Steinberg, Erwin E.

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Washington University Law Review Volume 5 Issue 2 January 1920 James C. Flynn vs. Little Falls Electric & Water Co Erwin E. Steinberg Washington University School of Law Follow this and additional works at: https://openscholarship.wustl.edu/law_lawreview  Part of the Contracts Commons Recommended Citation Erwin E. Steinberg, James C. Flynn vs. Little Falls Electric & Water Co, 5 ST. LOUIS L. REV. 086 (1920). Available at: https://openscholarship.wustl.edu/law_lawreview/vol5/iss2/4 This Note is brought to you for free and open access by the Law School at Washington University Open Scholarship. It has been accepted for inclusion in Washington University Law Review by an authorized administrator of Washington University Open Scholarship. For more information, please contact digital@wumail.wustl.edu. ST. LOUISLAW REVIEWPublished Quarterly During the University Year by theUndergraduates of Washington University School of Law.BOARD OF TRUSTEESCHARLs NAGL JoHN F. LEEEw~aR C. ELroT WALT D. CoLtsRiCHARD L. GooDE JOHN F. SEPLEYJAmES A. SEnDoN FRANKLIN FEmissTHEODORE RAssmFUR P. TAYLOR BYtANEDITORP. F. PLUMMERBUSINESS MANAGERWESLEY A. LUEDERSASSOCIATE EDITORSJ. H. ZUMBALEN E. B, CONANTNOTESJAMES C. FLYNN VS. LITTLE FALLS ELECTRIC &WATER CO."The very contract, which the Minnesota Supreme Court, in thecase of James F1ynn vs. Little Falls Electric & Water Co. declaredvoid, was adjudged in an independent action in the Federal Court in thecase of Little Falls Electric & Water Co. vs. City of Little alls, 2 tobe valid and binding upon the city of Little Falls. What is more, inspite of the maze of inconsistent reasoning found in the Flynn case, adiligent search among later cases in this state shows that there is agreat reluctance to overrule the Minnesota Supreme Court's decision.In Reed vs. City of Anoka," there is a poor attempt to distinguish the1. 74 Minn., 180.2. 102 Fed. (C. C.), 663.3. 85 Minn., 294.Washington University Open ScholarshipNOTESearlier case, when in fact, a polite overruling is evident. In addition,since the decision in Flynn vs. Little Falls Electric & Water Co., theFederal Courts have religiously declared valid, in independent pro-ceedings concerning the impairment of contract rights, what the Min-nesota State Courts, following the Flynn case, have declared void. Itis evident, therefore, that Flynn vs. Little Falls Electric & Water Co.stands as Minnesota law on the question of the TIME ELEMENT INMUNICIPAL CONTRACTS. This case, which cannot stand assatisfactory reasoning from a legal standpoint, is the subject of thisnote.The facts which are essential for a consideration of the case arethese:In January, 1889, the city council of Little Falls passed an ordi-nance which granted to certain persons, their successors, or assigns,FOR THIRTY YEARS, the privilege of laying water pipes andmains in the streets of the city on the following, among other, termsand conditions: The grantees were to maintain the mains and water-works ready for fire protection and operate the waterworks, after theircompletion, for a full term of thirty years. For the use of fire hydrants,which were 55 in number, the city was to pay $80 per year for a fullterm of thirty years. The grantees assigned all their rights under theordinance to the defendants, the Little Falls Electric & Water Co. Theordinance was accepted by the grantees and the waterworks were con-structed and put in operation, and presumably, in absence of any alle-gation to the contrary, the water company has complied with all theterms and conditions of the ordinance.The plaintiff, a resident and taxpayer of the city, brings thisaction, in behalf of himself and all other taxpayers, to enjoin the cityand its officers from carrying out the provisions of the ordinance bypaying the Water Company $80 per year for each of the 55 hydrants,on the grounds that the needs of the city are not, and will not foryears, require a greater number of hydrants than 35; that $80 peryear per hydrant is unreasonable and exorbitant, and at least $40 perhydrant per year higher than the reasonable value thereof; and thatthe ordinance, at least in so far as it assumes to pay this price for allthese hydrants FOR THIRTY YEARS IS VOID, because it is notwithin the scope of the power or authority of the city.To this