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 Front Page arrow Titles (by Subject) arrow § 128.: Monopolies and exclusive franchises in the cases of railroads, bridges, ferries, street railways, gas, water, lighting, telephone and telegraph companies.— - A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint, vol. 1

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Subject Area: Law
Topic: The American Revolution and Constitution

§ 128.: Monopolies and exclusive franchises in the cases of railroads, bridges, ferries, street railways, gas, water, lighting, telephone and telegraph companies.— - Christopher G. Tiedeman, A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint, vol. 1 [1900]

Edition used:

A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint (St. Louis: The F.H. Thomas Law Book Co., 1900). Vol. 1.

Part of: A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint, 2 vols.

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§ 128.

Monopolies and exclusive franchises in the cases of railroads, bridges, ferries, street railways, gas, water, lighting, telephone and telegraph companies.—

In order that a railroad, or bridge, may be constructed, or a gas or water plant be established, the government must grant to the parties who contemplate such construction, a franchise or privilege, which is not enjoyed by individuals in general, and which is not procurable in any other way except by express legislative grant. In the case of the railroad or bridge, the privilege or franchise is the right of eminent domain, whereby the railroad or bridge company may appropriate to its own use, upon payment of compensation, the lands of private owners, which are needed in the construction of the projected railroad or bridge. It is barely possible that the necessary land for the construction of a bridge or ferry may be procurable by a voluntary contract of sale and purchase; but this is not true of a railroad. And, in the case of the bridge or ferry, over a navigable stream, the government’s consent to this extraordinary use of the stream must still be obtained. Therefore, as long as the question is confined to the case of such exceptional franchises, as railroads, bridges, ferries, and the like, it seems as if the constitutional right of the government has never been seriously questioned, since it was settled by the early adjudications that the legislature could grant to persons or to private corporations the privilege of exercising the right of eminent domain, in the pursuit of some public good.1 The natural rights of no private individual to carry on a lawful business have been thereby violated. It is, therefore, clearly within the power of the legislature to determine how many shall receive this unusual privilege or franchise, and on what terms and under what conditions they shall be permitted to exercise it. Nor has the power of the legislature, to grant to one individual or corporation an exclusive privilege or franchise of this kind, been seriously questioned, except in recent years. In every case, however, but one, which has come to my notice, the power of the legislature to create an exclusive monopoly of that kind has been confirmed. It has thus been held to be lawful to grant exclusive ferry privileges.2

It has also been held to be a lawful monopoly, which was granted to a bridge company by a city, by a contract, wherein the city permits the erection of one end of the bridge in a street of the city, and agrees to suspend the use of its ferry franchise for twenty-five years.1 It was also held to be lawful, and not in contravention of the Fourteenth Amendment of the United States Constitution, for a State legislature to grant to a private corporation an exclusive franchise over a stream, which is wholly within the State, and the right to exact toll of every one for the use of the stream, in consideration of the undertaking of the corporation to improve the navigableness of the stream.2 So, likewise, has it been held to be within the power of the legislature, without the consent of the city, and without the payment of any compensation to the city, to grant to a railroad company, for its own use, that part of the bank or shore of a river, which is known as the “Public Levee,” and which is located within the city.3 In Minnesota, the grant to any person, having boats upon the river, of the exclusive use of so much of a public levee as was necessary for its business, was sustained; provided the exercise of this exclusive privilege to a part or parts of the levee did not unreasonably interfere with the use of the levee by the public in general.4

In New Jersey, an act of the legislature provided that any citizen of the State, occupying since January 1, 1880, for planting and cultivating oysters, any lands under the tide waters of the State, which are not natural clam or oyster beds, shall thereafter have an exclusive title to such lands for such purposes, and to the oysters planted and grown thereon. This act was held to be unconstitutional, because it was a grant of an exclusive privilege by a special or local law, in violation of the constitution of the State.1

It has, of course, been the settled law, since the decision of the Supreme Court of the United States in the case of the Charles River Bridge v. Warren River Bridge,2 that no grant of a franchise is exclusive, unless it is made so by an express declaration of the legislature.3

