Galena Water Co. v. City of Galena

The opinion of the court was delivered by Graves, J.: The plaintiff in error insists that the district court erred in the manner specified in each of the sixty-nine assignments of error, but for the sake of reaching an early decision upon the more substantial' questions involved in the controversy it waives all of these errors except the findings upon the value of the property, the time when the sale became operative, and the adjustment of the purchase-price. We have, therefore, confined our examination of the case to these questions. We think the district court erred in excluding from its estimate of the “fair and equitable” value of the water-works system the sum of $15,214.73, that being the amount found by the referee to be the value of the plant as a going concern, including the franchise. A system of water-works in a city, without the right to operate there, or without being connected with water takers, and not in a running condition, would be com — 648 — paratively worthless. The water company was the owner of these important elements of value, and it seems reasonable that they should not be taken without compensation. Section 10 of the ordinance by which the franchise was granted to the water-works company, in defining the meaning of fair and equitable value, says: “Which shall be placed at the actual value of the works, lands, buildings, machinery and equipments, including the franchise hereby granted.” The parties evidently contemplated that the value of the plant should be fixed by the same standard that would be adopted if the purchaser were an outside party, instead of the city, in which case these elements would be included without question. In the case of Brsitol v. Bristol & Warren Waterworks, 23 R. I. 274, 49 Atl. 974, the plaintiff granted a franchise to the defendant to operate a system of water-works in the city for fifty years, reserving the option to purchase the plant at any time after ten years and within fifteen years for a fair and reasonable price. The reservation as stated in the ordinance read: “And that the town may at its option purchase the said water-works and all the pipes, reservoirs, and appurtenances connected, used, or belonging therewith at any time after ten years and within fifteen years herefrom for a fair and reasonable price.” (Page 283.) In construing this language the court said: “The res to be bought by the town under this option is exactly what would be the subject of purchase by a third party who should offer to buy of the defendant the Bristol water-works. It comprises the material plant and the rights possessed by the defendant and exercised in the use of the material plant. If the sale were to be made to some third party, could it be doubted that it would include the franchise derived from the town as well as the engines, pipes, and other property purchased elsewhere ? The town has the option to buy, not to extinguish, the rights they have given, which together with other property and rights make up what the defendant owns. Everything which the defendant — 649 — can sell to another he can sell to the town. A fair and reasonable price to the town is what would be a fair and reasonable price to any one else.” (Page 283.) In the case of the National Water-works Co. v. Kansas City, 62 Fed. 853, 10 C. C. A. 653, 27 L. R. A. 827, an elaborate and exhaustive opinion was delivered by Mr. Justice Brewer, in which these questions are fully' and clearly discussed. Each of the parties in this case, and' the district court in its opinion, quotes largely from Mr. Justice Brewer’s opinion, and we adopt a part of it as expressing our view upon the matters therein discussed. It reads: “The original cost of the construction cannot control, for ‘original cost’ and ‘present value’ are not equivalent terms. Nor would the mere cost of reproducing the water-works plant be a fair test, because that does not take into account the value which flows from the established connections between the pipes and the buildings of the city. It 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 the 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. The 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 — 650 — 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 supply 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 water-works, and inducements held out therefor. The city, by this purchase, steps into possession of a water-works plant, —not merely a completed system for bringing water 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. It should pay therefor not merely the value of a system which might be made to earn, but that of a system which does.earn.” (Page 865.) We think the district court was right in adjusting the rights of the parties as of August 1, 1904. The contract of purchase became fixed when the city notified the company that it had elected to take the plant and offered to close the transaction at once. The proceeding to ascertain the value of the property was a mere formality, having nothing to do with the substance of the contract of sale. (Water Co. v. Cherryvale, 65 Kan. 219, 69 Pac. 176; Caldwell v. Frazier, 65 Kan. 24, 68 Pac. 1076; Chadsey v. Condley, 62 Kan. 853, 62 Pac. 663.) The plaintiff in error insists that this is a misapplication of the law of relation, and inequitable in this case, as it requires it to remaip in the charge and management of the business and account for the profits. The situation may be peculiar, but the city had the right under the contract to become the owner of the plant when it elected to do so. The purchase-price could not be paid until the amount thereof was determined in the manner provided by the ordinance, — 651 — and’the possession of the property could not be changed until payment was made. This situation is the direct and natural result of the contract made by the parties, and must have been contemplated by them. This application of the law of relation seems to be the only way fully to protect the rights of the parties and to carry out their agreement. The criticism of the plaintiff in error, therefore, is not well taken. The district court is directed to modify its judgment so as to fix the fair and equitable value of the property at the sum of $75,400, on August 1, 1904, and otherwise adjust the other matters on the same basis as in its former judgment, and extend the time of payment by the city a reasonable time. The costs in this court are equally divided. All the Justices concurring.