complaint, the Water Co. interposed a demurrer on theground that the complaint did not state a cause of action.4It is well settled that contracts by the authorities of a city, .for4. Facts as in 74 Minn., 180.https://openscholarship.wustl.edu/law_lawreview/vol5/iss2/4ST. LOUIS LAW REVIEWwater to be furnished the city, and its inhabitants, are not made in theexercise of governmental powers, but of its proprietary or businessinterests, and are governed by the rules applicable to contracts made byindividuals or business corporations. Such contracts, WHEN FAIR-LY MADE, WITHOUT FRAUD, OR BAD FAITH ON THEPART OF THE CITY OFFICERS, and which are NOT UNREA-SONABLE WHEN MADE, cannot be repudiated by the municipalityafter the private party has expended money in the building of theworks in reliance thereon, and so long as such party complies with itsprovisions.5 To put the proposition in a different way, a court mayrule that such a contract is void, if IN ITS INCEPTION, IT SHOW-ED FRAUD, OR WAS UNREASONABLE WHEN MADE. Thistest is the only true way to determine the validity of municipalcontracts.Yet the fact remains, that long term contracts for a water supplyhave been attacked as granting monopolies, as unreasonable, as con-tracting away legislative powers, and what not. But today authority isalmost unanimous in holding that if a contract is REASONABLE INITS INCEPTION, THE TIME ELEMENT, if not perpetual, hasno effect in invalidating the contract. The following authorities sustainlong term contracts of the same tenor and effect as those which wehave under consideration; the time ranging from ten to fifty years: Reedvs. City ; Little Falls Electric & Water Co. vs. City;7 New Orleans Wa-ter Co. vs. Rivers;8 Vicksburg Water Co. vs. City;' Boerth vs. DetroitGas Co. ;1o Ills. Say. & Trust Co. vs. Arkansas City ;11 Creston Water-works Co. vs. Creston ;12 Oconto vs. City ;13 Grant vs. City ;14 Wo.sternvs. City ;5 City vs. Memphis ;16 City vs. East St. Louis,17 and AtlanticCity vs. Atlantic. sThus it can be readily seen that when the validity of the kind ofcontract which we have under consideration is questioned, the only5. Little Falls Electric & Water Co. vs. City, 102 Fed., 663. For othercases on this topic see: Valparaiso v. Gardner, 97 Ind., 1; Ills. Tr. & SavingsCo. vs. Arkansas City, 22 C. C. A., 171; Walla Walla v. City in 177 U. S., 558.6. 85 Minn., 294.7. 102 Fed., 663.8. 115 U. S., 674.9. 185 U. S., 65.10. 152 Mich., 65.11. 22 C. C. A., 171.12. 101 Iowa, 687.13. 105 Wise., 76.14. 36 Iowa, 396.15. 31 Pa., 175.16. 5 Heisk, 495.17. 98 Ill., 415.18. 48 N. J. L., 378:Washington University Open ScholarshipNOTESlogical question is: WHAT WERE THE CONDITIONS UNDERWHICH THE COUNCIL INDUCED BUSINESS INTERESTSTO CONSTRUCT THE WORKS? If it be made to appear that, atthe time the contract was entered into, it was fair and just, AND WASPROMPTED BY THE NECESSITIES OF THE SITUATION,the TIME ELEMENT CANNOT INVALIDATE THE CON-TRACT. On the other hand, if the contract was unreasonable in itsinception, it was UNREASONABLE AB INITIO, and not because,in addition, it runs for thirty years. To come to the point, TIMEELEMENT HAS NOTHING TO DO WITH THE REASON-ABLENESS OR UNREASONABLENESS OF THE LONG TERMCONTRACT.With these fundamental concepts, concerning MUNICIPAL CON-TRACTS, in mind, it is well to consider the case at hand: Had thecourt in the case of Flynn vs. Little Falls Electric & Water Co. ruledthat the contract in its inception was void (as the demurrer in this caseevidenced) because it was unreasonable when made, there would beno quarrel with the decision. But the court, to use its express words,says "that the vice, in this contract, consists mainly, if not entirely, inthe length of time for which it bound the city to pay annually this sumof $4400 for fire hydrants. The hydrants, the price to be paid per hy-drant, and the other provisions of the ordinance are chiefly importantin so far as THEY BEAR UPON THE QUFSTION OF THEPOWER OF THE COUNCIL TO BIND THE CITY FOR SOLONG A PERIOD OF TIME!' In other words, the court plainlystates that the time element invalidated the contract.Still, even though this ruling is out of line with the weight ofauthority, this decision would be looked upon as the minority viewhad the court used consistent argumentation. An examination of thesuccessive steps of the opinion shows that the reasoning therein