The power of the legislature to grant an exclusive monopoly in the case of railroads, bridges, ferries, and the like, seems still to be well-settled. But when the same principle is applied to the more common and numerous franchises, as, for example, a more or less extraordinary use of the streets of a city, the cases do not always support the distinctions that have been made. Thus it has been held to be reasonable to grant to one or more the exclusive right to remove the carcasses of animals and other offal and garbage of a city.4 But the Supreme Court of Kansas opposes this conclusion, and holds that a board of health or city government, in granting to one or more persons the exclusive privilege of removing the garbage of a city from private premises, as well as from public places, created an illegal monopoly.1 Certainly the removal of the garbage, offal and other refuse of a city, is not a business which can be safely left to unrestricted private enterprise. The public health and comfort imperatively demand that it should be done with care, and by persons who would come under the rigid control of the health officers. This case from Kansas can be justified only on the ground, that the business should be done by the city government itself, instead of being farmed out to private corporations or individuals.

It has been held in some States, although a different conclusion is reached in other States, that the exclusive grant to a company of the right to furnish the city with gas, was unlawful and void, as being a monopoly: “As, then, no consideration whatever, either of a public or private character, was reserved for the grant; and as the business of manufacturing and selling gas is an ordinary business, like the manufacturing of leather, or any other article of trade in respect to which the government has no exclusive prerogative, we think that so far as the restriction of other persons than the plaintiffs from using the streets for the purpose of distributing gas by means of pipes, can fairly be viewed as intended to operate as a restriction upon its free manufacture and sale, it comes directly within the definition and description of a monopoly; and although we have no direct constitutional provision against a monopoly, yet the whole theory of a free government is opposed to such grants, and it does not require even the aid which may be derived from the Bill of Rights, the first section of which declares ‘that no man or set of men are entitled to exclusive public emoluments’ to render them void.”2 Certainly it is a franchise to make excavations for the laying of pipes for the distribution of the gas, very different from “the manufacture of leather;” and being a franchise, the enjoyment of it may be made an exclusive privilege. The public interests may also be protected against the indiscriminate allowance of excavations of the streets for the purpose of laying down the conducting pipes; and so it has been held by the majority of the modern cases, that an exclusive franchise to supply illuminating gas to a city may be lawfully granted to one corporation.1 The same conclusion has been reached as to the power of the government to grant an exclusive franchise for the supply of a city with electric light,2 and for the construction and maintenance of street railways along certain streets, and within certain areas.3

It has also been held that, even if monopolies in general are prohibited, it is nevertheless competent to grant the exclusive right to a company to supply a city with water for a term of years.4 In Iowa, in a case involving much doubt, it was declared to be unreasonable to grant to one person the exclusive right to run omnibuses in the city.1

In most of the cases, in which an extraordinary use of the streets and highways is granted as a privilege or franchise, to the gas, water, electric, telegraph, telephone and street railway companies, the grant is not of an exclusive franchise (it is more common in the case of street railways); and the power of the legislature to grant a parallel franchise of the same kind to a competitor, has not been taken away by the prior grant of the privilege, as long as the privilege was not by express terms made an exclusive one. Thus a legislative grant in general terms to supply water to a city, does not give an exclusive franchise.2 Nor is an exclusive franchise to be inferred from an agreement of the city to do nothing to interfere with the exclusive character of the franchise of a gas company, where the power to make it exclusive is lodged in the legislature of the State, and not in the city government.3 In such cases, there is no violation of any franchise right, if a competing franchise is granted to another company. But where an exclusive franchise is granted to a corporation—to supply a city with water, to furnish gas or electric light, or to construct a street railway along a certain route,—only by the exercise of the power of eminent domain, and upon the payment of proper compensation, may that exclusive franchise be taken away by the grant to another corporation of a competing franchise.1

