,666.66 to be collected under the levy of 1904, there will remain only $149,000 to be raised by the sale of bonds. Nevertheless, the city, by its agents and officers, claims to have authority and proposes immediately to sell and dispose of, and, unless restrained, will sell and dispose of the entire 193 bonds, amounting to $193,000. If that be done, then the city will have collected and realized $244,000 on account of the erection of the waterworks; whereas it was only authorized to raise $200,000 for that purpose. Of the $44,000 collected by the city $20,000 has been expended for land on which the proposed water plant was to be erected, while $24,000 has been illegally expended for purposes other than those for which it was collected.

The bill further alleges that for each of the years 1901, 1902 and 1903, taxes were levied on the taxable property of plaintiff, and other taxpayers of the city; that capitation, license and franchise taxes were also assessed, levied and collected by it; that all the taxes so levied were collected each year, from all sources, and for all purposes, were expended and exhausted each year, and none so collected, in either of said years, are now on hand; that no part of the $44,000 collected is on hand, nor has said city any means of replacing same, except by levying