doesnot justify the conclusions obtained. In the beginning of the courtsopinion we find this statement:"Inasmuch as it might be impossible to induce any individual orcorporation to expend the necessary capital to construct waterworks ina small city without the assurance of patronage by the municipalityitself FOR A DEFINITE AMOUNT OF TIME, we have no doubtof the power of the city council to make a TIME CONTRACT withthe company for supplying water to the city for fire protection, pro-vided the time is reasonable. AND AS A SOMEWHAT LIBERALCONTRACT in this regard might be necessary to induce men to putin waterworks at all, we would not be inclined to give any controllinghttps://openscholarship.wustl.edu/law_lawreview/vol5/iss2/4ST. LOUIS LAW REVIEWweight to the mere fact that the number of hydrants contracted for wasbeyond the present needs of the city, or that the price agreed to bepaid was somewhat greater than the value of the use of the hydrants,CONSIDERED ALONE."Thus, the court considers the reasonableness of the contractWHEN IT WAS MADE. In a word, it affirms the policy that thecity council, in inducing men to construct costly waterworks, has thepower to CONTRACT WITH A COMPANY FOR A PERIOD OFYEARS."But the power of the municipal authorities," says the court inits next step in the argument, "to contract in relation to a given matterdoes not carry with it the power to make a contract which shall cedeaway, control, or embarrass the legislative or governmental powers.They have not unlimited and arbitrary discretion to make any kindof contract theysee fit. If so, the council might make a contract run-ning for 100, or even 500 years as well as 30 years. The provisions ofthis ordinance, providing that the city should pay this price for thisnumber of hydrants for 30 years is AS TO TIME, unreasonable andvoid, as being beyond the scope of authority of municipal authorities."In view of the previous statements that the validity of the con-tract depends upon the situation when the contract was made, andupon the necessity of inducing men to erect costly works, by promisesof LONG TERM CONTRACTS, how can the court CONSISTENT-LY CONCLUDE THAT THE THIRTY-YEAR TIME ELEMENTinvalidates the contract? Why hasn't the council the right to contractfor 100 years as well as 30 years, if that council follows out the veryformula set forth by the court in its opinion, and, after exercising itssound discretion, it has been forced to contract for a long term of yearsbecause men could not be induced to construct expensive waterworksfor a shorter period of time? The explanation is dearly this: Thecourt has lost sight of the distinction between the governmental andbusiness powers of the city. The rule that the members of the legisla-tive body of the city may not so act or contract as to deprive their suc-cessors of the unimpaired exercise of legislative or governmentalpowers does not apply in this case; for the power to contract forwaterworks, as WE HAVE POINTED OUT IN A CONSIDERA-TION OF THE CONCEPTS OF MUNICIPAL CONTRACTS, isa proprietary or business power. Accordingly, the city is governed bythe same rules as a private corporation or individual, and may contractfor terms longer than the duration of the terms of office. In fact, thisobjection, that the contract shows an attempt to barter away the legis-Washington University Open ScholarshipNOTESlative powers of the city authorities has been considered in Little FallsE. & W. Co. vs. City, supra, wherein the very contract which we haveunder consideration was before the court, and was held to be untenable.The next paragraph of the court's opinion is unusual: "Ofcourse the council remains at liberty to contract for such a supply withthe same company. If in the honest exercise of their legislative discre-tion, the city council concludes that the city requires 55 hydrants forfire protection, and that $80 per hydrant is a reasonable price, theyWOULD HAVE THE RIGHT TO ENTER INTO A CONTRACTON THESE TERMS WITH THE WATER COMPANY, to run areasonable length of time. * * * * Of course, it is not the purpose ofthis court TO DECLARE EVERY CONTRACT FOR A THIRTYYEAR PERIOD, as a matter of law, UNREASONABLE."Thus, by reasoning in a circle, so to speak, the court has re-turned to the same point -rom which it started. Does the court losesight of the fact that the old council in 1889 exercised