But where a private corporation has acquired by legislative grant an exclusive franchise to supply a city with light, water, transportation facilities, and the like; the duty of the corporation, towards the public, to satisfy the public needs, is much stronger than it is where the franchise is not exclusive. Not only is the exclusive franchise liable to forfeiture for failure of the company to reasonably perform its duty to the public; but where the public health is endangered, as in the case of the supply of impure water, the exclusive character of the franchise may be ignored, and a franchise be granted to a rival company. This is held to be only a reasonable exercise of the police power in the preservation of the public health. It would be a monstrous doctrine that, because an exclusive franchise has been granted to a water company, the government would be powerless to protect a city from the diseases which impure water engenders.2 Still the exclusive character of the franchise will be protected from infringement, even when a rival company proposes to furnish better and purer water, as long as the legislature or city government does not exercise the police power to condemn the existing water supply. Thus the constitution of Louisiana of 1879, abrogated the monopolistic features of all existing corporations. This constitutional action was clearly in violation of the United States constitution, which prohibits States from passing any law impairing the obligation of a contract. And the Supreme Court of the United States held that this clause of the Louisiana constitution did not authorize a rival water company to furnish water to the people of New Orleans, merely on the ground that they could furnish a better and a purer water, as long as the legislature or the city government had not, in the exercise of the police power, condemned the water which was supplied by the company which had procured an exclusive franchise from the State legislature.1

The grant to a private corporation of a franchise, to supply water or light to a city, does not always operate as an exclusive franchise, so as to preclude the exercise by the city of its authority to establish its own plant in opposition to the private company. Thus, in Minnesota, a private water company was given the right to supply the city of Duluth with water; and in the grant of the franchise it was stipulated that the city shall have the right to purchase the water plant. The city, however, chose to establish its own water plant, instead of buying out the water company. It was held that the water company had not such an exclusive franchise as would force the city to purchase the company’s plant, or forego municipal ownership of its water supply.2 And in West Virginia it was held that an exclusive franchise to light the city streets with gas, did not preclude the abandonment of gas light and the adoption of electric light in its stead; and that such municipal action was not a violation of any franchise rights of the gas company.1 And so, likewise, in Indiana, it has been held that no monopoly of supplying the city with gas on its streets was created, by a stipulation in the charter of the gas company, that it shall erect and maintain a certain number of lamps on certain streets, and increase them when the city government directs it, and that the city shall pay for sufficient gas to keep the lamps lighted. Notwithstanding this contract, it was held that the city could patronize other gas companies, and was not obliged to procure all the gas it needed from the one company, with whom this contract was made.2

In a recent case, the Federal Circuit Court held that an exclusive franchise may be granted by implication, and was granted upon these facts. A State statute granted a city power to construct its own waterworks or to contract with private parties for supplying the city with water. The city government chose the latter plan, and granted a water franchise to a private corporation. When the water plant of the company was completed and the company was about to supply the city with water, an ordinance was passed by the city council, ratified by a vote of the people, which provided for the construction of waterworks by the city government. The court held this subsequent action of the city to be in impairment of the previous contract with the private company, in violation of the constitution of the United States.3 It does not seem possible to reconcile this case with the current of authority, both State and Federal, except so far as it holds the city liable on any contract which it had made to take water from the private company during the stated period. For the uniform ruling of the courts has been that a franchise is never exclusive, except so far as it has been expressly declared to be so.

But, apart from this question of construction, whether a particular franchise is exclusive, the equally important but more fundamental question has been raised by some recent decisions, whether an exclusive franchise can be granted without exceeding the power of the legislature. Until recently, the right of the government to grant an exclusive public franchise for water, light, or railway, has been fully conceded, as a logical deduction from the power to grant to a few persons in the promotion of the public welfare any privilege or franchise which cannot be left open to general competition. But in several of the State constitutions, there is an express prohibition of the grant of exclusive or monopolistic franchises. The clause in the North Carolina constitution is as follows: “Perpetuities and monopolies are contrary to the genius of a free State, and ought not to be allowed.” A similar, if not identical, clause is to be found in the constitutions of Alabama and Texas. The Alabama and North Carolina courts have declared that this clause of the State constitutions prohibits the legislatures from granting any exclusive franchise whatever.1 And the United States Circuit avoids the settlement of the direct question, whether a similar clause in the Texas constitution prohibits the grant of an exclusive franchise to a water company, by holding, and justly, too, that the statute in question did not grant an exclusive franchise. But the court took occasion to add, by way of obiter dictum, that in its opinion, the constitutional clause in question did not inhibit an express grant by the legislature of an exclusive franchise, where the public interests are promoted by giving to the grant of a franchise the character of exclusiveness.2

