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CITY HOUSTON v. SOUTHWESTERN BELL TELEPHONE COMPANY. SOUTHWESTERN BELL TELEPHONE COMPANY V. CITY HOUSTON.

decided: May 29, 1922.

CITY OF HOUSTON
v.
SOUTHWESTERN BELL TELEPHONE COMPANY.

SOUTHWESTERN BELL TELEPHONE COMPANY
v.
CITY OF HOUSTON.



APPEALS FROM THE DISTRICT COURT OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF TEXAS.

Author: Clarke

[ 259 U.S. Page 319]

MR. JUSTICE CLARKE delivered the opinion of the court.

 These are cross appeals in a suit to restrain the enforcement of an ordinance enacted by the City of Houston, Texas (hereinafter referred to as the City), prescribing rates for telephone service, based unon the claim that the rates are confiscatory.

The master to whom the case was referred found that the rates were clearly confiscatory and the District Court, while modifying his findings in some respects, confirmed his report and in its decree enjoined the enforcement of the ordinance. A federal constitutional question being involved a direct appeal brings the case to this court for review.

The Constitution of Texas, adopted in 1876, ยง 17, Article I, provides:

"No irrevocable or uncontrollable grant of special privileges or immunities shall be made; but all privileges and franchises granted by the legislature, or created under its authority, shall be subject to the control thereof."

It has been definitely decided that, while municipal corporations in Texas, as agencies of the State, may have the power to prescribe rates for public service corporations, this provision of the constitution prohibits their making contracts for the future which may not be modified at any time by appropriate action of the municipality.

[ 259 U.S. Page 320]

     San Antonio Traction Co. v. Altgelt, 200 U.S. 304; San Antonio v. San Antonio Public Service Co., 255 U.S. 547, and Southern Iowa Electric Co. v. Chariton, 255 U.S. 539.

The ordinance here involved was passed in 1909 and therefore this state of the law would remove all question of contract from the case, if it were not that in 1915 the appellee in No. 219, the Southwestern Bell Telephone Company (hereinafter referred to as the Company), by purchase and merger acquired all of the property of a local corporation, the "Houston Home Telephone Company," and duly accepted an ordinance by which the City approved the merger. This ordinance contained the provision that the Company "agrees that it will not increase rates as at present charged by it for service in the City of Houston, unless it appears upon a satisfactory showing . . . that there exists a necessity for an increase of charges, in order that the said company may earn a fair return upon its capital actually invested in the Houston plant."

It is now contended by the City that the acceptance of this ordinance estops the Company from asserting that the value of its plant, as of the date of the inquiry, and not the cost of it -- the" capital actually invested", -- shall be the basis for rate-making, but the Company contends that the quoted provision of the state constitution rendered the City incapable of contracting by such an ordinance and that therefore it is void and not binding on either party.

The master, treating the merger ordinance as void, determined the value of the property, used and useful in the operations of the Company, on the basis of its value at the time of the taking of the testimony in 1919, to be $6,000,000; that the Company's total revenues for 1919, computed on the ordinance rates, ...


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