its sound discre-tion in the same manner as-the contemporary council is now calledupon to do? Suppose the court's advice is followed, and the con-temporary council, in honest exercise of its legislative power, entersinto a new contract for 100 years. Will such a contract be void? Theonly possible answer to our question is that sentence in the opinionwhich says that the contract must be for a REASONABLE PERIODOF TIME. But the court HAS NOT STATED WHAT A REA-SONABLE PERIOD OF TIME IS. It cannot be contended that anyperiod of time under 30 years is reasonable, for in a reargument of thecase, the court stated that it was not its purpose to declare every con-tract for thirty years, as a matter of law, unreasonable. WE ARELEFT IN DOUBT AS TO WHAT A REASONABLE PERIOD OFTIME IS.The plain fact of the matter is that the company is at the mercyof the court. It has constructed costly works, and since its capital isalready invested, it no longer has the necessary bargaining power tosecure reasonable compensation for its services. The city, on the otherhand, is not called upon again to induce capital to its borders; and socan dictate its own terms in a new contract. In commenting upon asimilar situation, the court, in Reed vs. City of Anoka, supra, lays downthis rule. "To overturn contracts heretofore made in good faith, uponwhich large investments of capital have been made, would place thosewho have invested their money at the mercy of public agitation andclamor." In fact, the whole law involved in this case is set forth inhttps://openscholarship.wustl.edu/law_lawreview/vol5/iss2/4ST. LOUIS LAW REVIEWthe cases of Walla Walla Water Co. vs. City,19 and Waterworks Co.vs. Rivers.20 The girst of these two cases is briefly this: "After a com-pany has erected its works, and has invested its capital, a court mayINQUIRE INTO THE CONTRACT WHEN IT WAS MADE, TOSEE IF FRAUD WAS PRESENT, OR IF THE CONTRACT WASUNREASONABLE WHEN MADE, but the TIME ELEMENTCANNOT BE SAID TO INVALIDATE THE CONTRACT, for thiswould be taking away a vested right, and leaving the company at themercy of a court to modify the contract whenever public sentimentcalled for such a modification.As a fitting ending to a poor opinion, the court concludes: "Thebusiness of the water company is affected with public interest and thusit would not have the right to arbitrarily shut off the water because thetime element of the ordinance is declared void."Is it not astonishing to think that the court forgets that it is an ele-mentary principle in the law of contractsthat if a contract is void as toone party, it is void as to the other. Is the company, to use the logicof the court, compelled to carry on its business at whatever price orterms the city determines? True, as long as a public service corpora-tion choses to do business under a franchise, it is affected with a publicinterest, and it must carry out its end of the agreement; but when thatfranchise is declared void, through no fault of the company, and thecompany decides to stop doing business, it is no longer charged with thatpublic inferest. THE COMPANY MAY SHUT OFF THE WATERIF THE CONTRACT IS DECLARED VOID.In conclusion, it is sufficient to repeat what has already been said:If a company's contract with a city is void at all, it is void because ITWAS FRAUDULENTLY MADE, OR WAS UNREASONABLEIN ITS INCEPTION. On the other hand, the TIME ELEMENTCANNOT BE SAID TO INVALIDATE THE CONTRACT; for itcan be seen that the term for which such a contract was made WASTHE VERY CONSIDERATION WHICH CAUSED CAPITAL TOERECT ITS COSTLY PLANT. Yet in face of the court's ownpremise, that a city, in inducing capital, may contract for a LONGTERM OF YEARS, provided it exercises its sound discretion, thecourt inconsistently concludes that the time element was unreasonable,and the contract with the company, as set forth by the ordinance, wasvoid. Without much hesitation, it can be safely concluded that this case,JAMES C. FLYNN vs. LITTLE FALLS ELECTRIC & WATERCO., can hardly stand as good logic, much less as an accepted minorityview. ERWIN E. STEINBERG.19. 172 U. S., 1.20. 115 U. S., 674.Washington University Open Scholarship

James C. Flynn vs. Little Falls Electric & Water Co

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James C. Flynn vs. Little Falls Electric & Water Co

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