[1]See post, § 141, on the Right of Eminent Domain.

[2]Patterson v. Wallmann, 5 N. D. 608; Nixon v. Reid, 8 S. D. 507. In the latter case, however, the exclusive franchise was sustained, on the ground that it had been granted before the adoption of the constitution, which prohibits the grant of special privileges, and that the grant had been acquiesced in by Congress.

[1]City of Laredo v. International Bridge and Tramway Co., 66 F. 246; 14 C. C. A. 1.

[2]Sands v. Manistee River Improvement Co., 123 U. S. 288; Ruggles v. Manistee River Improvement Co., 123 U. S. 297.

[3]Portland & Willamette Val. Ry. Co. v. City of Portland, 14 Oreg. 188.

[4]City of St. Paul v. Chicago, M. & St. P. Ry. Co., 63 Minn. 330. In New Orleans, similar grants of exclusive right to certain wharves, were made to a certain railroad, subject, however, to the right of the city to charge the customary wharfage dues to vessels, which occupied these wharves with the consent of the railroad company, but not in the promotion of the business of the railroad. When, afterwards, the city farmed out its revenues from certain wharves, including the railroad wharves, to the Louisiana Construction and Improvement Company, the right to collect these wharfage dues from such vessels passed to the assignee company. The Clearwater, 75 F. 309 (C. C. A.); New Orleans B., R. M. & C. A. S. S. Co. v. Louisiana Construction & Imp. Co., Id.

[1]State v. Post, 55 N. J. L. 264.

[2]11 Pet. 420.

[3]See the recent cases, Wheeling Bridge Co. v. Wheeling & Belmont Bridge Co., 34 W. Va. 155; Wheeling & Belmont Bridge Co. v. Wheeling Bridge Co., 138 U. S. 287.

[4]Vandine, Petitioner, 9 Pick. 187 (7 Am. Dec. 351); River Rendering Co. v. Behr, 7 Mo. App. 345; State v. Orr, 68 Conn. 101; City of Grand Rapids v. De Vries (Mich. 1900), 82 N. W. 269.

[1]In re Lowe, 54 Kans. 757. See, also, to the same effect, Kussel v. City of Erie, 8 Pa. Dist. Rep. 105.

[2]Norwich Gaslight Co. v. Norwich City Gas Co., 25 Conn. 19; State v. Cincinnati, etc., Gas Co., 18 Ohio St. 292; Parkersburg Gas Co. v. Parkersburg, 30 W. Va. 435.

[1]People’s Gaslight Co. v. Jersey City, 40 N. J. L. 297; New Orleans Gas Co. v. Louisiana Light Co., 115 U. S. 650; Louisville Gas Co. v. Citizens’ Gas Co., 115 U. S. 683; reversing s. c. 81 Ky. 263; Indianapolis v. Indianapolis Gas Co., 66 Ind. 396; Newport v. Newport Light Co., 84 Ky. 167; State v. Milwaukee Gaslight Co., 29 Wis. 454.

[2]Grand Rapids Electric, etc., Co. v. Grand Rapids Edison, etc., Co., 33 Fed. 659.

[3]Citizens’ Street Railway Co. v. Jones, 34 Fed. 579; Davies v. New York, 14 N. Y. 506; In re N. Y. Elevated R. R. Co., 70 N. Y. 327; In re Gilbert Elevated R. R. Co., 70 N. Y. 361; Newell v. Minn., etc., Ry. Co., 35 Minn. 112; Des Moines Street Railway Co. v. Des Moines B. G. Street Railway Co., 73 Iowa, 513; Birmingham & P. M. Street Ry. Co. v. Birmingham Street Ry. Co., 79 Ala. 465; Fort Worth Street Ry. Co. v. Rosedale Street Ry. Co., 68 Tex. 169.

[4]Memphis v. Water Co., 5 Heisk. 492. But see contra, City of Brenham v. Brenham Water Co., 67 Tex. 143; Altgelt v. City of San Antonio, 81 Tex. 436; Edwards County v. Jennings (Tex.), 35 S. W. 1053; and in further support of the text, New Orleans Water Works Co. v. Rivers, 115 U. S. 674; St. Tammany Water Works Co. v. New Orleans Water Works Co., 120 U. S. 64; Stein v. Bienville Water Supply Co., 34 F. 145; Westerly Water Works v. Town of Westerly, 75 Fed. 181; Seamen’s Friend Society v. City of Westerly, 75 Fed. 181; In re City of Brooklyn, 143 N. Y. 506; Long Island Water Supply Co. v. City of Brooklyn, 166 U. S. 685; Rockland Water Co. v. Camden and R. Water Co., 80 Me. 544; Atlantic City Water Works v. Atlantic City, 39 N. J. Eq. 367. But see, post, page 570, as to the power of the legislature to provide in such a case for a municipal water works plant.

[1]Logan v. Payne, 43 Iowa, 524 (22 Am. Rep. 261).

[2]In re City of Brooklyn, 143 N. Y. 596; In re Long Island Water Supply Co., 143 N. Y. 596; Rockland Water Co. v. Camden & R. Water Co., 80 Me. 544; Bartholomew v. City of Austin, 85 Fed. 359; 29 C. C. A. 568.

[3]Bailey v. City of Philadelphia, 39 A. 494; 41 W. N. C. 529.

[1]Charles River Bridge v. Warren River Bridge, 11 Pet. 420; West River Bridge v. Dix, 6 How. 507; Lewis v. City of Newton, 75 Fed. 884; In re Rochester Water Commissioners, 66 N. Y. 413; Central Bridge Co. v. Lowell, 4 Gray, 474; Central City Horse Ry. v. Fort Clark, etc., Ry. Co., 87 Ill. 523; Lake Shore, etc., R. R. Co. v. Chicago, etc., R. R. Co., 97 Ill. 506; N. C. R. R. Co. v. Carolina Central R. R. Co., 83 N. C. 489; In re Towanda, 91 Pa. St. 216. The cases, in support of this rule of the law of eminent domain are numerous; I have only cited a few.

[2]Stein v. Bienville Water Supply Co., 34 Fed. 145; s. c. 141 U. S. 67; National Water Works v. Kansas City, 28 Fed. 921. In the case of Stein v. Bienville Water Supply Co., the exclusive franchise was not to supply the city with water generally, but to supply it from a particular creek. And it was held to be no infringement of the exclusive franchise to grant to another corporation the power to use the streets of the city to supply the city with water drawn from another source.

[1]St. Tammany Water Works Co. v. New Orleans Water Works Co., 120 U. S. 64.

[2]Long v. City of Duluth, 49 Minn. 280.

[1]Parkersburg Gas Co. v. Parkersburg, 30 W. Va. 435.

[2]City of Vincennes v. Citizens’ Gaslight Co., 132 Ind. 114.

[3]Westerly Waterworks Co. v. Town of Westerly, 75 Fed. 181; Seamen’s Friend Society v. City of Westerly, 75 Fed. 181.

[1]Thrift v. Elizabeth City, 122 N. C. 31 (water company franchise); Birmingham & P. M. Street Ry. Co. v. Birmingham Street Ry. Co., 79 Ala. 465.

[2]Bartholomew v. City of Austin, 85 Fed. 359; 29 C. C. A. 568.